Rate-cut hopes are fading

Investors want an interest-rate cut. The Federal Reserve isn’t so sure the economy needs one yet. And now traders are throwing a tantrum. US December retail sales beat expectations across the board on Wednesday, showing that the consumer remains resilient, and knocked down the probability of a March rate cut to that of a coin toss. Fed officials have said as much, too. Fed governor Christopher Waller said rates would be lowered “methodically and carefully” at best. So all those bold bets for a March cut are being reconsidered, leading to higher Treasury yields and a lower stock market. Here’s your markets wrap. —Margaret Sutherlin

China’s economy grew 5.2% last year, hitting the official growth target for 2023. But the data released by Beijing also underscored that China’s economy hasn’t shaken off the problems that are most persistently weighing on domestic demand and confidence. A slew of indicators for home prices and property-related spending disappointed as the real estate crisis continues to bite. Deflationary pressures aren’t going away, with recent data showing prices dropped in December for a third consecutive month. China’s population also extended a historic decline, which could be an additional headwind down the road. Now attention turns to the government’s response—and Beijing up to this point has kept stimulus conservative for the world’s second biggest economy.

President Joe Biden hosted top congressional leaders at the White House on Wednesday to press for approval of his $110 billion package of aid for Ukraine and Israel, which are both embroiled in costly wars. Ukraine faces an ongoing invasion from Russia, while Israel is fighting against Hamas in the Gaza Strip. The aid has been tied up for weeks by conservative Republicans in Congress, who have demanded immigration reforms at the US-Mexico border in exchange for approving the aid for allies. The fight over the funding and border is one of House Speaker Mike Johnson’s first major tests after he took over from Kevin McCarthy, who was ousted by a small faction of far-right GOPers. Johnson struck down any hope of an immigration compromise ahead of the meeting.

Spirit Airlines shares continued their freefall Wednesday after a judge blocked the company’s merger with JetBlue over antitrust concerns. In the Tuesday ruling, US District Judge William G. Young made an impassioned case that a merger would eliminate a deep fare discounter, driving up ticket prices and hurting consumers. “Spirit is a small airline. But there are those who love it. To those dedicated customers of Spirit, this one’s for you,” he wrote. But if the struggling Spirit plunges into disrepair — as the company’s 24% stock decline Wednesday on top of a 47% plunge Tuesday suggests — there may not be a functioning carrier in the not-so-distant-future to offer those rock-bottom prices. Analysts are already raising the possibility of a Spirit bankruptcy filing and reorganization or even a liquidation.

Greenland’s ice sheet is disappearing faster than previously believed, according to a new study. The amount of glacier lost between 1985 and 2022 has been underestimated by as much as 20%. The shrinking of Greenland’s ice sheet, which is about three times the size of Texas, is already contributing to higher seas and may be impacting the distribution of heat around the world. Greenland’s ice sheet is retreating because of warmer global temperatures caused by the human burning of fossil fuels.

The Biden Administration relisted the Houthi militant group back on a global terrorist list Wednesday. The US is now locked in a battle with the Iran-backed group, after the Houthis began a string of attacks on commercial ships traveling through the Red Sea (yet another commercial boat was attacked this week). The Houthis say their attacks on shipping boats are in response to Israel’s campaign against Hamas in the Gaza Strip. Meanwhile, the European Union is set to sign off on sanctions targeting Hamas leadership and the militant group’s financing. And at the World Economic Forum in Davos, US Secretary of State Anthony Blinken suggested again that Israel’s future security depends on a pathway for a Palestinian state.

It’s boom time for traders in — Japan? As the Bank of Japan is widely expected to put an end to the world’s last negative interest rate in the next few months, the world’s third-largest government bond market is buzzing, the benchmark stock index has hit a 34-year high, and brokerages across Tokyo are staffing up — often seeking out older, experienced traders who remember when Japan last had positive rates.
The debate over whether cryptocurrencies are securities raged again Wednesday in a New York federal courtroom, where Coinbase Global Inc. squared off with the US Securities and Exchange Commission. The biggest US crypto exchange said buying Bitcoin on an exchange was like buying Beanie Babies: Tokens trading on the exchange aren’t securities subject to SEC jurisdiction because buyers don’t gain any rights as part of their purchases, as they do with stocks or bonds. The regulator sued Coinbase for allegedly selling unregistered securities, and Coinbase is in court trying to get the case dismissed. Meanwhile, longtime crypto believer Cathie Wood’s Ark Investment Management is snapping up shares of its newly launched Bitcoin ETF.

The Caribbean is now the most dangerous region in the world for deadly gun violence—and its leaders increasingly blame that on an influx of US guns. While it’s impossible to count precisely how many weapons are successfully smuggled into the Caribbean, the US concedes that the number of guns illegally pouring into the region has increased in recent years. So has violent crime. Of the 10 countries with the world’s highest homicide rates in 2022, five were in the Caribbean. Here’s how it’s playing out.

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