WSJ What’s News - Investors Welcome Fed’s Bold Rate Cut

Episode Date: September 19, 2024

A.M. Edition for Sept. 19. Global stocks rise and U.S. futures rally after the Federal Reserve moves to lower interest rates by a half-point. Plus, the Pentagon worries Israel is close to launching a ground war in Lebanon. And, the WSJ’s Georgi Kantchev says Vladimir Putin’s attempt to rewire global trade and circumvent sanctions has run into some serious obstacles. Azhar Sukri hosts.  Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Ecolab Water for Climate. Less water, more growth. Results will vary. Learn more at Ecolab.com slash ewc. Ecolab Water for Climate. Transforming the way the world thinks about water. US alarm about a possible ground war in southern Lebanon grows, plus a look at how global markets are receiving the Fed's half-point rate cut, and Russia tries to rewire its global trade network with mixed results. These are key projects for Russia, but they're being impacted on all sides. You have the financial situation, you have the infrastructure limits limits and then the threat of US sanctions. It's Thursday, September 19th.

I'm Azhar Sukri for the Wall Street Journal filling in for Luke Vargas. Here is the AM edition of What's News, the top headlines and business stories moving your world today. We begin with the Fed, which started its long anticipated cycle of interest rate cuts yesterday with a half point reduction and entered a new phase in its bid to stick a soft landing for the US economy. I reached out to journal finance editor Alex Frangos to ask him how global markets received that move.

So far, so good. At first, the US markets were up and then they finished flat. But then when overseas markets opened in places like Japan and Hong Kong and Europe, stocks are up pretty solidly, the dollar's down, and US stock futures, which give us a flavor of what might happen later Thursday, are also up pretty firmly. So a little bit of a delayed happy response to the big cut. Right. So treasuries did dip on the back of the Fed's move. What does that tell us about what the markets are expecting going forwards from the Fed?

Well, the markets were coming into this having recalibrated massively in the week before the meeting. Everyone had been expecting a quarter point cut and then in the last few days before that the consensus changed to a half point. It was still a bit of a split decision so it made sense that yields would come down a little bit because there were still some people out there who thought it was going to be a quarter point. Going forward it remains uncertain. The Fed signaled that there are at least a couple more cuts ahead for the rest of the year,

and markets seem to be taking the Fed at their word. But as we've seen over this year, the expectations for rate moves has just moved so wildly. The beginning of the year, we thought there'd be cuts by March, and then we thought there wouldn't be any at the whole year, and then all of a sudden, here we are with a 50 basis point cut. so a lot more water has to go under the bridge before we know

what's going to happen next. That was the Journal's Alex Frankos. In other markets news today, weekly initial jobless claims are due at 8.30am Eastern, followed by existing home sales data at 10am. Later in the day we'll get earnings results from FedEx. And the Bank of England is expected to keep its key interest rate unchanged at 5%, after cutting rates for the first time in four years last month. The Pentagon is worried that a ground war could soon break out between Israel and Hezbollah

in southern Lebanon. According to our reporting, US concerns that Israel could soon launch an offensive have intensified in the past couple of days following a wave of deadly explosions of pages and other electronic devices carried out against Hezbollah militants. According to a person familiar with the matter, Israel's military has moved thousands of commandos and paratroopers closer to the Lebanon border in recent days. Israeli officials said yesterday that they are beginning a new stage in their clash with Hezbollah, with which Israel has engaged in tit-for-tat strikes for months. Speaking to reporters yesterday, National Security Council spokesman John Kirby

said the US still sees a way to end the crisis through diplomacy rather than war. And on Capitol Hill, House lawmakers have voted down an initial proposal by House Speaker Mike Johnson to avert a partial shutdown at the end of the month. More than a dozen Republicans joined most Democrats in opposing the bill, which would have extended government funding levels for six months and included a provision requiring voters to provide proof of citizenship to register. Johnson said he was disappointed by the bill's failure and that he was talking with Republican colleagues about his next steps.

A group of companies including Facebook parent Metta, Spotify and Prada are warning that the European Union risks missing out on the full benefits of artificial intelligence because of its stringent tech regulations. In an open letter spearheaded by Meta executives from more than two dozen companies said Europe risks reaping fewer economic rewards from AI due to what they see as inconsistent regulatory decisions and they called on the EU to harmonise its rules. Boeing will furlough tens of thousands of white-collar workers as it tries to weather

the financial blow from a strike by its largest union. In a memo to employees yesterday, CEO Kelly Ortberg said that affected workers would be furloughed for one out of every four weeks for the duration of the walkout. The jetmaker is also hoping to avoid a credit rating cut at a time when production of its 737 and other jets has been halted by the strike. One analyst estimates the stoppage could cost the manufacturer some $500 million a week. Ratings for Moody's and Fitch both rate Boeing one notch above junk status. Coming up, the war in Ukraine has forced Russia to rethink its trade links. We'll hear why

that's proving harder than Moscow bargained for after the break. Just to be clear, I'm there for savings, not whatever you think university is for. Get Uber One for students. A membership to save on Uber and Uber Eats. With deals this good, everyone wants to be a student. Join for just $4.99 a month. Savings may vary. Eligibility and member terms apply. Russia is now losing more men on the battlefield than it can recruit to replace them. That is according to Western estimates that underscore the dilemma facing President Vladimir

Putin, as the number of dead or wounded on both sides of the war reaches roughly 1 million. He's under pressure to call up more troops, but a fresh mobilisation would come at a high political cost. And as correspondent Georgi Kanchev reports, that's not the only challenge he faces. Two and a half years ago, Putin set in motion major changes to how Russia trades with the world, pivoting away from the West to circumvent sanctions. And while he mostly succeeded in keeping oil revenues flowing by rerouting Russian oil towards neutral countries like China and India, rewiring other parts of global trade

has proven a lot trickier. Our Luke Vargas spoke to Georgi and asked him about those challenges. LUK VARGAS, GERGIE'S FRIEND, GERGIE'S FRIEND, GERGIE'S FRIEND, GERGIE'S FRIEND, GERGIE'S FRIEND, The rail is a good example because Russia has been for years trying to increase the capacity of its rail infrastructure going east. Now there's a lot more urgency to do example because Russia has been for years trying to increase the capacity of its rail infrastructure going east. Now there's a lot more urgency to do that because Russia needs to send more goods to China and also receive more goods for China. But other goods that used to go to Europe now moving to China have been clogging up that rail infrastructure.

So rail has been a problem for Russia. And just one example of this coal, which is primarily transported via rail there the capacity limitations on rail have been actually hitting the coal exports to China so those have been not growing as fast as before or even stagnating some other challenges you document in your reporting is the fact that this effort to send goods to India via Iran over land and by the Caspian Sea have sort of hit some hiccups infrastructure and financing. There's also this nagging issue of Arctic sea ice which is making the usage of a sort of northern trade route between Russia's western ports and Asia not as feasible as

maybe Moscow would have hoped. But you mentioned China a minute ago and a lot of the reliance on China here could be painted as a possible way forward for the Russian economy, but also exposes their vulnerability, right? Absolutely. That's the issue is that China is indeed a huge partner now for Russia and Russia is getting a lot of its revenue from the Chinese trade. But ultimately, what we shouldn't forget is that Russia needs China more than China needs Russia. So China, if we see right now, we have the threat of secondary sanctions by the US and those could hit any bank. Sanctioning a country or entity that trades with Russia in addition to Russia itself. Yeah, yeah, exactly. And those sanctions are potentially more hard-hitting and they

could hit counterparties in China and other places. So from that point of view, China and Chinese entities, Chinese banks can decide and have indeed decided to limit trade with Russia in recent months and that hits trade as well. So you have beyond the physical infrastructure, you have the financial infrastructure, it's also under stress. But ultimately, what you mentioned about the Northern Sea route via the Arctic and the routes via Iran to India, these are key projects for Russia. Russia needs those so that it can get goods both ways faster in commodities, but being impacted on all sides. You have the financial situation, you have the

infrastructure limits, weather, climate, and then the threat of US sanctions, because US sanctions are hitting stuff like ice-breaking ships, right, which Russia needs to be able to facilitate that trade over the Arctic. Getting those now is actually much more difficult. So this is one example of how opening up new trade routes is actually a huge challenge. So where does this all net out? I mean, in terms of Russia's ability to keep pressing the war effort in Ukraine, whether it can pay its bills, pay for its social services for veterans, right, there's a lot of costs here that are racking up. Where does Russia stand two and a half years in? That's a good question. I mean, ultimately Russia has decided and the Russian leadership has decided that the war is the unifying principle of the

economy, the society, the country at large. So they will invest and they are investing everything in that war. But the thing is trade in commodities beyond oil is what actually can facilitate the Russian economy in the longer term. And because that war, you know, who knows how long it might last and the conflict with the West is definitely going to last longer than this particular case. For that, Russia will need the war economy that's strong, that is well funded, that has a potential for growth even. and that right now is just not there. Are we looking at any sort of timeline of how long Russia can hold on with a war ongoing and sanctions remaining in place? No I think that's difficult to say in terms of timeline a lot of the experts have been forecasting

the Russia would suffer deep recession even depression after the initial rounds of sanctions that didn't happen precisely because Russia invested a lot into militarizing its economy and a lot of the growth most of the, that didn't happen precisely because Russia invested a lot into militarizing its economy. And a lot of the growth, most of the growth that Russia has registered over the past two and a half years is due to the fact that military factories are booming, salaries are rising. But at the same time, Russia is hitting against limits, limits on labor. It's missing up to five million people.

We have the demographic issues that have been longstanding. Inflation is high. So growth is artificially high right now because of the war. But the question is how long that lasts. We don't know. But ultimately, the scenario that Russia is looking for is rather stagnation than some kind of growth story that maybe was possible before.

I've been speaking to Wall Street Journal foreign correspondent, Georgi Konchev. Georgi, thank you so much. Thank you. And that's it for What's News for Thursday morning. Today's show is produced by Daniel Bach with supervising producer Christina Rourke. And I'm Azhar Sukri for the Wall Street Journal filling

in for Luke Vargas. We'll be back tonight with a new show. Until then, thanks for listening.