US Dollar Falls Early Wednesday Ahead of ADP, Refunding, Services Data, Fed Appearances

The Saudi index closed Wednesday trading lower at 0.16% in the red as trade concerns raise uncertainties with the US Federal Reserve's future rate cuts.

According to the Tadawul All Share Index, the bourse closed at 12,414.40 points, with Ash-Sharqiyah Development (SASE:6060) leading the pack at 6.74% in the green, while Kingdom Holding (SASE:4280) lost the most at 2.97% lower.

"While the immediate worst case for markets may have passed, trade policy uncertainty remains high and, in our view, means the hurdle rate for Fed rate cuts has risen. As a result, we remove our forecasted rate cut for March and leave only one 25bp rate cut this year at the June meeting," Morgan Stanley's Chief US Economist Michael Gapen said in a note.

Speaking of tariffs, US President Donald Trump's tariffs have taken effect in China, with China imposing retaliatory tariffs on certain US products, such as oil, coal, and liquified natural gas, among others.

Back at home, Al Ashghal Al Moysra (SASE:9608) shares closed 0.14% lower as it signed a contract worth 17.7 million Saudi riyals with the National Risk Council. The logistics and facility management services company's deal covers the operations and upkeep of the council's headquarters and its affiliated facilities.

Meanwhile, Sumou Real Estate (SASE:4323) closed flat as it secured a 48-month Sharia-compliant credit facility from Saudi Awwal Bank. The financing will be used for the issue of a bank guarantee letter.

Fed Vice Chair Jefferson Calls for Caution on Further Rate Cuts By Vicky Ge Huang

Federal Reserve Vice Chair Philip Jefferson said the central bank should continue to be cautious about further adjustments to interest rates as long as the economy and labor markets remain strong.

In a lecture at Lafayette College in Easton, Pa., Jefferson said that the economy and the labor market came into 2025 with momentum after a solid 2024, supporting the Fed's move last month to hold rates steady after three straight meetings of cuts.

Jefferson noted that inflation remains above the central bank's target, and that its path down from multi-decade highs in 2022 has been "bumpy," which he said he expects to continue.

"I do not think we need to be in a hurry to change our stance," Jefferson said Tuesday night, according to a published text of his remarks.

The Federal Reserve's Mary Daly is also in no rush to lower interest rates until inflation is closing in on the central bank's 2% target.

A solid economic backdrop gives the Fed the luxury of time to hold policy where it is until disinflation progress resumes, the San Francisco Fed President said on Tuesday. "[The economy] came into 2025 in a very good place," Daly said at an event hosted by the Commonwealth Club World Affairs of California.

"Growth is solid, the labor market is solid, and inflation is coming down, albeit gradually, but we're heading toward our 2% target."

Top News Fed Vice Chair Philip Jefferson Urges Patience on Rate Cuts

A solid economy and still-too-high inflation argue for holding interest rates steady until more progress is made in slowing price growth, Federal Reserve Vice Chair Philip Jefferson said on Tuesday evening, echoing recent remarks from several of his colleagues on the Federal Open Market Committee.

"As long as the economy and labor market remain strong, I see it as appropriate for the Committee to be cautious in making further adjustments," Jefferson said in prepared remarks for an address at Lafayette College in Easton, Pa., on Tuesday evening.

"Over the medium term, I continue to see a gradual reduction in the level of monetary policy restraint placed on the economy as we move toward a more neutral stance as the most likely outcome."

Jefferson is a voting member of the Federal Open Market Committee, the Fed's policymaking body. He has served on the Fed's Board of Governors since May 2022.

The FOMC held its target for the federal-funds rate at a range of 4.25% to 4.5% at its January meeting. It cut rates by a total of a percentage point at its final three meetings of 2024.

"The U.S. economy is starting the year in a good position," Jefferson said. "I expect inflation's slow descent to continue, and I anticipate that economic growth and labor market conditions will remain solid."

Jefferson attributed the continuing economic resilience despite widespread forecasts of a downturn over the past few years to the strength of the American consumer, with spending growth supported by a solid labor market and low unemployment. (Barron's)

U.S. Economy Americans Kiss Job Hopping Goodbye

The U.S. job market is still solid. But more workers are staying put, because the chance to trade up to a better job is rarer . Americans quit 39.6 million jobs in 2024, down 11% from the year before and down 22% from a recent peak in 2022, according to Labor Department data.

How U.S. Agriculture Market Is Approaching Tariffs

U.S. agriculture is attempting to maintain optimism in the face of President Donald Trump's threats of tariffs on its major customers - Canada, Mexico, and China.

How U.S. Manufacturers Could Blunt the Hit From Tariffs

Some manufacturers say they will consider bringing production to the U.S. or raising prices to mitigate the effects of potential Trump administration tariffs.

U.S. Factory Orders Fell in December

Orders for goods from American manufacturers fell in December, a second straight month of declines, according to Commerce Department data released Tuesday. U.S. factory orders declined by 0.9% in the last month of 2024 to $578.5 billion, from $583.7 billion in November. Economists surveyed by The Wall Street Journal had expected factory orders to fall by 0.8% month over month. The latest November figure also reflected a downward revision from the Commerce Department's initial estimate a month ago. (Dow Jones Newswires)

Financial Regulation Elizabeth Warren Agrees With Trump: Big Banks Discriminate

Elizabeth Warren agrees with President Trump about something. The Democratic senator from Massachusetts told Trump on Tuesday that she thinks the White House should take action to stop what she said were discriminatory practices by the country's biggest banks, according to a letter from her office that was viewed by The Wall Street Journal.

CFTC Reorganizes Enforcement Division Into Two Task Forces

The Commodity Futures Trading Commission is reorganizing its enforcement division in a move it said will end the practice of regulation by enforcement.

Crypto Industry Looks to New SEC Task Force for Action in Its Favor

Many in the cryptocurrency industry are optimistic that a new task force formed by the U.S. securities regulator will provide a road map for growth in the industry that contrasts with the regulation-by-enforcement approach under the Biden administration.

Robinhood Yanks Super Bowl Betting Contracts

Robinhood Markets said it was withdrawing its plans to offer betting contracts on the Super Bowl, following pushback from the Commodity Futures Trading Commission, which raised concerns that the contracts might be illegal.

Forward Guidance Wednesday (all times ET)

8:15 a.m.: ADP National Employment Report

8:30 a.m.: U.S. International Trade in Goods & Services

9:45 a.m.: U.S. Services PMI

10 a.m.: U.S. Housing Vacancies

10 a.m.: ISM Report On Business Services PMI

7:30 p.m.: Federal Reserve Vice Chair Philip Jefferson speaks at Swarthmore College

Thursday

7 a.m.: U.K. interest rate decision

8:30 a.m.: Unemployment Insurance Weekly Claims Report - Initial Claims

2:30 p.m.: Atlantic Council event with Federal Reserve Governor Christopher Waller on 'Navigating the Future of Payments'

Research Morgan Stanley's Finally Given Up on Idea the Fed Will Cut in March

Morgan Stanley has now given up on its contrarian stance the Federal Reserve will cut interest rates in March, Steve Goldstein reports for MarketWatch.

It was an idea the firm held onto even after Fed Chair Jerome Powell's last press conference, when he made clear the central bank was in no hurry to cut interest rates.

But what made Morgan Stanley crack wasn't Powell but President Donald Trump.

"Our prior outlook for two cuts in the first half of the year was based on 1) a 'fast announcement/slow implementation' tariff policy, and 2) a preference for tariffs on trade with China over other trading partners. These assumptions left room for inflation to accelerate through mid-year without much trade policy uncertainty, providing a pathway for the Fed to cut its policy rate by 25bp in March and June. We still think these views are the right ones, but we are not as confident regarding slow implementation as we were before," said economists led by Michael Gapen.

Trump did pause tariffs against Mexico and Canada but left the 10% incremental tariff on China intact.

"We see this episode of on-again-off-again tariffs as amplifying the views expressed by the Fed at its December meeting, when most FOMC members were concerned about greater uncertainty regarding [the personal consumption expenditure price index] and saw risks to PCE inflation as tilted to the upside. That uncertainty and upside risk have arrived more quickly than we anticipated," said the economists.

CME's FedWatch tool, which is based on fed funds futures trading, implies a 16.5% chance of a March cut.

Basis Points Over the course of less than two weeks, the Trump administration largely dismantled the work of a 10,000-person, $40 billion foreign-assistance agency and the thousands of people in nonprofits and other groups that work with it. Antitrust enforcement shouldn't become a weapon in trade disputes , a European Commission spokesperson said as the U.S. and China imposed tariffs on each other this week. One country that is having a good trade war is Great Britain. At least, so far, it is managing to duck the fight . French factory production unexpectedly dropped at the end of the year, contributing to a backsliding in the eurozone's second-largest economy, with few signs of a rapid rebound at the start of 2025. A private gauge of China's service activity expanded at a slower clip in January, pointing in the same direction as official data as both demand and supply cooled at the start of the year. China reported record-high tourism revenue and travel numbers during the Lunar New Year holiday, offering a glimmer of hope for policymakers as they continue their efforts to boost domestic demand. South Korea's headline inflation accelerated at a faster-than-expected pace in the first month of the year to stay above the central bank's 2% target. The consumer-price index rose 2.2% in January from a year earlier, following a 1.9% gain in December. (Dow Jones Newswires) Gold demand hit a new record in 2024 driven by central banks and investors, according to a new report. About Us

WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ's global team of reporters and editors. This newsletter was compiled by markets reporter Vicky Ge Huang in New York. Send your tips, suggestions and feedback to [vicky.huang@wsj.com].

This article is a text version of a Wall Street Journal newsletter published earlier today.

By Isabel Wang

Cost-conscious investors are wondering if now is a good time to opt for cheaper ETFs in various asset classes

A price war is brewing in the ETF world.

The Vanguard Group has slashed the cost of investing in its funds, in a record move that is expected to save investors more than $350 million this year alone.

The world's second-largest asset manager on Monday decided to lower the expense ratio for a total of 87 mutual funds and exchange-traded funds - the largest reduction to expense ratios in Vanguard's nearly 50-year history, the company said in a press release.

After the fee cuts, Vanguard's flagship index-tracking bond funds now have an average expense ratio of 3.7 basis points, while the actively managed fixed-income funds charge an average fee of over 10 basis points, the money manager said Monday.

Cost-conscious investors may wonder if now is a good time to opt for the cheaper ETFs in a given asset class. But the answer, according to analysts, is not necessarily.

"A lot of [Vanguard's] asset classes are cutting around 1 or 2 basis points [in expense ratios], so from an investor's or Vanguard client's perspective, it doesn't really change the total return they are going to eventually earn on these funds by that much. ... The savings are not going to be huge," said Daniel Sotiroff, senior manager research analyst at Morningstar.

While investors do favor cheaper products, the fee of an ETF almost "becomes a secondary consideration" for investors when they pick ETFs for their portfolios - at least compared to the fund's return and its underlying asset exposure, Sotiroff told MarketWatch in a phone interview on Tuesday.

To be sure, Vanguard has been the low-cost leader in the ETF industry for years, with the asset manager reducing its funds' expense ratios more than 2,000 times since its founding in 1975 by legendary investor John C. Bogle. The company now runs the world's second-largest ETF tracking the benchmark S&P 500 index SPX - the Vanguard S&P 500 ETF VOO. The fund is now on the brink of claiming the crown that State Street Global Advisors' SPDR S&P 500 ETF Trust SPY has held for decades.

The reduction of investment costs also highlights Pennsylvania-based Vanguard's unique ownership structure, as the company is owned by fund shareholders instead of its employees or third parties. As a result, fee cuts are a way that it passes along the additional revenue generated from the growth of its funds to its fund investors, said Sotiroff.

"The real signal [of Monday's fee cut] isn't so much about an investor's total return ... but that Vanguard is still willing to take a pretty big revenue hit in the interest of helping its clients out," he said.

Fee compression for other ETF providers?

But that doesn't mean Vanguard couldn't use the fee reduction as a way to improve its market share and "play catch-up" to other ETF providers, said Aniket Ullal, head of ETF research and analytics at CFRA Research.

The table below summarizes the fee cuts Vanguard applied to each broad ETF category, as well as the current ETF leaders in those categories based on net assets and lowest expense ratios.

In some categories such as the "U.S.-focused sector," where Vanguard is not the cheapest provider even after the latest round of fee reductions, the new fee structure represents "a significant opportunity" for Vanguard to compete for additional market share, Ullal said.

"Fidelity's U.S. sector ETFs are priced at 0.08%, 1 basis point lower than Vanguard's new fee of 0.09% on its sector ETFs. However, Vanguard's lower fee now puts it on par with the sector ETF fees of State Street (STT) - the runaway leader by assets in the U.S. sector category," Ullal said in a Tuesday client note.

Vanguard's latest fee cut also comes in an era when some of the largest asset managers and ETF providers are reducing the annual costs of owning funds, much to the benefit of individual investors.

However, it appears likely that only BlackRock (BLK), the world's largest asset manager, has the scale to sustain such low fees in the core and indexed segments of the ETF market, Ullal noted.

That also means that other large issuers such as J.P. Morgan (JPM), Capital Group, First Trust and more will likely focus on "higher-margin areas" of the ETF market, such as active investing, alternative assets and options-based strategies - areas where Vanguard does not currently compete in a significant way, and therefore "does not exert inexorable downward cost pressure on its peers," Ullal said.

See: These ETFs can help investors protect themselves from selloffs like the DeepSeek panic - but here's the catch

U.S. stocks finished higher on Tuesday, as Wall Street attempted to find its footing after China imposed retaliatory tariffs on U.S. imports and put several companies, including Google (GOOGL) (GOOG), on notice for possible sanctions.

The Nasdaq Composite COMP still advanced 1.4% on the day, while the S&P 500 gained 0.7% and the Dow Jones Industrial Average DJIA rose 0.3%, according to FactSet data.

-Isabel Wang

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

Global uncertainties continue to impact markets in the United Arab Emirates, with the FTSE ADX General Index closing Wednesday trading 0.004% in the green while the DFM General Index was 0.003% lower.

Tensions between the two biggest economies in the world escalated after China retaliated by imposing tariffs on a number of US-based companies and goods, effective Feb. 10. Beijing set a 15% levy on less than $5 billion of US energy imports and a 10% fee on American oil and agricultural equipment.

Back at home, the S&P Global UAE PMI came in at 55 in January, down month over month as capacity pressures remained a major issue and firms struggled to manage backlog volumes amid rising demand and administrative delays. Concerns around competitive pressures also hampered optimism, with sentiment slipping to its lowest level in over two years.

"The broad decline in business confidence over the past few months will therefore be a surprise to some. Notably, total confidence was at its lowest level since December 2022. Strong competition and cash flow concerns arising from heavy backlogs have appeared to sow doubt among firms that they can continue to boost their revenues, underlining efforts to reduce the gap between output and input prices," senior economist at S&P Global Market Intelligence David Owen said.

In corporate news, United Arab Bank (ADX:UAB) reported a higher year-over-year net profit and total income for 2024. The stock rose 2.759%.

Investment Corp. of Dubai, or ICD, is reportedly looking to raise up to $500 million from the initial public offering of construction company ALEC Engineering & Contracting as early as mid-2025. Discussions regarding the size and time of the offering are still ongoing and a final decision is yet to be taken.

By Rebecca Feng

China's long New Year break is sometimes followed by big market moves, as investors scramble to incorporate news that has already been priced into Western markets.

This year, not so much-despite the start of a new trade war and the emergence of disruptive Chinese AI technology from DeepSeek.

• The benchmark index CSI 300 edged down 0.6% Wednesday, on the first day of trading since Jan. 27.
• Coal companies were among the big losers. China has slapped 15% tariffs on U.S. coal and liquefied natural gas, in response to President Trump's 10% tariff increase on all Chinese imports.
• Meanwhile, investors piled into cloud-computing, robotics and AI companies, with nearly 30 stocks rising 15% or more, buoyed by DeepSeek-related optimism.

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

The BSE Sensex closed about 0.4% down at 72,271 on Wednesday, pulling back from one-month highs in the prior day, mainly pressured by consumer stocks.

Investor attention has turned to the Reserve Bank of India's upcoming monetary policy meeting under the new governor, with expectations of a rate cut following Friday's conclusion.

Globally, market participants continued to monitor developments on tariffs.