The Federal Reserve’s policymaking committee appears poised to boost its benchmark rate by 75 basis points today, making it the third straight increase of that size, according to the CME FedWatch tool. The measure, which is determined by trading activity, puts an 84% probability on a 75 bps hike, which would bring the federal funds rate target range to 3.0%-3.25%, and a 16% probability on a full percentage point increase. Indeed, the widely watched 10-year Treasury yield has been climbing in recent days, pushing past 3.5%, its highest level since 2011, while the 2-year Treasury yield hit its highest level since 2007, briefly topping 4.0%.
Commentary: “The Fed has been delivering a ‘tough love’ message that interest rates will be higher, and for longer, than expected,” said Greg McBride, chief financial analyst at Bankrate. “The Fed will continue to hike rates until it actually restrains the economy and intends to keep rates at those restrictive levels until inflation is unmistakably on its way to 2%.” A quantitative tightening program is also in the works to reduce the Fed’s whopping $9T balance sheet, leading to more upward pressure on yields.
Meanwhile, the central bank this afternoon will release its latest economic projections, giving investors a clearer picture of where policymakers expect rates to go through its “dot plot.” The last forecast saw the terminal rate for fed funds to be above 3.25% by the end of the year and at 3.8% in 2023, but most economists now expect the latter to be above 4%. The new projections will also offer a snapshot into the FOMC’s thinking for the last two meetings of 2022, and how high rates could go in November and December.
Outlook: Mihir Kapadia, CEO of Sun Global Investments, observes the expectations’ effects on asset prices. “The more aggressive monetary policy has stoked fears of an impending recession and has led to fall in most asset prices including bonds and stocks. The weakness in stocks has stopped the new issue market and the IPO drought continues. This has clearly impacted performance of banks. Corporate earnings this quarter will be a barometer for the health and resilience of the economy and sentiment.” (56 comments)
In his first national address since the invasion of Ukraine in February, Vladimir Putin announced a “partial mobilization” of the population to bolster flagging manpower for Russia’s “special military operation” in the Donbas region. Only reservists will be conscripted, with the Defense Ministry later clarifying that as many as 300,000 troops could be called up. The declaration comes after big battlefield losses for Moscow over the past few weeks, following a counteroffensive by Ukraine that retook more than 10% of the territory held by Russia.
Quote: “When the territorial integrity of our country is threatened, we will certainly use all the means at our disposal to protect Russia and our people,” Putin continued. “This is not a bluff. Those who are trying to blackmail us with nuclear weapons should know that the wind patterns can also turn in their direction. To those who allow themselves such statements, I would like to remind them, Russia also has many types of weapons of destruction, the components of which in some cases are more modern than those of the countries of NATO.”
WTI crude prices advanced on the news, climbing as much as 3.2% to $86.62/bbl, over fears that any escalation in the war could lead to tighter oil and gas supply. While new sanctions could be unveiled, the EU has already banned seaborne imports of Russian crude from Dec. 5, and given the recent aggressiveness of the Federal Reserve, many appear to be more worried about lower oil demand growth amid a global economic slowdown. “It seems like a knee-jerk reaction to a sliver of news and would be liable to further recalibration in the coming hours,” related Vandana Hari, founder of Vanda Insights in Singapore.
Go deeper: The Kremlin is moving ahead with the formal annexation of the so-called Donetsk and Luhansk People’s Republics, as well as the Kherson and Zaporizhzhia regions. The West has called out the referendums, set to be held between Sept. 23-27, as sham votes, and compared them to the illegal one held in Crimea back in 2014. The annexation would be “irreversible” and enable Moscow to use “all possible force in self-defense, according to Dmitry Medvedev, Deputy Chairman of Russia’s Security Council (who also served as the country’s president from 2008 to 2012). (90 comments)
As the screws tighten over the war in Ukraine, the ramifications for those involved are having profound impacts on their economies. Europe is on the frontlines as energy is weaponized on the battlefield, with Russia fully turning off the taps of the Nord Stream 1 pipeline to Germany and beyond. Prior to the invasion, Russia had supplied about 40% of the EU’s natural gas needs, which is used for everything, like cooking and heating for consumers, as well as electricity and power generation for heavy industry.
The latest: Uniper (OTC:UNPPY), Germany’s largest importer of gas, is being nationalized by the government as Berlin attempts to keep the industry afloat in the wake of an energy crisis. Shares of the utility collapsed 35% in Frankfurt on the news, following a 90% tumble since the beginning of the year. The drastic measure follows an earlier €15B bailout that failed to prop up Uniper, which has suffered heavy financial losses after being forced to buy gas in a market where prices have hit record highs.
The specifics of the deal will see the German government take a 99% stake in the energy giant – and inject in €8B – by acquiring the stake of Uniper’s parent company, Finland’s Fortum Oyj (OTCPK:FOJCY). “This step has become necessary because the situation has worsened significantly,” German Economy Minister Robert Habeck announced. “The state will do everything necessary to keep systemically important companies in Germany stable at all times.”
Outlook: While Germany gas storage facilities are currently over 90% full (meaning serious trouble would occur only after this winter), the government is likely to roll out further emergency support until more diversified supplies come online. There are plans to take control of two other large gas importers known as VNG and Securing Energy for Europe (formerly Gazprom Germania). Berlin has also said it would take over Rosneft’s (OTC:RNFTF) German unit, including stakes in three crude refineries that account for 12% of the country’s oil processing capacity. (8 comments)
Feeling some serious heat from rival TikTok, YouTube’s (GOOG, GOOGL) short-form video-sharing platform is shifting into overdrive by bringing advertising (and revenue sharing) to popular creators. Until now, the only way to make money in YouTube Shorts was through a $100M Shorts Fund that was launched last year. That compares to YouTube’s main site, where users can run ads in their videos and keep a portion of the revenue.
How it works: Starting in 2023, creators focused on Shorts can apply to the YouTube Partner Program by hitting a threshold of 1,000 subscribers and 10M Shorts views over 90 days. A new level with lower requirements will also offer earlier access to Fan Funding features like “Super Thanks, Super Chat, Super Stickers and Channel Memberships.” As for advertising on Shorts, ads run between videos on the feed, so every month, “revenue from these ads will be added together” and used to reward Shorts creators and cover music licensing costs (creators will keep 45% of the revenue, distributed based on their share of total Shorts views).
“YouTube now offers 10 ways for our over 2M partners to make money. But we’re not done,” the company wrote in a blog post. “Creators are continually testing the boundaries of expression, from 15-second vertical Shorts, to 15-minute videos, to 15-hour live streams. And they’re building their businesses based on diversified revenue streams, from Fan Funding to brand sponsorships.”
By the numbers: YouTube Shorts is seeing 30B views per day and has 1.5B monthly logged-in users. (19 comments)
Be the first to comment