Bank of Canada Lifts Rates and Signals a Pivot; Brazil's Central Bank Watching Fiscal Policy Developments

Bank of Canada Lifts Rates and Signals a Pivot; Brazil's Central Bank Watching Fiscal Policy Developments By James Christie

Good day. The Bank of Canada yesterday raised its target for the overnight rate to a near 15-year high and in a pivot said any future policy decisions would be guided by incoming data. The central bank said its governing council will be monitoring whether the policy rate needs to rise further to bring supply and demand back into balance and return inflation to target. Previously, the central bank had said interest rates would be headed higher to contain inflation. Also on Wednesday, the Central Bank of Brazil's monetary policy committee held the Selic rate at 13.75% for a third consecutive meeting and said it would keep a close eye on the next government's spending plans as it considers its plans. Most concerns about inflation next year come from the looming inauguration of President-Elect Luiz Inácio Lula da Silva, who takes office on Jan. 1. His transition team is working to get a constitutional amendment approved to permit his administration to boost spending on social programs and other items.

Now on to today's news and analysis.

Top News Bank of Canada Lifts Rates by Half Point, Signals End of Tightening

OTTAWA-The Bank of Canada raised its main interest rate by a half-percentage point and signaled it is at or near the end of its rapid-fire tightening campaign because of slowing growth and early signs of easing price pressures.

The central bank on Wednesday increased its target for the overnight rate to 4.25% from 3.75%, the highest level in nearly 15 years . The economists surveyed by The Wall Street Journal ahead of the policy decision were split on how big a rate rise the bank would deliver. Half said a half point, given labor-market tightness and stronger-than-expected growth, and the other half expected a quarter-point increase, citing weaker consumer spending.

Brazil's Central Bank Leaves Benchmark Rate Unchanged at 13.75%

The Central Bank of Brazil left its benchmark lending rate unchanged on Wednesday at its final policy meeting this year and reiterated it is ready to resume rate increases if inflation doesn't behave as expected.

U.S. Economy What's Going on With the Housing Market?

By many measures, the U.S. housing market entered a sharp slump this summer after the Federal Reserve abruptly ended a real-estate boom fueled by the pandemic and record-low borrowing rates.

The $42 Billion Question: Why Aren't Americans Ditching Big Banks?

The Fed has raised interest rates to their highest level since early 2008, just before a near failure of the financial system plunged the American economy into recession. Yet the biggest U.S. banks are still paying peanuts to savers .

Car Dealers Gird for Softening Demand as Uncertain Outlook Looms

For nearly two years, car dealers have been focused on getting more cars onto their lots amid a severe inventory crunch. Now, some are worried about how quickly they will be able to move them off.

Key Developments Around the World EU Officials Pursue Additional Sanctions Against Russia

European Union officials proposed a new round of sanctions on Russia on Wednesday over its invasion of Ukraine, including a prohibition on investing in Russia's mining sector and new financial restrictions.

High Oil Prices Lift Saudi Arabia, Bolster Prince's Economic Plans

The Saudi government posted a $27 billion budget surplus Wednesday, as this year's high oil prices accelerate Crown Prince Mohammed bin Salman's ambitious plans and boost resource-rich economies across the Persian Gulf.

China's Xi Jinping Visits Saudi Arabia Amid Strained U.S. Ties

Chinese leader Xi Jinping landed in Saudi Arabia Wednesday evening for a visit that could deepen the relationship between the world's top oil importer and top oil exporter amid strained U.S.-Saudi ties.

Financial Regulation Roundup SEC Faces Calls to Boost Crypto-Exchange Enforcement

Pressure is mounting on the Securities and Exchange Commission to step up enforcement of key hubs of the crypto industry after the collapse of FTX last month.

SEC to Float Proposals to Get Small Investors Better Prices on Trades Accounting Red Flags Are Common Among Public Crypto Companies

Investors might bemoan the lack of disclosure in the crypto industry, but many crypto companies disclose a lot of information , and some of that information is worrisome, a review of financial statements shows.

FTX Hires Forensic Team to Probe Money Trail

FTX's new management has hired forensic investigators from advisory firm AlixPartners to help track the billions of dollars that have gone missing from the failed cryptocurrency exchange, people familiar with the matter said.

Forward Guidance Thursday (all times ET)

8:30 a.m.: U.S. weekly jobless claims

12:45 p.m.: Bank of Canada's Kozicki presents economic progress report at Institut de développement urbain Montréal, Quebec

Friday

2:45 a.m.: ECB's Enria in fireside chat with governor of the Central Bank of Cyprus at 10th Cyprus Banking Forum & Fintech Expo

4:30 a.m.: Bank of England/Ipsos Inflation Attitudes Survey

8:30 a.m.: U.S. producer price index for November

10 a.m.: University of Michigan preliminary consumer survey for December; U.S. wholesale trade for October

3:10 p.m.: ECB's McCaul in session on 'Greek Banking Sector - Growth and Development Outlook' at 24th Invest in Greece Forum of Capital Link in New York

Research Bank of Canada to Leave Door Ajar for More Rate Increases

The Bank of Canada might wait until the spring of next year before explicitly declaring that interest rate increases won't be needed to cool inflation, CIBC Capital Markets' chief economist Avery Shenfeld said. The central bank opted on Wednesday for an outsize half-point rate rise to 4.25%, even though it said there is evidence of slowing consumer spending and tentative signs of easing price pressures. At the end of its statement, the BOC said it would be "considering" whether more rate increases are necessary. Mr. Shenfeld expects data to show further slowing of growth, allowing the central bank to leave rates unchanged at its next meeting on Jan. 25. "But even then," he added, "the BOC might want to leave the door ajar for a later hike."

-Paul Vieira

Commentary What China's Covid-19 Reopening Means for Markets

China's reopening may be less messy than the West's, but has plenty of potential to disrupt, James Mackintosh writes, because adding to global demand makes it even harder for central banks trying to cool their economies.

Basis Points The productivity of American workers rose by a revised 0.8% annual rate in the third quarter, compared with a 0.3% increase in the government's preliminary report last month. Over the past year, productivity has declined by 1.3%. (MarketWatch) Total U.S. consumer credit rose $27.1 billion in October, up from a revised $25.8 billion gain in September, translating to a 6.9% annual rate and up from a revised 6.6% gain in the prior month, the Federal Reserve said. (MarketWatch) U.S. economy entering recession is seen as intevitable. It is a question of when, rather than if, the U.S. enters a recession, says Erick Muller, director for product and investment strategy at Muzinich & Co. Many commentators have suggested in recent weeks that the prospect of a soft landing in the U.S. remains a possibility, but "we don't believe this will be the likely scenario that plays out," Muller says. (Dow Jones Newswires) Canada unveiled a series of changes to the country's foreign-investment laws that officials said updates tools the cabinet has at its disposal to deal with transactions that pose a national-security risk. (DJN) Japan's economy contracted at a slightly slower pace than initially estimated in the third quarter, revised government data showed Thursday. The world's third-largest economy after the U.S. and China shrank 0.8% on an annualized basis, compared with 1.2% contraction in the preliminary estimate released in mid-November. (DJN) China's passenger car retail sales in November dropped 9.2% from a year ago amid slumping demand, as the nation grappled with a slowing economy under harsh Covid curbs that Beijing has recently started easing. (DJN) The European Central Bank is expected to raise interest rates by 50 basis points next week and start quantitative tightening of the Asset Purchase Programme in March 2023, Morgan Stanley's strategists say. Their base case is a 2.5% terminal rate--where the ECB stops raising rates--but stronger economic growth and a later inflation peak would lead to a higher terminal rate, they write in a note. (DJN) The U.K. economy is the only member of the G-7 group where quarterly GDP is still below prepandemic levels and this isn't likely to change in 2023, Pantheon Macroeconomics chief U.K. economist Samuel Tombs wrote in a note. The U.K. economy has performed worse than its peers due to relatively weak consumer spending, driven by a muted recovery in employment, higher inflation and less willingness by households to reduce savings, he wrote. (DJN) Inflation in the U.K. is expected to remain high and above the 2% target due to Brexit-related challenges, HSBC head of U.K. rates strategy Daniela Russell wrote in a note. "U.K. inflation has consistently been higher than in the Euro area for the last 15 years and, with Brexit now evidently an additional inflationary influence, we see little reason for this to change," she wrote. (DJN) South Africa's current account deficit narrowed markedly in the third quarter due to a reduced shortfall on the primary income account even as the country's trade surplus fell, according to central bank data published Thursday. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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12-08-22 0719ET