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Interest rate rises slow, a new competitor to Twitter, and the Chinese balloon gets shot down. Newsletter #9
In This Issue:
Global rate rises slow
Instagram founders launch Twitter rival
Big tech earnings
Chinese balloon shot down
The European Central Bank (ECB) raised European interest rates by 0.5% on Thursday. Interest rates rose 2.5% in the second half of 2022 in the ongoing effort to bring down inflation which still remained at 5.2% in January. Although much lower than the 9% some economists were forecasting, it’s still much higher than the 2% target set by the ECB.
In the UK the Bank of England (BoE) raised interest rates for the 10th time in a row, but many believe that interest rates are now nearing their peak and may end by the middle of the year. The benchmark interest rate is at 4%, its highest level for 14 years and the BoE won’t want to raise them much higher and risk damaging the economy.
Despite the interest rate rises, UK inflation is still at 10.5%. Around a quarter of households now have a mortgage according to the government and raising rates further would seriously impact them and their ability to pay back the mortgage.
Over in the US, the Fed raised its benchmark interest rate by 0.25%. This move takes the federal funds rate to a target range of 4.5%-4.75%, the highest since October 2007. It’s the eighth in a series that began in March 2022 and is meant to bring down inflation, which remains elevated despite the recent signs of slowing.
The Fed's Chairman, Jerome Powell, acknowledged in his post-meeting news conference that the disinflationary process has started but warned that it would be premature to declare victory. The market initially fell after the announcement but rebounded during Powell's press conference as he struck a somewhat optimistic tone on progress against inflation.
It seems that, thankfully, inflation around the world is finally slowing and will hopefully come down later this year. If this is the case, it might provide a further boost to the markets in the second half of the year, despite the roaring start they’ve had to 2023.
Big Tech Earnings
The fourth quarter earnings for the big tech companies made stark some of the challenges the companies had faced coming out of the pandemic and into a world of higher inflation.
Apple primarily blamed illnesses at one of its assembly plants in China for the first decline in its quarterly revenue for 3.5 years. Tim Cook, Apple’s CEO, said that production is where it should be and the problems are behind the company.
Alphabet, Google’s parent company, reported a contraction in its quarterly ad spending for just the second time in its history as the boom in ad spend during the pandemic began to slow and economic growth weakened. Alphabet also announced it expected to incur costs in Q1 of this year due to layoff payouts and office space shrinkage.
Amazon said its AWS (Amazon Web Services) business has slowed as customers cut back on spending. Stronger than forecast sales from its retail division however helped offset some of the poor results from the AWS division.
The results showed that despite a difficult 2022, where companies relying on advertising struggled with shrinking budgets and plummeting stock prices, they’re still not out of the woods. The advertising industry is closely tied to the economy and many advertisers have reduced their marketing spend due to high inflation and ongoing recession concerns, which has negatively impacted companies that rely on digital advertising for revenue.
Instagram Founders Launch Twitter Rival
Kevin Systrom and Mike Krieger, the pair who created and sold Instagram to Facebook (now Meta) for $1 billion back in 2012 are now taking on Twitter with a new platform, called Artifact.
The new app is primarily aimed at combating fake news and avoiding “filter bubbles” - when a user is shown only content they agree with. On Artifact, users will sometimes see content that might challenge their views.
The platform will add more turbulence to the social media industry which has recently been disrupted by Elon Musk’s acquisition of Twitter. Systrom said he admires Musk’s efforts to improve Twitter but that Artifact will aim to compete with it.
Artifact is based in San-Francisco and has just seven employees. This might not sound like a lot, but Instagram had 13 when it was acquired for $1 billion, equal to about $77 million per employee.
The site will use AI to show you personalized content from other publishers online, this includes large mainstream organizations as well as smaller specialist blogs. As with other social media apps, the more you use it, the more the content will become specialized for you.
Artifact will be a collection of carefully selected sources that have undergone a media bias and fact-checking process, rather than a fully social platform. The goal of the co-founders is to provide high-quality news and information from opposing viewpoints.
A waitlist for the app opened last Tuesday.
Chinese Spy Balloon Shot Down
On Saturday, the United States military took down a Chinese spy balloon that was suspected of spying on the country. The balloon had been in U.S. airspace for a week, causing tension between the two nations and leading President Biden to give the order to take it down. The Pentagon, however, recommended waiting until the balloon could be taken down over open water to protect civilians from any potential debris.
An F-22 fighter jet successfully took down the balloon about six miles off the coast of South Carolina. US military officials said hat the relatively shallow waters could help with the recovery of any elements of the Chinese surveillance equipment in the coming days.
China was quick to react to the military action and strongly condemned it, stating that the balloon was only being used for meteorological and scientific purposes and that it had accidentally strayed into US airspace.
US officials dismissed these claims and maintained that the balloon was indeed being used for spying purposes. The downing of the balloon came shortly after the U.S. government ordered a halt to flights in and out of three airports in South Carolina due to national security concerns.
While the military action marks the end of the spying saga, President Biden is likely to continue facing political scrutiny from his Republican opponents in Congress. They argue that he did not act quickly enough and that his lack of action has damaged the relationship between the two countries. The U.S. government has already spoken directly with China about the action and has also briefed allies and partners around the world.
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