US inflation heat torches rate cut hopes

Good morning. Here's what happened overnight and what you need to know today.

1.

Arrivederci cuts: US inflation saw a hotter than expected reading for January, adding to speculation that the Federal Reserve may put the brakes on interest rate cuts. Figures from the US Bureau of Labor Statistics saw headline CPI climb to 3% year on year, while the core Consumer Price Index (CPI) (excluding food and energy) rose by a higher than forecast 3.3%. The price of eggs surged 15%, with headline CPI also exceeding expectations at 0.5% on the month, compared to a 0.3% predicted rise. US government bonds and stock futures saw a sharp sell-off on the news, while the US yield curve shifted up 10 basis points across most maturities. Whitney Watson of Goldman Sachs Asset Management told Bloomberg this print “is likely to further cement the FOMC’s cautious approach to easing…and [we] anticipate the Fed staying on hold at next month’s meeting.” (Capital Brief)(US Bureau of Labor Statistics)

2.

Regulation Eradication: US President Donald Trump’s advisors are considering consolidating US banking regulators without Congress, The Wall Street Journal reported, citing unnamed sources. Discussions have focused on collapsing the Federal Deposit Insurance Corporation (FDIC) into the Treasury Department and combining its regulatory responsibilities with the Office of the Comptroller of the Currency (OCC). The administration has already moved against the Consumer Financial Protection Bureau (CFPB), installing Russell Vought as acting head and closing its headquarters. The CFPB website still displays a 404 error message, and Vought has begun firing staff, with termination letters sent to some probationary employees. The administration wants at least de facto consolidation, the paper said, as formally merging agencies would require congressional approval. Meanwhile, on Tuesday evening, Trump nominated Jonathan McKernan to lead the CFPB. OCC and FDIC officials reportedly expect to hear from Musk’s DOGE department soon on next steps. (Wall Street Journal)(Capital Brief)

3.

Soft quarter: Softbank swung to a loss for the fiscal third quarter as its private Vision Fund portfolios underperformed. Softbank reported a net loss of ¥369.2 billion ($3.83 billion) for the quarter compared with a profit of ¥950 billion a year ago. Analyst consensus had expected a net profit of ¥234 billion. Softbank’s tech-heavy Vision Funds continue to prove volatile for the Japanese player, as some of their higher profile investments such as ride-sharing app Didi and ecommerce group Coupang have seen valuation drops. The ¥309.9 billion Vision Fund losses follow two successive quarters of gains. Last month, US President Donald Trump, Softbank CEO Masayoshi Son, Oracle and OpenAI announced plans to launch an AI infrastructure project dubbed ‘Stargate’. Trump said the company plans to immediately start investing USD100 billion (increasing to USD500 billion in equity and debt over four years), but the exact project timeline and blueprint for financing remains unclear. (Softbank results)(Financial Times)(Capital Brief)

4.

Trump’s watchdogs: Republicans unveiled a budget plan that includes USD4.5 trillion ($7.14 trillion) in tax cuts over a decade, a USD4 trillion debt ceiling increase, and at least USD1.5 trillion in spending cuts. The cuts target Medicaid, Obamacare subsidies and food assistance, while allocating USD300 billion in additional funding to defence and immigration enforcement. Meanwhile, eight former watchdogs have sued the Trump administration, arguing their mass firings as the administration’s watchdog were illegal and violated federal statutes meant to protect oversight. Trump has said he will put “good people” on those roles. Elsewhere, the Senate confirmed Tulsi Gabbard as director of national intelligence in a 52-48 vote, with all Democrats, two independents, and Republican Mitch McConnell opposing her. Gabbard faced resistance because of past comments seen as sympathetic to authoritarians such as Russian President Vladimir Putin and former Syrian dictator Bashar al-Assad. Also, US Defense Secretary Pete Hegseth called the prospects of Ukraine becoming a member of NATO and restoring its pre-2014 borders “unrealistic”. Trump said he had spoken with Putin to begin negotiations to end the war in Ukraine, and the Kremlin said Putin invited Trump to Moscow for discussions. (NYT)

5.

Powell spotlight: Federal Reserve Chair Jerome Powell told Congress the fresh inflation data showed that while inflation has eased, the central bank is “not there yet.” “We are close but not there on inflation,” he said during his second day at the Capitol, adding that January’s inflation data reinforced this. Core consumer prices rose 0.4% in January, the largest jump since March, driven by increases in housing, food, energy, prescription drugs, and car insurance. Powell said the Fed will keep policy restrictive for now. Traders, reacting to the data, lowered expectations for rate cuts, now anticipating just one this year instead of two. Earlier, President Donald Trump called for lower interest rates. “Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!! Lets Rock and Roll, America!!!” he posted on his social media site. Powell declined to comment but noted that new policies, including tariffs and fiscal measures, could impact Fed decisions. (Reuters)(Bloomberg)

6.

Oil IPO: Japan’s Eneos Holdings is planning to list its metals unit, JX Advanced Metals (JXAM), in what would be the largest listing in Japan in the last seven years, according to sources cited by Reuters. The oil refiner is aiming to raise at least ¥400 billion ($4.25 billion) for the IPO, and plans to sell half of its JXAM stake in the listing at a valuation of at least ¥800 billion. The refiner is expecting to receive approval for the listing of JXAM as early as this week, having applied to the Tokyo Stock Exchange in October last year. JXAM manufactures sputtering targets which are materials used during semiconductor chip production, and has invested in a new plant in Arizona for manufacturing the targets. (Reuters)

7.

Brookfield’s credit: Brookfield Asset Management raised USD29 billion ($46.41 billion) in the fourth quarter of 2024, with its credit business now its largest asset source. It collected USD20 billion in credit, including USD9.2 billion from Oaktree funds and USD6.6 billion from insurance clients. Its renewable division secured USD3.5 billion for its global transition fund, while its flagship real estate fund raised about USD500 million. Distributable earnings rose 11% to USD649 million, or 40 cents per share, slightly surpassing analyst forecasts and helping raise its dividend 15%. Fee-bearing capital grew 18% year-over-year to USD539 billion, while fee-related earnings hit a record USD688 million, up 17%. Brookfield is expanding its credit operations, consolidating them under a single platform that includes partnerships with major asset managers. It is also seeking renewable energy acquisitions, betting investor fears over Donald Trump’s anti-green policies are overblown. (Capital Brief)(Brookfield release)(FT)

8.

Crude reality: Chevron will lay off 15% to 20% of its global workforce by the end of 2026 as part of a cost-cutting effort, the oil company said on Wednesday. The reductions could impact up to 9,000 employees, based on its 2023 workforce of 46,500. Chevron is targeting USD2 billion ($3.18 billion) to USD3 billion in structural cost reductions through technology, asset sales and changes to how and where work is performed. Employees were told they can opt for buyouts until April or May, with a leadership reorganisation expected to be within two weeks, a source told Reuters. The layoffs follow weak refining margins, which led to a fourth-quarter loss for the first time since 2020. Chevron is also engaged in a legal battle with Exxon Mobil over its planned USD53 billion acquisition of Hess, a key part of its future oil production strategy. (Bloomberg)(Reuters)