Jerome Powell, chairman of the U.S. Federal Reserve, at a news conference after a Federal Open Market Committee meeting in Washington, D.C., on Dec. 18, 2024.
Al Drago | Bloomberg | Getty Images
This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
Fed cautious about inflation and Trump’s policies
At their December meeting, U.S. Federal Reserve officials expressed concern that inflation would stubbornly remain above the central bank’s 2% target, and over the possible impact of U.S. President-elect Donald Trump’s policies. Consequently, officials would be moving more slowly on interest rate cuts, minutes released Wednesday showed.
U.S. stocks shrugged off inflation concerns
U.S. stocks eked out a small gain on Wednesday even though the 10-year Treasury yield touched to its highest since April following the release of the Fed’s minutes. Asia-Pacific markets mostly traded lower on Thursday. Australia’s S&P/ASX 200 closed 0.24% lower as data showed the country’s retail sales rose less than expected in November.
Asian central banks face strong U.S. dollar
Asian currencies, such as the Chinese yuan, the Japanese yen and the Korean won have fallen against the U.S. dollar since Trump won the presidential election in November. That poses a conundrum for Asia’s central banks: A weaker currency would boost exports but might increase imported inflation, complicating the ability of banks to steer domestic economic policy.
Fears of deflation in China
China’s consumer price inflation in December was up 0.1% year on year, data from the National Bureau of Statistics showed Thursday. On a monthly basis, China’s CPI came in flat, compared with November’s 0.6% decline. China’s persistently low consumer inflation indicates that China is struggling with weak domestic demand, stoking fears of deflation.
Microsoft cutting jobs based on performance
Microsoft is cutting a small percentage of jobs across departments, based on performance, the company confirmed to CNBC on Wednesday. Business Insider first reported on the company’s plans. The job cuts will affect less than 1% of employees, said a person familiar with the matter, who asked not to be named in order to discuss private information.
[PRO] Look out for this Taiwanese chip supplier, Bernstein says
At CES, Nvidia announced a desktop supercomputer aimed at AI researchers and data scientists. The computer will feature Nvidia’s Grace Blackwell Superchip, which Nvidia will produce in partnership with a Taiwanese chip supplier. The supplier will see significant financial benefits from the partnership starting in 2026, Bernstein says.
The bottom line
On paper, minutes for the Fed’s December meeting spelled bad news for investors. Officials were worried about inflation and the impact of Trump’s stated policies (though Trump was not explicitly named).
“Almost all participants judged that upside risks to the inflation outlook had increased,” the minutes said. “Participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy.”
As a result, Fed officials see the pace of interest rate cuts in the future slowing down.
Upside risks to inflation, problematic policies for the economy and fewer-than-expected rate cuts: That’s a potent and bitter brew for investors to swallow. Yield on the 10-year Treasury note hit 4.730% during intraday trading, the highest since April.
Yet stocks mostly shrugged off that warning to tick up on Wednesday. The S&P 500 added 0.16% and the Dow Jones Industrial Average rose 0.25%. The Nasdaq Composite slipped 0.06% — tech stocks like Palantir, Advanced Micro Devices and Micro Strategy had a rough day — but that’s still close to the flatline and not a precipitous drop.
Investors, it seems, had already priced in inflation warnings — the Fed’s most recent dot plot, which projected just two quarter-point cuts in 2025, had already shaken markets when it was released in December.
Fed Governor Christopher Waller also provided some salve to investors. Speaking in Paris, he said inflation’s stubbornness recently had been driven primarily by “imputed” prices such as housing services, while “observed” prices for other goods and services show disinflation.
Waller added that if economic conditions go according to his view, he would “support continuing to cut our policy rate in 2025.”
What’s not priced in as much is the U.S. jobs report for December, due on Friday. That could be the next catalyst for markets.
— CNBC’s Jeff Cox, Sean Conlon and Pia Singh contributed to this report.