Morning Roundup

By Mark Masterson on January 30, 2025

Good morning,

Below are the news items moving markets today:

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Executive Summary

The Fed did not cut rates – as expected.  Below I cover all of Powell’s comments on the day. 

The last two days of this week deliver some important jobs and inflation data….

• Q4 GDP (THURS.)

• JOBLESS CLAIMS (THURS.)

• PENDING HOME SALES (THURS.)

• CORE PCE INFLATION (FRI.)

• EMPLOYMENT COST INDEX (FRI.)

• CHICAGO PMI (FRI.)

Big tech earnings were mixed last night.  You can see, tonight we get a few more���..

Earnings Whispers 1 27 25

The details on the Fed:

1. Fed leaves rates unchanged, pausing the “Fed Pivot”

2. Decision to halt cuts was unanimous 12-0 vote

3. Fed says inflation “remains somewhat elevated”

4. Fed says “unemployment has stabilized at a low level”

5. Statement on progress toward 2% inflation removed

6. The Fed seems to be aware disinflation has stalled

Powell’s comments….

These were the comments from Powell that seemed a bit more “hawkish.”  Hawkish means the Fed is leaning to keeping rates higher, not lower……

Hawkish statements……

• FED STATEMENT DOES NOT INCLUDE LANGUAGE THAT INFLATION HAD MADE PROGRESS TOWARD 2% OBJECTIVE AS IT HAD IN DECEMBER STATEMENT.
• FED’S POWELL: THERE SEEMS TO BE SET UP FOR FURTHER PROGRESS ON INFLATION; WE ARE GOING TO WANT TO SEE IT.

• FED’S POWELL: INFLATION HAS MOVED MUCH CLOSER TO GOAL, SOMEWHAT ELEVATED.
• FED’S POWELL: WE ARE FOCUSING ON REAL PROGRESS ON INFLATION OR WEAKNESS IN THE LABOUR MARKET BEFORE MAKING FURTHER CUTS.
• FED’S POWELL: LOWER-INCOME HOUSEHOLDS ARE STRUGGLING WITH HIGHER PRICES.
• FED’S POWELL: WE ARE NOT ON PRESET COURSE.
• FED’S POWELL: WE DO NOT NEED TO BE IN A HURRY TO ADJUST POLICY RATE.
• FED’S POWELL: THE ECONOMY IS STRONG OVERALL.

Dovish statements…..signal the Fed is leaning towards cutting rates……

• FED’S POWELL: I EXPECT FURTHER PROGRESS ON INFLATION.
• FED’S POWELL: LONGER-TERM INFLATION EXPECTATIONS APPEAR WELL-ANCHORED.
• FED’S POWELL: WE JUST CHOSE TO SHORTEN THE SENTENCE ON INFLATION, SENTENCE ON INFLATION NOT MEANT TO SEND SIGNAL.
• FED’S POWELL: I CAN SEE POLICY IS RESTRICTIVE LOOKING AT LAST YEAR.
• FED’S POWELL: I WILL ADJUST POLICY STANCE TO PROMOTE GOALS.
• FED’S POWELL: WE DON’T NEED TO WAIT FOR 2% INFLATION TO CUT RATES.

On the steps forward…..

Policy/Rate cuts:

• FED’S POWELL: I AM LOOKING AT THE DATA TO GUIDE US.
• FED IS ATTENTIVE TO THE RISKS TO BOTH SIDES OF ITS DUAL MANDATE.

On Trump/working with Trump:

• FED’S POWELL: WE ARE WORKING TO ALIGN OUR POLICIES WITH EXECUTIVE ORDERS UNDER APPLICABLE LAW.
• FED’S POWELL: WE ARE REVIEWING DETAILS OF EXECUTIVE ORDERS.
• FED’S POWELL: CURRENTLY SOME ELEVATED UNCERTAINTY BECAUSE OF SIGNIFICANT POLICY SHIFTS, BUT SHOULD BE PASSING.
• FED’S POWELL: I’M NOT GOING TO COMMENT ON WHAT THE PRESIDENT SAID.
• FED’S POWELL: I HAVE NOT HAD CONTACT WITH THE PRESIDENT.
• FED’S POWELL: THE FED RUNS A VERY CAREFUL BUDGET PROCESS
• FED’S POWELL: FLOWS ACROSS BORDER HAVE DECREASED; EVERY REASON TO THINK THAT WILL CONTINUE, BUT JOB CREATION IS ALSO DOWN; TOGETHER, THOSE COULD BE REASONS FOR UNEMPLOYMENT RATE TO STABILIZE.
• FED’S POWELL: THE RANGE OF POSSIBILITIES FOR TARIFFS IS VERY, VERY WIDE.

Finally – these comments shows that the Fed is washing its hands of any culpability for the higher inflation rates……

• FED’S POWELL: LONG RATES HAVE MOVED UP FOR REASONS UNRELATED TO OUR POLICY.
• FED’S POWELL: LONGER RATES HAVE GONE UP NOT BECAUSE OF EXPECTATIONS ABOUT POLICY OR INFLATION.
• FED’S POWELL: ASSET PRICES ARE ELEVATED BY MANY METRICS.

Of course, President Trump responded.  Remember, he demanded a rate cut, but did not get one.

Below is his response last night…

President Trump/ 1 29 25

Data this morning is mixed…..

First read of Q4 GDP slightly below consensus; jobless claims fall w/w:

• Preliminary Q4 GDP rose 2.3% Q/Q, slightly below consensus for a 2.4% increase and also below Q3’s final GDP reading of 3.1%.
• Q4 reading again driven by strong consumer and government spending though partly offset by a decrease in investment and exports.

The PCE prices were higher than expected…..

• Core PCE prices increased 2.5%, in line with expectations, though higher than prior quarter’s 2.2%.

Jobs data a little better….

• Elsewhere, initial claims came in at 207K vs consensus 225K and prior week’s unrevised 223K. Four-week moving average was 212,500, a decrease of 1,000 from the previous week’s unrevised average of 213,500.

Overnight update/Headlines from Washington:

White House backing off federal-funding freeze:

• Washington Post reports White House Office of Management and Budget is rescinding its Monday memo calling for a “temporary pause” to disbursement of as much as $3T in federal grants and loans and conduct a comprehensive analysis of which programs were consistent with Trump’s policy stances on areas including DEI, gender, and the environment.
• Original order sparked widespread alarm and confusion about its application, with much media attention on Medicaid reimbursement portals going offline in all 50 states (CNBC).
• Overnight, a federal judge in DC issued an administrative stay to pause the order in the wake of multiple lawsuits (NY Times). Was the second time federal judges have intervened to pause White House efforts, with a Washington State judge last week issuing a temporary restraining order blocking Trump’s plan to end birthright citizenship.
• White House weighs challenging constitutionality of 50-year old Impoundment Act to exert more power over spending (Bloomberg)

Tariffs/Trade:

• Tariffs dominate earnings calls as companies prepare for disruption driven by Trump 2.0 (Bloomberg)
• White House said to be discussing tighter Nvidia chip curbs on China (Bloomberg)
• Global autos in firing line of Trump’s tariff threats vs Mexico, Canada (Reuters)

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Articles of Interest:

• Corporate:
  • Meta gives bullish outlook for Meta AI adoption (Bloomberg, Reuters, FT)
  • Microsoft cloud revenue growth slows as AI contribution nudges higher (Bloomberg, FT)
  • Tesla profit misses, touts Robotaxi rollout and flags rebound in vehicle sales (Axios , Bloomberg, FT)
  • IBM beats forecasts amid surge in AI software and consulting revenue (Bloomberg)
  • American Airlines regional plane carrying 60 passengers collides with Black Hawk helicopter in Washington DC (Reuters)
  • Group of investors vying for TikTok secure more than $20B for their bid (Bloomberg)
• AI:
  • US tech companies embrace DeepSeek’s AI model; Microsoft. Meta defend AI capex plans (Bloomberg, NY Times, Reuters)
  • Stopping DeepSeek from distilling US AI models easier said than done (Reuters)
  • DeepSeek chatbot achieved 17% accuracy in information delivery, lower than its western rivals (Reuters)
  • SoftBank said to be in talks to expand investment in OpenAI (FT)
• Central banks:
  • Fed on hold as expected, Powell sees no hurry to ease (Bloomberg, Reuters); Trump lashes out on decision (FT)
• Markets:
  • Risks piling up for US stock markets as investors grapple with AI stock shock, Fed outlook (Reuters)
• Economy:
  • Eurozone growth stalls as Germany, France, Italy struggle, foreshadowing weak 2025 (FT, Bloomberg)

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Charts of the day:

While we had a lot of talk about inflation from the Fed, one way to see it is to watch the Commodity index chart.

You can see it has been on the rise.  It also looks like a big base that is completing – or will complete soon.  Often these lead to higher prices.

Remember, the economy is still juiced by the massive deficit spending of last year.  In particular, the October – December period saw over $700 billion in deficit spending.  That is pushing into the economy, at the same time as President Trump is juicing optimism with his tax and de-regulation plans.

That allows for inflationary pressures to rise for a few months or even quarters.

What will be interesting is when the economy (which is slow moving) starts to react to the slowing government spending and debt ceiling that went into place on January 22^nd.

Another view.

A long base indeed…..

The very big picture for the commodity index…..

Looks like a breakout to me at this point….

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Quote of the day:

“I’ve always believed that a lot of the trouble in the world would disappear if we were talking to each other instead of about each other.”

— Ronald Reagan