Fed officials signal more hikes to come

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. 

US equities ended Thursday’s session lower as markets reacted to a host of economic and corporate data. Investors also weighed comments from Fed officials who signalled that the rate-hiking campaign to slow the pace of inflation is not considered sufficiently restrictive. The Dow Jones Industrial Average closed practically flat, the S&P 500 Index went down 0.3%, and the Nasdaq Composite lost 0.4%. European shares were lower for the most part, as geopolitical tensions dampened investor sentiment, and as the UK announced its new budget plans. 

Summary

• Asian equities were in a cautious mood on Friday after rising coronavirus cases in China and liquidity strains in its bond market added to uncertainty. Meanwhile, Japan’s core consumer price index for October rose 3.6% compared to a year ago, higher than expected and at the fastest pace in 40 years. The nation last saw the same level of inflation in February 1982. 
• European shares are set to reverse the previous day’s losses while US equity futures were fluctuating towards the flatline overnight. 
• Oil prices rose this morning as the dollar slipped but were headed for hefty weekly losses on expectations there will be no let-up in sharp US interest rate hikes and the prospect of weaker demand from top oil importer China amid rising Covid-19 cases. 
• Federal Reserve Bank of St. Louis President James Bullard urged policymakers to raise interest rates further, saying the level will need to be higher to meet the central bank’s goal to be “sufficiently restrictive” to bring down inflation. Bullard presented charts showing a sufficiently restrictive rate might be between about 5% and 7%, though he did not spell out in his prepared remarks what rate level he favoured. 
• UK Chancellor of the Exchequer Jeremy Hunt laid bare a bleak new reality for the UK economy on Thursday, one plagued by weak growth and rising taxes for years to come. Hunt pieced together £55 billion of tax hikes and spending cuts in a bid to stabilise public finances.  
• The number of Americans filing new claims for unemployment benefits fell by 4,000 last week to 222,000, showing widespread layoffs remain low. There has been an increase in layoffs in the technology sector this month, with Twitter, Amazon, and Meta announcing thousands of job cuts. Companies in interest-rate-sensitive sectors like housing and finance are also letting workers go. 
• US House Speaker Nancy Pelosi yesterday announced that she will not seek re-election for Democratic leadership, a move that marks the end of an era and sets up a major shake-up for House Democrats. Pelosi, the only woman to have served as speaker, said she would continue in the House as a California lawmaker. 
• Macy’s posted a Q3 profit of $0.52 per share, far exceeding estimates calling for $0.18, as revenues declined 3.9% year-over-year (y/y) to $5.23 billion, mostly in line with the Street’s expectations. The high-end department store chain cited the outperformance of luxury items at its Bloomingdale’s and Bluemercury units, and said it is well positioned with inventory and will be able to better maintain prices as new merchandise comes in. The company reaffirmed the full-year sales guidance that it provided in Augus, but it raised its outlook for adjusted EPS to a range of $4.07 to $4.27.  
• Alibaba yesterday reported September-quarter results that beat on earnings but showed another quarter of weak revenue performance. The e-commerce firm reported adjusted earnings of $1.82 per US share on revenue of $29.12 billion. Analysts expected Alibaba to report earnings of $1.70 a share on revenue of $2.6 billion. On a y/y basis, Alibaba’s earnings rose 15% while sales increased 3%. In the prior quarter, revenue fell 4%. 
• Elon Musk gave Twitter employees an ultimatum to either commit to the company’s new “hardcore” work environment or leave. Many more workers declined to sign on than he expected, potentially putting Twitter’s operations at risk.