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Currency Stocks: The Fed’s Senior Act Is Even More Dangerous



What’s happening: Stocks plummet on Tuesday after Fed Chairman Jerome Powell tell Congress that the plan to reduce asset purchases by $15 billion a month may no longer be relevant and the central bank may need to move faster. The S&P 500 and Dow both closed down 1.9%, while the Nasdaq Composite ended the day down 1.6%.

In a note to clients, strategists at UBS put the current situation this way: “Omicron + taper = volatility.”

The Fed has an extremely difficult job on its hands. Its preferred inflation gauge, released last week, showed consumer prices rising at the fastest rate in three decades.

The central bank said it would begin rolling out crisis-era measures to keep the economy from overheating – although it does not want to jeopardize the recovery of the US jobs market. where the unemployment rate remains at 4.6%. Before the pandemic, the unemployment rate was at 3.5%.

The appearance of the Omicron variant has made it more difficult to assess the situation. While scientists are rushing to determine whether the strain is more transmissible and whether a vaccine is still effective at protecting against serious illness, economists worry. fear it could force many people to stay at home or even force some locations to close again. That will affect the return of work.

Powell sounded hawkish on Tuesday despite this development. The Goldman Sachs team noted that Powell “stated three times, with increasing rigidity, that it would be appropriate to discuss accelerating the pace of decline.”

“At the moment, the economy is very strong and inflationary pressures are high and therefore, in my view, looking at easing our asset purchases … perhaps sooner. a few months is appropriate.”

Break it down: The rotation says something about the Fed’s assessment of inflation. Powell said it is only “transient” and will pass when the pressure of the pandemic on the supply chain eases. But on Tuesday, he said it was time not to use the word.

“Finally, the momentary view on inflation is officially over as Powell’s comments reinforce the view that higher prices are likely,” said Charlie Ripley, senior investment strategist at Allianz Investment Management. will continue to exist next year.”

The Fed’s ability to fight inflation without denting markets – which are used to easy money – will always be a challenge. Powell pointed out that, in his view, the task is increasingly urgent.

Throw in the effects of the Omicron variation into the mix, and it looks even more complicated.

Economist Mohamed El-Erian, who thinks the Fed has been too slow to acknowledge inflation, writes: “The problem now is that waking up so late to the reality of inflation increases the risk of mismanagement. policy catch-up”. in a column for Bloomberg.

“Such a policy mistake – whether it ever materializes – would do further harm to an economy in which more vulnerable segments of the population are already dealing with inflation,” he continued. lose their income, and everywhere many Americans are already priced out of the housing market. This is particularly unfortunate and completely avoidable.”

China can close the IPO loophole loved by tech giants

For years, China’s biggest tech companies have take advantage of loopholes allowing them to raise money from foreign investors.
Alibaba (TORTOISE), Pinduoduo (PDD), Didi and JD.com (JD) all used a structure known as a variable interest entity, or VIE. Now, Beijing is said to be planning to ban the practice as part of an effort to strengthen data security.

Such a move could prevent Chinese companies from listing on foreign stock exchanges and potentially force companies already down this path to overhaul their businesses.

Latest: Details are still in line. But Bloomberg’s report that China intends to halt the activity as soon as this month, citing people familiar with the matter.

The consequences are still unclear, but can be dramatic. Here’s how Bloomberg put it:

  • Currently listed companies in the US and Hong Kong using VIE will need to make adjustments to make their ownership structures more transparent in regulatory reviews, especially in sectors where there is no such information. limit foreign investment, these people said. It’s not clear if that means reshuffled shareholders or, more aggressively, delisting the most sensitive companies – moves that could raise fears of a split between China and the US. fields such as technology.

The China Securities Regulatory Commission did not respond to a request for comment from CNN Business.

View this space: Share of SoftBank (SFTBF) fell sharply last week after Chinese regulators reportedly asked Didi to delist from the New York Stock Exchange over data security concerns. The Japanese company’s Vision Fund is a major shareholder in the Chinese ride-hailing service.

If some of the biggest names in China’s tech sector were forced out of foreign exchanges, it would be hugely destabilizing for investors who have piled into these stocks.

Travel is back, but Omicron could change everything

Just when US airlines thought they were on the verge of becoming profitable again, the Omicron variant appeared.

Leisure travel is back to near pre-Covid levels, and this Thanksgiving marks the busiest week for air travel since the start of the pandemic. But the major US airlines have been counting on the return of their most lucrative sources of revenue: international business and passengers.

The appearance of the possible Omicron variant keep those tourists, Chris Isidore, my CNN Business colleague, reports.

Philip Baggaley, head of airline credit analysis at Standard & Poor’s, said: “I think year-end travel has been booked and will continue. “But the plans for international travel and business travel, I would imagine there’s going to be a wait-and-see attitude for those.”

As a result, investors are fleeing airline stocks. Delta Airlines (DAL) shares are down nearly 9% since last Wednesday’s close, while United Airlines (UAL) nearly 10% lower.

They are recouping some losses in pre-market trading this morning. But the outlook again looks extremely uncertain.

“The unknown in itself is bad news,” says Baggaley.

Next

CrowdStrike (CRWD) and Snowflake reported results after US markets closed.

Also today:

  • The ISM Manufacturing Index for November is posted at 10 a.m. ET.
  • Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen testify before the House Financial Services Committee beginning at 10 a.m. ET.

Coming up tomorrow: Are US jobless claims near their lowest level since 1969?

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