Bank of Japan Drops Hard Rate Cap; Worker Pay Poses Problem for Fed; Has 10-Year Treasury Yield Peaked? By James Christie
Good day. The Bank of Japan said it would consider its cap on government bond yields as a reference point rather than a hard boundary, backing away from a seven-year-old policy amid persistent inflation. In the U.S., workers are still commanding beefy pay raises. That is good news for workers but something that could complicate the Federal Reserve's inflation fight. And the yield on the 10-year U.S. Treasury note touched 5% for the first time in 16 years last week, spurring debate about whether it has peaked or just taken another step in its long and disruptive climb.
Now on to today's news and analysis.
Top News Bank of Japan Backs Away From Rate Cap Amid Persistent Inflation
Since 2016, the Bank of Japan has prevented the yield on 10-year Japanese government bonds from rising above a certain level, part of a policy known as yield-curve control. In July, it raised the hard cap to 1% from 0.5%. But on Tuesday, it said the 1% level would now be considered merely a reference, and it would make government bond purchases "taking account of market rates." It didn't set any firm upper boundary. It maintained its short-term interest-rate target at minus 0.1%.
Workers Keep Getting Big Raises. That's a Problem for the Fed.
Fed officials are likely to hold interest rates steady at this week's policy meeting Tuesday and Wednesday, but signs of stalled progress in slowing wage and price increases could open the door to another rate increase in the coming months. They will closely parse a Labor Department report scheduled for Tuesday that will show how fast worker compensation rose in the third quarter. Officials want to see such gains ebb to a pace that would allow inflation to decline over time to the Fed's 2% target.
Decoding the (Almost) 5% 10-Year Treasury Yield
Treasury yields play a critical role in determining borrowing costs across the economy. Their nearly two-year surge has driven 30-year mortgage rates close to 8%, weighed on stocks and stirred anxieties that the surprisingly resilient economy could finally fall into recession. Here is a look at how yields got here and their possible paths forward.
How This Year's Hottest Investment Could End Up Costing You Analysis: The Fed Can Wait
For Federal Reserve policy makers, maintaining a tightening bias makes sense because inflation could reaccelerate and the economy is bearing higher interest rates pretty well so far, Justin Lahart writes .
U.S. Economy Detroit Is Paying Up to End the UAW Strike
The United Auto Workers campaign against Detroit's three automakers can be described as one thing for the union: a win. That closure is also a positive for the carmakers, but it portends difficult times ahead for the Detroit Three.
GM, UAW Reach Tentative Labor Deal to End Strike
The Money Has Stopped Flowing in Commercial Real Estate
Commercial real-estate lending is shrinking to historically low levels , threatening a rise in defaults on expiring debt and a sharp decline in new construction of warehouses, apartments and other property types.
Sales Pitch for an 8% Mortgage: Buy Now, Refinance Later-for Free
These offers often aren't as attractive as they initially seem, because some raise the cost of a mortgage today to make it work down the road. Others expire in just a few years. This means you ultimately might not save anything at all .
Pandemic Cash That Bolstered School Budgets Is About to Run Out
Schools across the country are preparing to see their budgets shift from flush to strained as billions of dollars in pandemic aid runs out in less than a year, putting at risk staffing and programs added with Covid-relief funds.
Key Developments Around the World Bank of Canada Gov. Macklem: Economy Enters Weaker Phase
Bank of Canada Gov. Tiff Macklem said economic growth has shifted into a weaker phase, as higher interest rates crimp consumption and bring demand and supply closer to equilibrium.
"With the economy expected to move into excess supply this year and with growth anticipated to be weak for the next few quarters, we think there's more inflation relief in the pipeline," Macklem said in remarks to legislators on a parliamentary finance committee. (Dow Jones Newswires)
Central Banks Continue Gold-Buying Spree Amid Market Volatility
Central banks are buying gold in record volumes, as volatile markets and geopolitical uncertainty drives demand for the precious metal, according to a new report from the World Gold Council. Central banks bought a record net 800 metric tons of gold during the first three quarters of 2023, putting them on course to break last year's record level of 1,136 tons, the industry body said Tuesday. (DJN)
China's Economy Shows Fresh Signs of Slowing
China's economy suffered a setback as surveys showed factory orders shrank and construction activity slowed, reigniting growth concerns just as activity appeared to be stabilizing.
Hong Kong's Economic Growth Accelerates in Third Quarter Financial Regulation Roundup Biden's 'Junk Fee' Crackdown Comes for Retirement Advice
Americans rolling over their money into an individual retirement account from a 401(k) will have more protections on the advice they get as part of a Labor Department proposal released Tuesday.
Sam Bankman-Fried Grilled in Crucial Day on Witness Stand
Sam Bankman-Fried faced his biggest test in the legal hot seat Monday, grilled by a prosecutor intent on poking holes in the FTX founder's claims that unfortunate management mistakes were to blame for the crypto exchange's collapse.
He Pioneered Carbon Offsets. Now the Market Is Collapsing.
Mike Korchinsky helped create one of the most popular tools for cutting carbon emissions. Now, he is fighting to keep that business-and his own revenue stream-alive amid a crisis of confidence that is shaking the industry he helped start.
In Texas, Bitcoin Springs From Gas Wells
Big swings in the price of natural gas whipsaw producers. Chris Alfano thinks the solution lies in using power generated from natural gas produced by wells to run banks of power-hungry computers to generate crypto coins .
Forward Guidance Tuesday (all times ET)
Time N/A: Federal Reserve begins two-day policy meeting
8:30 a.m.: U.S. employment cost index for third quarter; Canada gross domestic product for August
9 a.m.: S&P CoreLogic Case-Shiller Home Price Index for August
9:45 a.m.: Chicago Business Barometer for October
10 a.m.: The Conference Board Consumer Confidence Index for October
12:30 p.m.: ECB's de Guindos speaks with students at ICADE University event
4:15 p.m.: Bank of Canada's Macklem, Rogers at Standing Senate Committee on Banking, Commerce and the Economy hearing
Wednesday
5:30 a.m.: S&P Global / CIPS UK Manufacturing PMI for October
8:15 a.m.: ADP National Employment Report for October
10 a.m.: ISM Report on Business Manufacturing PMI for October; U.S. Job Openings and Labor Turnover Survey (JOLTs) for September
2 p.m.: Federal Reserve interest rate decision
2:30 p.m.: Fed's Powell post-FOMC meeting press conference
Research Brazil's Central Bank Likely to Focus on Fiscal Situation
Brazil's central bank is expected to continue its cycle of 50 basis point interest rate cuts when its policy makers meet on Wednesday, and the statement announcing the cut will probably express concerns about government spending, says BNP Paribas head of Latin America research Gustavo Arruda. Brazil's government has set a goal of having a balanced primary budget balance in 2024, but that appears unlikely, Arruda says. If the government decides to permit a primary deficit and then makes too big a change to the target, that would undermine its credibility in terms of controlling the budget deficit and could raise inflation expectations, the economist says.
-Jeffrey T. Lewis
Basis Points A majority of economists think a recession in the U.S. can be avoided, according to a poll by the National Association of Business Economists. Nearly four-fifths of economists say there is a 50% chance or less of a recession within the next year, and only 18% think a downturn is likely, according to the poll. (Dow Jones Newswires) Factory activity in Texas contracted a little more again in October as production slowed, with the Federal Reserve Bank of Dallas index for general business activity falling from minus 18.1 in September to minus 19.2, according to the bank's latest Texas Manufacturing Outlook Survey. (DJN) The U.S. Treasury Department said Monday it expects to borrow $776 billion in the fourth quarter, $76 billion less than the prior estimate in July. The decrease in borrowing needs was largely driven by higher receipts, the department said. (MarketWatch) Soaring costs are pushing up the price of big wind-power projects, challenging the country's shift to renewable energy and potentially leading to larger-than-expected bills for residents. Inflation eased more than expected in the eurozone in October as energy prices dropped . Eurozone economic sentiment worsened again in October, marking six months of continual decline, as confidence slid among industry and consumers alike. The bloc's sentiment indicator of business and consumer confidence fell from an upwardly revised 93.4 in September to 93.3, data from the European Commission showed. (DJN) The French economy grew more sluggishly over the summer as production and exports slowed, suggesting tight monetary policy is squeezing industry in the country. Germany's economy contracted a little less than expected in the third quarter and revisions for the first and second quarters meant the country avoided a recession previously reported last winter. Gross domestic product shrank 0.1% from July to September compared with the previous quarter, according to data released Monday. Economists polled by The Wall Street Journal expected a 0.2% on-quarter contraction. (DJN) U.K. house prices fell 1.1% on year, the most dramatic slowdown in price growth since 2009, and price
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10-31-23 0715ET
