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Markets Question Lower-for-Longer; Banks in Germany Tell Customers to Take Deposits Elsewhere
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Good day. The government-bond rout at the end of February has rattled investor certainty that ultralow long-term interest rates are here to stay. A number of Fed officials have said the rise in government bond yields isn't a concern, saying it reflects investors’ improving expectations for a vaccine- and stimulus-fueled economic recovery. Meanwhile, negative interest rates in Europe have prompted German banks to provide online tools to help customers take their deposits elsewhere.
Now on to today’s news and analysis.
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Bond-Market Tumult Puts ‘Lower for Longer’ in the Crosshairs
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A wave of selling during the past two weeks drove the yield on the benchmark 10-year Treasury note, to above 1.5%, its highest level since the pandemic began and up from 0.7% in October. Many portfolio managers say they believe rates are likely to flatten out in coming days as yields finally reach what they see as attractive levels. Those views will get a fresh test this week, with Fed Chairman Jerome Powell scheduled to make a public appearance Thursday and the release of February’s jobs report Friday. But there are signs, such as unusually soft demand for recent Treasury debt auctions, that selling may not be over.
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Fed’s Barkin: ‘Daylight on the Horizon’ for Economy
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Federal Reserve Bank of Richmond President Thomas Barkin said in an interview he remains optimistic the U.S. economy will continue recovering this year and that rising government bond yields don’t worry him much.
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Key Developments Around the World
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Banks in Germany Tell Customers to Take Deposits Elsewhere
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Interest rates have been negative in Europe for years. But it took the flood of savings unleashed in the pandemic for banks finally to charge depositors in earnest. Germany’s biggest lenders, Deutsche Bank and Commerzbank, have told new customers since last year to pay a 0.5% annual rate to keep large sums of money with them. The banks say they can no longer absorb the negative interest rates the European Central Bank charges them. The more customer deposits banks have, the more they have to park with the central bank.
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China’s Factory Activity Falls to Weakest Level in Nine Months
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China’s official manufacturing purchasing managers index dropped to 50.6 from 51.3 in January, the National Bureau of Statistics said, as the Lunar New Year holiday slowed an expansion of factory output and demand.
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India Returns to Growth, but Recovery Divides Rich and Poor
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Gross domestic product grew by 0.4% in the three months through Dec. 31, driven by India’s biggest companies and richest consumers, who emerged from the worst of the Covid-19 crisis with more savings and lower costs.
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Biden Urges Senate to Pass $1.9 Trillion Covid-19 Stimulus Package
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At the White House on Saturday, Mr. Biden said there was “no time to waste” in getting the package to his desk, noting Americans were now closer to receiving more vaccinations, $1,400 relief checks and more aid contained in the bill.
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Boost to Household Income Primes U.S. Economy for Stronger Growth
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The Commerce Department said household income rose 10% in January, the second largest on record increase, almost entirely due to pandemic-relief aid included in a $900 billion stimulus program signed into law in December.
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Financial Regulation Roundup
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Bringing New Money-Laundering Law Into Force Falls to Tiny Treasury Unit
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Over the next year, a small, relatively obscure bureau of the U.S. Treasury Department will take a lead role in plugging what many experts consider the biggest hole in the U.S.’s anti-money-laundering protections.
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Robinhood in Talks to Settle Finra Probes
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Robinhood Markets Inc. is in talks to pay a fine to settle investigations into the company’s options-trading practices and outages the stock-trading app suffered in March 2020, according to a securities filing.
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NYSE Moves to Delist Chinese Oil Company
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The New York Stock Exchange said it would delist Chinese oil major Cnooc Ltd. to comply with an executive order by former President Trump targeting companies hais administration said had links to the Chinese military.
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Yellen Removes Obstacle to Global Corporate-Tax Deal
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The U.S. dropped a Trump administration demand in global corporate-tax negotiations, removing one obstacle to a deal on adapting the tax system to the digital economy, Treasury Secretary Janet Yellen said.
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9 a.m: New York Fed’s Williams speaks at New York Fed webinar series on culture
9:05 a.m.: Fed’s Brainard speaks on financial stability at Institute of International Bankers virtual conference
10:20 a.m.: European Central Bank’s de Guindos speaks in roundtable discussion at online financial stability conference organized by Bank of France
11:10 a.m.: European Central Bank’s Lagarde gives prerecorded message to online German Association for Small and Medium-Sized Businesses event
2 p.m.: Atlanta Fed’s Bostic, Cleveland Fed’s Mester and Minneapolis Fed’s Kashkari speak at Fed racism and the economy virtual event on housing
10:30 p.m.: Reserve Bank of Australia releases policy statement
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8:40 a.m.: European Central Bank’s Panetta gives speech at webinar on monetary policy and the pandemic organized by Bocconi University
1 p.m.: Fed’s Brainard speaks on economy and monetary policy at Council on Foreign Relations virtual meeting
2 p.m.: San Francisco Fed’s Daly speaks virtually to Economic Club of New York
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Americans of All Stripes Are Flush With Cash
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The high saving rates that have been in place since the pandemic began have added up to a lot more cash on household balance sheets, Justin Lahart writes. He notes that Federal Reserve figures show that as of the end of the third quarter households had $2.2 trillion more in cash and cash equivalents than at the end of 2019. “That amount is undoubtedly higher now and, with another round of government relief in the works, could go higher still,” Mr. Lahart writes. “As the pandemic eases, there will be plenty of money to spend.”
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U.S. consumer sentiment picked up in the second half of February, according to the University of Michigan's index of consumer sentiment. It closed the month at a level of 76.8, compared with a flash estimate of 76.2 two weeks ago and January's reading of 79. (Dow Jones Newswires)
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Business activity in the Chicago area slowed in February as the Chicago Business Barometer of MNI Indicators fell to a reading of 59.5 from January’s 63.8, which was a two and a half year high. (DJN)
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The U.S. trade deficit in goods widened to $83.7 billion in January from a revised $83.2 billion in the prior month, the Commerce Department said, marking the second highest gap on record. (DJN)
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The Turkish economy grew 5.9% on year in the fourth quarter of 2020, TurkStat said Monday.
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Canadian producer prices rose 2% in January from the previous month, mainly due to higher prices for lumber and other wood products, as well as energy and petroleum products, Statistics Canada said. (DJN)
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Germany's headline inflation rate likely accelerated from 1% in January to 1.2% in February, economists polled by WSJ forecast. (DJN)
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Japan's domestic auto sales excluding minicars fell 2.2% year over year in February. (DJN)
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This newsletter is compiled by James Christie in San Francisco and Ed Ballard in London.
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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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