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MAY 2, 2023

FED’S UPCOMING MEETING ON INTEREST RATES HIKE

The Federal Reserve is hosting a two-day policy meeting during which it is expected to boost its benchmark overnight interest rate to its highest level in over 16 years. This will put the economy to the test in ways not seen since the 2007 financial crisis. It will be the second meeting held after a major U.S. bank failure, which highlights the impact of the central bank’s rapid rise in interest rates on the financial sector. The Fed may signal that this week’s rate increase is the last, which allows time to see how the economy adjusts to higher borrowing costs.

UBER SHOWS STRONG PERFORMANCE

Uber’s shares have surged by 9% following the release of the ride-hailing company’s first-quarter financial results, which exceeded analysts’ revenue expectations. Uber’s first-quarter revenue was $8.82 billion, 29% higher than the previous year – beating average estimates. Moreover, Uber’s largest business segment for the first quarter was the Mobility segment, which posted $4.33 billion in revenue, followed by the Delivery segment with $3.09 billion. With 2.12 billion trips completed, Uber’s client base topped 130 million, a 13% increase over the previous year. According to CEO, Dara Khosrowshahi, Uber’s global scale provides it with a “significant data advantage” over its competitors.

PFIZER BEATS EXPECTATIONS

Pfizer’s revenue and earnings for the first quarter of this year exceeded Wall Street expectations, despite lower demand for its Covid vaccine. The pharmaceutical giant reported adjusted earnings per share of $1.23, compared with the predicted 98 cents, and its revenue was $18.28 billion instead of the predicted $16.59 billion. Although sales were affected by reduced Covid vaccine demand, Pfizer has maintained its 2023 sales forecast of $67 billion to $71 billion and its full-year adjusted earnings outlook of $3.25 to $3.45 per share.

MORGAN STANLEY AND CITIGROUP ANNOUNCE LAYOFFS

Morgan Stanley is set to cut 3,000 jobs in the second quarter following a fall in revenue and fees from its investment banking unit. This is the second round of cuts in just six months, affecting nearly 4% of its staff. Meanwhile, Citigroup’s CEO Jane Fraser said the company is willing to adjust staffing levels due to an industry-wide slump in dealmaking and underwriting activity. The firm has already started trimming positions as investment-banking revenues slumped 25% to $774 million in the first quarter.

INTERNATIONAL NEWS

Euro zone banks are reducing the amount of credit they offer while inflation rates are on the decline. This supports the argument for the European Central Bank (ECB) to increase interest rates by a smaller amount this week. Core inflation rates, which exclude food and energy prices, fell for the first time since January 2022, but remain high at 7.3%. In addition, the ECB’s survey of lending showed that banks are limiting access to credit, despite a decreased demand from borrowers, resulting in a slower pace of growth in credit to households. This data suggests that the significant increase in borrowing costs caused by the ECB’s policies is starting to impact the economy. The ECB may now follow the U.S. Federal Reserve’s strategy of smaller 0.25% rate hikes and gradually wind down its crisis-era stimulus measures, however, it must balance the need to bring inflation back down to its target of 2% without harming households and businesses.

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