FED HOLDS RATES

• Akin Oyedele
 

• 19h
• 15,789
 
• 25

Mark Wilson/Getty Images

The Federal Reserve kept its benchmark interest rate unchanged at its September meeting, just as markets had expected.

In its policy statement released on Wednesday, the Fed said the case has strengthened for a rate hike this year.

But three members of the Federal Open Markets Committee, which makes monetary policy decisions, thought the Fed should have gone ahead with a rate hike at its two-day meeting that just concluded.

The Fed's statement paved the way for it to raise the fed funds rate, likely by 25 basis points from the current range of 0.25% to 0.50%, later this year. The Fed hiked last December for the first time since before the Great Recession.

"The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives," the statement said.

Those objectives are twofold. On the labor market, the committee noted that job gains have been strong in recent months although the unemployment rate has held steady. And on inflation, which is still shy of its 2% target, the Fed said it expects prices to remain low because of the drop in energy costs but to rise in the medium term.

So markets are already counting down to the Fed's next big meeting in three months, expecting that it will pass on changing rates at its November meeting, which has no scheduled press conference.

Fed fund futures, which reflect traders' bets for future interest rates, showed a 61% probability of a rate hike in December, up from 59% ahead of the Fed's statement.

Fed forecasts

The statement was accompanied by new projections for interest rates, economic growth, and inflation.

The dot plot, which reflects where members think rates should be over the next few years, was more dovish. The median FOMC member predicts rates between 0.50% and 0.75% at the end of this year, suggesting only one more hike in 2016. In the longer term, Fed members see rates around 3%.

Samantha Lee/Business Insider

And the Fed now expects 2016 gross domestic product to grow by around 1.7% to 1.9% in 2016, compared with its previous outlook of 1.9% to 2.0%.

It now projects the unemployment rate to be around 4.7% to 4.9% this year, above the prior forecast of 4.6% to 4.8%.

It kept its expectations for core PCE inflation unchanged, at 1.6% to 1.8% for the year.

Around 2:30 p.m. ET, Fed chair Janet Yellen will hold her press conference and provide some color on the Fed's decision.

Here's the full statement:

"Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year. Although the unemployment rate is little changed in recent months, job gains have been solid, on average. Household spending has been growing strongly but business fixed investment has remained soft. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

"Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

"Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

"In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

"The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

"Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action were: Esther L. George, Loretta J. Mester, and Eric Rosengren, each of whom preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent."

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Microsoft is planning to buy back almost 10% of itself

• Bob Bryan
 

• 17h
• 6,457
 
• 5
 

Microsoft CEO Satya Nadella. Robert Galbraith/Reuters

Microsoft is buying back a whole bunch of itself.

The tech behemoth said on Tuesday that it has authorized a $40 billion share buyback program, according to a release from the company. With the market cap ending trading on Tuesday at roughly $440 billion, this means the firm is buying back just over 9% of the outstanding shares.

This is the fourth $40 billion buyback program for Microsoft, and the company said it will complete the first round by the end of 2016.

Microsoft also said it was raising its dividend by $0.03 per share, to $0.39 per share, for the quarter.

Following the announcement, shares of Microsoft ticked up 1.21% in after-market trading, to $57.50 per share.

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FedEx beats on earnings, shares rise

• Akin Oyedele
 

• 17h
• 1,049

Flickr / marksontok

FedEx on Tuesday reported better-than-expected earnings for its fiscal first quarter.

The courier giant said its operating results were boosted by higher volumes of FedEx Ground shipments, as well as cost reductions at FedEx Express. But costs associated with integrating TNT Express, the delivery company it bought in May, dented some of these gains. 

It reported adjusted earnings per share of $2.90, beating analysts' median forecast for $2.79, according to Bloomberg. Revenue totaled $14.7 billion, a hair above the forecast for $14.6 billion. 

"Our team is extremely excited about the TNT Express integration, and we are discovering many possibilities for achieving high returns," said Alan Graf, executive vice president and chief financial officer, in the earnings release.

Ecommerce-package growth boosted average daily volume growth at FedEx ground, amid slightly lower fuel costs. 

FedEx said it was unable to provide unadjusted earnings guidance because it cannot forecast the fiscal 2017 year-end mark-to-market pension accounting adjustments. This accounting method makes it easier for investors to glean how pension plans are performing from the income statement. 

On an adjusted basis, the company forecast EPS in a range of $10.85 to $11.35, falling short of analysts' estimates. 

The company's shares gained 1% in after-hours trading. They have rallied 9% this year. 

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BANK OF JAPAN TARGETS BOND YIELDS

• David Scutt, Business Insider Australia

• 4h
• 3,107

Haruhiko Kuroda, the Bank of Japan governor, at a news conference at the BOJ headquarters in Tokyo. Thomson Reuters

The Bank of Japan refrained from cutting interest rates from -0.1% at its September monetary-policy meeting, choosing instead to modify its existing policy framework.

Instead of targeting an annual increase in the nation's monetary base of about 80 trillion yen, the bank will now target the shape of the Japanese yield curve, announcing that it will purchase Japanese government bonds, or JGBs, with the aim of keeping the 10-year JGB rate "more or less at the current level" of about 0%.

"With a view to achieving the price-stability target of 2% at the earliest possible time, the bank decided to introduce 'QQE with yield-curve control,'" the bank said.

"With regard to the amount of JGBs to be purchased, the bank will conduct purchases more or less in line with the current pace — an annual pace of increase in the amount of outstanding of its JGB holdings at about 80 trillion yen."

So while the scale of asset purchases is expected to be roughly the same as it was previously, the bank is now targeting interest-rate levels, not just the size of its asset purchases.

To target the shape of the yield curve, the bank will now target JGBs "with a wide range of maturities," scrapping the previous stance of purchasing securities with a set time frame to maturity of seven to 12 years.

This will allow for greater flexibility in terms of policy settings, allowing the BOJ to make necessary adjustments based on the inflation outlook.

The bank also announced an "inflation-overshooting commitment," essentially a pledge to expand the nation's monetary base until the annual increase in consumer price inflation (CPI) exceeds its price stability target of 2% "and stays above the target in a stable manner."

The pledge to overshoot on the inflation target, coupled with greater policy flexibility now available to the bank to achieve that goal, has, for the moment, been welcomed by financial markets.

The Japanese yen has weakened, with the USD/JPY trading at 102.58, up 0.88% for the session. The Nikkei is also rallying, sitting up 1.23% as of 2 p.m. in Tokyo.

Bond yields, now central to BOJ monetary policy moving forward, have also lifted. The 10-year JGB yield sits at -0.022%, having traded at -0.049% just moments before the decision was released. It briefly rose to 0%, a level that had not been seen since the middle of March.

Read the original article on Business Insider Australia. Copyright 2016. Follow Business Insider Australia on Twitter.

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The British economy has cleared its first post-Brexit hurdle

• Will Martin
 

• 4h
• 542

Getty Images

The British economy has shown no substantial signs of a major slowdown in the months following the decision to leave the European Union, and has cleared the "first fence" in a post-EU world, according to analysis from Britain's official statistical authority, the ONS.

The Office for National Statistics released the first of a special series of what it calls an "Assessment of the UK post-referendum economy" on Wednesday morning, and for those worried about what the Brexit vote might mean for the UK's prosperity.

"As the available information grows, the referendum result appears, so far, not to have had a major effect on the UK economy. So it hasn’t fallen at the first fence but longer-term effects remain to be seen. The index of services published soon and the preliminary estimate of third quarter GDP, published at the end of October will add significantly to the evidence," Joe Grice, the ONS' chief economist said.

In the immediate aftermath of the referendum, fears about a possible collapse in the UK economy were rampant. Markets collapsed, with the pound plunging to a 31-year low and stocks — particularly in the financial sector — crashing in the days and weeks after the vote.Then, IHS Markit's widely respected PMI surveys in all three crucial sectors of the economy — services, manufacturing, and construction — showed a massive drop in the month of July.

Many predicted a coming recession, with several banks and economic research houses arguing we'd see the first recession in the UK since the end of the financial crisis. 

However, since then, things have rebounded somewhat. In August, IHS Markit's PMI surveys for all three crucial sectors of the economy — services, manufacturing, and construction — bounced back from disastrous figures in July.

Manufacturing, for instance, saw its biggest single month jump in history, while services jumped quicker than at any time in 20 years. The construction sector remained in contraction,but it is important to note that the sector was already shrinking even before the Brexit vote.

On top of the PMIs, retail sales remained strong and business confidence bounced. The economic data didn't seem to reflect the doom-laden predictions of many economists soon after Britain backed Brexit.

All in all, things didn't look as bad as we might think, and the ONS agrees. Here's an extract from the report:

"The post-referendum picture is still emerging and will continue to do so over coming months, quarters and years. Information so far generally covers short-term indicators with other important information not yet available. Nevertheless, there has been no sign of a major collapse in confidence and, within the data that is available, some indicators of strength."

The ONS' argument is corroborated by the Bank of England's latest Agents' Report, also released on Wednesday, which noted three key points from the months of May to August:

"The annual rate of activity growth had slowed overall as uncertainty had risen following the EU referendum, although it had remained positive. However, business sentiment had improved slightly in August following a marked dip in the immediate aftermath of the referendum.

"Consumer spending growth and confidence had been more resilient. Although housing market activity had fallen markedly in London and in parts of the surrounding area, it had held up relatively well in other parts of the United Kingdom.

"Companies’ investment and employment intentions had fallen, and were consistent with broadly flat levels of capital spending and employment over the coming six to twelve months."

The full picture of how Brexit will hit the economy will not become clear until Britain actually leaves the European Union, but while we wait for negotiations to begin, it doesn't look like the uncertainty of Brexit is killing the economy just yet.

However, also released on Wednesday was a downbeat new forecast from the OECD, whichpredicts that growth in the UK in 2017 will run at just 1%, cut from 2% at its previous forecast in June.

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Meet the riskiest bank in the world

• Ben Moshinsky
 

• 5h
• 2,981

REUTERS/Kai Pfaffenbach

Deutsche Bank is the riskiest bank in the world, according to the US Federal Deposit Insurance Corporation.

The bank has a leverage ratio of 2.68% according to the regulator's calculations.

The leverage ratio is a measure of a bank's financial sustainability, and shows how much equity capital a lender has against assets such as loans.

Regulators like the leverage ratio because it's a fairly simple measure of how active a bank is compared to its stock market valuation and is difficult for a lender to manipulate. 

The US calculation includes the amount of derivatives banks have on their books. A higher percentage suggests a bank is in a better position to weather losses and defaults.

On average, systemically important banks had a leverage ratio of 5.6% – or more than double that of Deutsche Bank. Wells Fargo is the strongest, with a ratio of 8.01%. While Deutsche Bank ranks lower for its leverage ratio, the banks Tier 1 Capital ratio stands at 14%, which is higher than the US banks average of 13.55% and that of Wells Fargo at 12.50%.

Tier 1 Capital is a different measure of bank's financial strength, and assigns different weightings to less risky assets. It also includes other instruments that can absorb losses, rather than just focusing on the value of the bank's shares. US regulators have traditionally focused on the leverage ratio, while European regulators have focused on Tier 1 Capital. 

Banks are getting generally riskier, according to FDIC Vice Chairman Thomas M. Hoenig.

"Although equity capital increased for U.S. G-SIBs in the first half of the year, assets increased more than proportionately, including a significant expansion of their derivatives book," Hoenig said in a statement on the FDIC's website. A G-SIB is a globally systemically important bank, meaning a lender whose failure would threaten a financial crisis and economic collapse.

"The net effect was an increase in their overall leverage position. Thus, as markets have recovered and as central banks around the world continue quantitative easing programs, the incentives for increasing financial leverage have intensified."

Deutsche Bank has a lower capital ratio than the US banks before the 2008 financial crisis, according to Hoenig.

"In 2008, the 10 largest US banks held on average 3.1% tangible equity capital-to-assets. When the financial crisis hit, these institutions experienced significant losses and required extraordinary government support," he said.

Here is the chart from the regulator:

FDIC

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