Good day. The staggering increase in home prices in Australia, New Zealand and Canada—up 532%, 602% and 331%, respectively, since 1990—may come undone as central banks combat high inflation. Many home loans there are effectively on a floating rate, so mortgage payments rise along with interest rates. That places the three countries among those most at risk for large housing price declines, Oxford Economics says. Meanwhile in the U.S., the latest report on financial stability by the Federal Reserve, released Friday, warned of the risk high inflation poses to the U.S. economy and financial system. The report also warned about rising friction in trading of U.S. government debt.

Now on to today’s news and analysis.

SYDNEY—Australia, New Zealand and Canada are home to three of the biggest property booms in recent history, having survived the global financial crisis, recession and Covid-19 pandemic. They might have finally met their match now, however, at the hands of an unprecedented pace of global monetary tightening.
 

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Time N/A: ECB’s Panetta and Enria at Eurogroup meeting in Brussels
11 a.m.: The Conference Board Employment Trends Index for the U.S. for October
3:30 p.m.: Cleveland Fed’s Mester speaks to Women in Economics Symposium in Cleveland
6 p.m.: Richmond Fed’s Barkin speaks on ‘Demystifying Inflation’ in Richmond

Time N/A: ECB’s de Guindos at ECOFIN meeting in Brussels
6 a.m.: Eurozone retail sales for September
7 a.m.: National Federation of Independent Business Small Business Optimism Index for October

A surprisingly strong Canada jobs report will put pressure on the Bank of Canada to rethink its judgment that it may be time to slow the pace of its interest rate increases, Capital Economics said in a note to clients. A net employment gain in October of 108,300 was more than 10 times the consensus estimate, and Capital Economics said the employment report indicated a 0.7% month-over-month increase in hours worked, a “clear upside risk to both our own and the BOC’s forecast” that growth will stall to about 0.5% annualized in the fourth quarter. Annual wages also advanced 5.6% in October. The data could undermine the Bank of Canada’s view that it has done enough to ensure inflation returns to 2% in 2024, Capital Economics said.

—Paul Vieira

October’s gain of a seasonally adjusted 261,000 jobs in the U.S. and wage growth that remains elevated will make the Federal Reserve’s task of bringing inflation under control harder, Frank Steemers, senior economist at The Conference Board, said in a commentary. “This solid jobs report supports the Fed’s intent to continue raising rates, even if at a slower pace,” Mr. Steemers said, adding it is increasingly likely the U.S. economy will fall into recession around the end of this year amid the Fed’s rapid tightening of monetary policy. “With the U.S. economy slowing, the labor market is also expected to further cool over the coming months and possibly shed some jobs during 2023,” he said. “This may result in the unemployment rate rising to about 4.5 percent in 2023.”

—James Christie

• Job gains in Canada were unexpectedly strong in October and the jobless rate held steady, doing little to dampen expectations that excess demand leaves the Bank of Canada room to lift interest rates further to tackle inflation. Statistics Canada reported the number of employed working-age people climbed by 108,300 in October from September, while the jobless rate was unchanged after declining in September to 5.2%, one of the lowest levels in four decades. (Dow Jones Newswires)
• Brazil’s new government will need to a clear, credible and tight spending rule to establish debt sustainability and macroeconomic stability, analysts at XP Investimentos said in a research note. (DJN)
• China's foreign-exchange reserves increased more than expected in October, data released Monday by the central bank showed. The country's hoard of foreign exchange was $3.052 trillion, up $23.5 billion from September, the People's Bank of China said. The result was higher than the $3.039 trillion expected by economists polled by The Wall Street Journal. (DJN)
• Indonesia's economic growth accelerated further in the third quarter, thanks to an improvement in exports as the country benefited from higher commodity prices. Southeast Asia's largest economy grew 5.72% from a year earlier, Indonesia's official statistics agency said Monday. (DJN)
• Western efforts to hinder exports of Russian crude oil took a significant step forward after the U.K. confirmed it would cut off ships carrying Russian crude oil cargos from the Lloyd’s of London shipping insurance market. Western nations are trying to impose a price cap on Russian crude. (DJN)
• Germany's industrial production rose in September, beating expectations even as demand for goods moderated and factories grappled with high energy prices and supply bottlenecks. Total industrial output--comprising production in manufacturing, energy and construction--increased 0.6% on month in September, data from the German statistics office Destatis showed Monday. Economists polled by The Wall Street Journal had expected a 0.1% increase. (DJN)
• French industrial production fell in September, reflecting weakening external demand and high energy prices. Total industrial output declined by 0.8% on month, after a 2.7% monthly expansion in August. Economists polled by The Wall Street Journal expected factory output to decrease by 0.7%. (DJN)
• Spain’s economy is expected to fall into a recession in winter, ING economist Wouter Thierie said after the release of October’s purchasing managers survey data. Both the services and manufacturing PMI remained below 50, signaling a contraction in economic activity. ING forecasts Spain’s economy, the eurozone's fourth-largest, to contract by 0.5% on quarter in the fourth quarter, while growth for 2023 overall is expected to slow to 0.3%. (DJN)

This newsletter is compiled by James Christie in San Francisco.

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