Bank of Russia Imposes Emergency Measures; China Slashes Rates; U.S. Industrial Policy Gears Up - With Some Help From Wall Street By Perry Cleveland-Peck
Good day. Russia's central bank raised its key interest rate at an emergency meeting earlier today to stem a sharp selloff in the ruble and resurgent inflation, a response to the mounting financial costs of Moscow's war in Ukraine. Also this morning, China's central bank unexpectedly cut a range of key interest rates, an emergency move to reignite growth after new data showed the economy slid deeper into distress last month. Meanwhile, in the face of intensifying technology and military rivalry with China, the U.S. government has been tapping Wall Street financiers to help spread $39 billion in taxpayer-funded manufacturing subsidies in a dramatic push to revive the U.S. chip industry.
Now on to today's news and analysis.
Top News Russia Imposes Emergency Rate Rise to Stem Economic Turmoil
The Bank of Russia raised its key interest rate to 12% from 8.5%, a day after the ruble temporarily fell past 100 to the U.S. dollar for the first time since the weeks after Russia invaded Ukraine. The ruble recovered to around 96 a dollar early Tuesday but remains down more than 20% this year, placing it among the world's worst-performing currencies.
The ruble's recent slide is an indication of the growing uncertainties facing an economy battling resurgent inflation, the mounting impact of sanctions and a drastic labor shortage. Fast-rising imports and slower exports this year, coupled with capital outflows and political uncertainty in the aftermath of the aborted Wagner mutiny in June have all pushed the ruble lower in recent weeks.
China Slashes Rates and Suspends Youth Jobless Data
Chinese officials said they would stop reporting the country's youth unemployment rate after months of spiraling increases, depriving investors, economists and businesses of another key data point on the declining health of the world's second-largest economy.
The surprise move extends China's efforts to restrict access to a variety of data on its economy and corporate landscape to outside scrutiny.
At the same time, the People's Bank of China cut a range of key interest rates, in a move designed to reignite growth after new data showed the economy slid deeper into distress last month. The latest signals reinforce the sense of broad economic frailty that Beijing is struggling to overcome.
U.S. Economy Why White House Went to Wall Street to Revive U.S. Chips Industry
To revive the U.S. chip industry, the Biden administration has launched one of the most significant acts of government intervention since World War II-and it is relying on masters of the free market to deliver the goods.
Trump Indicted in Georgia Over Effort to Undo Election More Americans Are Ending Up Homeless-at a Record Rate
The U.S. has seen a record increase in homeless people this year as the Covid-19 pandemic fades, according to a Wall Street Journal review of data from around the country. Its tally thus far includes more than 577,000 homeless people .
Key Developments Around the World Japan's Economy Grows at 6% Pace in Second Quarter
Japan's economy expanded at a much faster pace than expected in the April-June quarter thanks to robust exports, outpacing growth in the U.S. and China. Real GDP increased 1.5% in the three months to June from the previous quarter.
Argentina's Dollar Bonds Plummet After Outsider Wins Primary Vote
Argentina's dollar bonds tumbled and the government devalued the peso's official exchange rate after a libertarian outsider Javier Milei positioned himself as the country's leading hopeful ahead of October's presidential election.
Canada Tests the Limits of Its Liberal Immigration Strategy
High levels of immigration made Canada the second-fastest growing developed-world economy in recent years, but the newcomers are starting to strain its ability to absorb them, putting at risk an engine of the country's growth.
Financial Regulation Roundup UBS to Pay $1.44 Billion to Settle Financial Crisis-Era DOJ Case
UBS has agreed to pay $1.44 billion to settle a case from the U.S. Department of Justice related to the issuance of residential mortgage-backed securities in the lead-up to the 2008-2009 financial crisis.
PayPal Names Intuit Executive Alex Chriss as Its Next CEO
Payments company PayPal Holdings has tapped Intuit executive Alex Chriss as its next president and chief executive, ending a monthslong search for a new leader. He takes the reins from Dan Schulman on Sept. 27 and also joins the board.
Crypto Custodian Prime Trust Files for Bankruptcy Protection
Prime Trust, a firm that bridged the crypto industry's banking access and stored its assets, filed for bankruptcy protection , after facing a shortfall in customer funds. It estimates that it has between 25,000 and 50,000 creditors.
Forward Guidance Tuesday (all times ET)
8:30 a.m.: U.S. import and export price indexes for July; U.S. advance retail sales for July; New York Fed's Empire State manufacturing survey; Canada consumer-price index for July; U.S. business inventories for June
10 a.m.: NAHB/Wells Fargo Housing Market Index for August
10 p.m.: Reserve Bank of New Zealand interest rate decision
Wednesday
2 a.m.: U.K. consumer-price and producer-price indexes for July
5 a.m.: EU industrial production for June; Eurozone gross domestic product, second estimate for second quarter
8:15 a.m.: Canada housing starts for July
8:30 a.m.: U.S. housing starts and building permits for July; New York Fed's business leaders survey
9:15 a.m.: U.S. industrial production and capacity utilization for July
2 p.m.: FOMC minutes of July 25-26 meeting
Research Fed Likely to Start Cutting Rates in Second Quarter of 2024
Economists at Goldman Sachs say their baseline forecast calls for the Federal Reserve to start cutting the fed-funds rate in the second quarter of 2024. The economists say they are penciling in 25 basis points of cuts per quarter but are uncertain about the pace. "The FOMC might move slowly if its desire to normalize is only lukewarm and it fears further boosting asset prices and strengthening an economy with an already-tight labor market, or it could cut more quickly from a high starting point if it is more confident that the inflation problem is unlikely to return," the economists write in a note. They believe the funds rate will eventually stabilize at 3.00%-3.25%, above the Federal Open Market Committee's 2.5% median longer run estimate.
-Patrick Sheridan
Eurozone Core Inflation to Ease More Slowly Than in U.S.
Core inflation in the eurozone will likely come down more gradually than in the U.S., causing the European Central Bank to wait longer than the Federal Reserve to start cutting interest rates, Capital Economics deputy chief eurozone economist Jack Allen-Reynolds writes in a note. Core inflation in the U.S. began to accelerate in late 2020-much earlier than in the euro area-and its decline in the last year could herald a similar turning point for the eurozone, he writes. But while goods inflation has started to fall in recent months in the eurozone, services have been more sticky, with growth in wages accelerating in the first quarter when it slowed in the U.S., he writes. It suggests wage growth and underlying price pressures could remain stronger for longer in the currency union, he adds.
-Ed Frankl
Commentary China's Shadow Banks Could Be Another Property Casualty
China's real-estate downturn is entering a more acute phase again, and problems are also popping up in another perennial trouble spot : the nation's enormous and opaque shadow banking sector, Jacky Wong writes.
Basis Points Americans' expectations of rising inflation fell in the near-, medium- and long-term, according to the Federal Reserve Bank of New York's July Survey of Consumer Expectations. The median inflation expectation fell from 3.8% in June to 3.5% in July, the lowest reading since April 2021, the bank said in a report. (MarketWatch) The Russian ruble's decline picked up pace in recent weeks, and on Monday the currency fell past 100 to the U.S. dollar for the first time since the weeks after Russia invaded Ukraine. So far this year, the ruble has lost almost 30% of its value against the dollar . Only a handful of currencies including the Turkish lira, Nigerian naira and Argentine peso are having a worse year. India's annual inflation climbed for the second month in a row, above the country's central bank target range, after food prices surged. Consumer prices rose 7.44% in July compared with the same month a year earlier, accelerating from the upwardly revised 4.87% on-year increase in June, according to government preliminary data. The rise comes two months after May's 25-month low of 4.31%. (Dow Jones Newswires) The growth of China's home sales slowed in July, while new construction starts and property investment fell, and consumption and investment in the country cooled further while factory production growth decelerated, official data showed. (DJN) Indonesia's trade surplus narrowed in July amid stronger imports. Southeast Asia's largest economy recorded a trade surplus of $1.31 billion, narrowing from $3.45 billion in June, Indonesia's statistics agency said Tuesday. The country had trade surpluses with India, the U.S. and the Philippines. (DJN) Australian consumer confidence improved strongly last week amid widening confidence that official interest rates are close to their peak. Consumer confidence rose by 3.2 points from the prior week, according to a survey by ANZ Bank and pollster Roy Morgan. (DJN) Germany's economic outlook improved more than expected in August, suggesting easing pressure on activity as inflation cools and interest-rate rises slow, despite a considerable weakening of perspective among respondents to the country's economic situation. (DJN) Feedback Loop
This newsletter is compiled by Perry Cleveland-Peck in Barcelona and James Christie .
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08-15-23 0715ET
