(Original title: The European Central Bank raises interest rates sharply by 75 basis points! Interest rates will continue to rise in the future, and the euro briefly rises! Credit Suisse has a huge loss of 29.5 billion and will lay off 9,000 employees)
The European Central Bank announced a 75 basis point interest rate hike on Tuesday, bringing the euro back to parity against the dollar, while major European stock markets were muted. The performance of Meta, one of the five largest technology stocks in the United States, fell short of expectations. After the opening bell, it fell 25%, and its market value evaporated by nearly 80 billion US dollars (about 560 billion yuan).
The European Central Bank has raised interest rates three times in a row
On October 27, local time, the European Central Bank announced an interest rate hike of 75 basis points. Among the three main interest rates, the refinancing rate rose to 2.00%, the marginal lending rate was 2.25%, and the deposit rate was 1.50%. This is the third rate hike by the European Central Bank after two hikes in July and September this year. After the European Central Bank announced its decision to raise interest rates, the euro once returned to parity against the dollar. But as of press time, the euro fell below parity against the dollar again.
The ECB said its rate-hike cycle is not over: The Federal Reserve has made substantial progress in unwinding its easy-money policy as it sharply hiked policy rates for the third time in a row. The Governing Council has made a decision and is expected to raise interest rates further to ensure that inflation returns to its medium-term inflation target of 2 percent in a timely manner. The ECB will follow a meeting-by-meeting approach to determine the future policy rate path based on the evolving inflation and economic outlook.
European Central Bank President Christine Lagarde has publicly stated that the current inflation rate is still too high and will be above the target for a long time. In September, the euro zone inflation rate reached 9.9%. Soaring energy and food prices, supply bottlenecks and post-pandemic demand recovery have led to increased price pressures and increased inflation in recent months. The ECB’s monetary policy is aimed at reducing support for demand and guarding against the risk of continued rise in inflation expectations.
On the European economic outlook, Lagarde said she expected further weakness for the rest of the year and early next year. High inflation continues to dampen consumption and production by reducing real incomes of residents and driving up business costs. The situation was further exacerbated by severe disruptions to natural gas supplies, with consumer and business confidence falling rapidly, also weighing on the economy. Demand for services is slowing, and survey indicators of new orders in manufacturing are falling. In addition, global economic activity has grown more slowly against the backdrop of ongoing geopolitical uncertainty. The worsening terms of trade put pressure on euro zone incomes.
The labor market continued to perform well in the third quarter, with the unemployment rate still at a record low 6.6% in August. While short-term indicators suggest that jobs were still being created in the third quarter, a weaker economy could lead to slightly higher unemployment ahead.
Judging the trend of inflation, Lagarde said that the inflation rate rose to 9.9% in September, with all components rising further. Among them, energy prices rose 40.7% and remained the main driver of headline inflation, with natural gas and electricity prices contributing more and more. Food price inflation also rose further, to 11.8%, as high input costs made food production more expensive.
Supply bottlenecks are gradually easing, although their lagged effects are still causing inflation. The impact of depressing demand, while waning, is still driving up prices in the services sector. The depreciation of the euro has exacerbated the accumulation of inflationary pressures. Price pressures are evident in a growing number of sectors, in part due to the impact of high energy costs on the economy as a whole. As a result, underlying inflation measures remain elevated. Core inflation, which excludes energy and food, rose further to 4.8% in September.
A strong labor market is likely to support higher wages to compensate for higher inflation. New wage data and recent wage agreements suggest wage growth may be picking up.
Lagarde is expected to raise interest rates further to ensure inflation returns to her medium-term target in time. And future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach. The ECB stands ready to adjust all tools within its mandate to ensure inflation returns to its medium-term target.
Meta’s performance falls short of expectations
stock price plummeted
On October 27, local time, Meta (Facebook), one of the five largest technology companies in the United States, announced its latest quarterly report. According to the report, Meta’s third-quarter revenue was $27.71 billion, exceeding expectations of $27.41 billion; earnings per share were $1.64, lower than the expected $1.89. As of September 30, Meta’s monthly active users increased by 2% year-on-year to 2.96 billion, slightly lower than the expected 2.97 billion; daily active users were 1.98 billion, exceeding the expected 1.89 billion; average revenue per user was $9.41, lower than expected $9.83. Capital expenditures in 2023 are expected to be $34 billion to $39 billion, mainly driven by investments in data centers, servers, and network infrastructure, and improvements in AI capabilities significantly boost companies’ capital expenditures in 2023. Meta also expects that foreign exchange factors will have a significant negative impact on the growth of the advertising business and that the market demand for advertising will slow down.
After the earnings report was released, Meta’s stock price fell 25% at the opening, and then recovered. As of press time, the decline is still more than 20%. Shares of the company are down as much as 75% from their highs a year ago.
Morgan Stanley analyst Brian Nowak downgraded Meta to “neutral” from “overweight” and lowered his price target to $105 per share.
“We generally don’t pay undue attention to rating changes, as market conditions reflected in ratings can be relatively conservative,” Novak said. “But we think Meta’s latest results and forward guidance on R&D costs suggest that the company is profitable. Capability is putting negative pressure on the company’s share price for a period of time, and the impact on the share price will continue until the market executes on the excess R&D costs expended by the company.”
Novak sees the company’s R&D spending as a signal that the company may need higher structural capital strength going forward. Substantial revenue and business growth from these R&D expenditures may take time (possibly until 2023) to materialize, and the exact length of time is difficult to determine. Meta’s profitability may remain depressed for a long time. “
Credit Suisse, a century-old European bank, loses CHF 4 billion
9,000 layoffs announced
Another focus for the market on the day was Credit Suisse. The company reported a net loss of 4.03 billion Swiss francs (about 29.5 billion yuan) in the third quarter. Credit Suisse also announced a series of measures aimed at reversing the embattled situation following huge losses, including a “complete restructuring” of its investment bank, raising CHF4 billion worth of capital through a new share issue, and by the end of 2025. 9,000 layoffs, etc. The company’s shares fell more than 18%, and its market value has fallen below $10 billion.
Founded in 1856 and headquartered in Zurich, Switzerland, Credit Suisse is the fifth largest consortium in the world and the second largest bank in Switzerland.
Credit Suisse has been plagued by a series of scandals in recent years. In 2021, Credit Suisse suffered the “double crit” of the liquidation of Archegos Capital and the collapse of Greensill Capital, costing the company billions of dollars and forcing the departure of its investment bank chief and chief risk officer. In addition, Credit Suisse became the first major bank in Swiss history to be convicted in a criminal case.
In September of this year, the news of Credit Suisse’s deteriorating financial situation and the brink of bankruptcy continued to ferment, causing Credit Suisse’s share price to continue to fall, falling more than 60% this year.
Proofreading: Yao Yuan
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