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U.S. seeks Tesla driver-assist documents; company hikes capex forecast

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WASHINGTON, Jan 31 (Reuters) – Tesla Inc (TSLA.O) disclosed on Tuesday the U.S. Justice Department has sought documents related to its Full Self-Driving (FSD) and Autopilot driver-assistance systems as regulatory scrutiny intensifies.

The automaker said in a filing it “has received requests from the DOJ for documents related to Tesla’s Autopilot and FSD features.”

Reuters reported in October Tesla is under criminal investigation over claims that the company’s electric vehicles could drive themselves. Reuters said the U.S. Justice Department launched the probe in 2021 following more than a dozen crashes, some of them fatal, involving Autopilot.

Tesla did not respond to a request for comment.

Chief Executive Officer Elon Musk has championed the systems as innovations that will both improve road safety and position the company as a technology leader.

Regulators are examining if Autopilot’s design and claims about its capabilities provide users a false sense of security, leading to complacency behind the wheel with possibly fatal results.

Acting National Highway Traffic Safety Administration (NHTSA) chief Ann Carlson said this month the agency is “working really fast” on the Tesla Autopilot investigation it opened in August 2021 that she termed “very extensive.” In June, NHTSA upgraded to an engineering analysis its defect probe into 830,000 Tesla vehicles with Autopilot, a step that was necessary before the agency could demand a recall.

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Autopilot is designed to assist with steering, braking, speed and lane changes. The function currently requires active driver supervision and does not make the vehicle autonomous. Tesla separately sells the $15,000 full self-driving (FSD) software as an add-on that enables its vehicles to change lanes and park autonomously.

The automaker’s shares rose 2% in early trading.

The Wall Street Journal reported in October that the Securities and Exchange Commission is conducting a civil investigation into Tesla’s Autopilot statements, citing sources.

Tesla also forecast Tuesday capital expenditure between $7 billion and $9 billion in 2024 and 2025. The midpoint of that expectation is $1 billion higher than the $6.00 billion to $8.00 billion range provided for this year.

Reuters Graphics

Some of the spending will go toward a $3.6 billion expansion of its Nevada Gigafactory complex, where Tesla will mass produce its long-delayed Semi truck and build a plant for the 4680 cell that would be able to make enough batteries for 2 million light-duty vehicles annually.

Tesla said it recorded an impairment loss of $204 million on the bitcoin it holds, while booking a gain of $64 million from converting the token into fiat currency.

Cryptocurrencies such as bitcoin were hammered last year as rising interest rates and the collapse of major industry players such as crypto exchange FTX shook investor confidence.

Reporting by Akash Sriram in Bengaluru and David Shepardson; Editing by Sriraj Kalluvila and Bernadette Baum

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German economy unexpectedly shrinks in Q4, reviving spectre of recession

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  • Q4 GDP at -0.2% Q/Q vs forecast of 0.0%
  • Decline due mainly to falling private consumption
  • Economists reckon mild recession is likely

BERLIN, Jan 30 (Reuters) – The German economy unexpectedly shrank in the fourth quarter, data showed on Monday, a sign that Europe’s largest economy may be entering a much-predicted recession, though likely a shallower one than originally feared.

Gross domestic product decreased 0.2% quarter on quarter in adjusted terms, the federal statistics office said. A Reuters poll of analysts had forecast the economy would stagnate.

In the previous quarter, the German economy grew by an upwardly revised 0.5% versus the previous three months.

A recession – commonly defined as two successive quarters of contraction – has become more likely, as many experts predict the economy will shrink in the first quarter of 2023 as well.

“The winter months are turning out to be difficult – although not quite as difficult as originally expected,” said VP Bank chief economist Thomas Gitzel.

“The severe crash of the German economy remains absent, but a slight recession is still on the cards.”

German Economy Minister Robert Habeck said last week in the government’s annual economic report that the economic crisis triggered by the Russian invasion of Ukraine was now manageable, though high energy prices and interest rate rises mean the government remains cautious.

The government has said the economic situation should improve from spring onwards, and last week revised up its GDP forecast for 2023 — predicting growth of 0.2%, up from an autumn forecast of a 0.4% decline.

As far as the European Central Bank goes, interest rate expectations are unlikely to be affected by Monday’s GDP figures as inflationary pressures remain high, said Helaba bank economist Ralf Umlauf.

The ECB has all but committed to raising its key rate by half a percentage point this week to 2.5% to curb inflation.

Monday’s figures showed falling private consumption was the primary reason for the decrease in fourth-quarter GDP.

“Consumers are not immune to an erosion of their purchasing power due to record high inflation,” said Commerzbank chief economist Joerg Kraemer.

Inflation, driven mainly by high energy prices, eased for a second month in a row in December, with EU-harmonized consumer prices rising 9.6% on the year.

However, analysts polled by Reuters predict annual EU-harmonized inflation will enter the double digits again in January with a slight rise, to 10.0%. The office will publish the preliminary inflation rate for January on Tuesday.

Reporting by Miranda Murray and Rene Wagner, editing by Rachel More and Christina Fincher

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Shares and bonds nervy as rate-hike week looms

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  • Fed seen hiking 25 bps, ECB and BOE by 50 bps
  • Technology giants lead host of earnings results
  • Shares edge down after robust January rally

LONDON, Jan 30 (Reuters) – Stock markets worldwide halted their January rally on Monday, pausing for breath at the start of an agenda-setting week of central bank rate hikes and data releases that will clarify if progress has been made in the battle against inflation.

Investors expect the Federal Reserve will raise rates by 25 basis points on Wednesday, followed the day after by half-point hikes from the Bank of England and European Central Bank, and any deviation from that script would be a real shock.

Europe’s benchmark STOXX index fell 0.8% on Monday morning, echoing a slight dip in MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), which has surged 11% in January so far as China’s reopening bolsters sentiment.

The U.S. Nasdaq index is likewise on course for its best January since 2001, a rally that will be tested by earnings updates from tech giants this week.

U.S. stocks were set to follow the nervous Monday mood with S&P 500 futures down 1% and Nasdaq futures falling 1.3%, as investors await guidance later in the week on the Federal Reserve’s policy.

Analysts expect a hawkish tone suggesting that more needs to be done to tame inflation. read more

“With U.S. labour markets still tight, core inflation elevated and financial conditions easing, Fed Chair Powell’s tone will be hawkish, stressing that a downshifting to a 25bp hike doesn’t mean a pause is coming,” said Bruce Kasman, chief economist at JPMorgan, who expects another rise in March.

“We also look for him to continue to push back against market pricing of rate cuts later this year.”

There is a lot of pushing to do given futures currently expect rates to peak at 5% in March and to fall back to 4.5% by year end.

Europe offered a brisk reminder that the fight against rising prices is far from over, as bond yields in the region rose sharply on Monday in the wake of stronger-than-expected Spanish inflation data.

The data showing inflation rose 5.8% year-on-year in January, against expectations of 4.7%, pushed up the zone’s benchmark German 10-year government bond yield 7 basis points (bps) to 2.3190%, its highest since Jan. 10.

Italian and Spanish yields also inched up.

The dollar index was flat ahead of the week’s key data, on course for a fourth straight monthly loss of more than 1.5% on growing expectations that the Fed is nearing the end of its rate-hike cycle.

APPLE’S CORE

Yields on 10-year notes have fallen 33 basis points so far this month to 3.50%, essentially due to easing financial conditions even as the Fed talks tough on tightening.

That dovish outlook will also be tested by data on U.S. payrolls, the employment cost index and various ISM surveys.

Reading on EU inflation could be important for whether the ECB signals a half-point rate rise for March, or opens the door to a slowdown in the pace of tightening. read more

As for Wall Street’s recent rally, much will depend on earnings from Apple Inc (AAPL.O), Amazon.com (AMZN.O), Alphabet Inc (GOOGL.O) and Meta Platforms (META.O), among many others.

“Apple will give a glimpse into the overall demand story for consumers globally and a snapshot of the China supply chain issues starting to slowly abate,” wrote analysts at Wedbush.

“Based on our recent Asia supply chain checks we believe iPhone 14 Pro demand is holding up firmer than expected,” they added. “Apple will likely cut some costs around the edges, but we do not expect mass layoffs.”

Market pricing of early Fed easing has been a burden for the dollar, which has lost 1.6% so far this month to stand at 101.85 against a basket of major currencies.

The euro is up 1.5% for January at $1.0878 and just off a nine-month top. The dollar has even lost 1.3% on the yen to 129.27 despite the Bank of Japan’s dogged defence of its ultra-easy policies.

The drop in the dollar and yields has been a boon for gold, which is up 5.8% for the month so far at $1,930 an ounce .

The precious metal was flat on Monday ahead of the slew of key central bank moves and data releases.

China’s rapid reopening is seen as a windfall for commodities in general, supporting everything from copper to iron ore to oil prices.

Oil steadied on Monday after earlier losses, with prices bolstered by rising Middle East tension over a drone attack in Iran and hopes of higher Chinese demand.

Brent crude rose 10 cents, or 0.12%, to $86.76 a barrel by 1200 GMT while U.S. West Texas Intermediate crude added 4 cents, or 0.05%, to $79.72.

Reporting Lawrence White and Wayne Cole; Editing by Christopher Cushing, Arun Koyyur and Christina Fincher

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Strong U.S. economic growth expected in fourth quarter, outlook darkening

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  • Fourth-quarter GDP forecast to increase at a 2.6% rate
  • Strong consumer spending seen; other sectors to contribute
  • Weekly jobless claims expected to rise moderately

WASHINGTON, Jan 26 (Reuters) – The U.S. economy likely maintained a strong pace of growth in the fourth quarter as consumers boosted spending on goods, but momentum appears to have slowed considerably towards the end of the year, with higher interest rates eroding demand.

The Commerce Department’s advance fourth-quarter gross domestic product report on Thursday could mark the last quarter of solid growth before the lagged effects of the Federal Reserve’s fastest monetary policy tightening cycle since the 1980s kick in. Most economists expect a recession by the second half of the year, though mild compared to previous downturns.

Retail sales have weakened sharply over the last two months and manufacturing looks to have joined the housing market in recession. While the labor market remains strong, business sentiment continues to sour, which could eventually hurt hiring.

“This looks like it could be the last really positive, strong quarterly print we’ll see for a while,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. “Markets and most people will look through this number. More recent data are suggesting that economic momentum is continuing to slow.”

According to a Reuters survey of economists, GDP growth likely increased at a 2.6% annualized rate last quarter after accelerating at a 3.2% pace in the third quarter. Estimates ranged from a 1.1% rate to a 3.7% pace.

Robust second-half growth would erase the 1.1% contraction in the first six months of the year.

Growth for the full year is expected to come in at around 2.1%, down from the 5.9% logged in 2021. The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25%-4.50% range, the highest since late 2007.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, is expected to have grown at a pace faster than the 2.3% rate notched in the third quarter. That would mostly reflect a surge in goods spending at the start of the quarter.

Spending has been underpinned by labor market resilience as well as excess savings accumulated during the COVID-19 pandemic. But demand for long-lasting manufactured goods, which are mostly bought on credit, has fizzled and some households, especially lower income, have depleted their savings.

Economic growth also likely received a lift from business spending on equipment, intellectual property and nonresidential structures. But with demand for goods tanking, business spending also lost some luster as the fourth quarter ended.

Despite the clear signs of a weak handover to 2023, some economists are cautiously optimistic that the economy will skirt an outright recession, but rather suffer a rolling downturn, where sectors decline in turn rather than all at once.

ROLLING RECESSION

They argue that monetary policy now acts with a shorter lag than was previously the case because of advances in technology and the U.S. central bank’s transparency, which they said resulted in financial markets and the real economy acting in anticipation of rate hikes.

“We will continue to have positive GDP numbers,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “The reason is sectors are taking turns going down, and not simultaneous declining. The rolling recession began with housing and now we are seeing the next phase which is consumption related.”

Indeed, with demand for goods slumping, factory production has declined sharply for two straight months. Job cuts in the technology industry were also seen as flagging cutbacks in capital spending by businesses.

While residential investment likely suffered its seventh straight quarterly decline, which would be the longest such streak since the collapse of the housing bubble triggered the Great Recession, there are signs the housing market could be stabilizing. Mortgage rates have been trending lower as the Fed slows the pace of its rate hikes.

Inventory accumulation was seen adding to GDP last quarter, but with demand slowing, businesses are likely to focus on reducing stock in their warehouse rather than placing new orders, which would undercut growth in the quarters ahead.

Trade, which accounted for the bulk of GDP growth in the third quarter, was seen either making a small contribution or subtracting from GDP growth. Strong growth is expected from government spending.

While the labor market thus far has shown remarkable resilience, economists argue that deteriorating business conditions will force companies to slow hiring and lay off workers.

Companies outside the technology industry as well as interest-rate sensitive sectors like housing and finance are hoarding workers after struggling to find labor during the pandemic.

A separate report from the Labor Department on Thursday is likely to show initial claims for state unemployment benefits rose to a seasonally adjusted 205,000 for the week ended Jan. 21, from 190,000 in the prior week, according to a Reuters survey of economists.

“We expect initial jobless claims will eventually start to turn back up after their recent drop, consistent with an eventual downturn in payrolls and a rise in the unemployment rate,” said Kevin Cummins, chief economist at NatWest Markets in Stamford, Connecticut. “In turn, we expect spending to slow as consumers will be less willing to run down savings in the face of a deteriorating labor market.”

Reporting by Lucia Mutikani; Editing by Andrea Ricci

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Musk bullish on Tesla sales as price cuts boost demand

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Jan 25 (Reuters) – Tesla Inc’s (TSLA.O) aggressive price cuts have ignited demand for its electric vehicles, Chief Executive Elon Musk said on Wednesday, playing down concerns that a weak economy would throttle buyers’ interest.

The company slightly beat Wall Street targets for fourth-quarter revenue and profit earlier on Wednesday despite a sharp decline in vehicle profit margins, and it sought to reassure investors that it can cut costs to cope with recession and as competition intensifies in the year ahead.

Deep price cuts this month have positioned Tesla as the initiator of a price war, but its forecast of a 37% rise in car volume for the year, to 1.8 million vehicles, was down from 2022’s pace.

However, Musk, who has missed his own ambitious sales targets for Tesla in recent years, said 2023 deliveries could hit 2 million vehicles, absent external disruption.

Tesla’s sales prospects, as it confronts a weaker economy, are a key focus for investors. The company said it maintains a long-term target of a compounded 50% annual rise in sales.

Musk addressed the issue at the start of a call with investors and analysts.

“These price changes really make a difference for the average consumer,” he said, adding that vehicle orders were roughly double production in January, leading the automaker to make small price increases for the Model Y SUV.

He said he expected a “pretty difficult recession this year,” but demand for Tesla vehicles “will be good despite probably a contraction in the automotive market as a whole.”

Shares rose 5.3% in extended trading.

CYBERTRUCK

The company is relying on older products and Musk said its Cybertruck, its next new electric pickup truck, would not begin volume production until next year. Reuters in November reported that the highly anticipated model would not be produced in volume until late this year.

Tesla will detail plans for a “next-generation vehicle platform” at its investor day in March.

Tesla’s vehicles “are all in desperate need of updates beyond software,” said Jessica Caldwell, Edmunds’ executive director of insights. She said Tesla will largely depend on the cheaper unit as well as Model 3 and Model Y to bring EVs to the masses.

“It’s unlikely that the Cybertruck will attempt to achieve mass-market volumes like the Detroit competitors.”

Reuters Graphics

[1/5] A Tesla supercharging station is seen in the early morning sun, in Kettleman City, California, U.S., January 25, 2023. REUTERS/Mike Blake

Reuters Graphics

Analysts said Tesla’s goal is bullish given the macroeconomic uncertainties.

“I think that you’re going to see some severe demand destruction across consumer spending and I think cars are going to take a big hit,” Edward Moya, senior market analyst at OANDA, said.

Tesla said it does not expect meaningful near-term volume growth from China, since its Shanghai factory was running near full capacity, rebounding from production challenges last year.

“Even a small cooling of demand will have significant implications for the bottom line,” said Sophie Lund-Yates, an analyst at Hargreaves Lansdown.

Tesla said that its automotive gross margins, which dropped to a two-year low of 25.9% in the reported quarter, were pressured by the costs of ramping up battery production and new factories in Berlin and Texas, as well as higher raw material, commodity, logistics and warranty costs.

Tesla expected its automotive gross margin to remain above 20%.

Margins generally are expected to be under further pressure from its aggressive price cuts. Tesla, which had made a series of price increases since early 2021, reversed course and offered discounts in December in the United States, followed by price cuts of as much as 20% this month.

Analysts had said Tesla’s profitability gave it room to cut prices and pressure rivals. The company’s $9,000 in net profit per vehicle in the past quarter was more than seven times the comparable figure for Toyota Motor Corp (7203.T) in the third quarter. But it was down from almost $9,700 in the third quarter.

“In severe recessions, cash is king, big time,” Musk said, adding that Tesla is well positioned to cope with an economic downturn because of its $20 billion of cash.

The company’s stock posted its worst drop last year, hit by demand worries and Musk’s acquisition of Twitter, which fueled investor concerns he would be distracted from running Tesla.

Musk dismissed surveys that suggest his political comments on Twitter are damaging the Tesla brand. “I might not be popular” with some, he said, “but for the vast majority of people, my follow count speaks for itself.” He has 127 million followers.

Revenue was $24.32 billion for the three months ended Dec. 31, compared with analysts’ average estimate of $24.16 billion, according to IBES data from Refinitiv.

Tesla’s full-year earnings were bolstered by $1.78 billion in regulatory credits, up 21% from a year earlier.

Adjusted earnings per share of $1.19 topped the Wall Street analyst average of $1.13.

It ended the fourth quarter with 13 days’ worth of vehicles in inventory, more than four times higher than the start of 2022, and a record $12.8 billion in value.

Reporting by Hyunjoo Jin in San Francisco and Akash Sriram in Bengaluru, Additinoal reporting by Joe White and Ben Klayman in Detroit and Kevin Krolicki in Singapore
Writing by Peter Henderson
Editing by Sriraj Kalluvila, Matthew Lewis, Sam Holmes and David Goodman

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Wall Street surges, powered by tech rebound

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  • Baker Hughes falls on missing Q4 profit estimates
  • Activist investor Elliott Management takes stake in Salesforce
  • Chips on track for biggest daily gain since Nov
  • Indexes up: Dow 0.98%, S&P 1.41%, Nasdaq 2.09%,

NEW YORK, Jan 23 (Reuters) – Wall Street surged on Monday, led higher by technology stocks as investors embarked on an earnings-heavy week with a renewed enthusiasm for market leading momentum stocks that were battered last year.

All three major stock indexes extended Friday’s rally, gaining momentum as the day progressed. The tech-heavy Nasdaq was out front, boosted by a 4.9% jump in semiconductor shares (.SOX).

“This is a remarkable rally in many of the names that did badly last year,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut. “No one wants to be watching from the sideline with a bunch a cash as the market gets away from them.”

The session marks a calm before the storm in a week jam-packed with high profile earnings reports and back-end loaded with crucial economic data.

Investors are all but certain the Federal Reserve implement a bite-sized interest rate hike next week even as the U.S. central bank remains committed to taming the hottest inflationary cycle in decades.

Financial markets have priced in a 99.8% likelihood of a 25 basis point hike to the Fed funds target rate at the conclusion of its two-day monetary policy meeting next Wednesday, according to CME’s FedWatch tool.

The Dow Jones Industrial Average (.DJI) rose 328.17 points, or 0.98%, to 33,703.66, the S&P 500 (.SPX) gained 55.93 points, or 1.41%, to 4,028.54 and the Nasdaq Composite (.IXIC) added 232.84 points, or 2.09%, to 11,373.28.

All 11 major sectors in the S&P 500 were higher, with tech (.SPLRCT) up the most, jumping 2.8%.

Fourth-quarter reporting season has shifted into overdrive, with 57 of the companies in the S&P 500 having posted results. Of those, 63% have delivered better than expected earnings, according to Refinitiv.

Analysts now see S&P 500 fourth quarter earnings, on aggregate, dropping 3% year-on-year, nearly twice as steep as the 1.6% annual drop seen at the beginning of the year, per Refinitiv.

This week, Microsoft Corp (MSFT.O) and Tesla Inc , along with a spate of heavy-hitting industrials including Boeing CO (BA.N), 3M Co (MMM.N), Union Pacific Corp (UNP.N) Dow Inc (DOW.N), Northrop Grumman Corp (NOC.N), are expected to post quarterly results.

Tesla Inc (TSLA.O) surged 7.8% as Chief Executive Elon Musk took the stand in his fraud trial related to a tweet saying he had backing to take the electric automaker private.

Baker Hughes Co (BKR.O) missed quarterly profit estimates due to inflation pressures and ongoing disruptions due to Russia’s war on Ukraine. The oilfield services company’s shares were off 0.9%.

Cloud-based software firm Salesforce Inc (CRM.N) jumped 3.1% following news that activist investor Elliot Management Corp has taken a multi-billion dollar stake in the company.

Spotify Technology SA (SPOT.N) joined the growing list of tech-related companies to announce impending job cuts, shedding 6% of its workforce as rising interest rates and the looming possibility of recession continue to pressure growth stocks. The music streaming company’s shares rose 2.1%.

On the economic front, the Commerce Department is expected to unveil its initial “advance” take on fourth-quarter GDP in Thursday, which analysts expect to land at 2.5%.

On Friday, the wide-ranging personal consumption expenditures (PCE) report is due to shed light on consumer spending, income growth, and crucially, inflation.

Advancing issues outnumbered declining ones on the NYSE by a 3.53-to-1 ratio; on Nasdaq, a 1.95-to-1 ratio favored advancers.

The S&P 500 posted 11 new 52-week highs and no new lows; the Nasdaq Composite recorded 66 new highs and 14 new lows.

Reporting by Stephen Culp; Additional reporting by Shreyashi Sanyal and Johann M Cherian in Bengaluru
Editing by Marguerita Choy

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Spotify to trim 6% of workforce in latest tech layoffs

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Jan 23 (Reuters) – Spotify Technology SA (SPOT.N) said on Monday it plans to cut 6% of its workforce and would take a related charge of up to nearly $50 million, adding to the massive layoffs in the technology sector in preparation for a possible recession.

The tech industry is facing a demand downturn after two years of pandemic-powered growth during which it had hired aggressively. That has led firms from Meta Platforms Inc (META.O) to Microsoft Corp (MSFT.O) to shed thousands of jobs.

“Over the last few months we’ve made a considerable effort to rein in costs, but it simply hasn’t been enough,” Chief Executive Daniel Elk said in a blog post announcing the roughly 600 job cuts.

“I was too ambitious in investing ahead of our revenue growth,” he added, echoing a sentiment voiced by other tech bosses in recent months.

Spotify’s operating expenditure grew at twice the speed of its revenue last year as the audio-streaming company aggressively poured money into its podcast business, which is more attractive for advertisers due to higher engagement levels.

Reuters Graphics

At the same time, businesses pulled back on ad spending on the platform, mirroring a trend seen at Meta and Google parent Alphabet Inc (GOOGL.O), as rapid interest rate hikes and the fallout from the Russia-Ukraine war pressured the economy.

The company, whose shares rose 5.8% to $103.55, is now restructuring itself in a bid to cut costs and adjust to the deteriorating economic picture.

It said Dawn Ostroff, the head of content and advertising, was leaving after an over four-year stint at the company. Ostroff helped shape Spotify’s podcast business and guided it through backlash around Joe Rogan’s show for allegedly spreading misinformation about COVID-19.

The company said it is appointing Alex Norström, head of the freemium business, and research and development boss Gustav Söderström as co-presidents.

Spotify had about 9,800 full-time employees as of Sept. 30.

($1 = 0.9196 euros)

Reporting by Eva Mathews in Bengaluru; Editing by Sherry Jacob-Phillips and Shailesh Kuber

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Bank of Japan’s policy tweak drew rare request from government for a break

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TOKYO, Jan 23 (Reuters) – Government officials who attended the Bank of Japan’s December policy meeting were given a half-hour adjournment to contact their ministries, minutes showed, underscoring the significance of the central bank’s decision to tweak its bond-market peg.

At the Dec. 19-20 meeting, the BOJ kept its ultra-easy monetary policy but shocked markets with a surprise change to its yield curve control (YCC) policy that allowed long-term interest rates to rise.

Before the nine-member board voted on the steps, the government representatives requested that the meeting be adjourned for about 30 minutes, the minutes showed on Monday.

Governor Haruhiko Kuroda approved the request as chair of the BOJ meeting, according to the minutes.

“The government understands the matters discussed today were aimed at conducting monetary easing in a more sustainable manner with a view to achieving the BOJ’s price target,” a Ministry of Finance (MOF) official attending the meeting was quoted as saying, referring to the central bank’s inflation objective.

Another government representative, who belonged to the Cabinet Office, urged the BOJ to be vigilant about the fallout from rising inflation, supply constraints and market volatility on Japan’s economy, the minutes showed.

The two representatives did not voice opposition to the yield control tweak nor any other elements of the BOJ’s discussion, the minutes showed.

Two government representatives – one from the MOF and another from the Cabinet Office – are legally entitled to attend BOJ policy meetings and voice the government’s views on policy decisions, though they cannot cast votes.

In a news conference on Monday, Finance Minister Shunichi Suzuki said he had been briefed by the MOF representative on the BOJ’s expected decision during the adjournment.

It is rare for the government representatives to seek adjournment in the BOJ meetings, which only happens in times of key decisions such as a change in monetary policy.

For example, the government was granted an adjournment during a meeting when the BOJ introduced negative interest rates in January 2016, according to minutes of that meeting.

Under YCC, the BOJ sets the short-term interest rate target at -0.1% and that of the 10-year bond yield around 0% with a small tolerance band.

At the December meeting, the band set around the 10-year yield target was doubled to 0.5 percentage point up and 0.5 percentage point down, a move aimed at ironing out market distortions caused by the BOJ’s heavy bond buying.

Reporting by Leika Kihara; Editing by Bradley Perrett and Jacqueline Wong

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Fed to deliver two 25-basis-point hikes in Q1, followed by long pause

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BENGALURU, Jan 20 (Reuters) – The U.S. Federal Reserve will end its tightening cycle after a 25-basis-point hike at each of its next two policy meetings and then likely hold interest rates steady for at least the rest of the year, according to most economists in a Reuters poll.

Fed officials broadly agree the U.S. central bank should slow the pace of tightening to assess the impact of the rate hikes. The Fed raised its benchmark overnight interest rate by 425 basis points last year, with the bulk of the tightening coming in 75- and 50-basis-point moves.

As inflation continues to decline, more than 80% of forecasters in the latest Reuters poll, 68 of 83, predicted the Fed would downshift to a 25-basis-point hike at its Jan. 31-Feb 1 meeting. If realized, that would take the policy rate – the federal funds rate – to the 4.50%-4.75% range.

The remaining 15 see a 50-basis-point hike coming in two weeks, but only one of those was from a U.S. primary dealer bank that deals directly with the Fed.

The fed funds rate was expected to peak at 4.75%-5.00% in March, according to 61 of 90 economists. That matched interest rate futures pricing, but was 25 basis points lower than the median point for 2023 in the “dot plot” projections issued by Fed policymakers at the end of the Dec. 13-14 meeting.

“U.S. inflation shows price pressures are easing, yet in an environment of a strong jobs market, the Federal Reserve will be wary of calling the top in interest rates,” noted James Knightley, chief international economist at ING.

The expected terminal rate would be more than double the peak of the last tightening cycle and the highest since mid-2007, just before the global financial crisis. There was no clear consensus on where the Fed’s policy rate would be at the end of 2023, but around two-thirds of respondents had a forecast for 4.75%-5.00% or higher.

The interest rate view in the survey was slightly behind the Fed’s recent projections, but the poll medians for growth, inflation and unemployment were largely in line.

Inflation was predicted to drop further, but remain above the Fed’s 2% target for years to come, leaving a relatively slim chance of rate cuts anytime soon.

In response to an additional question, more than 60% of respondents, 55 of 89, said the Fed was more likely to hold rates steady for at least the rest of the year than cut. That view lined up with the survey’s median projection for the first cut to come in early 2024.

However, a significant minority, 34, said rate cuts this year were more likely than not, with 16 citing a plunge in inflation as the biggest reason. Twelve said a deeper economic downturn and four said a sharp rise in unemployment.

“The Fed has prioritized inflation over employment, therefore only a sharp decline in core inflation can convince the FOMC (Federal Open Market Committee) to cut rates this year,” said Philip Marey, senior U.S. strategist at Rabobank.

“While the peak in inflation is behind us, the underlying trend remains persistent … we do not think inflation will be close to 2% before the end of the year.”

Reuters Poll- U.S. Federal Reserve outlook

In the meantime, the Fed is more likely to help push the economy into a recession than not. The poll showed a nearly 60% probability of a U.S. recession within two years.

While that was down from the previous poll, several contributors had not assigned recession probabilities to their forecasts as a slump was now their base case, albeit a short and shallow one as predicted in several previous Reuters surveys.

The world’s biggest economy was expected to grow at a mere 0.5% this year before rebounding to 1.3% growth in 2024, still below its long-term average of around 2%.

With mass layoffs underway, especially in financial and technology companies, the unemployment rate was expected to rise to average 4.3% next year, from the current 3.5%, and then climb again to 4.8% next year.

While still historically low compared to previous recessions, the forecasts were about 1 percentage point higher than a year ago.

(For other stories from the Reuters global economic poll:)

Reporting by Prerana Bhat; Polling by Milounee Purohit; Editing by Ross Finley and Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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Business

Wall St slips as labor market data fuels Fed worry

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  • Procter & Gamble falls after commodity cost pressure warning
  • Netflix down ahead of quarterly results
  • Dow down 0.76%, S&P 500 down 0.76%, Nasdaq down 0.96%

NEW YORK, Jan 19 (Reuters) – U.S. stock indexes closed lower on Thursday after data pointing to a tight labor market renewed concerns the Federal Reserve will continue its aggressive path of rate hikes that could lead the economy into a recession.

A report from the Labor Department showed weekly jobless claims were lower than expected, indicating the labor market remains solid despite the Fed’s efforts to stifle demand for workers.

Expectations the central bank would further dial down the size of its interest rate increases at its policy announcement next month were unchanged by the report.

Investors have been looking for signs of weakness in the labor market as a key ingredient needed for the Fed to begin to slow its policy tightening measures.

Jobless claims

Other data showed manufacturing activity in the mid-Atlantic region was subdued again in January, while data from the commerce department confirmed the recession in the housing market persisted.

“What we are seeing is the market carving out a bottom in the uncertainty so the news is having less of an effect and what we are seeing today is really just a continuation of that,” said Brad McMillan, chief investment officer for Commonwealth Financial Network, an independent broker-dealer in Waltham, Massachusetts.

“The fact we are not seeing more of a reaction says a lot of the bad news is out there.”

The Dow Jones Industrial Average (.DJI) fell 252.4 points, or 0.76%, to 33,044.56, the S&P 500 (.SPX) lost 30.01 points, or 0.76%, to 3,898.85 and the Nasdaq Composite (.IXIC) dropped 104.74 points, or 0.96%, to 10,852.27.

Traders work at the post where Carvana Co. is traded on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 7, 2022. REUTERS/Brendan McDermid

Recent comments from Fed officials continue to highlight the disconnect between the central bank’s view of its terminal rate and market expectations.

Boston Fed President Susan Collins echoed comments from other policymakers to support the case for interest rates to rise beyond 5%.

But stocks moved off their session lows after Fed vice chair Lael Brainard said the Fed is still “probing” for the level of interest rates that will be necessary to control inflation.

Markets, however, see the terminal rate at 4.89% by June and have largely priced in a 25-basis point rate hike from the U.S. central bank in February, with rate cuts in the back half of the year. .

Both the S&P 500 and the Dow fell for a third straight session, their longest streak of declines in a month.

On the earnings front, Procter & Gamble Co (PG.N) declined 2.11% after warning of commodity costs pressuring profits, despite raising its full-year sales forecast.

Analysts now expect year-over-year earnings from S&P 500 companies to decline 2.8% for the fourth quarter, according to Refinitiv data, compared with a 1.6% decline in the beginning of the year.

Netflix Inc (NFLX.O) closed 3.23% lower ahead of its results scheduled for release after the closing bell on Thursday. But the stock rebounded to gain 3.33% after posting subscriber gains for the quarter and the departure of co-founder Reed Hastings as chief executive to an executive chairman role.

Declining issues outnumbered advancing ones on the NYSE by a 1.49-to-1 ratio; on Nasdaq, a 1.70-to-1 ratio favored decliners.

The S&P 500 posted 1 new 52-week highs and 3 new lows; the Nasdaq Composite recorded 46 new highs and 33 new lows.

Reporting by Chuck Mikolajczak, editing by Deepa Babington

Our Standards: The Thomson Reuters Trust Principles.

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