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Top 5 Things to Watch in the Markets in the Next Week By Investing.com

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Written by Noreen Burke

Investing.com – Investors will eagerly await the latest US inflation figures on Thursday, as their hopes have repeatedly been dashed to walk away from the Federal Reserve’s aggressive rate hike campaign. The minutes from last Wednesday’s Federal Reserve meeting should provide some insight into how officials view the economy and inflation expectations. Comments during the week by several Fed policy makers will be watched closely. Earnings of major banks on Friday are expected to show the impact of higher interest rates and market volatility. Oil prices will remain in the spotlight after the OPEC+ announcement of the largest supply cut since 2020 and in the UK, a slew of economic data will test the sterling’s recovery. Here’s what you need to know to start your week.

  1. Inflation figures in the United States

Another higher inflation reading on Thursday will confirm further hawkishness from the Fed after Friday’s jobs report indicated that the labor market remains strong despite the Fed’s efforts to cut high inflation by dampening growth.

While economists expect the key rate of moderation, which excludes food and fuel costs, is expected to accelerate in September, keeping the Fed on track for a fourth straight 75 basis points in November.

Data on Friday is expected to show a modest increase for September as auto sales rebounded.

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The economic calendar also includes data that should show how US consumers are behaving after months of tighter monetary policy, along with wholesale and inflation data.

  1. Fed minutes, megaphones

The latest meeting of the Federal Reserve on Wednesday will provide more insights into the view of policy makers on the position of inflation and expectations for the future path of interest rates.

Investors will also hear from several Fed officials during the week, including Vice President Lyle Brainard, New York Fed President James, Cleveland Fed President Loretta and Chicago Fed President Charles.

Recent comments from Fed officials have indicated that turmoil in financial markets will not prevent them from working to bring down inflation, which according to the central bank’s preferred procedure, is more than three times its target.

Stock markets have been hit hard by fears that strong monetary tightening by the Federal Reserve could push the economy into it Recession.

  1. Big bank profits

Major US banks start their quarterly corporate earnings on Friday amid concerns about the impact of higher interest rates. Four of the country’s largest lenders – JPMorgan Chase (NYSE:), Wells Fargo (NYSE :), City Group (NYSE :), and Morgan Stanley (NYSE:) – Third-quarter earnings are due before Friday’s opening.

Analysts expect the results to show a decline in net income after market volatility affected investment banking activity and lenders set aside more rainy day money to cover losses for borrowers who are behind in their payments.

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Banks usually earn more when interest rates rise because they can charge customers more fees to borrow, but higher borrowing costs also affect demand for mortgages and other loans.

“We expect a moderate, albeit increasing, negative impact on banks’ asset quality and loan growth from higher rates, inflation and a mild recession in the United States, negating some of the benefits of higher rates,” analysts at Fitch Ratings wrote. Report.

  1. oil prices

Prices seem likely to remain in the spotlight after rising to five-week highs on Friday, despite the dollar’s strength, following the decision by OPEC+ to cut oil production in the face of heavy pressure from the United States to keep global oil prices low.

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known as OPEC+, plan to cut their production target by 2 million barrels per day before the European Union bans Russian oil, squeezing supplies in an already tight market.

“Among the main implications of the recent OPEC cuts is the potential return of $100 oil,” Stephen Brennock of BVM oil brokerage told Reuters.

UBS Global Wealth Management has also forecast “a move above $100 a barrel over the coming quarters.”

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US Treasury Secretary Janet Yellen said the decision was “unhelpful and unwise” for the global economy, especially emerging markets, in an interview published in the Financial Times on Sunday.

5. UK data

The Bank of England’s Monetary Policy Committee publishes on Wednesday. The committee oversaw last month’s emergency intervention to stabilize bond markets after the government’s mini-budget, and the minutes may give insight into the risks facing pension funds and the implications of sharply higher mortgage rates.

The UK publishes for August on Tuesday, followed the next day by August figures along with industrial production and trade balance data.

Weak economic data may increase pressure on the government to present long-term growth plans.

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Investors are betting that the Bank of England will raise interest rates by a full percentage point at its next meeting in November to tackle inflation currently at 10%. The planned tax cuts by the new government are expected to increase inflation.

–Reuters contributed to this report

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Economic

New York Federal Reserve Securities Link Reverse Repo to Bank Regulatory Change by Reuters

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© Reuters. FILE PHOTO: The Federal Reserve building is seen in front of the Federal Reserve Board and is expected to signal plans to raise interest rates in March as it focuses on fighting inflation in Washington, US, January 26, 2022. REUTERS/Joshua Roberts

Written by Michael S Derby

(Reuters) – Continued massive cash flows at a key Fed facility are largely driven by a change in bank liquidity regulations from last year, a New York Federal Reserve report said on Friday.

The Fed offers what’s called a reverse repo, which allows eligible businesses to store cash at the central bank for a risk-free return. The rule that plays into the inflows is a regulation called the supplementary leverage ratio, which determines how much liquidity banks need on hand.

The SLR standard was relaxed during the most severe phase of the coronavirus pandemic in 2020, when concerns about market performance prevailed, and it was restored at the end of March 2021, to return to a more stringent level.

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Banking economists Jara Afonso, Marco Cipriani, and Gabriel La Spada write: “After the end of the SLR exemption period, banks had less flexibility to expand their balance sheets by increasing their holdings of reserves and Treasuries.” This had a knock-on effect on money market funds, the main users of reverse repo, which drove liquidity into the reverse repo facility.

After the regulations changed, the newspaper said, banks were less inclined to take deposits, and instead the money flowed into financial funds, which had to invest that money somewhere. Meanwhile, banks have cut back on short-term debt offerings, restricting where money can be invested. Moreover, the federal interest rate increases pushed cash into money market funds as financial markets experienced a shift in the cost of short-term borrowing, according to the authors.

The Federal Reserve’s esteemed buyback facility is an essential part of the toolkit it uses to manage its federal funds rate target setting, which it uses to influence the economy’s trajectory to achieve its inflation and employment targets. A reverse repo tool provides money market funds and other companies a place to deposit cash into the Federal Reserve overnight and earn a return. It is currently at 3.8% and is an investment with a better return than many private securities that come with greater risks.

The Fed’s reverse repo facility was largely unused in the spring of 2021, and then flows increased steadily. Inflows peaked at $2.426 trillion at the end of September before easing slightly to Friday’s inflow of $2.05 trillion.

Fed officials were optimistic about the huge levels of inflows. Some have argued that as the Fed raises interest rates and reduces the size of its balance sheet to combat high inflation, inflows into the reverse repo facility should decrease over time. But so far it hasn’t really happened.

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Meanwhile, issues related to the correct setup of the SLR are under consideration by the financial authorities, who are treading cautiously on the issue. “History shows the massive costs incurred by society when bank capital is inadequate, and therefore the urgency that the Fed properly adjusts capital regulation,” Michael Barr, the Fed’s official on bank supervision, said in comments Thursday.

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US Federal Reserve proposes plan for banks to manage climate-related financial risks By Reuters

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© Reuters. FILE PHOTO: An eagle graces the facade of the US Federal Reserve Building in Washington, July 31, 2013. REUTERS/Jonathan Ernst

Written by Chris Prentice

WASHINGTON (Reuters) – The U.S. Federal Reserve on Friday joined other major bank regulators in proposing a plan for how big banks can manage climate-related financial risks, drawing immediate opposition from one member and reservations from another.

The proposed principles detail the expectations for banks with more than $100 billion in assets to incorporate climate-related financial risks into their strategic planning. The proposal was approved for public comment in a 6-1 vote of the Fed’s Board of Governors.

The proposal marks the latest effort by US policymakers to prepare for potential financial risks from climate change, bringing the Fed into line with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), which have separately proposed their own plans.

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The potential impacts of climate change — rising sea levels, worsening floods and fires, and government policies moving away from carbon-heavy industries — could destroy trillions of dollars in assets worldwide.

The Fed said these financial implications “constitute an emerging risk to the integrity and integrity of financial institutions and to the financial stability of the United States.”

The Fed’s plan requires banks to consider climate-related financial risks in their audits, manage other risks, and add climate-related scenario analysis to the traditional stress test. The report suggested that banks should also assess and consider whether they should include climate-related risks in their liquidity reserves.

The debate over the extent of financial system risks posed by climate change has been politically charged. Federal Reserve Governor Christopher Waller opposed Friday’s proposal, raising the question of whether it represented a serious risk to the safety of large banks or financial stability in the United States.

“Climate change is real, but I do not agree with the premise that it poses a serious risk to the safety and integrity of major banks and the financial stability of the United States,” Waller said in a statement released alongside the proposal. “The Fed conducts regular stress tests on large banks that deliver very severe macroeconomic shocks and show that banks are resilient.”

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Gov. Michele Bowman endorsed the plan for public input with reservations, noting that the board should consider the “costs and benefits of any new projections.”

The proposal will be open to public comment for 60 days.

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More than 1,000 New York Times union employees plan to quit over payroll, reports Reuters

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© Reuters. FILE PHOTO: The New York Times Building in Manhattan, New York, US, August 3, 2020. REUTERS/Shannon Stapleton/File Photo

(Reuters) – More than 1,000 unionized employees of The New York Times Company have pledged to quit if the news publisher does not agree to a “full and fair contract” by Dec. 8, according to a union tweet on Friday.

The New York Times NewsGuild sought “inflationary” wages as well as preserving and enhancing health insurance and retirement benefits promised during employment, according to a letter signed by 1,036 members.

“We will be out and about for 24 hours, Thursday, December 8th, if we do not have a full and fair contract agreement in place by then,” the letter said.

Union members are also asking for flexibility to work remotely, among other demands.

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A spokesperson for The New York Times said “While we are disappointed that NewsGuild is threatening to strike, we stand ready to ensure The Times continues to serve our readers without interruption,” adding that the company’s current pay offer offered “significant increases.”

Earlier in March, a group of nearly 600 tech employees at The New York Times voted to unionize as the company faced allegations that it illegally interfered with organizing work.

In August, approximately 300 Thomson Reuters (NYSE: Corp) journalists in the US, represented by the same NewsGuild, also staged a 24-hour strike while the union negotiated a new three-year contract with the company.

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