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RBA Official Says Central Bank Doesn't Lack Firepower; China Gives Market More Say in Setting Yuan’s Value
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Good day. The Reserve Bank of Australia has scope to ease monetary policy settings further if it wants, and any suggestion that its firepower has run out can be dismissed, a bank official told the Journal. In China, the central bank is giving investors more power in setting the value of the yuan, a move analysts said was likely intended to boost the currency’s international appeal rather than to drive it lower. And a busy couple of days for central bankers around the world starts today with a policy update from the Bank of Canada. The Bank of Japan and the European Central Bank follow suit tomorrow.
Now on to today’s news and analysis.
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RBA Board Member Says Central Bank Not Lacking in Firepower
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A pedestrian walks past the Reserve Bank of Australia (RBA) headquarters in Sydney, Australia. PHOTO: BRENDON THORNE/BLOOMBERG NEWS
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“There is certainly capacity for the Reserve Bank to do some more if the board judges that that is appropriate," Ian Harper, a member of the central bank’s policy-setting board, told The Wall Street Journal. "This idea that the bank has run out of ammunition is false."
Mr. Harper, who wasn’t speaking on behalf of the RBA, said that while it is true there is little scope to lower the official cash rate further from its current record low of 0.25% and the option of negative interest rates remains extraordinarily unlikely, the RBA still has the option of quantitative easing.
The comments come ahead of the RBA’s monthly policy meeting Tuesday. Market participants expect Gov. Philip Lowe to announce a number of measures to further stimulate the economy, among them QE targeting lower five-year and 10-year government bond yields.
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China Gives Market More Say in Setting Yuan’s Value
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In onshore markets, the yuan is allowed to trade in a narrow range around a daily midpoint set by the People's Bank of China. That level is set using previous traded prices from Chinese banks, but until now banks have sometimes adjusted their inputs using what is known as a countercyclical factor. The result has been to make the currency less volatile and to slow any selloff. An arm of the PBOC said Tuesday that Chinese banks have recently stopped using the factor, adding that the suspension could help make the fixing mechanism more transparent and efficient.
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Key Developments Around the World
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What to Expect from the ECB Meeting
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The eurozone economy seems destined to contract in the fourth quarter, but the European Central Bank is not seen as riding to the rescue with more stimulus, at least not at Thursday's meeting. Analysts say the ECB is more likely to take action at its December meeting. For now, the central bank will present new staff forecasts that will incorporate new developments, some good and some bad, such as the announcement of a European Union recovery fund, a rise in the value of the euro, and a German stimulus package. (Dow Jones Newswires)
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U.S. Election Adds to Turkish Lira’s Bumpy Ride
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Last week, Turkey, a member of the North Atlantic Treaty Organization, confirmed it held a missile exercise with an advanced air-defense system procured from Russia. The U.S. criticized the move, stoking concerns it could lead to sanctions against Turkey that analysts and investors see as more likely if Democratic candidate Joe Biden is elected. This has exacerbated pressure on the lira from last week when Turkey’s central bank surprised investors by not hiking rates.
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Singapore Central Bank Says Downturn May Be Deeper, Longer Than Previous Recessions
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The pace of recovery is expected to moderate in subsequent quarters, the Monetary Authority of Singapore said. Some areas of the economy, particularly the travel-related and some contact-intensive domestic services, are unlikely to recover to pre-pandemic levels even by the end of 2021, it said.
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Countries Try Shorter Quarantines in Bid to Boost Compliance
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A growing number of countries are trimming the length of time people potentially exposed to the coronavirus need to self-quarantine to reduce the risk of spreading Covid-19. Their reasoning: Shorter spells might help manage the pandemic by encouraging greater compliance.
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WTO Is Poised to Pick Its First Female Leader
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Consultations among the World Trade Organization's 164 members were due to end on Tuesday on the choice between former Nigerian Finance Minister Ngozi Okonjo-Iweala and South Korean Trade Minister Yoo Myung-hee.
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U.S. Home-Price Growth Accelerated in August
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The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 5.7% in the year ended in August, up from a 4.8% annual rate the prior month.
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U.S. Durable-Goods Orders Rose for Fifth Consecutive Month
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New orders for durable goods increased 1.9% in September compared with August, the latest sign manufacturing companies are rebounding from supply-chain disruptions and shutdowns related to the coronavirus pandemic.
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Financial Regulation Roundup
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SEC Corporation Finance Director William Hinman Plans to Step Down
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The Securities and Exchange Commission official who writes rules for initial public offerings and other corporate disclosures said he would step down later this year, part of the usual wave of departures from federal regulatory agencies at the end of a presidential term.
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Bid to Broaden Transactions Under Anti-Money-Laundering Rule
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A proposed anti-money-laundering rule change would lower the threshold for when information on senders and receivers of international financial transfers is collected and passed along to other financial institutions, potentially adding more of a compliance burden on banks.
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Visa’s Planned Purchase of Plaid Faces Antitrust Scrutiny
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Visa’s $5.3 billion deal to buy Plaid, a firm that provides the technological underpinning an array of next-generation financial apps, is in jeopardy because of antitrust concerns, according to people familiar with the matter.
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Retirement Bill Offers Later Withdrawals, Paths to Lost Accounts
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Americans would be allowed to wait longer to withdraw money from retirement accounts and have an easier time finding old, forgotten accounts under a bipartisan proposal with a mix of measures to encourage retirement savings.
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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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Time N/A: Bank of Japan releases policy statement
8:30 a.m.: U.S. Commerce Department releases first estimate of third-quarter GDP
8:45 a.m.: European Central Bank releases policy statement
9:30 a.m.: European Central Bank’s Lagarde holds press conference
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Growth Data Looms As Key Fed Number Points to 2020 Contraction
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With the U.S. government set to release its first look at third quarter gross domestic product data on Thursday, all eyes are on what is expected to be a radical rebound following the historic contraction in the second quarter. The Federal Reserve Bank of Atlanta's GDPNow real-time growth tracker reported on Tuesday expectations of a 36.2% growth reading for the third quarter. But as many economists have noted, even a strong snap back won't be enough to recover what was lost so far this year. “It will take at least another two years before policymakers can start talking about economic growth nearing its potential,” RSM US LLP chief economist Joseph Brusuelas said in a note to clients on Tuesday, adding
that prospect “assumes that there is substantial policy aid, in contrast with the current impasse, which will almost surely define the remainder of the year.” The Federal Reserve Bank of New York reported on Tuesday that its Weekly Economic Index, which seeks to measure growth during the pandemic, points to a 3.72% decline in growth this year, down a touch from the negative 3.26% reading reported last week. The New York Fed said the latest decline in the index was due to “decreases in retail sales and steel production (relative to the same time last year), which more than offset an increase in consumer confidence.”
—Michael S. Derby
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Why the U.S. Can’t Replicate South Korea’s Economic Recovery
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South Korea’s secret sauce for coming back from Covid-19 has been a mix of getting the virus under control early and benefiting from an existing export-heavy economic model, Mike Bird writes at The Wall Street Journal.
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Factories Hum to Keep Up With Auto, Housing Demand
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Eight months into the Covid-19 crisis, manufacturers are facing an unusual problem: They are struggling to keep up with demand, Justin Lahart writes at The Wall Street Journal, noting that details of the September durable goods report were strong.
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Consumers are spending money as if the coronavirus recession is over. But they are also paying down old debts and avoiding new ones in case the pandemic lasts a while.
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Global banks are signaling cautious optimism about weathering the coronavirus pandemic, setting aside less cash to cover bad loans, posting better-than-expected profits and saying payouts to shareholders could be around the corner.
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As stimulus checks and other forms of temporary relief run out, experts are projecting an increase in personal bankruptcy filings, which have so far been muted during the coronavirus pandemic.
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U.S. consumer confidence decreased slightly in October as the short-term outlook worsened amid a new rise in Covid-19 infections, according to The Conference Board, whose consumer confidence index fell to 100.9 from a downwardly revised 101.3 in September. (Dow Jones Newswires)
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U.S. manufacturing activity in the central Atlantic region strengthened in October and posted its highest reading on record, according to survey data from the Federal Reserve Bank of Richmond, whose Fifth District Survey of Manufacturing Activity's composite index rose to 29 from the 21 in September. (DJN)
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The World Trade Organization is set to pick its first female leader in coming days, as consultations among its 164 members were due to end on a choice between former Nigerian Finance Minister Ngozi Okonjo-Iweala and South Korean Trade Minister Yoo Myung-hee.
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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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