Premarket Equities: A Scary Prediction for the Future of Interest Rates

What is happening: Last week, European Central Bank officials announced another massive hike of three-quarters of a percentage point, raising interest rates at the fastest pace in euro history. This week, the Federal Reserve is expected to raise rates by 75 basis points for the fourth straight time. The Bank of England could join the club on Thursday.

For a time, it was thought that 2023 would bring lower interest rates and a return to accommodative monetary policy. But a mountain of mixed data clouds that outlook. Now, some analysts believe central banks will take less of a whirlwind approach to policy decisions and instead opt for sustained, smaller hikes over a longer period.

Around the world, central bankers have raised overnight borrowing rates in hopes they can cool the economy and temper runaway inflation by making it more expensive to borrow money. So far, the impact has been mixed.

The eurozone’s annual inflation rate hit a record high of 9.9% in September, down from 9.1% in August. A flash estimate for October released on Monday showed inflation accelerating to 10.7%.

The “unexpected and extraordinary” rise in inflation has taken policymakers by surprise, ECB President Christine Lagarde told reporters on Thursday. She said increases in retail energy prices could push inflation even higher over the medium term.

The US economy, meanwhile, grew by 2.6% last quarter, indicating that the economy is not slowing down yet (although there are signs that a slowdown could be happening). New personal consumption expenditure data on Friday, the Federal Reserve’s preferred gauge of inflation, showed America is still struggling with high prices. Europe also continues to grow.

Will they or not? Even the Federal Reserve seems confused about when it will stop rate hikes.

This ambiguity was neatly summed up in a speech by Federal Reserve Bank of Cleveland President Loretta Mester earlier this month:

“It is unlikely that we have seen the full effects on households and businesses of the latest rate increases we have implemented, and it would not be appropriate to continue raising rates until inflation is down to 2%. She said: “But it’s also true that based on communications from the Fed, financial conditions started to tighten well before our first rate hike in March and those effects rippled through the economy. Yet , high inflation persists, a sign that we need to raise fares further.”

Due to a lag in the data, central bankers don’t know if they’ve done enough yet. If they ease rate hikes too soon, they risk inflation becoming more entrenched in the global economy. If they over-correct, they risk plunging their country into recession.

A possible answer: Wall Street tends to favor big events, but the future of central bank policy could be more nuanced. To cap TS Elliot: The crunch won’t end with a bang, but a moan.

“We believe the market is overconfident that 2023 will feature both an early Fed pause and a sharp rate hike in Europe and Down Under,” Goldman Sachs analysts wrote in a recent note. “If the economy stays out of recession for the next few months, which we think is likely, it would increase the risk of a more gradual but extended Fed cycle through 2023.”

Coming : The Federal Reserve will meet Tuesday and Wednesday to determine its next policy move. Fed Chairman Jerome Powell will speak to reporters directly after the decision is announced at 2 p.m. ET Wednesday. The Bank of England announces its rate decision at 8 a.m. ET on Thursday.

What could change on Elon Musk’s Twitter

After spending months trying to get out of his deal to buy Twitter (TWTR)Elon Musk is officially the owner of the hugely influential platform, reports my colleague Clare Duffy.

Now the question is: what will he actually do with it?

A big change for content moderation: Under Musk’s ownership, Twitter could reverse measures taken to make the platform more palatable to its most vulnerable users, typically women, members of the LGBTQ community and people of color, security experts say.

Musk said Twitter, under his leadership, would have more lenient content moderation policies. “When in doubt, let the discourse exist,” Musk said during an onstage interview in April. “If it’s a gray area, I would say, let the tweet exist. But obviously in case there’s maybe a lot of controversy, you wouldn’t necessarily want to promote that tweet.

Unban accounts: The most striking early change might come from who is and isn’t allowed on a Musk-owned Twitter.

Musk said he thinks Twitter should be more “reluctant to take things down” and “very careful with permanent bans.” This could mean that a long list of far-right controversial figures and conspiracy theorists, among others, will soon find their way onto the platform.

Musk, for his part, focused on bringing back one of Twitter’s most high-profile former users: Trump.

An owner with an erratic and controversial journey on the platform: Musk has a mixed reputation in the tech industry. He is undoubtedly one of the most ambitious and successful innovators and entrepreneurs of this era. But he has also courted controversy, often from his own Twitter profile, where he has more than 100 million followers.

Over the years he has tweeted misleading claims about Covid-19 and made a baseless accusation that a man who helped rescue children from a cave in Thailand was a sexual predator. He also tweeted a photo (since deleted) comparing Canadian Prime Minister Justin Trudeau to Adolf Hitler and compared now ousted Twitter CEO Parag Agrawal to Joseph Stalin.

On Sunday, he gave credence to a conspiracy theory about the attack on Paul Pelosi by tweeting a link to an article full of baseless claims. He then deleted the tweet, but not before racking up 28,000 retweets and 100,000 likes.

America and Saudi Arabia are in a bitter battle for oil

The relationship between the United States and Saudi Arabia is one of the most important on the planet. And lately, it’s also been one of the most troublesome, reports my colleague Matt Egan.
Angry officials in Washington have vowed ‘consequences’ after Saudi-led OPEC sharply cut oil production earlier this month, driving up prices at the pump just weeks before the mid-term elections -mandate.
US lawmakers are threatening to take actions that were unthinkable not too long ago, including banning arms sales to Saudi Arabia and triggering the Justice Department to take legal action against the countries and other OPEC members for collusion.

Saudi officials are hinting at a return on investment – including the dumping of US debt – that could have huge ripple effects on financial markets and the real economy.

What happens next is critical.

If this decades-old relationship escalates into a complete breakdown, the consequences could be enormous for the global economy, not to mention international security.

“This is a new low. We’ve seen a deterioration in US-Saudi relations for years, but this is the worst it’s been,” said Clayton Allen, director of the Eurasia Group.

Leslie M. Gill