Why are markets so scared of interest rates?

News of interest rate hikes, inflation and the prospect of stagflation dominated markets this week. Here’s why investors look so worried.

1. Big rate hikes

This week the U.S. raised interest rates by 0.75%, the single largest hike since 1994. With other nations in lockstep, markets are looking panicked.

It’s all about rising inflation. Goods that cost Americans $100 last year, cost them $108.60 today and prices keep going up (Australia isn’t too far behind).

That’s hurting our pocket and eroding our wealth. To oversimplify, these rate hikes are designed to slow our spending so prices will stabilise.

By “curbing inflation”, the hope is we can sustainably grow the economy again but in the meantime markets don’t like it one tiny bit.

2. Loyalty program

While some companies are worried consumers will stop buying if their goods get too expensive, there is one product that is so far immune: EVs.

A new EV now costs US$60,000 on average, or $15K more than conventional cars as the price of materials soars.

Despite Tesla jacking up the price of its models three times this year, drivers are still very much buying them along with brands like Rivian.

But just how much are people willing to pay? If prices keep rising, we’ll find out people’s limit soon enough.

3. It’s me again

The status of Elon Musk’s bid for Twitter remains ‘complicated’ at best but it hasn’t stopped him from talking about it to staff.

In a virtual meeting with them overnight, Musk said he wanted to grow users more than fourfold and turn Twitter into a superapp like WeChat.

He also indicated he’d initiate layoffs in a bid to help make the platform profitable, hardly endearing him to his (potential) new employees.

4. Wide world of sports

Apple has placed sports at the centre of its streaming empire as it moves to distinguish Apple TV+ from the competition.

As part of a multi-year deal with Nike, it has a string of sports movies in the works including a Formula 1 film and a Magic Johnson docuseries.

Apple has also bought the 10-year rights to America’s Major League Soccer with more sports deals presumably in the works.

5. Science fiction

A Google employee has been forced onto leave after revealing concerns that a chatbot had become sentient – eg. self-aware.

“If I didn’t know exactly what it was … I’d think it was a seven-year-old, eight-year-old kid that happens to know physics,” he told reporters.

The claims appear overblown but there are genuine concerns about what artificial intelligence might be one day and how companies might use it.