Weekly Market Wrap | 4 November 2022

Another jumbo rate hike

As expected, the Federal Reserve delivered another 0.75% rate hike on Wednesday, taking the target range to 3.75–4%.

During his press conference, Fed chairman Jerome Powell signalled a change in the Fed’s policy path. The pace of rate hikes is going to be slower, but the terminal, or peak, rate is likely to be higher than what officials envisioned during the September meeting.

By raising rates more gradually, it is less likely the Fed will overshoot and trigger a deeper recession than necessary. But with “no sense that inflation is coming down” despite multiple rate hikes this year, interest rates are expected to remain higher for longer to bring inflation back to the Fed’s 2% target.

What the terminal rate will be is still anybody’s guess. But until we see concrete evidence that inflation is waning, higher borrowing costs are here to stay.

US labour market continues to overheat

The US labour market beat consensus estimates by more than 30%, adding 261,000 jobs in October, and continued to be a major thorn in the Federal Reserve’s side since their battle against runaway post-COVID inflation began. 

Image: Financial Times

Record-high levels of consumer spending and saving are feeding labour shortages, which are in turn driving wages up and adding fuel to the fire. While the Fed is determined to sustain rate hikes well beyond expectations to loosen the labour market, the US midterm elections saw President Joe Biden denounce the Fed’s strategy of trading jobs for lower inflation.

Musk takes the reins at Twitter

The drama-filled acquisition saga surrounding Elon Musk and Twitter finally came to a close last week, with the world’s richest man going through with his initial offer to take the company private for USD 54.20 per share, in a transaction valued at USD 44 billion. 

However, the frenzy did not end there, with his first full week at the social media behemoth being nearly as chaotic as the months that preceded the buyout. 

Musk dissolved Twitter’s board of directors and announced a 50% reduction in the company’s workforce (including senior management). He attributed the downsizing to a major drop in revenue, with the company losing close to USD 4 million per day.  After employees were tasked to work round the clock and generate ideas for new products, Twitter announced a subscription service – USD 7.99 per month for its blue-tick verification.

Musk claims to have several ideas in the bag for Twitter’s overhaul. Only time will reveal whether he acquired the company to transform it for the better, or to serve a hidden agenda.

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