Market Loop - First Eurozone rate hike in 11 years

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22nd July 2022

Bite-sized business news from the UK and beyond

Good morning Watch out Huw Edwards, the TikTokers are coming. Ofcom’s latest annual survey of the UK news landscape revealed that TikTok is the fastest growing news source for adults. According to the survey nearly half of people using the social media platform for current affairs turn to fellow TikTokers rather than conventional news organisations for their updates.

Today's stories

First Eurozone rate hike in 11 years
Big Tech cuts back on hiring

EUROPE
First Eurozone rate hike in 11 years

What happened?
Yesterday the European Central Bank finally moved out of the era of negative interest rates, raising borrowing costs by 0.5% in its first hike since 2011 and the biggest since 2000.

How did we get here?
We might be used to interest-rate rises in the UK by now — five since December and more on the way— but the ECB has been doggedly holding out.

As in other markets the Eurozone is facing soaring inflation at 8.6% fuelling by the rising cost of energy and food along with global supply chain disruptions. When inflation started creeping up last year, the ECB had thought it would be transitory and would return to its target rate of 2% without any policy intervention.

What's changed?
But it’s now conceded that high prices are showing no signs of letting up. So it hopes that by increasing the cost of borrowing this will cool demand in the economy and ease pressure on prices.

The hike should also help the value of the euro which has plummeted versus the dollar this year. The US central bank has been quicker to raise interest rates, creating more demand for the dollar and less for the euro. Last week it reached parity or an equal value to the dollar, the first time in more than 20 years.

A devalued euro makes dollar imports more expensive, adding to inflationary pressures.

Zooming out: By raising interest rates the ECB has followed in the footsteps of 80 central banks this year, the move leaves only Japan, Switzerland and Denmark in sub-zero territory.

Other stories to keep you in the loop

UK debt interest reaches record high as inflation soars
Truss tax plans accused of breaking spending rules
Russia restarts gas supply to Europe via Nord Stream 1 pipeline
Blockchain.com lays off a quarter of staff as fallout from crypto crash worsens
Ocado plunges £211m into the red as online customer orders dwindle
Tesla sells most of its Bitcoin holdings
Snap shares plunge on disappointing results and plans to slow hiring

TECH
Big Tech cuts back on hiring

This month a slew of tech giants have announced that they will be pulling back on recruitment to cut costs in the face of uncertain economic conditions.

The global economy has faced a series of headwinds this year – soaring inflation, geopolitical turmoil from the war in Ukraine, global supply issues – which has increased the risk of a recession.

After growing rapidly during the height of the pandemic, tech giants like Apple, Google, Meta and Amazon have all signalled that they will be scaling down on hiring in preparation for a weaker global economy.

Some tech companies are going as far as cutting jobs. That includes Microsoft, which said last week that it was eliminating some positions as part of a reorganisation.

Former pandemic highfliers like Netflix and Peloton also have been laying off workers in recent months. Netflix trimmed a few hundred jobs in June, and Peloton just announced plans to shutter its in-house manufacturing.

Amazon staffed up during Covid so it could handle a surge in e-commerce spending. That’s now left it overstaffed in its warehouses, but the company has said it’s working through that problem with attrition.

During an internal Q&A last month, Meta CEO Mark Zuckerberg told employees that there were “probably a bunch of people at the company who shouldn’t be here,” adding that if more aggressive goals made employees quit, that would be okay with him.

Similarly, during a call with Twitter employees when he still wanted to buy the company a month ago (remember?), Elon Musk addressed potential layoffs with the ominous statement, “Anyone who is obviously, like, a significant contributor, should have nothing to worry about.”

Stat of the day

“The Gray Man” is Netflix's most expensive blockbuster costing $200m, early reviews have so far panned it as “listless” “mediocre” and “gruelling”

Interesting links from around the web

The new edition of “The World’s 50 Best Restaurants” is out
Renting bridesmaids has become a fast-growing industry in China
10 free websites that can help save countless hours on online tasks

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Market Loop - First Eurozone rate hike in 11 years

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