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The Looming U.S. Housing Crisis; Fed Officials Struggle With Treasury Market Vulnerabilities; Foreign Investment in China Holds Up
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Good day. A housing crisis centered on the vast apartment and home-rental markets is emerging in the U.S., threatening to send millions of renters into eviction and leave landlords short billions of dollars. Meanwhile, some Fed officials are beginning to question whether the Treasury market can truly stand on its own absent central bank aid or market reforms, as they take stock of what went crazy in the government bond market last spring. And foreign direct investment held up far better in China in the first half than it did in the U.S. and Europe, a fresh sign that the world’s second-largest economy has taken less damage from the pandemic.
Now on to today’s news and analysis.
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Struggling Rental Market Could Usher in Next U.S. Housing Crisis
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A large number of renters have been unable to pay some or even all of their rent since March. Many businesses remain closed or only partially open, pushing renters into unemployment and draining their savings. Eviction moratoriums have protected many of them from losing their homes if they missed payments during the pandemic, but the national eviction ban and some state and city protections are set to expire by January or sooner. Renters will then be on the hook for months of missed payments.
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Derby's Take: Fed Officials Struggle With Treasury Market Vulnerabilities
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Central bankers are trying to make sense of how a supposed risk-free and liquid market nearly seized up in the face of widespread selling in the spring, as the coronavirus pandemic began to take hold in the U.S. Read more.
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New Home Sales in U.S. Miss Expectations
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New home sales dropped to a seasonally-adjusted annual rate of 959,000 in September from August's revised rate of 994,000, according to data jointly released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Economists polled by FactSet were looking for a seasonally-adjusted annual rate of 1,015,000. September's rate represents a 3.5% slowdown from August and a 32.1% increase from the same month last year, and was the highest rate in September since 2006, according to historic data. (Dow Jones Newswires)
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China Is Far Behind on U.S. Purchases Under Trade Deal
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China accelerated purchases of U.S. farm products last month, new data shows, but overall it remains far behind on a commitment to buy about $140 billion in specific U.S. agricultural, energy and manufactured goods this year under a trade accord signed in January.
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Key Developments Around the World
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Foreign Investment Plummets During Pandemic, Except in China
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Foreign investment in the U.S. and European Union fell by 61% and 29% respectively in the first half, while inflows to China were down just 4%. China attracted foreign investment totaling $76 billion during the period, while the U.S. attracted $51 billion.
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South Korea's Economy Rebounds in Third Quarter on Exports
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South Korea's economy expanded by 1.9% in the third quarter—the fastest pace since the first quarter of 2010—helped by exports of cars and memory chips after sliding into a pandemic-induced recession, preliminary Bank of Korea data showed. The reading beat the median forecast of 1.7% from seven economists polled by the Journal. (Dow Jones Newswires)
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RBA's Debelle Expects Positive 3Q GDP, Avoids Sensitive QE Issue
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Reserve Bank of Australia Deputy Gov. Guy Debelle expects gross domestic product to grow in the third quarter, with the drag from the coronavirus-hit state of Victoria to be more than offset by rebounds in economic activity elsewhere, he told a parliamentary committee on economics. He declined to comment on the topic of quantitative easing, saying the issue was too market sensitive and noting an RBA policy meeting is due Nov. 3. Markets expect a QE program to be announced next week, with the central bank targeting lower longer-dated government bond yields. (DJN)
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Oil Drops on Covid-19 Resurgence, Extra Libyan Crude
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Struggling with a rise in infections, governments in Europe are clamping down on travel and leisure. The measures are set to crimp demand for gasoline and other fuels, analysts said, while the return of Libyan crude is also adding pressure to oil prices.
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Financial Regulation Roundup
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Global Banks in Hong Kong Breathe Easier Over U.S. Sanctions
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U.S. sanctions over Hong Kong are likely to pose fewer headaches for international banks operating in the financial hub than first feared, lawyers say.
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Ant Group to Raise More Than $34 Billion in Record IPO
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Chinese financial-technology giant Ant Group Co. is set to raise at least $34.4 billion from the world’s biggest-ever initial public offering, filings showed Monday, in a blockbuster deal that will bypass U.S. stock exchanges.
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JPMorgan Currency Deal Highlights Finance’s Green Shift
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JPMorgan Chase & Co. arranged a type of currency-derivative for Italian utility Enel SpA linked to both companies’ sustainability targets, which the bank believes is the first such structure to incorporate promises both sides have made on the environment.
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U.S. Sanctions Iran's Petroleum Ministry, Oil Company, Tanker Unit
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The Trump administration on Monday imposed counterterror sanctions on Iran’s Ministry of Petroleum, the National Iranian Oil Company and its tanker subsidiary in a pre-election move that analysts say will make it more difficult for the pressure campaign to be reversed.
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07:45: European Central Bank’s Enria speaks via videoconference at the ECON Committee of the European Parliament
08:30: U.S. Commerce Department releases September durable-goods data
08:45: Andrea Enria, Chair of the Supervisory Board of the European Central Bank, makes introductory statement at the ECON Committee of the European Parliament.
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Time N/A: Central Bank of Brazil releases policy statement
04:40: European Central Bank’s Enria speaks during Q&A session at online retail banking conference
8:30: U.S. Commerce Department releases September advance economic indicators report
10:00: Bank of Canada releases interest-rate announcement and monetary policy report
11:00: Bank of Canada’s Macklem and Wilkins hold press conference
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New York Fed Finds 'Implausibly Smooth' Chinese Growth Data
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China is cooking the books when it comes to reporting its economic growth data, according to a new paper from the Federal Reserve Bank of New York. “China’s official growth rate most likely has been implausibly smooth,” write bank researchers Hunter Clark, Jeffrey Dawson, and Maxim Pinkovskiy. “Growth slowdowns during 2014-15 and 2017-19 were about twice as large as officially reported, while a growth rebound in 2016 was scarcely reported at all; the 2017-19 downturn was also shallower than that of 2014-15,” the authors say. China’s growth data has long been viewed skeptically by markets and by U.S. officials, but with the coronavirus pandemic, which originated in China and hit hardest there first, there
is considerable interest in how that nation recovers. While the pandemic is unique compared to other recent periods of economic upheaval, the paper notes that in China “economic cycles in the period after the global financial crises have shown much shorter upturns and much longer downturns compared with the first decade after China joined the World Trade Organization.”
—Michael S. Derby
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Uber, Lyft Face a No-Sharing Economy
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Ride-hailing companies were counting on Americans becoming less-enamored of that new-car smell. What they didn’t expect was the renewed value of only inhaling your own germs, Laura Forman writes at Heard on the Street. “U.S. car sales are suddenly rising again after falling off a cliff early in the coronavirus pandemic,” she writes, saying that is in part likely due to the continuing exodus from American cities to areas where personal vehicles are more necessary.
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Investors appear to be positioning for a speedy outcome to the presidential contest and dwindling market volatility through the end of the year.
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The U.S. economy continued to expand at an above-average rate in September but lost steam from previous months, according to the Chicago Fed's activity index, which stood at 0.27 compared with an upwardly revised 1.11 in August. (Dow Jones Newswires)
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Factory activity in Texas expanded in October for the fifth straight month, accelerating to a more than two-year high, as the production index of the Dallas Fed's Manufacturing Outlook Survey rose to 25.5 from 22.3 in September. (DJN)
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German business sentiment fell in October after increasing for five consecutive months, as the Ifo business-climate index dropped to 92.7 points from a downwardly revised 93.2 points in September. (DJN)
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The Turkish lira continued its slide after the central bank unexpectedly left rates on hold last week. The currency hit a record low of 8.1427 to the dollar Tuesday. (DJN)
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Spain's unemployment rate rose to 16.3% in the third quarter from 15.3% in the second quarter. (DJN)
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Argentina's President Alberto Fernández said he doesn't want to devalue the peso against the US dollar despite a growing currency crisis. (DJN)
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This newsletter is compiled by James Christie in San Francisco and Ed Ballard in London.
Send us your tips, suggestions and feedback. Write to:
Jon Hilsenrath, Michael Derby, Nell Henderson, Nick Timiraos, Jason Douglas, Paul Hannon, Harriet Torry, Kate Davidson, David Harrison, Kim Mackrael, Tom Fairless, Megumi Fujikawa, Michael Maloney, Paul Kiernan, James Glynn
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