U.S. Equity Markets finished lower Wednesday led by the 2.37% fall in the NASDAQ 100. Markets ended lower following several factors in yesterday’s trading session. Some weakness in equities is attributable to the underperformance from Republicans in the U.S. midterm elections. Additionally, disappointing earnings continue to roll in, with Disney (DIS) missing expectations. Meta Platforms (META) confirmed it will cut about 13% of its workforce – the first major layoffs in its 18-year history. And continued volatility and uncertainty in the crypto market also proved to be a tailwind for equities as Binance backed out of its FTX acquisition deal, leading to a 12% fall in Bitcoin. Consumers’ shrinking discretionary income is showing up on banks’ balance sheets. Since late 2021, the Fed has told us it is worried about inflation growth. After all, the U.S. Bureau of Labour Statistics’ Consumer Price Index has risen from a low of 0.1% growth in May 2020 to 8.2% growth this past September. So, the Fed is trying to stabilise prices by strengthening the Dollar. But, in the process, it is driving up the cost of loans. The change is a windfall for lenders who have been starving for years to make more net interest income (“NII”). In basic terms, NII refers to the difference between what banks take in for loans and what they then pay out in liabilities. Over the past year, the Federal-Funds rate target has jumped from a range of 0% to 0.25% to a new range of 3.75% to 4%. It has been much faster than previous rate-hike cycles. This change is putting money back onto banks’ balance sheets in a hurry. We need to look no further than JPMorgan Chase’s (JPM) third-quarter results. The company reported a record NII of $17.6 billion. It also guided total NII for the year to $61.5 billion, up from last quarter’s expectation of $58 billion. It was the same story for Bank of America (BAC). Management reported third-quarter NII of $13.8 billion – the highest level in over a decade. But that is not all. The Fed said that it is going to raise rates another 1% by next March. That means banks are going to make even more money on loans. You see, the central bank’s rate-hike plans should function as a continued tailwind for credit card companies and the banking sector. Over the past couple of years, most Americans have been buoyed by the financial security of government handouts, like stimulus payments, loan forbearance, and tax credits, among others. This led to a high pandemic-era savings rate. But all that financial security is quickly drying up. We have been hearing plenty of “resilient consumer” remarks and that “consumer balance sheets are strong” for a few months now. While this was true coming out of the pandemic, the trillions of dollars saved by Americans while they were stuck at home are fading fast. American households have weathered high inflation for much of the year. But signs are starting to emerge that consumers are losing ground to the rising cost of living. And the result? Credit-card debt is surging to pre-pandemic highs. Total card balances in the U.S. hit $916 billion in September. Outstanding balances are up 9% year to date and are 23% higher than the pandemic low in April 2021. According to the U.S. Bureau of Economic Analysis, the personal savings rate as a share of disposable personal income fell to 3.3% in the third quarter. This is one of the lowest readings on record dating back to the 1940s. This is also a far cry from the 26.4% savings rate at the height of the pandemic in 2020. Servicing credit cards typically come at a high cost due to interest rates. According to credit-card comparison service CreditCards.com, the national average interest rate on a credit card is now 18.9%. That is compared to Federal Reserve data that show late 2021’s average interest rate stood at 14.5%., while more spending and account openings create the near-term optics of a healthy consumer. longer term, the dynamic will destroy disposable income at an even faster rate. In the meantime, households are likely to increase consumption via credit cards to keep up. That means they will be spending even more on interest payments and putting margin into banks’ balance sheets. Within the S&P 500 Index, all the 11 sectors finished lower. European Markets also closed in the red. Markets ended lower as investors await Thursday’s inflation news from the U.S. There was no other major economic news out of Europe as the European Central Bank’s (“ECB”) Consumer Expectations Survey showed little change in the inflation outlook. The German Council of Economic Experts warned the government that energy relief measures must remain curtailed to only those necessary as the risk of higher inflation persists. And the ECB’s Andrea Enria, said that eurozone banks could handle higher interest-rates spikes, furthering the hawkish tone that a pivot isn’t close. In Asia, Markets ended lower as economic sentiment and COVID-19 worries overshadowed any optimism following China’s first drop in producer inflation in 22 months. China’s number of new COVID-19 cases remains above 8,000 per day. Japan manufacturer sentiment fell to a 22-month low as the weak Yen drove up import costs. However, the country’s services-sector sentiment firmed. And India said it will continue to buy Russian oil citing its domestic benefits. Elsewhere, Oil fell 3.78% while Gold closed 0.43% lower after a late rally in the Dollar.

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