Higher Peak

Fed Chairman Jerome Powell left little doubt that he’s prepared to push rates as high as needed to stamp out inflation, even as the central bank eyes a downshift to a slower pace of increases. In a press conference Wednesday after the Fed raised rates by 75 basis points for the fourth time in a row, Powell said “incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.” His remarks shift the focus away from the size of the next rate hike to where they will peak and how long they will have to stay at those levels. Meanwhile, Wall Street money managers looking to pile back into Treasuries after months of losses will have to contend with a Fed that stands ready to raise the stakes every step of the way.

BOE’s Jumbo Hike

The Bank of England on Thursday is expected to deliver its biggest interest-rate increase in 33 years, stepping up an effort to rein in double-digit inflation. The UK central bank delivers its decision at 12:00 p.m. London time, with Governor Andrew Bailey leading a press conference a half hour later. Officials will publish their outlook for the economy and inflation, likely confirming a long recession is now under way. A 75 basis-point increase in the key rate is almost fully priced in by money markets and expected by economists. Upheaval in the government has clouded the policy-making landscape for Bailey and his colleagues.

Germany-China

Germany seeks cooperation with China, “where it is in the interests of both sides,” but will not ignore controversies, according to the country’s chancellor, Olaf Scholz. “We do not want decoupling from China,” Scholz wrote in a guest article for Frankfurter Allgemeine Zeitung on Thursday. Scholz will travel to Beijing on Friday to meet with China’s president, Xi Jinping, amid concerns about European dependency on Chinese products. Berlin is working to hone a new national strategy on China that intends to ensure less reliance, diversify supply chains and enhance security, but the trip is a balancing act to discuss business interests and human rights violations. The Biden administration, meanwhile, is warning Germany and other European nations not to let China take control of companies in strategic sectors

Radical Move

Elon Musk plans to eliminate about 3,700 jobs at Twitter, or half of the social media company’s workforce, in a bid to drive down costs following his $44 billion acquisition, according to people with knowledge of the matter. Twitter’s new owner aims to inform affected staffers Friday. Musk also intends to reverse the company’s existing work-from-anywhere policy, asking remaining employees to report to offices — though some exceptions could be made. Musk and a team of advisers have been weighing a range of scenarios for job cuts and other policy changes at San Francisco-based Twitter, the people said, adding that the terms of the headcount reduction could still change.

Coming Up…

European stocks are on course to follow their Asian and US counterparts lower as traders assess the Fed’s outlook following another 75-basis point hike. There’s more central bank action to digest as the BOE is expected to hand down its largest rate increase in 33 years and ECB President Christine Lagarde speaks at an event. G-7 foreign ministers meet in Germany, with Russia’s invasion of Ukraine sure to be among the biggest topics. Expected data include Swiss CPI inflation and Italy unemployment. Earnings season continues with BNP Paribas, BMW, Conoco and Amgen reporting.

————————————-

(Source: Bloomberg, Nov. 3-2022)