Fed signals more hikes ahead

written on November 3, 2022

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

The initial upside momentum on Wednesday turned sharply lower on Wall Street following the Fed’s monetary policy decision. The Central Bank raised rates by 75 basis points for a fourth-straight meeting but opened the door to slowing within its statement. However, in his press conference, Chairman Powell reiterated that any notion of a pause was premature. Treasury yields were mixed and the US dollar traded to the upside, while crude oil prices gained ground, and gold saw a modest loss. The Dow Jones Industrial Average fell 1.6%, the S&P 500 Index tumbled 2.5%, and the Nasdaq Composite plunged 3.4%. European equity markets also closed the mid-week session in the red, with the Euro Stoxx 50 snapping a seven-day winning streak. 

Summary

  • Asian equity markets fell on Thursday, tacking the sharp selloff on Wall Street. Meanwhile, Chinese authorities reiterated that the country remains committed to its Covid Zero policy after an unverified social media post earlier this week raised hopes of a policy pivot. Shares in Australia, South Korea, mainland China and Hong Kong all declined this morning. Markets in Japan were closed for a holiday.  
  • European equities are on course to follow their Asian and US counterparts lower even though US equity futures were seen fractionally higher this morning. 
  • Oil futures fell early on Thursday as the dollar firmed on the Federal Reserve’s hawkish stance but concerns over looming supply risks kept a floor under prices. 
  • The Federal Reserve raised the target range for the federal funds rate by 75 bps to 3.75%-4% and signalled that rates could peak higher, but hinted that a slower pace of increases could be appropriate soon. 
  • The ADP Employment Change Report showed private sector payrolls rose by 239,000 jobs in October, above a Bloomberg forecast calling for a 185,000 gain, while the prior month’s figure was revised lower to a 192,000 gain from the initially reported 208,000 rise. The report, which does not include government hiring and firing, comes ahead of Friday’s broader October nonfarm payroll release, expected to show headline employment rose by 196,000. 
  • BNP Paribas this morning said it beat expectations in its third quarter as its investment-banking division proved resilient amid strong client demand despite the market slump. Net profit rose to €2.76 billion in the quarter from €2.50 billion in the same period a year earlier. That beat expectations of a net profit fall to €2.37 billion. 
  • BMW on Thursday confirmed the full-year margin target of between 7% and 9% for its auto business and said earnings came in higher in the third quarter, helped in part by car pricing.   
  • Advanced Micro Devices reported Q3 EPS of $0.67, below the $0.69 of analysts' estimates, as revenues rose 29.0% year-over-year (y/y) to $5.6 billion, roughly in line with its guidance provided early in October. The chipmaker said its revenue growth was led by performance out of its data centre, gaming, and embedded segments. The company issued Q4 revenue guidance that was below estimates but noted that the profitable server chip market will continue to bolster its results. 
  • CVS Health posted Q3 EPS of $2.09, topping the expected $2.00, with revenues rising 10.0% y/y to $81.2 billion, exceeding estimates of $76.7 billion. The company said it continues to execute on its strategy of focusing on expanding capabilities in health care delivery, and the announced acquisition of Signify Health will further strengthen its engagement with consumers. It also raised its full-year earnings outlook. 
  • Ferrari said on Wednesday it was improving its forecasts for full-year results, including for core earnings, after beating expectations in Q3, supported by a double-digit increase in shipments. 
  • Danish shipping company A.P. Moeller-Maersk on Wednesday cut its demand forecast for this year as the global economic slowdown takes hold, despite posting third-quarter earnings that beat expectations as it continued to benefit from higher freight rates. The company now sees growth in container demand this year at between –2% and –4%, compared with its previous view at the lower end of its range between plus and minus 1%. 
  • 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. Twitter’s new owner aims to inform affected staffers on Friday. Musk also intends to reverse the company’s existing work-from-anywhere policy, asking remaining employees to report to offices. 

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Life’s full of mysteries. Your money shouldn’t be one of them.