Turkish Lira Falls Near Record Lows After Rate Cut; Norges Bank Raises Rates; Purchasing Managers Point to Slowing in U.S. and Europe

09/24/2021 | 10:40am

Good day. Turkey's central bank cut its key interest rate on Thursday in a move that could complicate the country's path to economic recovery from the Covid-19 pandemic and a prolonged inflation problem. Several other central banks also issued policy announcements, with officials in Norway standing out with a rate increase. Meanwhile, manufacturing and services businesses in both the U.S. and Eurozone reported slower growth in activity this month, although the pullback was more pronounced in Europe, as supply-chain bottlenecks and worries over the Delta variant weighed on companies.

Now on to today's news and analysis.

Top News

Turkish Lira Falls Near Record Lows After Rate Cut

Officials cut Turkey's key policy rate, its one-week repo rate, to 18% from 19%. Following the announcement, the Turkish lira fell 1.3% against the dollar, with one dollar buying 8.767901 lira, just shy of record lows hit in June. Turkey's economy is also struggling due to conflicts in the Middle East and President Recep Tayyip Erdogan's own moves to replace the central bank chief three times in two years.

Norway's central bank raised its key interest rate to 0.25% from zero while suggesting a further increase later this year. The raise marks the first move since the Norwegian central bank cut the rate to zero in May last year as the pandemic took hold.

The Bank of England said its nine-member Monetary Policy Committee voted unanimously to keep the central bank's policy rate at a record low of 0.1%, but two officials on the panel pushed for the BOE's asset purchase program to be scaled back.

The South African Reserve Bank kept its main repo rate at a record-low 3.5%, and said high commodity prices are helping Africa's most developed economy bounce back from the pandemic-induced recession faster than expected.

Taiwan's central bank left its benchmark rate unchanged at 1.125%, saying moderate inflation and an uncertain economic recovery called for a continuation of its loose monetary policy.

The Bangko Sentral ng Pilipinas maintained its benchmark overnight borrowing rate at 2.00% and its corresponding lending rate at 2.50%, despite a worsening economic outlook and stubbornly high inflation.

Derby's Take: Powell's Muni Bond Holdings Flag Expansive Fed Footprint

By Michael S. Derby

Federal Reserve Chairman Jerome Powell's personal investment profile is a reminder of why the Fed has generally tried to keep any asset buying it does to Treasurys and certain types of mortgage bonds.

According to a document detailing Mr. Powell's personal investments last year, he reported holding municipal bond-related investments of a type that a central bank emergency lending effort ended up targeting in 2020. Read more.

U.S. Economy

Economic Growth in U.S. and Europe Slows

The U.S. and European economies slowed in September as supply-chain bottlenecks and worries over the Delta variant weighed on businesses, adding to signs the global economy is experiencing a soft patch.

U.S. Jobless Claims Hover Near Pandemic Low

Initial unemployment claims, a proxy for layoffs, rose by 16,000 to a seasonally adjusted 351,000 last week from a revised 335,000 the prior week, while the four-week moving average for initial claims declined slightly.

Pelosi Says Government Funding Won't Lapse

House Speaker Nancy Pelosi said Congress wouldn't let government funding expire next week, the first hint Democratic leaders might decouple the government's funding from a contentious increase in the debt limit.

Democrats Scramble to Find Agreement on $3.5 Trillion Spending Bill

Democratic leaders raced to find agreement around a roughly $3.5 trillion spending package to assuage concerns between dueling centrist and liberal factions that threatened to derail a separate vote on an infrastructure package.

Key Developments Around the World

China Makes Preparations for Evergrande's Demise

Chinese authorities are asking local governments to prepare for the potential downfall of China Evergrande Group, signaling a reluctance to bail out the debt-saddled property developer while bracing for any economic and social fallout.

China Evergrande Never Got Auditor Warning Despite Big Debt Load

Foreign Businesses Say They Feel Effects From China's Turn Inward

U.S. and European companies operating in China are feeling the effects as the country increasingly turns inward by keeping its borders closed and showing growing favoritism toward domestic companies, two business lobbies said.

Financial Regulation Roundup

PBOC Official Repeats Cryptocurrencies Aren't Legal Tender

Cryptocurrencies came under pressure after an official from the People's Bank of China reportedly said digital currencies are not legal tender in the country, MarketWatch reports. Deputy Director of the Financial Consumer Rights Protection Bureau, Yin Youping, said those assets have no actual value and the public should be wary and "protect their pocket, " according to a Google translation of those comments reported by People's Daily Online.

Feedback Sought on Anti-Money-Laundering Rules for Antiquities

The U.S. Treasury Department has begun the process of extending anti-money-laundering requirements to art and antiquities dealers, part of an effort to plug a longstanding hole in U.S. laws that guard against financial crimes.

Forward Guidance

Friday (all times ET)

8:45 a.m.: Cleveland Fed's Mester speaks virtually on economic outlook at Ohio Bankers League CEO Symposium

9:25 a.m.: European Central Bank's Lane speaks on panel at virtual Joint Regional Financing Arrangements seminar series organized by the European Stability Mechanism

10 a.m.: U.S. Commerce Department releases August new-home sales; Kansas City Fed's George speaks virtually on economy and monetary policy to American Enterprise Institute; Fed's Powell, Clarida and Bowman speak at virtual Fed Listens event on the pandemic recovery

Saturday

7 a.m.: New York Fed's Williams speaks virtually on international coordination of monetary policy strategies at Swiss National Bank conference

Research

Reverse Repos Jump to New Record Level After Fed Tweak

Record inflows hit the Federal Reserve Bank of New York's reverse repo facility Thursday, a day after the Fed doubled to $160 billion how much an individual counterparty could place on the central bank's books. The reverse repo facility took in $1.352 trillion, up from $1.283 trillion on Wednesday, as money-market funds and other eligible firms continue to find it easier to move money to the Fed for a 0.05% return rather than chase scarce short-term investments in the private sector. Fed officials seem completely fine with the level of inflows, as the reverse repo facility saw almost no activity as recently as the spring. The facility compares to the $8.5 trillion Fed balance sheet, and dwarfs the $120 billion a month the Fed continues to add via its bond-buying stimulus.

-- Michael S. Derby

Commentary

Fed Officials See 'Transitory' Inflation Lasting Quite a While

The message from the Fed's latest projections is "transitory" is lasting an awfully long time, Greg Ip writes, noting next year's projected 2.3% is the highest next-year core inflation forecast since projections were first published in 2007.

America's Cash Might Stay on the Sidelines

If anything, the recent experience with the Delta variant -- which hit the U.S. just as many people thought that a return to normality beckoned -- has given people a new appreciation for having a financial buffer, Justin Lahart writes.

Evergrande Is Only the Latest in a Chain of Chinese Debt Crises

As Evergrande Group teeters, many are wondering if China's economy or financial system will tip over too, Nathaniel Taplin writes, noting that a little history may be helpful in understanding what to look for.

America Risks an 'Evergrande Moment'

Many modern economies have come to rely in one form or another on property to fuel the economic engine, with all the monetary and policy supports -- and credit risks -- that entails, Joseph C. Sternberg writes.

Basis Points

The Conference Board's Leading Economic index, which measures U.S. business cycles, came in at 117.1 in August, up 0.9% from July, beating expectations of economists polled by The Wall Street Journal, who forecast a 0.7% increase. In July, the index rose by 0.8% on month, less than the 0.9% rise previously estimated. The indicator is well above pre-pandemic levels. (Dow Jones Newswires)

Factory activity in the central U.S. eased this month, according to the Federal Reserve Bank of Kansas City, whose Tenth District Manufacturing Survey's composite index fell from 29 in August to 22. Economists polled by The Wall Street Journal expected a reading of 30. (DJN)

Retail sales in Canada declined 0.6% in July to a seasonally-adjusted 55.8 billion Canadian dollars, or the equivalent of $43.69 billion, Statistics Canada said. It had previously estimated July retail sales would fall by a steeper 1.7%. In June, retail sales advanced 4.2%. (DJN)

Spain's gross domestic product grew by 1.1% in the second quarter from the previous three-month period, according to a second estimate released by statistics office INE. This was down from the 2.8% initially estimated. (DJN)

Mexico's consumer price index rose 0.42% in the first two weeks of this month, pushing the 12-month inflation rate up to 5.87% from 5.59% at the end of August, the National Statistics Institute said, supporting expectations that the Bank of Mexico would raise interest rates again this month to keep inflation in check. (DJN)

(END) Dow Jones Newswires

09-24-21 1039ET

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