MoneyFitt

15 December 2022

🇦🇷 ⚽️ 🇫🇷

Happy Thursday🎄!

US large-cap S&P 500 closed 0.6% DOWN 🔻 Tech-heavy Nasdaq Composite closed 0.78% DOWN 🔻Pan European STOXX Europe 600 closed 0.02% DOWN 🔻 HK’s Hang Seng Index closed 0.39% UP ▲ Japan’s Nikkei 225 closed 0.72% UP ▲ 

📊 IN THE MARKETS

0.50% non-surprise, China Covid surge, Non-Apple iOS apps?

📝 FOCUS

Landing not so soft? Interest rates, inflation, jobless higher… and no growth🌱 Vanguard let off the ESG hook by Texas (but ⚛️ fusion one day!)

📖   MoneyFitt EXPLAINS

🎓 The Fed’s “Dot Plot”

📊 IN THE MARKETS

Surprising exactly nobody, The Federal Reserve raised interest rates by 50 basis points (0.50%) to a target range of 4.25-4.50% on Wednesday, a slightly smaller hike than the four 75 basis point hikes in a row we’ve had this year, which started with rates at pretty much 0%. But forecasts (by the people who decide interest rates) for interest rates, inflation and unemployment went UP. The forecast for economic growth went DOWN and so did the markets, right after those were released. (See FOCUS.)

The quite natural conclusion that the explosion of Covid cases in China is the result of the recent, sudden about-turn on its strict and economically damaging zero-Covid policy is, apparently, not true. The WHO’s emergencies director said the virus was spreading “intensively” long before the lifting of restrictions, and warned of the need to ramp up vaccinations. Official numbers of new cases have trended lower only because authorities eased back on testing amid mounting fears about the impact of surging infections since the population lacks “herd immunity” and has very low vaccination rates among the elderly, on top of China’s non-mRNA vaccines which have lower efficacy rates.

Meanwhile, again to comply with European Union requirements (after conceding on charger cables) Apple is reportedly looking to allow iOS apps to get distribution outside of Apple’s own App Store from 2024, such as from websites or rival app stores, though probably only effective within Europe. Though population sizes are comparable, ​​spending on iOS apps in the EU is much smaller than in the US at about US$6 billion vs about US$29 billion. One analyst suggests if ALL iOS apps disappear in the EU, it would only knock 1% of its revenues and (showing how profitable it is) 2.5% off its profits. Not a small amount, but not a disaster. (It is also considering giving other wallet apps access to the phone’s NFC chip.)

📝 FOCUS

Landing not so soft? Interest rates, inflation, jobless higher… and no growth

Higher for longer. Inflation has peaked but is still way above the 2% target, so The Fed is projecting at least an additional 75 basis points of total increases by the end of 2023. The Dot Plot 🎓of projections by the voting members of the Fed came in at 5.1% by the end of 2023, up a lot from 4.6% at the last Dot Plot and higher than investors expecting, which sent markets tumbling. 

The previous Dot Plot was three months ago, so loads has changed… though if anything for the better, with inflation more clearly peaked in the US and elsewhere. Projections of interest rates at 4.1% and 3.1% by the end of 2024 and 2025 were also higher than 3.9% and 2.9% the last round.

As a result, the economy is expected to grow by a feeble 0.5% in 2023 (slashed from 1.2%, and the same as the estimate for 2022) before picking up to a still underwhelming 1.6% in 2024 (down from 1.7% previously.) The unemployment rate is expected to top out at 4.6%, up a bit from the 4.4% expected before, but a big pickup from the current historically low level of 3.7%, with the acute worker shortage leading wages to rise rapidly, perhaps triggering another round of inflation unless suppressed. 

In recent a Financial Times survey, 85% of economists expect a full-blown recession in 2023 despite Fed Chair Jay Powell’s recent comment that a Goldilocks-like “softish landing” was “very plausible.” A common rule of thumb definition of a recession is when the economic output of a country, measured by the gross domestic product or GDP, goes down in two or more consecutive quarters. Note that bear markets and recessions are not the same thing!

🌱 Vanguard let off the ESG hook by Texas (but ⚛️ fusion one day!)

In disappointing news, Vanguard has been rewarded by Texas for exiting the Net Zero Asset Managers initiative, targeting net zero carbon emissions by 2050, having apparently bowed to political pressures from anti-science forces a week ago. 

Texas has exempted Vanguard from questioning over their ESG investment policies, but BlackRock and State Street will still have to attend. Vanguard is the world’s second-largest global money manager, with US$7.1 trillion under (mainly passive) management, and hopefully pulled out of NZAM to follow the same broad principles independently, but it’s not great signaling, and puts pressure on its rivals to do the same. Fortunately, BlackRock (#1 with US$8tn) is standing firm, though its boss, Larry Fink, is facing a lot of pressure too (including from a pro-ESG activist manager in addition to the usual suspects.)

In less-depressing ESG news, Scientists at the National Ignition Facility in California, home of the world’s most powerful laser, announced on Twitter (non-Hellscape) they’d finally made a breakthrough on nuclear fusion. Fusion happens when two or more atoms are fused into one larger one, a process that generates a massive amount of energy as heat and is the process that powers the sun and stars and which one day (perhaps decades away) could provide a clean and cheap source of energy. It’s the opposite of nuclear fission as in power plants and bombs, in which atoms are split to release huge amounts of energy. The experiment actually got more energy out of the reaction than was put in, in this case “…about 2 megajoules in, about 3 megajoules out” or about what it takes to boil 9 kettles of water.

Thank you for spending a few minutes of your time with us. Remember to take time for yourself and be thankful for what you have.

📖 MoneyFitt EXPLAINS

🎓 The FOMC Dot Plot

The “Dot Plot” of the Federal Open Market Committee (FOMC), the US central bank’s rate setting committee, is a widely followed guage of what the Fed’s committee members expect benchmark interest rates to be the short and long term should be. Each dot is the median (midpoint) of the range of what each committee member thinks rates should be. The median of those points (which are also medians) is what economists see as the Fed’s interest rate outlook at a particular point in time. They are published quarterly in the Summary of Economic Projections and not at every FOMC meeting (which are held eight times a year.)Note that the committee members of the FOMC change from time to time and nobody knows which point belonged to which member anyway! And of course, economic data and the views of each member will change between the dot plot projections as well, so the latest Dot Plots may not reflect the current thinking of all the current members of the FOMC and the change between Dot Plots will not necessarily represent a sudden change in the Fed’s views!

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