Pre-market stocks: the free money era is coming to an end


What’s happening: The U.S. Federal Reserve said on Wednesday it would start cutting asset purchases, a key part of its stimulus efforts, by $ 15 billion each month. The program is expected to end by the middle of 2022.
It is not alone. Australia’s central bank also took steps to tighten monetary policy this week, while the Bank of Canada announced last week that it would stop increasing its balance sheet. The European Central Bank is also slowing the pace of its purchases this quarter.

Given the policy changes, one would think investors might panic. After all, the amount of money in the system was the main force behind the market euphoria after the pandemic crash.

“The main driver of the market today is this phenomenal reserve of liquidity,” Vis Raghavan, JPMorgan CEO for Europe, Middle East and Africa told me this week. “The market is simply awash in cash. Every asset class is exceptionally busy.”

But there was no “tantrum tapping” like in 2013, when the Fed signaled it would eventually slow down asset purchases, triggering a sharp drop in bonds and turmoil in global markets. The Dow, S&P 500 and Nasdaq Composite all hit all-time highs on Wednesday, and the bond market is holding up.

Why? First, the message has been extremely clear. Raghavan thinks it’s also evident that central banks would be prepared to step up their efforts if the post-pandemic recovery goes south. After 2020, their willingness to flex their muscles is no longer a secret.

“No one wants an economic uproar to undermine this recovery,” he said. “Whatever happens, there will be an intervention to make sure there is no economic pain.”

Fed Chairman Jerome Powell, who last year saw the central bank’s balance sheet reach $ 7.4 trillion, the highest on record, said Wednesday.

“We are ready to adjust the pace of purchases if the changing economic outlook warrants it,” he said.

But with inflation rising at the fastest pace in three decades, the question now is whether central banks will have to cut stimulus even more aggressively or risk missing their time to contain price hikes. It will take careful communication to keep investors on the same page.

Powell said the Fed will not raise interest rates until the labor market makes more progress. But is the central bank at risk of being left behind?

Watch this space: There was a chance the Bank of England would become the first major central bank to raise interest rates since the crisis hit Thursday – but it kept rates at an all-time high of 0.1 %. The Bank of America team believes the central bank will hike rates twice by February.

OPEC is under pressure to pump more crude

Even as the world debates ending fossil fuels at COP26 in Glasgow, OPEC and its allies discuss whether to pump more oil to alleviate the soaring prices that are fueling global inflation and hurting households. vulnerable.

The latest: Energy ministers from major producers, including Saudi Arabia and Russia, meeting virtually on Thursday are under pressure from large customers such as the United States to increase production by more than 400,000 barrels a day, reports my CNN Business colleague Charles Riley.

Speaking at the climate summit in Glasgow earlier this week, President Joe Biden said the rise in gasoline prices is “a consequence” of “Russia’s or OPEC countries’ refusal to pump more oil “.

“We’ll see what happens to that score as soon as possible,” Biden added.

Setback: The price of Brent crude oil, the global benchmark, has doubled in the past year to over $ 83 a barrel as the global economy recovers from its pandemic slump. Bank of America predicts that prices will rise further to reach $ 120 per barrel by June 2022.

Soaring oil prices would dampen the recovery at a crucial time, and high gasoline prices could have political ramifications for Democrats in the run-up to the 2022 midterm elections. United has hit a seven-year high of $ 3.40 a gallon nationally and is flirting with $ 4 in Nevada, Washington and Oregon.

Remember: OPEC member countries produce around 40% of the world’s crude oil. OPEC has coordinated production decisions in recent years with other major producers, including Russia, as part of a larger group called OPEC +.

“The external flex on OPEC + from oil-producing countries is intensifying, especially from the United States,” said Louise Dickson, analyst at Rystad Energy.

Web Summit CEO says regulators should look to China

Seeking to put the pandemic behind them, more than 40,000 people are in Lisbon for the Web Summit, Europe’s largest tech festival.

Many of them talk about Facebook. Whistleblower Frances Haugen kicked off the event on Monday, saying the company would be “stronger” if founder Mark Zuckerberg resigned as chief executive. Facebook’s chief product officer Chris Cox on Wednesday said the social media giant welcomes “tough conversations.”

“It’s good for us and it’s good for society,” he said, while touting the company’s backbone towards virtual and augmented reality technologies. “We are not perfect.”

Web Summit CEO Paddy Cosgrave told me that bringing whistleblowers onto the scene helps regulators build momentum.

“They are going faster than they have ever done before to draft legislation to start addressing some of these problems,” he said in an interview.

A potential model? Cosgrave believes regulators should look to China, which he says is implementing “very sane policies” related to social media and child protection.

Earlier this year, Beijing banned online gamers under the age of 18 from playing on weekdays. Douyin, the Chinese version of TikTok, is introducing a “teenage mode” limiting the time children under 14 can spend on the app – a move seen as an attempt to get ahead of potential regulation.

Following

Cars.com (CARS), Restaurant brands (VACARME), Kellogg (K), Moderna (MRNA), Nicolas, Dad johns (PZZA) and ViacomCBS (VIACA) publish the results before the US markets open. Airbnb, Datadog (DDOG), Expedia Group (EXPED), Living country (LYV), Pinterest (PINS), Red tuna (RDFN), Square (SQ) and Uber (UBER) follow after the close.

Also today: The initial US jobless claims for last week at 8:30 a.m. ET.

Coming tomorrow: A strong US jobs report for October could fuel discussions about the Fed’s interest rate hike sooner than expected.

About Myra R.

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