Dueling Sentiments at Davos; Fed's Waller Says No Rush for Rate Cuts; American Consumers Head Into 2024 on Strong Footing

Dueling Sentiments at Davos; Fed's Waller Says No Rush for Rate Cuts; American Consumers Head Into 2024 on Strong Footing By James Christie

Good day. Prospects for a soft landing for the U.S. economy and interest-rate cuts by the Federal Reserve are bringing some cheer to attendees of the World Economic Forum in Davos. Still, there are concerns about politics and geopolitical events. For example, Pat Gelsinger, CEO of Intel, said that, "Geopolitically, I think it's going to be a turbulent year." Gelsinger added, "You have lots of elections going on. We have two active wars in the world that affect supply chains in a meaningful way." In the U.S. on Tuesday, Fed governor Christopher Waller said the central bank likely will be able to cut rates this year. But he also said there is no need to rush cuts. Today, the Commerce Department will release the December retail sales report. According to analysts, Americans spent more at stores, auto dealerships and online to close out last year, suggesting consumers can continue to drive economic growth in 2024.

Now on to today's news and analysis.

Top News A Turbulent Year May Lie Ahead-CEOs at Davos Are Optimistic

CEOs and business leaders gathered at the World Economic Forum are feeling increasingly confident about the U.S. economy and the strength of consumer demand, despite protracted conflicts around the world, a looming U.S. election and worries about new trade disruptions.

The dueling sentiments on display this week reflect hopes of a so-called soft landing in the U.S., as inflation cools and the labor market remains strong. Many leaders also expect the Federal Reserve to lower interest rates this year, potentially opening up more dealmaking and spending.

Fed's Waller Sees Rate Cuts This Year, but Nothing 'Rushed'

The Federal Reserve is likely to be able to cut interest rates this year, but there is no need for policy to be "rushed," Fed governor Christopher Waller said Tuesday. "When the time is right to begin lowering rates, I believe [the rate] can and should be lowered methodically and carefully, " Waller said in remarks to the Brookings Institution. While in many past cycles, the Fed cut rates quickly and by large amounts, Waller said that this year he sees "no reason to move as quickly or cut as rapidly as in the past." Waller also said he thinks the Fed's interest-rate policy is now "set properly." ( MarketWatch )

Lagarde, With a Caveat, Says ECB Will Likely Cut Rates This Summer

It was toward the end of an interview European Central Bank President Christine Lagarde gave in Davos, a clear sign she wasn't setting out to deliver this message. And she said it in a roundabout way. But, Lagarde appeared to cement expectations that the ECB will cut interest rates this summer, in an interview with Bloomberg News on Wednesday. She was responding to a comment that a majority of governing council members have been saying there will be a rate cut by the summer if not in the summer. ( MarketWatch [https://www.marketwatch.com/story/lagarde-with-a-caveat-says-ecb-will-likely-cut-interest-rates-this-summer-f3c7f9e1#::text=But%2C%20Lagarde%20appeared%20to%20cement, if%20not%20in%20the%20summer.])

U.S. Economy What to Watch in the December Retail Sales Report

Economists surveyed by The Wall Street Journal estimate retail sales rose 0.4% in December on a seasonally adjusted basis. That would mark a pickup from November's surprisingly strong 0.3% gain.

Bipartisan Tax Deal Would Provide Boost to Businesses, Families

Top U.S. lawmakers unveiled a tax agreement that would revive expired breaks for businesses and increase the child tax credit for low-income families. They aim to push the $78 billion in tax breaks through Congress in the next few weeks.

A Pandemic-Era Tax Break Is Unraveling, and the Lawsuits Are Flying

The Internal Revenue Service says it has initiated 330 criminal investigations involving more than $2.8 billion of potentially fraudulent ERC claims and encourages employers to withdraw questionable pending claims.

California's Long-Embattled Ports Are Winning Back Imports

Trade is swinging back to the ports of Los Angeles and Long Beach after pandemic-driven shipping disruptions and broader shifts in manufacturing pushed supply chains more heavily toward Gulf Coast and East Coast ports.

Bill Coming Due on Record Amount of Commercial Real Estate Debt

The troubled commercial real estate market is bracing for a record amount of maturing loans , boosting the prospect of a surge in defaults as property owners are forced to refinance at higher rates.

Key Developments Around the World China's Growth Slows to Three-Decade Low Excluding Pandemic

China's economic growth rate finished at one of the lowest levels in decades last year, underscoring the heavy toll that a property-sector collapse and weak consumer confidence have taken on the economy.

Chinese Premier Makes Surprise Economic Growth Disclosure Heard on the Street: China's Economy Limps Into 2024 China's Population Decline Accelerates as Women Resist Pressure to Have Babies Indonesia's Central Bank Stands Pat as Expected

Indonesia's central bank kept its benchmark seven-day reverse repo rate at 6.00% at its January policy meeting, to strengthen rupiah's exchange rate and as a pre-emptive measure to ensure inflation remains under control this year.

Europe Braces for Trade Hit as Global Commerce Slows

Europe's trade relationships are set to suffer as global conflicts and protectionism open a chillier chapter in international commerce, hitting growth on the continent, with trade now growing at a slower pace than the world economy.

Shell Suspends Red Sea Shipments Amid Fears of More Attacks

British oil major Shell suspended all shipments through the Red Sea after U.S. and U.K. strikes on Yemen's Houthi rebels triggered fears of further escalation , according to people familiar with the decision.

Financial Regulation Roundup Goldman Scores a Win With Sharply Higher Earnings

Goldman Sachs reported a 51% surge in fourth-quarter profit after eight quarters of declines, thanks to strength in asset and wealth management, where Chief Executive David Solomon has pinned much of its hopes

J.P. Morgan Securities to Pay $18 Million for Whistleblower Violations

The SEC alleged J.P. Morgan Securities prevented hundreds of advisory clients and brokerage customers who had disputes or concerns with the firm from reporting potential violations of securities law to regulators.

Forward Guidance Wednesday (all times ET)

8 a.m.: Fed's Bowman speaks at U.S. Chamber of Commerce's Center for Capital Markets Competitiveness "Protect Main Street Lending" in Washington

8:30 a.m.: U.S. advance retail sales for December; U.S. import and export prices for December

9 a.m.: Fed's Barr speaks at 2nd Annual Massachusetts Institute of Technology/Federal Reserve System Conference on Measuring Cyber Risk in the Financial Services Sector

9:15 a.m.: U.S. industrial production and capacity utilization for December

10 a.m.: U.S. business inventories for November

10:15 a.m.: ECB's Lagarde at "Town Hall: How to Trust Economics," World Economic Forum in Davos

2 p.m.: Federal Reserve Beige Book

3 p.m.: New York Fed's Williams speaks at NY Fed's "An Economy That Works for All: Measurement Matters"

Thursday

4:30 a.m.: Bank of England bank liabilities and credit conditions surveys for fourth quarter

8:30 a.m.: U.S. housing starts for December; U.S. weekly jobless claims; Philadelphia Fed Manufacturing Survey

10:15 a.m.: ECB's Lagarde at "Uniting Europe's Markets," World Economic Forum in Davos

Research Expectations for Rate Cut in Canada Drift Further Out

The latest inflation data out of Canada is likely to support a continued hold on the Bank of Canada's policy rate next week and push back market pricing for an April interest rate cut, Pimco managing director and economist Tiffany Wilding says. Wilding says rent and mortgage interest costs continue to be major contributors to core inflation, while inflation from other components continues to rebound from October lows. Given there is only one consumer-price inflation release before the central bank's March meeting, and two before the April meeting, Wilding says it is unlikely there will be a significant enough slowdown in inflation to make the Bank of Canada comfortable with cutting interest rates at those meetings, barring a separate catalyst.

-Robb Stewart

Commentary Markets Expect Rate Cuts Soon. Central Banks Say Not So Fast.

Markets have priced in a lot of stimulus and failed to heed calls for caution. Officials will probably loosen monetary policy in 2024, but they have reasons to move more slowly than investors are betting, Jon Sindreu writes.

Wall Street's Cloudy Quarter Has Some Rays of Sunshine

Wall Street hardly ended last year with a bang, but given the challenges facing the other major business lines of the biggest banks, trading and investment banking might prove to be their best bet in 2024, Telis Demos writes.

Natural-Gas Prices Remain Under Pressure Despite Cold Snap

The current winter storm in the U.S could change prices for natural gas temporarily, but the long-term forecast is still for more cheap gas for U.S. consumers-at least for the rest of this year, Jinjoo Lee writes.

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01-17-24 0716ET