Sept 08, 2022 TradeUP Thursday Latest news and bulletin updates
Dow Jones 31,481(-0.50%)
S&P 500 3,909(-0.62%)
(Opening price as of 09/08/2022 compared to last close)
Markets see a nearly 80% probability that the Fed will raise rates by another 75 bps in September
Apple unveils new iPhone, fitness watch, and AirPods at annual event
Bed Bath & Beyond CFO Gustavo Arnal died by suicide, medical examiner says
SEC Chair Gary Gensler asks crypto community to embrace regulation or risk being sued
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A strong dollar and its double-edged effect
The US dollar has soared this year as Fed’s aggressive stance pushes rapid rate hikes to fight inflation, even at the expense of economic growth. That sparked sales of stocks and bonds, driving up the 2-year treasury yield, and eventually sending the Dollar Index to its highest level since its peak in 2002. The graph below shows the movements of the DXY index (white) and Fed fund rates (blue) since the 1960s.
The DXY index has gained in five of the past six months and is up over 14% in 2022. A strong dollar helps hold down domestic inflation by lowering the cost of imported goods. Every dollar buys more goods and services as it rises. Since the US is a large net importer, a 14% rise in the dollar can have a measurable impact on inflation. On the other hand, in contrast to DXY declines during the inflation-plagued 1970s, a strong dollar represents more room for monetary tightening.
However, a strong dollar generally harms the economies of developed and emerging markets. It will cool down real estate market in developed markets and put pressure on emerging markets with high dollar-denominated debts.
A strong dollar also means lower revenue for US corporations with international exposure. A long list of companies have already warned that the strengthening of the dollar could reduce revenue, including Microsoft, Salesforce, Netflix, IBM, etc. The graph below shows the movements of the DXY index (white) and S&P 500 (blue) since the beginning of 2022.
As Fed is on path for another 75-bps hike, where do you think the DXY index will be in 3 months?
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#1. Markets see a nearly 80% probability that the Fed will raise rates by another 75 bps in September
• Fed officials pledged further rate hikes until inflation significantly cools down. Fed Vice Chairwoman Brainard emphasized the need for rates to rise and stay at levels that would slow economic activity. Powell is set to speak on the economic outlook on Thursday.
• ECB has raised interest rates by 75 bps, its second hike this year following a 50 bps rise in July —and signaled that further rises were likely this year. Canada’s central bank raised its policy rate on Wednesday to 3.25%, a 14-year high.
#2. Apple unveils new iPhone, fitness watch, and AirPods at annual event
• Apple hiked the price of the iPhone 14 in key markets despite keeping it the same in the US.
• All products will be available for preorder over the next few weeks, and some will ship as early as September 16.
#3. Bed Bath & Beyond CFO Gustavo Arnal died by suicide, medical examiner says
• BBBY said its CFO, Gustavo Arnal, died Friday, after police had said earlier that Arnal fell to his death. “The entire Bed Bath & Beyond Inc. organization is profoundly saddened by this shocking loss,” the company said in a statement.
• Shares of BBBY are down 45% this year and about 90% from its all-time high. The company announced cost-cutting measures last week. Active investor Ryan Cohen, a major Bed Bath shareholder, exited his position last month.
#4. SEC Chair Gary Gensler asks crypto community to embrace regulation or risk being sued
• Gensler reiterated that the SEC has a primary role in regulating large parts of the crypto market, including tokens. Gensler also took aim at stablecoins, saying that some may be considered securities and would also need to register with the SEC.
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