Run-Up in Long Term Yields Another Challenge for U.S.; Bank of Israel Keeps Policy Rate on Hold; RBA Governor Sounds Hawkish Warning

Run-Up in Long Term Yields Another Challenge for U.S.; Bank of Israel Keeps Policy Rate on Hold; RBA Governor Sounds Hawkish Warning By James Christie

Good day. The yield on the U.S. 10-year Treasury note reached 5% on Monday for the first time in 16 years, adding to challenges facing the U.S. economy, which include the potential for conflict in the Middle East to raise energy prices. Should higher long-term rates persist, they could increase the risks of a broader and deeper downturn rather than a hoped-for soft landing, in which inflation cools without a recession. Elsewhere, analysts had considered the Bank of Israel might cut interest rates to support Israel's economy, which has faltered since Hamas's surprise attack. Instead, the central bank on Monday held its benchmark rate steady. Meanwhile, Reserve Bank of Australia Gov. Michele Bullock on Tuesday sounded a hawkish warning to financial markets. In her first speech as governor, Bullock said the central bank won't have any patience if coming inflation data shows a material rise in price pressures across the economy.

Now on to today's news and analysis.

Top News How Highest Bond Yields in 16 Years Could Chill Hot U.S. Economy

Add surging interest rates to the list of threats staring down the U.S. economy.

The yield on the U.S. 10-year Treasury note touched 5% on Monday for the first time in 16 years, after climbing rapidly in recent weeks. That is among many borrowing costs-including for other long-term government debt, mortgages, credit cards, auto purchases and business loans-that could slow the surprisingly resilient economy.

Bank of Israel Holds Rate Steady in First Meeting Since Start of War

The Bank of Israel kept its benchmark rate at 4.75% for the third meeting in a row, citing uncertainty regarding the war with Hamas, but noting the country's economy has shown an ability to recover from difficult periods.

RBA Governor Bullock Sounds Hawkish Warning in First Speech

Reserve Bank of Australia Gov. Michele Bullock, at a conference on Tuesday, made it clear that third-quarter inflation data on Wednesday could well set the stage for a further hike in rates if the report shows price pressures are again building.

U.S. Economy Thanks to Big Data, Landlords Can Squeeze the Most Out of Renters

Many landlords outsourced their pricing decisions to software that told them what rents to charge. Now, two firms face allegations that their rent-pricing systems facilitate collusion among some of the biggest apartment owners.

UAW Strike Pinches Automakers, but Spares Consumers-for Now

Six weeks into the United Auto Workers' strike, the impact of work stoppages are rippling through the car business, but consumers have been spared, due in part to an inventory buildup of both cars and parts before the labor actions.

UAW Strike Expands to Stellantis's Largest U.S. Factory Here's a Bill That Might Be Lower Than Last Year's

Cheaper heating bills are in the forecast this winter for millions of Americans. Ample stockpiles of natural gas and expectations for a warmer-than-normal winter have forecasters calling for gas to cost much less than last year.

H-1B Visa Program Changes Aim to Stop Gaming of Lottery

The Biden administration is proposing changes to the H-1B visa program for high-skilled foreign professionals, after the government found earlier this year that companies had colluded to try to increase their chances of winning a coveted visa.

Key Developments Around the World Investor Doubts About China Worsen Its Stock Rout

A major Chinese stock-market benchmark, made up of shares of the most valuable companies listed in Shanghai or Shenzhen, sank to its lowest level in more than four years, signaling deep pessimism among investors in the country.

Beijing Stages Charm Offensive to Pave Way for Xi Trip How Far Is China's Slowdown Spreading? Ask a Dairy Farmer 6,000 Miles Away The Corporate Retreat From Hong Kong Is Accelerating

International companies began trickling out of Hong Kong a few years back, uneasy about the financial hub's tightening ties to mainland China. That first smattering of departures is now turning into a broad retreat .

Argentine Markets Drop After First Round of Voting

Argentine stocks, bonds and currency traded sharply lower Monday after the ruling party's presidential candidate came out on top in the first round of voting, creating concerns about spending policies driving triple-digit inflation .

Financial Regulation Roundup EU Think Tank Proposes Global Minimum Tax on Billionaires

A global minimum tax on billionaires, equal to 2% of their wealth , could raise nearly $250 billion a year, according to the EU Tax Observatory, a think tank co-funded by the European Union.

WPP Launches Investigation Into Bribery Charges in China

WPP terminated an executive detained in China on charges of bribery and is investigating the matter. On Saturday, Shanghai police said three suspects at an unnamed advertising company were detained on charges of accepting bribes.

China Shut the Door on Two Brokers. Then Their Stock Prices Soared.

When a Chinese regulator blocked investors from opening accounts with online brokers Futu and Up Fintech, it dealt a blow to the pair. But the two brokers have benefited from a sharp rise in interest rates-and some lucky timing.

Forward Guidance Tuesday (all times ET)

2 a.m.: U.K. unemployment for September

4 a.m.: Eurozone flash PMI for October

8:30 a.m.: Philadelphia Fed Non-Manufacturing Survey

9:45 a.m.: S&P Global Composite PMI for October

10 a.m.: Richmond Fed Survey of Manufacturing Activity

Wednesday

4 a.m.: Eurozone money supply for September

8 a.m.: U.S. building permits

10 a.m.: U.S. new-home sales for September; Bank of Canada interest rate decision and monetary policy report

11 a.m.: Bank of Canada's Macklem and Rogers press conference on interest rate decision and monetary policy report

4:35 p.m.: Fed's Powell speaks at 2023 Moynihan Lecture in Social Science and Public Policy

Research ECB Rate Cuts in 2024 Could Be Bigger Than Market Pricing

Interest-rate cuts by the European Central Bank could come as soon as March and will be more significant than markets currently price in, strategists at NatWest Markets write in a note. They expect 100 basis points of ECB rate cuts in 2024, more than the close to 60 basis points priced in by the market. "Even if a March cut does not materialise, we do think that we could see more priced in relative to current market pricing and perhaps in quicker succession," they write. For the ECB's meeting on Thursday, NatWest Markets expects the central bank to keep interest rates unchanged, which is in line with the consensus view.

-Emese Bartha

Commentary Is It Time To Worry About Banks' Business Lending?

There has been much talk of risk centered on credit cards and offices, but these aren't usually the most important kinds of loans regional banks. Instead, a core kind of lending for many regionals is to enterprises, Telis Demos writes.

Basis Points U.S. economic growth picked up pace in September as production increased, data from the Federal Reserve Bank of Chicago showed Monday. The Chicago Fed National Activity Index rose to 0.02 last month, improving from a downwardly revised minus 0.22 in August. A reading above zero suggests economic activity is expanding at a slightly quicker rate than its average historical trend. (Dow Jones Newswires) Consumer confidence in the eurozone weakened for the third month in a row in October, though the fall moderated compared with September, as high inflation continues to ease. The European Commission said Monday its flash consumer confidence indicator stood at minus 17.9 for the euro area this month, ticking down from minus 17.8 in September. (DJN) Economic activity in the eurozone unexpectedly contracted at a faster rate in October as output declined steeply and demand faltered, data from a purchasing managers' survey showed Tuesday. The HCOB Flash Eurozone Composite Output Index-a gauge of activity in the manufacturing and services sectors-fell to 46.5 from 47.2 in September, hitting its lowest level in just under three years. Economists polled by The Wall Street Journal has forecast a reading of 47.6. (DJN) Consumer confidence in Germany weakened for a third consecutive month in data for November, with respondents turning more to saving than spending as income expectations took a hit. Germany's forward-looking consumer-sentiment index forecasts confidence to fall to minus 28.1 in November, from minus 26.7 in October, according to data published Tuesday by market-research group GfK and the Nuremberg Institute for Market Decisions. Economists polled by The Wall Street Journal had forecast the index to remain at minus 26.7. (DJN) The U.K.'s jobless rate was unchanged in the three months to August, a further signal that the country's robust labor market could continue to cause problems for the Bank of England, despite some indications of loosening, according to data published Tuesday. The unemployment rate, measured with a new methodology, stood at 4.2% in the period, according to data from the Office for National Statistics. (DJN) Mexico's economic activity rose 0.4% in August from July, seasonally adjusted, and was up 3.7% unadjusted from the year-earlier month, statistics institute Inegi reported. (DJN) Global demand for fossil fuels is likely to peak before the end of the decade, with mounting shocks to the global energy system caused by geopolitical uncertainty hastening the move to renewable energy, according to the International Energy Agency. Feedback Loop

This newsletter is compiled by James Christie in San Francisco and Perry Cleveland-Peck in Barcelona.

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10-24-23 0716ET