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RBNZ Raises Rates Sharply; RBA Gov. Warns of Increased Inflation Volatility; Investors Look for Clues
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Good day. The Reserve Bank of New Zealand raised interest rates aggressively today in response to stubborn inflation pressures, ignoring recent signals from some of its global peers that the pace of policy tightening could slow. The big rate increase follows news that inflation in the country ran at 7.2% on year in the third quarter, well above what economists had expected. The RBNZ said it had considered a 100-basis-point hike today and added that it is now forecasting a recession next year. Both the Reserve Bank of Australia and the Bank of Canada have slowed the pace of policy tightening recently amid growing warnings about a rapidly slowing world economy and fears that aggressive hikes could topple house prices. On Tuesday, Reserve Bank of Australia Gov. Philip Lowe said that containing inflation within a desired target band is becoming much more
complicated and warned that supply shocks, climate change, aging workforces and the retreat of globalization will increasingly fuel inflation volatility worldwide. Later today, the Fed releases minutes from its November monetary-policy meeting, where officials approved a 0.75-percentage-point increase in the benchmark federal-funds rate while also signaling plans to keep raising rates. The minutes should provide more details on discussions over the decision. Also today, the University of Michigan releases its final reading of U.S. consumer sentiment for this month. Sentiment sank after improving in the last four months as high inflation and economic uncertainty weighed on consumers, according to the initial reading.
Please note the WSJ Pro Central Banking newsletter will take a break for Thanksgiving and will be back in inboxes on Monday.
Now on to today’s news and analysis.
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Reserve Bank of New Zealand Raises Rate Sharply
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The Reserve Bank of New Zealand raised its official cash rate by 75 basis points to 4.25%, taking the pace of increases a step up from the 50-basis-point hike that lifted the rate to a seven-year high of 3.50% in early October.
The big surprise in the central bank's statement lay in the RBNZ’s projected path for the OCR, which it now expects will need to reach a peak of 5.5% next year compared with the peak of 4.1% forecast in August.
“The committee agreed that the OCR needs to reach a higher level, and sooner than previously indicated, to ensure inflation returns to within its target range over the medium term,” RBNZ Gov. Adrian Orr said.
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Central Banks 'Face Future Marked by Increased Inflation Volatility'
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Investors Parse Fed Officials' Comments For Clues About Outlook
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U.S. stocks rose Tuesday in thin preholiday trading, with investors focused on the path of the Federal Reserve’s interest-rate increases. Cleveland Fed President Loretta Mester said she and her colleagues are focused on tackling inflation. Analysts broadly expect the Fed to slow its rate increases to half a percentage point at its December meeting, down from a series of three-quarter-point increases.
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Global Economy Slows, But Seems Set To Avoid Recession
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Housing Shortage Reflects the Cheap Cost of Holding Vacant Land
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For a glimpse at how a skewed property-tax system worsens the housing shortage in big U.S. cities, take a look at a 6-acre Manhattan parcel zoned for building around 1,500 apartments that for the past 17 years has sat empty.
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The Companies Cutting Jobs, Freezing Hiring: Here’s the List
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Many companies that grew quickly during the start of the pandemic have now had to adapt to weaker revenue, forcing employers, many from the tech sector, to re-examine business investments and employee head count.
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Key Developments Around the World
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Looming Oil-Supply Shock Launches Debate in OPEC
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The specter of an oil-supply shock this winter has created a dilemma for the Organization of the Petroleum Exporting Countries and its wider circle of crude producers about whether to reverse course on production cuts.
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EU Unveils Proposal to Cap Natural-Gas Prices
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The European Union set out details of a long-debated proposal to cap natural-gas prices on its main trading hub, part of an effort to shield consumers from the effects of higher energy costs linked to Russia’s invasion of Ukraine.
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Russia Threatens to Reduce Gas Exports to Europe Further
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Russian natural-gas giant Gazprom PJSC threatened to further throttle exports to Europe via Ukraine from next week, putting in question one of the last remaining routes for Russian gas to reach Europe.
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Financial Regulation Roundup
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Labor Department Clears Path for 401(k) Plans to Offer ESG Funds
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More U.S. retirement savers could soon have the option to invest in funds based on environmental, social and governance principles, under final regulations issued by the Labor Department on Tuesday.
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Watchdog Group Seeks Probes Into Oversight of Trading Conflicts
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A group that monitors government ethics filed legal complaints alleging the U.S. government is failing to adequately enforce conflict-of-interest rules and called for probes into what it called deficiencies in enforcement at several agencies.
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FTX Lawyer Says ‘Substantial Amount’ of Assets Stolen or Missing
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A “substantial amount” of FTX’s assets is missing and may have been stolen as a run on customer deposits and a liquidity crunch precipitated a leadership crisis and led the crypto exchange to collapse, its lawyer said in court.
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8:30 a.m.: U.S. durable goods report for October; U.S. weekly jobless claims
9:45 a.m.: S&P Global Flash U.S. Composite PMI
10 a.m.: University of Michigan consumer survey for November (final); U.S. new-home sales for October
10:30 a.m.: Bank of England’s Pill gives speech on returning inflation to target
2 p.m.: FOMC meeting minutes
4:30 p.m.: Bank of Canada’s Macklem, Rogers at House of Commons Standing Committee on Finance
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Note: U.S. markets closed for Thanksgiving
4:45 a.m.: Bank of England’s Ramsden keynote speech at Bank of England Watchers’ Conference
6:15 a.m.: ECB’s de Guindos gives speech in Milan
7:30 a.m.: ECB releases Oct. 26-27 monetary policy meeting minutes
8 a.m.: ECB’s Schnabel gives speech at Bank of England Watchers' Conference in London
8:15 a.m.: ECB’s Enria speaks at European Savings and Retail Banking Group meeting
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Bank of Canada Quantifies Effect of Tightening on Mortgage Holders
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The Bank of Canada estimates the rapid pace of its interest rate rises has forced about 13% of mortgage holders in the country to increase their payments, by about 5%. The central bank says in a paper those affected hold variable-rate mortgages, where the amount of interest isn’t fixed and is tied to adjustments in market rates. The bank’s rate rises this year—3.5 percentage points so far—have resulted in a sizable segment of variable-rate mortgage holders reaching the so-called trigger rate, or when fixed payments cover only interest and no principal. The bank estimates these mortgage holders face increased fixed payments, of a median of 5%. This is one reason economists expect a slowdown in growth, and why the BOC is signaling its tightening campaign might soon be done.
—Paul Vieira
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Crypto Speculation Is All But Over. Its Systemic Troubles Aren’t.
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For both the remaining speculators and the true believers who think eventually we will all use a crypto financial system, it is worth thinking about how much investors are prepared for a systemic crisis, James Mackintosh writes.
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Regulate Crypto or It’ll Take Down the Economy
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FTX’s implosion should be a wake-up call and regulators must enforce the law before more people get cheated, and Congress must plug the remaining holes in our regulatory structure—before the next crypto catastrophe takes down our economy, Sen. Elizabeth Warren writes.
Ms. Warren, a Democrat, is a U.S. senator from Massachusetts.
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Factory activity in the U.S. central Atlantic region shrunk again in November, adding further signs of a slowdown in the industrial sector, according to the Federal Reserve Bank of Richmond. Its Fifth District Survey of Manufacturing Activity’s index increased from minus 10 in October to minus 9 this month, suggesting activity contracted at broadly the same pace. The survey has signaled stalling or declining activity for the past seven months. (Dow Jones Newswires)
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Retail sales in Canada declined in the third quarter after weakness in September, as gasoline prices fell sharply and grocery sales dropped for the month amid sharp price inflation. Sales declined 0.5% in September to a seasonally adjusted 61.14 billion Canadian dollars, the equivalent of about $45.45 billion, Statistics Canada said. (DJN)
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Retail sales in Mexico fell 0.2% in September from the previous month, adding to a 0.1% decline in August, Inegi said. (DJN)
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Preliminary foreign direct investment in Mexico reached $32.1 billion in the first nine months of the year, of which 45% was new investment, 44% reinvested profits and the rest inter-company accounts, the Economy Ministry said. (DJN)
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Singapore's economy expanded more slowly in the third quarter than in the second, mainly due to a deceleration in manufacturing growth. Gross domestic product expanded 4.1% in the July-September period from a year earlier, according to revised data released by the Ministry of Trade and Industry on Wednesday. That compared with the advance estimate of 4.4% growth and with the 4.5% expansion marked in the second quarter. (DJN)
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Singapore's consumer prices rose at a slower pace in October, thanks to lower private transport costs and a moderation in core inflation. The consumer price index climbed 6.7% in October from a year earlier, the Department of Statistics said Wednesday. That compared with the 7.5% rise posted in September and was below the median estimate for a 6.9% increase in a Wall Street Journal survey of five economists. (DJN)
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Eurozone business activity fell in November for the fifth consecutive month, adding to fears of a recession, the latest flash purchasing managers indexes showed. The S&P Global eurozone composite PMI rose to 47.8 in November from 47.3 in October, according to the preliminary reading. This is above the forecast of 47.0 of economists polled by The Wall Street Journal. (DJN)
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Consumer confidence in the eurozone improved in November, beating expectations, despite concerns about increased costs of living and a slowdown of the economy. The European Commission said Tuesday that its measure of consumer confidence in the region rose to minus 23.9 in November from a revised reading of minus 27.5 in October. Economists polled by The Wall Street Journal had expected consumer confidence rising to minus 26.6. (DJN)
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South Africa's inflation rate rose to 7.6% in October from 7.5% in September, staying above the upper limit of the central bank's target range of between 3% and 6%, Statistics South Africa said. (DJN)
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Zambia's central bank on Wednesday held its key lending rate at 9%, for the fourth time in a row this year, citing slowing inflationary pressure in Africa's second-largest copper and cobalt producer. (DJN)
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This newsletter is compiled by Perry Cleveland-Peck in Barcelona and James Christie in San Francisco.
Send us your tips, suggestions and feedback. Write to:
James Christie, Jon Hilsenrath, Michael S. Derby, Nell Henderson, Nick Timiraos, Paul Hannon, Kim Mackrael, Tom Fairless, Megumi Fujikawa, Perry Cleveland-Peck, Michael Maloney, Paul Kiernan, James Glynn
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@WSJCentralBanks, @NHendersonWSJ, @michaelsderby, @NickTimiraos, @PaulHannon29, @kimmackrael, @TomFairless, @megumifujikawa, @pkwsj, @JamesGlynnWSJ, @cleveland_peck
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