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Central Banks in Japan, Canada, Brazil Hold Rates Steady; ECB Blames Software Glitch for Payments Outage; U.S. States' Cash Crisis
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Good day. The Bank of Japan today kept monetary policy unchanged and maintained its view that the Japanese economy is gradually recovering from the impact of the coronavirus pandemic. The central banks of Canada and Brazil also left their respective benchmark rates unchanged. The European Central Bank blamed a software glitch for a prolonged outage last week in a payment system that processes more than $2 trillion in transactions a day. And U.S. states are facing their biggest cash crisis since the Great Depression.
Note: The WSJ Pro Central Banking newsletter was delayed today, but will return to its normal time tomorrow.
Now on to today’s news and analysis.
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BOJ Stands Pat, Says Japan’s Economy Recovering Gradually
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The Bank of Japan in Tokyo. PHOTO: KIYOSHI OTA/BLOOMBERG NEWS
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The Bank of Japan kept monetary policy unchanged and maintained its view that the Japanese economy is gradually recovering from the impact of the coronavirus pandemic. “Japan’s economy, with economic activity resuming and the impact of Covid-19 waning gradually, is likely to follow an improving trend,” the bank said in its quarterly outlook report. The bank’s policy board projected that the Japanese economy will shrink 5.5% in the year ending March 2021 compared with the 4.7% contraction expected in its previous report in July.
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Europe’s Core Payments Network Disrupted by Technical Malfunction
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The European Central Bank blamed a software defect for a disruption to the region’s main wholesale payment system last week that left banks unable to process transactions and securities trades for almost 11 hours.
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U.S. States Face Biggest Cash Crisis Since the Great Depression
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Nationwide, the U.S. state budget shortfall could amount to about $434 billion from this year through 2022, assuming no additional fiscal stimulus from Washington, further coronavirus restrictions on business and travel, and extra costs for Medicaid amid high unemployment. That’s greater than the 2019 K-12 education budget for every state combined, or more than twice the amount spent that year on state roads and other transportation infrastructure.
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Key Developments Around the World
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Bank of Canada Signals Rates to Remain Unchanged For Years
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The Bank of Canada left its benchmark overnight interest rate unchanged at 0.25% on Wednesday and offered reassurance the rate is expected to remain at that level until at least 2023.
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Brazil’s Central Bank Leaves Benchmark Selic Rate Unchanged at 2%
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The bank left its Selic rate at 2% for the second meeting in a row, after cuts at the nine previous meetings, and maintained its forward guidance that there is little, if any, room for more cuts and that it won’t reduce monetary stimulus unless the inflation outlook gets worse.
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U.S. Opposes Pick to Lead World Trade Organization, Riling Members
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The U.S. opposed the selection of former Nigerian Finance Minister Ngozi Okonjo-Iweala as the World Trade Organization’s new leader, officials said, the latest Trump administration challenge to the body.
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France, Germany Announce New Lockdowns
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France and Germany imposed new lockdowns in a sign of how Europe’s strategy for containing the coronavirus has buckled under the pressure of mounting cases and deaths. The restrictions from Europe’s two biggest economies are likely to pressure other countries to follow suit.
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Financial Regulation Roundup
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SEC Shelves Measure to Protect Investors in Leveraged ETFs
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The Securities and Exchange Commission had proposed requiring broker-dealers and investment advisers to vet individual investors before approving them to trade the products, known as leveraged and inverse exchange-traded funds.
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NYSE’s Top Markets Cop to Take Cryptocurrency Job
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Anthony Albanese, who has led the New York Stock Exchange’s in-house regulatory unit since 2016, will join Silicon Valley venture-capital firm Andreessen Horowitz, advising it on cryptocurrency regulation as its chief regulatory officer.
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2 a.m.: Bank of Japan releases annual review
5 a.m.: European Central Bank’s Mersch speaks at online UBS event on European economic and policy outlook
8:30 a.m.: U.S. Commerce Department releases September personal income and outlays
10 a.m.: University of Michigan releases final October U.S. consumer sentiment
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A Deutsche Bank Turnaround Needs More Than Trading Success
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Deutsche Bank’s trading arm had a cork-popping third quarter, but Germany’s largest bank’s turnaround still needs a broader solution to the persistent problem of ultralow interest rates, Rochelle Toplensky writes at Heard on the Street. She says that "To achieve a valuation in line with its peers, Deutsche Bank needs to show how its core corporate and private banking businesses can eke out sustainable profits in a low interest rate world."
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The U.S. economy likely grew at a record pace in the third quarter, recovering significant ground it lost earlier in the coronavirus pandemic.
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The U.S. auto industry has bounced back stronger and faster than many expected with some companies reporting record profits in the third quarter.
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Tariffs on foreign-made steel haven’t produced the steelmaking renaissance and robust job growth in America’s industrial heartland that Mr. Trump promised.
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The threat of new lockdown measures around the world dragged down raw materials prices, heightening concerns among traders that investments tied to the global economy are set for another selloff.
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The economic recovery in Europe's five largest economies is gradually slowing, with activity now stable at a below-average rate, Moody's Investors Service said, noting that recent increases in coronavirus cases and the resumption of restrictions on movements have yet to translate into lower demand. (Dow Jones Newswires)
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Business openings in Canada outstripped closings in July for the first time in five months, with 52,200 businesses opening their doors versus 36,500 closing, according to Statistics Canada. (DJN)
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Sweden's central bank said that cash usage in the country is at its lowest level ever. Less than one-tenth of all payments in Sweden are made in cash, with people paying more often by card or the direct-payment app Swish, the Riksbank said. (DJN)
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This newsletter is compiled by James Christie in San Francisco and Ed Ballard in London.
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