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Interest rates probably won't stay high, top economist Paul Krugman wrote in an op-ed. For one, higher rates are a lingering effect of the pandemic, when the government flooded the economy with stimulus money, Krugman said. Households are still spending leftover stimulus, which has supported high prices and therefore, higher interest rates this year. But those effects will eventually fade away – and, along with slowing investment demand, that will likely result in interest rates being dragged lower. Lower rates could potentially revive asset bubbles, though risk assets are feeling serious pain from today's high interest rates.
Investors feeling good about the latest stock rally will soon be confronted with the reality of a recession, BlackRock said. But a Fed pause likely wouldn't result in the meaningful rally markets are hoping for, Ned Davis Research previously warned, and hopes that the Fed will pause rate hikes are "optimistic," BlackRock said. We expect the Fed to pause its sharp hikes only after having caused a recession and when confronted with the economic pain. Other market commentators have noted that stock market rallies this year have been fleeting, as companies continue to face headwinds from rate hikes, a soaring US dollar, and persistently high inflation. "We need to see stocks fall more or good news of easing inflation to turn positive on stocks," strategists said.
US stocks ended lower on Monday, losing steam after last week's huge rally. Investors digested comments from Fed officials. Vice chair Lael Brainard said the pace of rate hike could soon slow. Meanwhile, markets were absorbing comments from Fed governor Christopher Waller over the weekend, stating it was too early for investors to get excited about easing monetary policy. That message conflicted slightly with comments on Monday from Fed Vice Chair Lael Brainard, who suggested the central bank could soon start slowing its pace of rate hikes.
The Fed has hiked rates enough and "really, really should pause," according to top economist Paul Krugman. But he doubted the Fed would pause its rate hike regime, as central bankers are trying to restore lost credibility. And they really, really should pause and wait to see," Krugman told Bloomberg TV. A Fed pause could endanger its reputation further – even if staying the course means potentially overtightening the economy. Currently, the fed funds rate is targeted between 3.75% to 4%, with expectations for the Fed to raise rates another 100 basis points before stopping.
Stocks could whipsaw and retest June lows despite October's positive inflation report, Arthur Cashin said. Cashin noted that stock market rallies since June have been fleeting, and it's still a bear market. He warned a reversal could come when the VIX approaches 20, and the gauge currently clocks in at 22. Rallies since then have usually ended when the Cboe Volatility Index neared a critical level of 20, Cashin noted. The VIX—known as the stock market's fear gauge—is currently just above that threshold, clocking at 22.61 as of 1 p.m.
The Fed has smashed the housing market and killed rampant speculation, according to PIMCO's former chief economist. He pointed to the doubling of mortgage rates and trouble in crypto as signs the Fed has sufficiently tightened. Mortgage rates have doubled and home buying activity is set to slump, meaning the housing market is "down for the count," McCulley said. "The housing market is smashed, the enthusiasm for speculation in the marketplace [that] was rampant in 2021 has been removed," McCulley said. Inflation clocked in at 7.7% in October's inflation report, below economists' expectations of 8% inflation.
European gas prices have plummeted 60% from their summertime peak, according to data from Bloomberg. Warmer weather ahead of winter as well as demand destruction from soaring energy costs has helped lower demand. While the benchmark price for gas is still about three times higher than five-year average, Bloomberg reported that gas prices have fallen 60% from their highs in August. Natural gas usage in Western Europe fell 22% in October compared to the previous year, according to data from Energy Scan. That brings some relief to potential supply shortages, and has allowed the European Union to build up a hefty storage of natural gas ahead of winter.
Regulators punishing crypto firms after FTX's crash "makes no sense," according to Coinbase CEO Brian Armstrong. In a tweet, Armstrong pointed to the fact that most crypto trading activity takes place offshore. Binance has since walked away, with the troubled crypto exchange now facing probes by regulators on its handling of client funds. But Armstrong suggested regulatory action may be limited, due to the fact that FTX, which now faces possible bankruptcy, was an offshore crypto exchange not regulated by the Securities and Exchange Commission. Top economist Mohamed El-Erian said that FTX's downfall would keep crypto regulators up at night playing "catch-up".
The drop in inflation means a soft landing of the economy is "increasingly plausible," Paul Krugman said. The top economist pointed to slowing rent and wage growth, which could mean inflation is coming under control. "A good inflation report," Krugman wrote. "Between this report and the wage numbers, there is a good reason to believe underlying inflation is coming under control," Krugman added, referring to the recent drop in wage growth. "A soft landing is looking increasingly plausible."
FTX's liquidity crisis shows how debt is toxic to crypto, according to Tether co-founder William Quigley. "It just violates a basic principle of finance; you don't lever up highly volatile assets," Quigley said to CNBC. Debt is toxic with crypto," Quigley said in an interview with CNBC on Wednesday, commenting on the recent fall of Sam Bankman-Fried's crypto exchange. "And it just violates a basic principle of finance; you don't lever up highly volatile assets," Quigley said. Bankman-Fried gained exposure to some of that debt by offering multi-million credit lines and credit injections to various crypto firms, like the now-defunct Voyager.
Oil prices could drop to around $70 a barrel after this winter, according to Oman energy minister Salim al-Aufi. "We don't believe that the current prices are sustainable comfortably," the OPEC+ member told Reuters. "We don't believe that the current prices are sustainable comfortably," the OPEC+ member told Reuters at the United Nations Climate Change Conference on Tuesday. He predicted prices to ease to "a much more comfortable position" around $70. Crude prices have been on a rollercoaster ride this year amid western sanctions on Russian oil, causing Brent crude oil to briefly touch highs of around $120 this year.
Mortgage rates are up and home prices are down, but Goldman Sachs doesn't see another default crisis. "Robust credit quality is likely the most important reason not to expect a mortgage default crisis. The 2008 housing and mortgage crisis led to a significant increase in mortgage credit quality," economists at the investment bank said in a note on Tuesday, referring to regulations aimed at preventing risky subprime loans. That comes amid a shaky year for the housing market, with US mortgage rates soaring past 7% and experts sounding alarms for a potential housing crash. Already, that's lifted US mortgage rates nearly 400 basis point this year.
US stocks rose on Tuesday as investors turned their attention to midterm election results. If Republicans gain a majority in Congress, it could create political gridlock, sparking a new rally in stocks, analysts say. Wall Street has been eyeing possible political gridlock if the GOP takes over Congress, which could spark a new rally amid this year's bear market, analysts say. Carson Group's Ryan Detrick said a Republican majority could cause the stock market to enter its "best-performing environment," adding that it was possible stocks already bottomed out in October. The total value of the global crypto sector dropped 12%, according to data from CoinMarketCap, with Bitcoin tumbling 13%.
The British pound tumbled after the Bank of England hiked rates and warned the UK would see a recession for all of 2023 and the first half of 2024. The Bank of England raised rates by 75 basis points, its largest single hike since 1989, as the central bank scrambles to get a lid on inflation. The bank predicted UK inflation will hit 11% by year-end, and will stay above 10% over "the near term." Though the Bank of England noted that headline inflation could start to ease as soon as early next year, analysts warned more hikes were still ahead. BNP estimates three more 50-basis-point hikes from the Bank of England, bringing the policy rate to 4.5% next year.
Risks of a recession are "extremely elevated" JPMorgan strategist Gabriela Santos said, warning a downturn could come mid-2023. The odds of a recession are at 50% today, compared to normal levels of 15%, she told CNBC. Santos added those risks needed to be priced into the market before a sustainable rally could take place. Though a soft landing is still possible, she put the odds of a recession at 50% today, compared to normal levels of 15%. "We would still put the odds at over the next 12 months as extremely elevated versus what's normal," Santos said on Tuesday in an interview with CNBC.
The bank pointed to four stages of inflation, with prices surging in commodities, then goods, then services, then wages. Services prices and wages could soon fall, easing pressure on the central bank to hike rates and allowing stocks to stabilize. Combined with slowing growth, it could bring less pressure on the central bank to keep hiking rates, causing bond yields to peak and bring some relief to stocks. "As economic activity has weakened closer to contraction territory, bond yields are likely to be capped by the subdued levels of growth from here. If the view of bond yields peaking gains traction, this would go a long way in helping the equity market stabilize," analysts said.
The plan to cap Russian oil prices could be delayed as policymakers try to smooth market volatility ahead of midterm elections. Sources familiar told the WSJ that key guidance on the price cap would be set after the November 8 midterms. That could delay the price cap proposal and slash Russian oil flows when the EU ban fully kicks in. G7 leaders have been working to cap Russian crude prices in a scramble to keep Russian oil flowing in the spot market, but while limiting Moscow's war revenue. Officials have rolled out some details on how shipping companies and insurers can comply with the price cap plan, but current rules appear to be loose.
Here's how bad a the next downturn could hit the stock market, according to five top experts. The stock market cratered from 2008-2009, with the Dow Jones Industrial Average ending at a low of 6,594 in March 2009, down more than 50% from its peak before the recession. With warning signs piling up, here's what five experts have to say about the next recession and what's in store for the stock market. "This is just the beginning of that pain," Roubini said of a potential repeat of the 2008 recession. He's voiced concerns about financial stability, warning markets that the Fed could "break something" on the way to reducing inflation.
US natural gas won't fill the gaping hole Russia left behind in Europe, according to BloombergNEF. "The year-on-year increase is not sufficient to offset a total cut in Russian piped supply," BNEF said. But that's set to tighten dramatically as US gas production starts to dry up: exports are expected to fall below expectations for the next two years, with just a 12% year-per-year increase. It means gas exports to Europe are expected to only be "a fraction" of what's consumed next summer, spelling even more trouble for skyrocketing energy prices. The European benchmark price for electricity, which is largely fueled by natural gas, has jumped over 1000% higher than what prices were a year ago.
Russia likely won't have enough ships to move its oil around a price cap, S&P Global said. That's largely due to increased competition for ice-class ships, which are necessary for long voyages. That calculation is assuming Russia will conduct more ship-to-ship transfers, which disguises the origin of Russian oil by handing off supplies to non-Russian ships. Already, purchases for secondhand ice-class ships rose to $1 billion this year, five times what was spent in 2021, according to data from London-based shipbroker EA Gibson. That could add over 200 various ice-class ships to Russia's arsenal, although firms would have to compete for sanctioned trades to use those ships.
Investors could see the bear market end as soon as early next year, according to Morgan Stanley's Mike Wilson. "We think the market will hold up and that will be another positive catalyst," Wilson told Bloomberg. Wilson noted that the outlook was fluid and he would turn bearish again if the S&P 500 fell below 3650. "We think the market will hold up and that will be another positive catalyst, because if the market doesn't go down on bad news, and the market doesn't go down on bad news and fundamentals, what do you have?" Wharton professor Jeremy Siegel echoed those points, predicting stocks could rally 30% next year as long as the Fed doesn't overtighten the economy and tip the US into a recession.
Stocks could rally as much as 25% as the Federal Reserve has already tightened financial conditions, Fundstrat said. That supports the case for a softening in Fed rate hikes, potentially boosting stocks more than the rally in July, according to a note. Meanwhile, GOP wins in the midterm election may add momentum, if less federal spending cools inflation, it added. Meanwhile, hopes for a Fed pivot are looking more realistic after central bankers hinted at a potential pause in rate hikes. Despite harrowing recession calls from other voices on Wall Street, others have also supported Fundstrat's view for a rally.
All that, plus there's the fast-approaching midterm elections that hold plenty more implications for investors. Historically, stocks shoot higher after midterm elections. Basically, the market usually reacts to midterms well because they are predictable in the sense that politicians can't make radical legislative changes. Attention stock market investors: The Fed could keep rates elevated for up to a year. Goldman Sachs detailed how to invest in each stock-market sector to best protect your portfolio from inflation and higher interest rates.
These 15 power players are just a handful of the people designing workplaces to balance productivity, interaction, and employee well-being through indoor-air-quality monitoring systems, building amenities, holographic meeting spaces, and more. AftershipCities like Austin, Texas; Nashville, Tennessee; and Raleigh, North Carolina, began offering business-relocation incentives during the pandemic to boost their workforces and help increase occupancy in office buildings. Room's office suite includes a phone booth, a meeting room, an open meeting room, and a focus room. Room also makes a soundproof meeting room that fits two people, a more open meeting booth, and a focus room designed for quiet concentration. "The future of office work needs to be guided by a new, genuine form of flexibility in which the work, not the workers themselves, become even more malleable," Petersen writes.
Powell as his "band of lunatics" have gotten inflation all wrong, Barry Sternlicht told Fortune. He criticized the Fed's delayed response on inflation and for reacting to lagging indicators. Its actions could result in a policy error that breaks trust in capitalism, he warned in the interview. I think they're just wrong," he said, slamming the Fed's inflation response an interview with Fortune on Friday. "You're going to have social unrest ... And it's just because of Jay Powell and his band of lunatics," he added.
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