Federal Reserve is 'closely monitoring' global economy as it leaves rates on hold - as it happened

Graeme Wearden (now) and Nick Fletcher (2pm-7pm)

from on 2016-01-27 21:17 (#11ZQN)

Latest: US central bank leaves borrowing costs unchanged and reveals it is watching markets closely

Earlier:

9.17pm GMT

And finally.... Wall Street has ended the night on the back foot, after being underwhelmed by the Federal Reserve.

The Dow Jones shed 222 points, or almost 1.4%, to close at 15,944.46.

9.14pm GMT

Facebook also posted some highly impressive mobile advertising revenue:

EARNINGS: Facebook earned $5,630,000,000 in revenue from advertising, and about 80% of that came from mobile. pic.twitter.com/Adc9sVlZBB

9.10pm GMT

Some late breaking news... Facebook appears to have smashed forecasts.

The social network has posted earnings of 79 cents per share, compared to expectations of 68 cents.

EARNINGS ALERT: Facebook Q4 EPS $0.79 Adj. vs. $0.68 Est.; Q4 Revs. $5.84B vs. $5.37B Est. " $FB QUOTE: https://t.co/wAGfwlmHYp

Facebook jumping 4% after-market after clobbering estimates on revenue and earnings.

Facebook earnings beat estimates, shares jump 4.2% post-market https://t.co/ryhfiIqW7D pic.twitter.com/YAHvjRUz1i

9.07pm GMT

David Zervos, Chief Market Strategist at Jefferies, is telling Bloomberg TV that the Fed's statement was quite comforting.

But the markets are still being driven by fluctuations in the oil price, and fears over emerging markets, he adds.

Markets are still bouncing around on oil, still bouncing around on China.

8.48pm GMT

Our news story on the Fed decision is now live:

The Federal Reserve is keeping a key interest rate unchanged while pledging to closely monitor developments in the global economy and financial markets.

In December the central bank made the decision to raise rates for the first time since the recession. Stock markets have been turbulent across the world since the move, and all the US markets entered negative territory again after the announcement.

8.07pm GMT

The selloff is picking up pace, with the Dow Jones industrial average now down over 1%.

That's not all down to the Fed, though. Apple has shed 6% after last night's disappointing results showed that iPhone sales have slowed.

Market Alert Dow falls to new session low, down 235 points: https://t.co/FOojOlLKR6

8.01pm GMT

Paul Ashworth, chief US economist at Capital Economics, also points out that the Fed is no longer willing to describe the risks to the outlook as "balanced" (as covered here).

He writes:

As expected, the new statement acknowledged the apparent slowdown in activity growth in the fourth quarter. The growth of consumption and business investment is now described as "moderate" whereas back in December it was described as "solid". The slowdown in inventory investment also receives an explicit reference. At the same time, the Fed stressed that labourmarket conditions "improved further" with "strong" job gains.

Nevertheless, we still think that once the worst fears about China blow over and US economic growth rebounds, the Fed will end up raising interest rates more rapidly that expected in the second half of this year. We expect the fed funds rate to reach 1.50% to 1.75% by end-2016.

7.58pm GMT

The Fed is primarily worried about China, argues Worth Wray, chief economist at wealth management firm Evergreen GaveKal.

When the #Fed says it is "monitoring global economic & financial developments," it largely means #China & the #RMB. https://t.co/TFeq8BK5qX

7.50pm GMT

One expert reckons the Fed's statement guarantees more market turbulence in the next six weeks:

"Fed is almost certain to hike if markets stabilize in the next month and half, but might not hike if markets continue to slide..."

"...How can stocks and commodities possibly rally in response to that message?"-FTN's Chris Low

7.47pm GMT

This month's Fed meeting was always going to be all about the statement, given the FOMC bit the bullet and raised borrowing costs for the first time since the crisis in December.

The tone of the Fed's comments set the tone for the next few weeks -- and the statement is being taken as quite dovish.

Markets got the more dovish tone they were hoping for, with the Fed noting slowing economic growth and tipping its hat towards the idea that inflation won't rise towards 2% as fast as it thought in December. This doesn't mean a March move is out of the question, but the reference to global economic developments means that there will have to be plenty more improvement in the US economy before one is a definite possibility.

With the risks to the economy no longer seen as 'balanced' this is a Fed committee drawing in its horns. It was never going to admit that December's move was a mistake, but today's statement acknowledges that it is not time to get carried away with rate hikes.

7.36pm GMT

Matthew Boesler of Bloomberg says the Fed is taking the recent stock market losses seriously, without panicking.

Clear comment from the FOMC on financial markets without going so far as it did in Sept. to suggest that economic outlook is in jeopardy

Mildly dovish #Fed #FOMC statement knocks out 4th 2016 rate hike; equivocates on graduals hikes vs global developments. Mkts go sideways.

FOMC signals no imminent change in FF rates in March closely monitors global economic and financial developments

7.31pm GMT

The Fed also doesn't see inflation roaring away this year - hardly surprising, given the oil price tumble.

Tonight's statement says:

Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further

7.28pm GMT

This is a useful tool, showing some of the changes to this month's statement:

How exactly the Federal Reserve's January statement changed from December https://t.co/W3S7hz9wAK pic.twitter.com/NHdUQOVP6B

7.22pm GMT

Stocks are falling on Wall Street as traders digest tonight's statement.

Not immediately clear why - but investors may be concerned that the Fed has dropped that line about economic risks being balanced.

#DOW drops 144 points in a minute following Fed's decision to keep rates unch. Unknown reason. Earlier gains wiped out. #FED JG

Dow slides nearly 130 points again, other indexes also gyrating after Fed decision https://t.co/FOojOlLKR6 pic.twitter.com/JJOeKfAbj5

One notable element of the new Fed statement -- it no longer says risks to the economy are balanced https://t.co/Zkh3znDzHQ

7.18pm GMT

There's a significant change between this statement and December's one. The Fed has dropped the line saying that the risks to economic activity and the labour market are "balanced".

That suggests the Fed thinks the situation has become unbalanced....

With #Fed omitting line in statement about risks being 'balanced' regarding outlook, turns into a fairly dovish (but expected) #FOMC

7.15pm GMT

The Fed is also sticking to its view that interest rates will only rise gradually, meaning borrowing costs will remain below the long-term average for some time.

But it all depends on the data.....

However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

7.14pm GMT

The decision was unanimous -- all 10 members of the Federal Reserve Open Market Committee agreed to leave borrowing costs unchanged. Again, that's not a surprise.

7.11pm GMT

The US central bank also reckons that the American economy is continuing to heal.

The statement says:

Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed.

A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources

7.04pm GMT

The Federal Reserve says it is keeping a close eye on the global economy, and financial markets.

In tonight's statement, is says:

The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.

7.00pm GMT

In the least surprising news of 2016, the US central bank has left borrowing costs unchanged.

The policy rate remains at 0.25% to 0.5%.

US Fed: Keeps Fed Funds Range Unchanged At 0.25-0.50%

6.58pm GMT

OK, it's nearly time for the Federal Reserve to announce this month's monetary policy decision.

Remember, it's all about the Fed's statement - Wall Street is certain that Janet Yellen isn't going to raise interest rates again.....

Markets price zero probability for #Fed rate hike today, only 27% probability for March hike. pic.twitter.com/PP2neJ0IZc

5.41pm GMT

The FOMC projected 100 bps (4 quarter percent hikes) in 2015. Swaps show market pricing in 1: pic.twitter.com/XQjugbfsYU

5.34pm GMT

Ahead of the Federal Reserve's interest rate setting meeting, and following a rise in the oil price, European shares have ended the day on a positive note.

With hopes of co-operation between oil producers - notable Opec and Russia - to tackle the issue of oversupply, Brent crude has jumped 3.6% to $32.96. The rise comes despite a jump in US crude inventories. The closing scores showed:

5.02pm GMT

Another reason for the day's strength in the oil price: Russia has said it discussed co-operation with Opec over crude prices. Reuters reports:

Russia's energy ministry said possible coordination between Russia and the Organization of Petroleum Exporting Countries (OPEC) was discussed at a meeting with Russian oil companies on Wednesday.

The ministry said the discussion was related to unfavourable oil prices.

4.49pm GMT

Despite its share price fall, Apple is still top of the pile in value terms:

Despite 5.2% slide in $AAPL today, it remains the world's most valuable company with a $525,600,000,000 market cap. pic.twitter.com/2piOKrtpmC

4.33pm GMT

Markets are moving higher on the back of the improvement in the oil price. Tony Cross, market analyst at Trustnet Direct said:

The threat of the early sell-off for oil prices this morning failed to materialise with crude bouncing above the $30 mark and this has in turn lent a raft of support to equity markets on both sides of the Atlantic. Even what could at best be described as a mixed bag in terms of US oil inventory data has failed to knock sentiment so London's FTSE-100 is rounding off the day - where we tested highs not seen for two weeks - with a bullish tone. Next up however it's the latest Federal Reserve Open Market Committee meeting and anything that is interpreted as being overly hawkish here could readily unseat equity markets globally that are still clearly rattled by recent events.

4.27pm GMT

Elsewhere, US crude stocks rose to their highest level on record - ie back to 1930 - last week while gasoline stocks increased but inventories of distillates fell.

The figure for distillates, which include heating oil, follows the cold front hitting the country in the past few days. Distillate inventories fell by 4.1m barrels compared to expectations of a near 2m fall.

US crude oil inventories rose by the highest level since April 2015 last week, pushing overall oil in storage to near levels not seen in 80 years for this time of year.

Crucially, we did see domestic production fall ever so slightly. This distinction highlights the reaction in global trade, which has seen oil prices rise off the back of seemingly bearish headline data. With sentiment driven by record output from Iraq and Russia, alongside the entry of Iran on the mainstream oil market, any news that US output is starting to turn lower is certainly welcome for oil bulls.

3.46pm GMT

Here's our take on the libor verdicts:

3.33pm GMT

Five of the six brokers were acquitted of conspiring to rig Libor, reports Reuters.

The jury also reached a not guilty verdict on one count of conspiracy to defraud for former Icap broker Darrell Read, said Reuters, but it has yet to reach a verdict on a second count. The judge has asked the jury to reach a majority verdict.

3.24pm GMT

The six brokers on trial were Darrell Read, Danny Wilkinson and Colin Goodman from Icap, Noel Cryan from Tullett Prebon, and Jim Gilmour and Terry Farr from RP Martin.

3.12pm GMT

Five out of six brokers accused of manipulating libor bank rates have been acquitted of fraud at Southwark crown court.

A jury is still discussing one count against one of them, but the others have been freed.

Breaking: #Libor brokers acquitted on fraud charges. Huge loss for Serious Fraud Office. https://t.co/tvUhVfdn8H

Jury still discussing one count against Darrell Read. All others unanimously freed.

2.52pm GMT

The Federal Reserve is holding its first meeting since December's now-contentious decision to raise interest rates for the first time in nearly a decade.

The subsequent market turmoil, focused on a slowdown in China and the tumbling oil price, has made many wonder whether the Fed was a bit premature in pulling the rate trigger.

All eyes will be back on the Federal Reserve today as they make their first interest rate decision and monetary policy statement of the year but there are no economic projections or press conference this time round, which come at the next meeting in March. We've seen a rise in risk appetite in this final week of January which so far has been a bit of a blood bath, although the recovery from lows in many indices has softened the blow for many investors. This has come as a result of a bounce in oil prices but also a growing expectation that central banks will have to do more to support the global economy.

Today's Fed meeting as a result is likely to see a more dovish tone to it, especially since the market consensus is that we will see fewer rate hikes this year than the Fed is currently pencilling in.

The rate-setting FOMC committee is broadly expected to keep the benchmark lending rate unchanged this time around. Indeed, priced-in probability of an increase is a mere 14.3%. This puts the spotlight on the text of the statement accompanying the rate decision and the forward guidance contained therein.

Investors appear positioned for a dovish outcome having scaled back 2016 tightening bets amid risk aversion since the beginning of the year...

2.36pm GMT

As investors await the latest US oil inventory figures and the outcome of this month's Federal Reserve meeting, Wall Street is on the slide again.

In early trading the Dow Jones Industrial Average has fallen 113 points or 0.7%, partly due to Apple which is down 3.8% at $96.24 following its disappointing figures.

2.22pm GMT

Ahead of the start of US trading, here are some opening calls:

US Pre-market movers: $CAPN +34.9% $RPTP +12.1% $BIIB +5.4% $SUNE +4.9% $TEX +3.2% $BBBY -2.9% $AAPL -3.1% $FCAU -5% $BA -6.7% $X -7.7%

2.11pm GMT

Oil has come back from its worst levels of the day, on renewed hopes that Opec and other producers such as Russia would act to stem the supply glut which has hit prices.

Brent crude is now down 0.8% at $31.52 a barrel having fallen to $30.83 earlier. But US inventory figures due later will undoubtedly have an impact on the price, not to mention the Federal Reserve rate setting meeting and any effect the US central bank's comments have on the dollar.

1.41pm GMT

Ben van Beurden is upbeat about today's vote, despite the small revolt.

"I am delighted with the positive shareholder vote and the confidence that shareholders have shown in the strategic logic of the combination of Shell and BG.

Our immediate focus is on the successful completion of the transaction and we now await the results of tomorrow's BG shareholder vote.

12.53pm GMT

It's worth reiterating that 17% of Shell shareholders opposed the BG merger at today's vote.

That suggests that some big City investors have reservations about the deal, despite Shell chief Ben van Beurden's best efforts to persuade them of its merits.

12.41pm GMT

Thousands of workers at Shell and BG now face the axe, once the merger goes through.

Shell announced last month that it will cut around 2,800 positions, or some 3% of the combined company.

12.28pm GMT

Newsflash from The Hague - Royal Dutch Shell shareholders have just voted in favour of its 35bn merger with rival oil firm BG.

That's despite pressure from some shareholders to renegotiate the tie-up, which was negotiated before the oil price slumped to just $30 per barrel.

12.23pm GMT

RBS is helping to drag the London stock market down into the red today.

12.02pm GMT

Here's more reaction to RBS's latest financial woes, via Press Association:

Russ Mould, investment director at AJ Bell, said:

"It's another bitter pill, but putting legacy issues behind it is essential if Chancellor George Osborne is going to off-load the Government's stake during this parliament."

11.42am GMT

Over in America, traders are expecting Apple's share price to slide after it warned that revenue will fall this quarter, for the first time in 13 years.

Apple set to open 3.5% lower. HT: @sunchartist pic.twitter.com/XLGH8YhlZe

Market caps of huge companies. Will Google soon overtake Apple? pic.twitter.com/SoWrGyC9RX

11.11am GMT

RBS isn't the only bank counting the cost of the PPI scandal today.

Santander, the Spanish financial giant, has announced it is setting aside another 450m to cover compensation to customers who were missold Payment Protection Insuranace.

10.48am GMT

A wave of 'challenger banks' have sprung up since the financial crisis, hoping to win business from scandal-splattered big players such as Royal Bank of Scotland.

And one of them, Metro Bank, has announced plans to float on the stock market. Metro, which is losing around 10m per quarter, wants to raise 500m from shareholders.

10.19am GMT

The British public had better face the truth - we'll all be shareholders in the banks for a while longer yet.

So argues Chris Beauchamp, senior market analyst at City firm IG.

RBS's ability to surprise investors with fresh bad news has been one of the hardy perennials of the past six years, and yet still the news keeps coming. George Osborne's decision to sell a chunk of the government's stake last August, which was derided at the time, now looks like a sound financial decision, but it does mean any further sales are essentially off the table.

Coincidentally, with Lloyds down 2% this morning in sympathy, it seems the government will remain a key asset manager when it comes to UK banks.

10.05am GMT

If you're just tuning in, here's Jill Treanor's news story about the latest problems at RBS:

9.45am GMT

The latest problems at RBS show that bankers need keeping on a tight leash, argues campaigners for a financial transaction tax.

"It's groundhog day in the City as RBS announces yet another huge provision for dodgy dealing and fleecing its customers.

"Try as it might, the banking sector is incapable of shaking off its past sins. The government must take note - now is not the time for it to ease up on financial sector reform."

9.26am GMT

Citigroup analysts have warned that RBS could suffer even more legal charges this year, points out the BBC's Kamal Ahmed:

"We still see significant additional litigation charges in 2016, on top of the charges that have been announced today.

Citi describes RBS announcement as "profit warning" "We still see significant additional litigation charges in 2016" https://t.co/z44noTclTd

9.21am GMT

A quick explanation. When RBS says it is setting aside 1.5bn to cover "various US residential mortgage-backed securities ("RMBS") litigation claims", it is referring to one of the more noxious elements of the 2007-08 financial crisis.

In the build-up to the crisis, milions of mortgages were sold to US citizens with shaky credit histories, who could not really afford them. Those loans were repackaged by investment banks into new financial products (the RMBSs) and sold onto investors who weren't told how dangerous they might be.

8.53am GMT

Important point: The 1.5bn in new US legal charges announced by RBS this morning does not cover any potential settlements with the US Department of Justice, or various US State Attorney General investigations.

Ian Gordon of Investec warns that:

The timing and the cost of resolving those cases remains highly uncertain.

8.39am GMT

City analysts are punting out their opinions now.

And Sandy Chen of Cenkos Securities isn't too alarmed by RBS's announcement. He argues that the bank is simply cleaning up the mess of previous eras (or possibly 'previous errors').

Bad news - really? More like putting their past in their behind, as Pumba said (in the Lion King).

8.29am GMT

The UK government currently owns almost 73% of RBS, and at today's share price I fear we're stuck with it for some time.

The taxpayer paid around 502p per share when it bailed the stricken bank out in 2008.

All the people who complained about Osborne selling RBS shares at 330p will of course notice that it dropped back below 250p this morning.

8.13am GMT

RSB shares have just hit their lowest level since September 2012, I reckon.

That's not good news for George Osborne, as he tried to sell the bank back to the private sector.

8.06am GMT

Shares in Royal Bank of Scotland have slumped by 5% at the start of trading, shedding 12.1p to 248p.

That makes RBS is the biggest faller on the FTSE 100.

8.05am GMT

Q: When did RBS last make a profit, asks Jill Treanor.

CEO Ross McEwan sucks through his teeth and takes a stab at 2007 -- the year before Lehman Brothers failed.

7.59am GMT

Q: How much has RBS paid out on PPI?

The total bill is around 4.3bn, says McEwan.

Takes total #RBS set aside for PPI mis-selling to 4.3 billion. CEO Ross McEwan says bank will make a 2015 loss after money set aside today

7.58am GMT

Q: Do today's provisions mean RBS will declare a loss for 2015?

Yes, McEwan replies. Some of these charges will hit the bottom line (not the pension changes, though)

7.57am GMT

My colleague Jill Treanor asks whether today's 500m PPI provision is finally the end of the saga.

We've done the best we can, based on what we know today, to estimate what the final provision will be, McEwan replies.

We think it is hopefully the end.

7.53am GMT

RBS is briefing the media now, on a conference call.

Chief Financial Officer Ewen Stevenson is telling reporters that "underneath it all we've got a strong core bank".

7.52am GMT

Will it ever end, wonder City journalists....

You would think RBS had run out of kitchen sinks by now..but no...bank to take another 3.6bn in charges - on @fasft https://t.co/xkwiUvfp5b

Banks still can't escape past.@RBSGroup taking 3.6b impairment charge on pensions,PPI &RMBS litigation. @bancosantander took Eu600m hit PPI

7.49am GMT

Is Ross McEwan is cleaning up RBS ahead of a sale, wonders the BBC's Kamal Ahmed.

Ross McEwan, RBS CEO, launches huge clean up operation. 4.2bn payment for pensions deficit, extra 1.5bn for US mortgage legal actions...

RBS sets aside extra 500m for Payment Protection Insurance mis-selling (total bill 4.3bn) & 498m write-down of private bank value

7.46am GMT

RBS has also told the City that it is putting 4.2bn into its pension scheme, to cover an accounting deficit of 3.3 billion.

That's mainly an accelerated payment of existing committed future contributions. It follows changes in accounting practice, which have made RBS rethink whether or not it has an unconditional right to a refund of any surpluses in its employee pension funds.

RBS: 1.5bn provision for RMBS bonds, extra 500m for PPI and 498m writedown on the private bank...

RBS also appears to pumping 4.2bn into its pension too...

7.40am GMT

Royal Bank of Scotland has stunned the City with a fresh wave of provisions to cover bad behaviour and legal bills.

In an unscheduled announcement, RBS announced a series of new charges. In a nutshell:

"RBS today announces a series of updates to the market" #NeverAGoodOpeningLine

"I am determined to put the issues of the past behind us and make sure RBS is a stronger, safer bank. We will now continue to move further and faster in 2016 to clean-up the bank and improve our core businesses.

We've always been open about the scale of past issues facing RBS and although there is clearly much more to do, this announcement is a further step towards addressing legacy issues and building a great bank for our customers and delivering long term value for our shareholders."

7.21am GMT

Good morning, and welcome to our rolling coverage of the world economy, the financial markets the eurozone, and business.

Two things dominate today -- the turmoil in the stock markets, and the first US Federal Reserve interest rate decision of 2016.

The symbiotic relationship between equity markets and oil prices continued yesterday as after a rocky start to trading saw a slide in oil prices below $30 drag equity markets lower, the lack of follow through saw a semblance of stability return and a sharp recovery back above the $30 level on vague chatter that senior OPEC officials were looking to open a dialogue and put together some form of deal with Russia in an effort to put a floor under prices.

UK companies posting results today - Antofagasta, Britvic, Paragon, Aberdeen Asset Management, Sage Group

US companies posting interim results - PayPal, Boeing, Biogen Idec, Texas Instruments, Facebook

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