Stock markets in Europe and Asia continued their gains on Thursday while Wall Street remained closed. The day got off to a good start as investors this side of the pond caught up after a late rally in the US. Everyone agreed it wasn’t the busiest few weeks, but the FOMC ensured investors headed into the Thanksgiving break a little higher.
Dovish Boost ahead of Thanksgiving
The most notable takeaways from the minutes – which would never be groundbreaking – were the now discreet hints of support for slowing the pace of tightening and raising their estimates of the terminal interest rate. The latter clearly has little support, meaning a lower rate hike is on the cards in December – maybe 50 basis points – while a higher final rate is only a possibility and will depend on the data. While not ideal for investors, the net effect is undoubtedly less extravagant and has at least partially driven this late rally.
Another catastrophic lockdown for China?
Record Covid cases in China, more testing and restrictions and even possible lockdowns tended to reduce positivity from the US in Asia on Thursday. Stocks in China slid while Hong Kong outperformed its regional peers as investors weighed the prospect of further growth-damaging lockdowns and uncertainties for the world’s second largest economy. It comes as authorities seek to ease the strain of Covid restrictions and support the property market, both of which are difficult when record case numbers are forcing people indoors.
Another disappointing manufacturing survey
Japan’s slide below the two-year low of 50 – separating growth from contraction – perfectly illustrates how challenging the current environment is globally. Higher input costs combined with lower domestic and external demand are having an impact on the manufacturing sector and are likely to persist until inflation abates and growth picks up again.
The Bank of Korea is the latest central bank to get on the “extended slowness” train, raising rates by 25 basis points and leaving the door open for more rate hikes. The decision to join the RBA and BoC, with the Fed likely to follow suit, comes as economic headwinds mount. The problem many people are facing now is the result of acting late and aggressively. Because interest rate changes are delayed, policymakers are forced to make decisions without fully realizing the impact of recent moves. So they need to decide when to slow the pace of tightening to avoid unnecessary economic hardship and deflation while inflation is still very high. It may work out in the end, but there is a huge risk on both sides that it won’t work out.
CBRT ends its light cycle
I’m not sure if a specific analogy works when describing the Turkish central bank. In this case, it’s like driving a car backwards while looking ahead, hoping that somehow you’ll get it right. The CBRT today cut interest rates another 150 basis points to 9%, announcing the end of its easing cycle. Official inflation stands at 85.5% in October despite various attempts to control currency movements.
A dead cat jumps?
was in the green for the third day, albeit just barely, as it continued to struggle to stabilize after the FTX collapse. The incident was surprisingly a major blow to the entire industry, both from a contagion and reputational perspective. Traders are now rightly wondering who else is exposed, how big the ripple effect will be, and where such activity is taking place. In such an unregulated world, these fears are very real and could erode confidence in the crypto space for some time, further weighing on prices in the process.