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It’s Federal Reserve day, China locks down iPhone City, and US pharmacy chains pay up. Fed Chair Jerome Powell will deliver the outcome of t [View in browser]( [Bloomberg]( It’s Federal Reserve day, China locks down iPhone City, and US pharmacy chains pay up. Fed day Fed Chair Jerome Powell will [deliver the outcome](of the central bank’s latest policy decision, with clear consensus for a fourth straight rate hike of 75 basis points. Yet there’s little clarity on how the Fed proceeds from there in its effort to rein in the hottest inflation in 40 years, while minimizing recession risks that have already roiled markets. “It’s a challenge for messaging because they don’t want to ease financial conditions significantly,” said Julia Coronado, the founder of MacroPolicy Perspectives LLC. “They need tight financial conditions to keep cooling the economy off. So he doesn’t want to sound dovish, but he may want to go slower.” China lockdown China has ordered a [seven-day lockdown of `iPhone City’]( — or the area around the main plant operated by Foxconn, the world’s largest iPhone factory. The move comes as Foxconn grappled with a Covid flare-up that forced some of its 200,000 staff into quarantine and pushed others to flee the facility. Yet unverified talk of a shift in President Xi Jinping’s Covid Zero policy has nonetheless gripped traders and [sparked an epic rally]( in the nation’s stocks. Corporate wrap CVS, Walgreens and Walmart have tentatively agreed to [pay more than $12 billion]( to resolve thousands of state and local government lawsuits accusing the chains of mishandling opioid painkillers, according to people familiar with the matter. In Europe, Credit Suisse’s long-term rating was [downgraded to one level above junk](by S&P Global Ratings, which cited “material execution risks” related to its restructuring plan. And Maersk, a bellwether for global trade, said [demand will shrink](as much as 4% this year and could also contract in 2023. Quiet markets S&P 500 futures were little changed as of 5:24 a.m. in New York, while Nasdaq 100 contracts rose 0.1%. Bloomberg’s dollar gauge trended lower, allowing for small gains across most Group-of-10 currencies. Treasury yields pulled back mildly across the curve, with the exception of 30-year rates. Oil and gold climbed slightly, while Bitcoin traded flat. Coming up… It’s a busy calendar, starting with mortgage applications data at 7 a.m. then October ADP employment figures at 8:15 a.m. Fifteen minutes later, the Treasury will announce its quarterly refunding plans. The Fed delivers its decision at 2 p.m., followed by Powell’s press conference 30 minutes later. Earnings include Qualcomm, CVS, Booking, eBay, Etsy, Ferrari, MGM Resorts, Yum! Brands and Estee Lauder. What we’ve been reading Here’s what caught our eye over the past 24 hours: - Extreme heat is[stressing out cowsÂ]( - The five women helping doctors crack the [mystery of long CovidÂ]( - A cancer-causing agent has been found in [more dry shampoos]( - A[billionaire Harvard alum]( is trying to make office work more efficient - [Egypt’s barren fields]( are a dire bellwether for a climate summit - [Inflation in UK shops]( rises to the highest on record - Elon Musk ponders [selling blue Twitter checkmarksÂ]( And finally, here’s what Joe is interested in this morning Hello and happy Fed Day. Yesterday we got the latest JOLTS report, and it [showed an unexpected increase]( in the number of job openings in September. The Fed has been particularly focused on job openings as a perceived proxy for labor market tightness, so yesterday's report just bolsters the overheating narrative. Regardless of whether the job market is healthy or not, its resilience is quite impressive. We've had this historically fast pace of tightening, and yet so far its failed to engineer a meaningful slowdown. I continue to be struck with the post-Great Financial Crisis period. In the 2010s, a big story was that low rates from the Fed couldn't generate inflation. So far in this cycle, the big story is about rate hikes not generating labor market softening. One fear though is that the Fed tightening will cause something to "break" in financial markets before the economy cools down. Yesterday we published an episode of the podcast with BIS economic adviser and head of research Hyun Song Shin, [where he warned of "tripwires" strewn throughout the global financial system](. The recent blowup in the UK gilt market might seem to be an example of that. That puts central banks in the potentially uncomfortable spot of simultaneously fighting inflation while also putting out financial system fires. Also in the conversation, Shin gave a brilliant explanation of the network effects of the US dollar, and why it's so difficult to dislodge. Going to post the answer here, since it's important for people to understand how difficult it is for a meaningful shift away from the dollar on a global scale. “Think about starting from invoicing. So if you invoice in the dollar, then it makes sense to finance — trade financing — in dollars because you’re going to be receiving dollar cash flows. And similarly, if you are going to make an investment and the cash flow is in dollars, then of course it makes sense to borrow in dollars because you want to eliminate at least one of the uncertainties between your obligations and incoming cash. So you tend to borrow in dollars even if you are not located in the United States. And if that's the case, then the capital markets will have a preponderance of dollar instruments, which is exactly what we see. So the capital market development will very much follow in the wake of these currency decisions. Asset managers will have a preponderance of dollar securities — dollar assets more generally. And if you are a pension fund or a life-insurance company from a non-dollar jurisdiction, you’re limited in your domestic currency instruments. And so in your portfolio, there’s going to be a very large chunk of dollar-denominated assets. And so if that’s the case, then you have to find a way of hedging the currency risk because your obligations to your beneficiaries, your obligations to your policy holders, are going to be in your domestic currency rather than dollars. And so there’s a role for dollar hedging. There’s a hedging for the dollar risk, which means that, you would take up swaps with the global banks and the global banks are lending you dollars short term. And of course they would need to source those dollars in global capital markets. And so the global banking system, the global capital markets, there’s a very good reason why that's a very heavy dollar ecosystem because it builds on all these previous steps.” The real economy and the financial system exist in this huge web of corresponding cash flows and liabilities, which all fit together like a puzzle. It's extremely difficult to change one part of it, let alone all of it wholesale. And again, for central banks, the question is whether its rate hikes can work to slow economic activity down, while the financial system runs as intended. Follow Bloomberg's Joe Weisenthal on Twitter [@TheStalwartÂ]( Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. 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