Powell Stands Pat, Mag 7 Earnings Mixed

WHERE WE STAND – Certainly, there’s no shortage of topics to rattle through this morning, after a hectic Wednesday for financial markets:

• The FOMC stood pat yesterday, holding the target range for the fed funds rate steady at 4.25% - 4.50%, as expected and had been fully discounted in advance of the decision. The accompanying statement was largely a ‘cut and paste’ of that issued in December, with Chair Powell describing the modest language changes as a “cleanup”, that wasn’t intended to send a policy signal
• Concrete policy signals were also lacking during the post-meeting press conference, as Powell continues to build as much optionality as possible into the policy outlook, amid uncertainties associated with the fiscal policy outlook. Nevertheless, Powell reiterated that policy is in a “very good place”, and that “real” progress on inflation, or unexpected labour market weakness, is required before further cuts are delivered – an unchanged reaction function from that detailed at the back end of last year
• Overall, it’s tough to say that the first FOMC decision of 2025 has materially moved the needle in terms of the policy outlook for the year ahead. Unsurprisingly, with risks to the dual mandate balanced, and fiscal policy uncertainty elevated, policymakers are seeking to ‘play for time’.
• More broadly, risks surrounding the policy outlook this year are considerably more two-sided than those present in 2024. Consequently, the ‘Fed put’, which has acted as a comfort blanket for risk assets over the last 18 months or so, is no longer present, with the metaphorical strike price for that ‘put’ falling each month that incoming data remains solid. This, coupled with a greater degree of policy uncertainty, will likely result in a bumpier ride for equities this year, though solid economic growth, and subsequent earnings growth, should see the path of least resistance continue to lead to the upside.
• Meanwhile, earnings were also in focus yesterday, as three of the ‘magnificent seven’ reported after hours. Tesla’s earnings fell short of expectations on both top- and bottom-line metrics, though the stock erased initial declines after hours despite downgrading prior expectations for growth of up to 30% this year. Microsoft, meanwhile, were pressured, after a miss on the all-important cloud revenue line, and Meta also (eventually) came under pressure amid soft Q1 guidance.  

• Elsewhere, the Riksbank duly delivered a 25bp cut yesterday, bang in line with expectations, and market pricing. Policymakers guided that a “tentative approach” would be followed moving forward, though at least one more 25bp cut in the first half of the year remains likely.
• The BoC also delivered a 25bp cut yesterday, though such a cut was a relatively hawkish one, as policymakers surprisingly brought quantitative tightening (QT) to an end, while also removing prior guidance alluding to further rate cuts, amid the looming threat of US tariffs being imposed. While the loonie briefly rallied post-decision, gains were pared amid a continued focus on the aforementioned trade risks, though participants still don’t seem to have adequately discounted the reasonable probability that tariffs are imposed this weekend, as previously rumoured.

• Finally, this morning’s missive wouldn’t be complete without a mention of Chancellor Reeves’s remarks on growth. The speech pledged a chunk of fresh infrastructure spending, and promises that the Government would take further steps towards deregulation. Actions, though, will speak louder than words in this respect, and I still find it tough to be anything other than short GBP assets, with the spectre of further tax hikes, and spending cuts, still looming large on the horizon.

LOOK AHEAD – As if all that wasn’t enough, there’s plenty more for participants to get their teeth into today.

The ECB’s first policy decision of the year is the obvious highlight, as Lagarde & Co are set to deliver a 25bp deposit rate cut, with another such move to follow at the March meeting. While Lagarde will likely reiterate the ECB’s data-dependent and meeting-by-meeting approach to future policy decisions, it remains highly likely that policymakers will have to take rates below neutral by the middle of the year, as growth remains anaemic, and risks of inflation undershooting the 2% target continue to mount.

Elsewhere, the data docket is busy, with initial reads on fourth quarter GDP growth due from both the US and eurozone, along with the weekly US jobless claims figures, and December’s eurozone unemployment report. Those GDP figures will likely reaffirm that the eurozone economy continues to stagnate, and that the US economy continues to vastly outperform peers; meanwhile, this week’s continuing jobless claims print coincides with the survey week for the January nonfarm payrolls print.

Besides that, another packed slate of corporate earnings awaits, highlighted by figures from Apple (AAPL) after the close. Participants will focus not only on the firm’s struggling AI efforts, but also continued demand headwinds in China. Other notable reports today come from Intel (INTC), Visa (V), UPS (UPS) and MasterCard (MA).