Weekly Digest: Fed, BoE Hike Rates, Central Banks Buy Gold

Investment news

🏦 The Fed hikes rates again. The U.S. central bank has once again increased interest rates by 0.75 percentage points in an effort to curb soaring inflation. (CNBC)

The U.S. interest rates now stand at 3.75% to 4%, up from 3% to 3.25% since the last increase in September. The widely-expected hike will mean more expensive borrowing for mortgage holders and credit card debtors.

🇺🇸 Higher rates, smaller hikes. Fed Chair Jerome Powell said it’s likely the “ultimate level of interest rates will be higher than previously expected” and that the Fed could slow the pace of increases “as soon as the next meeting or the one after that.” (Bloomberg)

“Slower for longer. The Fed opened the door to dialing down the size of the next hike but did so without easing up financial conditions,” JP Morgan Chase & Co, chief US economist Michael Feroli said in a note.

⭐ Gold dipped as the Fed’s hawkish tone lifted U.S. dollar, yields. The gold price fell to a more than one-month low on Thursday as Powell said the “ultimate level” of rates will be higher than previously expected.

The gold price dropped 0.7% to $1,623.08 an ounce after hitting its lowest level since September 28 earlier.

🏦 Central banks ♥️ gold. Central bank demand for gold hit a 55-year high, up 383% from last year. (The World Gold Council)

According to the World Gold Council, central banks scooped up almost 400 tons of gold during the third quarter of 2022, an increase of more than four times from a year earlier.

📉What the Fed?! Powell's mixed message that the Fed could slow its rate hike pace, and yet end up raising them higher than anticipated sent the stock market tumbling on Wednesday. The S&P 500 suffered its worst decline since January 2021. (Bloomberg)

Initially, stocks rallied, and Treasury yields dropped together with the U.S. dollar on Powell’s statement that the Fed may decide in coming months to slow its aggressive interest rate increases. Then, as the Fed chair said rates would peak at a higher level than previously expected, yields and the dollar surged, while stocks tumbled.

🇬🇧 The Bank of England hikes rates, warns of a prolonged recession. The U.K’s central bank raised interest rates by 75 basis points, its biggest single hike in 33 years. Besides a prolonged recession, the bank also expects a weaker economic performance than that seen in the U.S. and Eurozone. (CNBC)

U.K. inflation jumped to 10.1% in September and is expected to rise to 11% in the fourth quarter, the Bank said, though it expects consumer price increases to fall from early next year.

💷 British pound down. The British pound sank sharply against the U.S. dollar after the U.K.’s central bank said it expected a recession to last for all of 2023 and the first half of 2024. (CNBC)

Sterling was trading at $1.1165 at 2 p.m. London time, its lowest level since October 21.

🇹🇷 Turkey’s inflation tops 85%. Inflation in Turkey increased 85.5% year-over-year for the 17th consecutive month as food and energy prices continued to surge, according to official data. (CNBC)

Compared to last year, food prices rose by 99%, housing by 85%, and transportation by 117%, according to the Turkish Statistical Institute.

🇪🇺 Europe’s bracing for the winter energy crisis. For this winter, Europe’s gas storage is more than 90% full, according to the International Energy Agency. It’s really the winter of 2023 that we should be worried about. (CNBC)

“We’ve got a difficult winter ahead, and subsequent to that we’ve got a more difficult winter in the year ahead of that, because the production that is available to Europe in the first half of 2023 is considerably less than the production we had available to us in the first half of 2022,” Russell Hardy, CEO of major oil trader Vitol, said.

📸Image of the week

Opinion

🤔 The Fed should stop confusing investors. “Will the pace of tightening slow from now on? Is the Fed changing its mind about how high rates will need to go? Despite Chairman Jerome Powell’s efforts to address those questions, his answers leave plenty of doubt.” (Bloomberg Opinion)

“Investors are understandably confused. Most expect a gentler path for rate increases going forward, leading to a “terminal rate” of roughly 5% next year. But the right question isn’t whether this is what the Fed has in mind; it’s what the Fed would do if things turn out differently than it expects,” Bloomberg Opinion editors write.

What else is happening

🇷🇺 Russia makes a U-turn on vital grain deal. Russia said it was rejoining the deal that guarantees safe passage for ships carrying vital grain exports from Ukraine, easing growing concerns about global food supplies. (FT)

Last week, Moscow suspended its participation in the grain deal in a retaliatory move for what it says were Kyiv-ordered attacks on Russian vessels. Ukraine rejected the allegations.

Ukraine is one of the world’s biggest suppliers of wheat, corn, and vegetable oil, and the UN-backed Black Sea Grain Initiative has been vital to ease Russia’s naval blockade and help alleviate a global food crisis.

💣 The Nord Stream sabotage. The Kremlin accused London of masterminding the explosions that damaged the Nord Stream gas pipelines in September. The U.K. rejected the claim as "false." (POLITICO)

"Our intelligence services have evidence to suggest that the attack was directed and coordinated by British military specialists," Russian presidential spokesman Dmitry Peskov said.

On September 26, four large leaks were detected on Nord Stream 1 and 2 pipelines off the Danish island of Bornholm, two in Sweden's economic zone, and two in Denmark's. The leaks were caused by powerful underwater explosions.

And finally…

🕵️‍♂️ Going, going, gone! France is auctioning off seized luxury items, including platinum bars, cars, and a pair of Rolex watches that could raise a total of at least €700,000. (Le Parisien)

“The State won’t sell these prized assets cheaply,” said Alain Caumeil, who’s overseeing the sale for the French finance ministry.

See you next week!

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