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Wall Street creeps into positive territory while FTSE slips as Powell warns of 'unpopular' measures

FTSE  Chair of the Board of Governors of the Federal Reserve System Jerome H. Powell participates in a panel during a Central Bank Symposium at the Grand Hotel in Stockholm, Sweden, January 10, 2023. TT News Agency/Claudio Bresciani/via REUTERS      ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. SWEDEN OUT. NO COMMERCIAL OR EDITORIAL SALES IN SWEDEN.?
The FTSE finished lower as Jay Powell said in Stockholm that the Federal Reserve will not become a 'climate policymaker'. Photo: TT News Agency/Claudio Bresciani/via Reuters

The FTSE 100 and European stocks finshed lower this Tuesday as the global rally ran out of steam for the first time in 2023, with investors digesting weak data on UK retail sales over Christmas and Federal Reserve chair Jerome Powell's speech.

The FTSE 100 (^FTSE) slipped 0.39% to close at 7,695, while the CAC 40 (^FCHI) in Paris lost 0.51% to 6,872 points. In Germany, the DAX (^GDAXI) was muted at 14,779.

Powell didn't give any hints regarding the pace of interest rate hikes, warning only that US central bank has to take measures which are unpopular to bring down high inflation.

Powell said: "Restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy. The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors."

In a speech delivered at the Symposium on Central Bank Independence in Stockholm, Sweden, Powell spoke about the need for the Fed to be free of political influence and to steer clear of issues outside its congressionally mandated purview.

“It is essential that we stick to our statutory goals and authorities, and that we resist the temptation to broaden our scope to address other important social issues of the day,” he said.

Read more: Goldman Sachs to cut 3,200 jobs this week

“Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals.”

He added: “We are not, and will not be, a ‘climate policymaker’.”

Across the pond, stocks opened mixed before bouncing back following Powell's remarks that stable inflation is the bedrock of a healthy economy and can require the Fed taking actions that are necessary, even if often unpopular.

The Dow Jones (^DJI) rose 0.17% 33,578 points. The S&P 500 (^GSPC) gained 0.18% to 3,899 points while the tech-heavy NASDAQ (^IXIC) climbed 0.28% to 10,665.

“With 2022 behind us, investors are now primarily focused on the profit outlook for the coming year,” strategists at Goldman Sachs wrote in a report.

Federal Reserve policymakers said fresh inflation data out later this week will help them decide whether they can slow the pace of interest rate hikes at their upcoming meeting, to just a quarter point increase instead of the larger jumps they used for most of 2022.

Back in London, Richard Hunter, head of markets at Interactive Investor, said; "For the first time this year, the index eased from a generally positive direction of travel, although remaining ahead by 3% so far in 2023. Declines were largely driven by weakness in the mining sector, alongside downgrades to the likes of Entain (ENT.L) and Next (NXT.L) which dampened sentiment."

Drinks maker Diageo (DGE.L) and consumer giant Unilever (ULVR.L) weighed down the UK's blue-chip index.

The increased cost of goods saw Christmas retail sales values up almost 7% on last December, masking a nervous festive season for consumers, figures showed.

Total sales increased by 6.9% in December against an increase of 2.1% in December 2021 ⁠— well above the three-month average growth of 4.4% and 12-month average growth of 3.1%, according to the British Retail Consortium (BRC)-KPMG Retail Sales Monitor.

UK retail sales increased 6.5% on a like-for-like basis from December 2021, when they had increased by 0.6%.

Read more: Crypto industry starts 2023 with fresh wave of job cuts

However, the rise in sales masked a significant drop in volumes considering historically record inflation, with consumers spending more in the shops to get less.

Victoria Scholar, head of investment at Interactive Investor, said: "Double-digit UK inflation is still sharply outpacing the level of retail spending, highlighting the rising cost burden businesses are having to pass on to consumers.

"With a looming recession, a softening consumer and ongoing inflation pressures, the start of 2023 looks set to be challenging for the retail sector after the Christmas cheer fades and the crisis of the cost of living reality sets in.”

Traders were also digesting comments from the Bank of England's chief economist on inflation.

Huw Pill said during a speech in New York that a surge in early retirement and long-term sickness means the UK faces a prolonged period of inflation compared with the rest of the world.

Meanwhile, Brent crude (BZ=F) was trading lower at around $79 per barrel amid concerns that further interest rate hikes in the United States, the world's biggest oil user, will slow economic growth and limit fuel demand.

In Asia, Tokyo’s Nikkei 225 (^N225) rose 0.78% to 26,175 points, while the Hang Seng (^HSI) in Hong Kong slipped 0.33% to 21,318 points. The Shanghai Composite (000001.SS) fell 0.21% to 3,169 points.

Watch: Fed Chair Powell defends rate hike campaign, argues for central bank independence