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RBNZ Rate Decision Illustrates Widening Split Among Central Banks; Focus on Fed's Reverse-Repo Program; WSJ Live Q&A Today
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Good day. New Zealand’s central bank announced a further sharp rise in interest rates this morning, despite recent indications that activity in the agriculture-rich economy is slowing and could be on the cusp of a recession. The RBNZ’s decision illustrates a widening split in the approaches of global central banks as some grow uneasy about the risks to growth from continued tightening of policy. While the Federal Reserve and the Bank of England raised rates at their most recent policy meetings, the Bank of Canada and the Reserve Bank of Australia have opted to pause so that they can digest the impact of previous action on their economies. Meanwhile, Cleveland Fed Chief Loretta Mester said yesterday that inflation remains too high and stubborn, and that it could take until 2025 to bring it down to the Fed’s 2% target. She also reiterated the
Fed’s resolve to fight inflation while the central bank contends with the fallout of the collapse of Silicon Valley Bank last month. This comes as some analysts contend the Fed’s reverse-repo program is effectively draining money from the banking system by pulling in funds that could otherwise be invested or lent out. As of Tuesday, the facility was paying a 4.8% annualized rate, well above the rates most banks offer. Finally, be sure to join today’s WSJ Live Q&A with Sonal Desai, chief investment officer at Franklin Templeton Fixed Income and Fed bull, and Alex Gurevich, chief investment officer at HonTe Investments and Fed bear. You can join the event through the link provided below.
Now on to today’s news and analysis.
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Deposit Outflows Shine Light on Fed Program
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Banks are under pressure from depositors’ embrace of money-market funds, pushing a popular Federal Reserve-sponsored financing program into the spotlight.
Money-market fund inflows are increasing at a record clip. Much of that cash is making its way to the Fed’s overnight repurchase facility, which borrows from money funds and other firms in exchange for securities such as Treasurys and then returns the money the next day.
The program, known on Wall Street as reverse repo, allows financial firms and others to earn interest on large cash balances. But some analysts contend it also is effectively draining funds from the banking system, where it otherwise could be invested or lent out.
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Mester Reiterates Fed’s Resolve to Fight Stubborn Inflation
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New Zealand Shocks With Big Rate Rise as Some Central Banks Pause
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WSJ Live Q&A: Bull v. Bear, the Fed
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In the wake of recent bank failures, the Federal Reserve and financial markets are engaged in a delicate dance. The Fed has said it won’t cut interest rates this year. Investors are positioning for the central bank to cut rates. So who’s right? Sonal Desai, chief investment officer at Franklin Templeton Fixed Income and Fed bull, and Alex Gurevich, chief investment officer at HonTe Investments and Fed bear, join the Journal’s Gunjan Banerji to discuss the bull and bear cases for the central bank. This live Q&A begins at 10 a.m. ET today. Join and ask questions here.
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Pro Take: What Is That Job Ad Really Saying? Fed Paper Looks at Ageism in Tight Labor Market
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Many companies don’t want to hire older workers, and some may subtly communicate through their wording in online help-wanted ads that older workers ought not apply. Now, a new paper published by the Federal Reserve Bank of San Francisco takes a look at research on how some help-wanted ads can deter older workers from applying for jobs. The co-authors compared the applicant response rate to fake online job ads containing subtle ageist language with responses to fake ads without ageist language. Read more.
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U.S. Job Openings Dropped in February
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The number of job openings fell in February, dropping below 10 million for the first time in nearly two years in a sign that employers’ demand for workers eased amid a still strong labor market.
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Apartment-Building Sales Drop 74%, the Most in 14 Years
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Sales of rental apartment buildings are falling at the fastest rate since the subprime-mortgage crisis, a sign that higher interest rates, regional banking turmoil and slowing rent growth are undercutting demand for these buildings.
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Arizona Fight Over Sales Tax Threatens Semiconductor Expansion
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A fight in Arizona over a half-cent sales tax that funded much of the highway system is creating a rift between some Republicans and the business community and threatening to impede the operation of a major semiconductor project.
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Key Developments Around the World
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Ukraine’s NATO Future Sparks Debate as Finland Joins Alliance
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Ukraine’s push to join NATO is likely to intensify if Kyiv achieves gains against Russian forces in an offensive expected in the coming weeks, with Finland officially joining the alliance Tuesday on its 74th anniversary.
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Iraq, Kurds Reach Temporary Deal to Unblock Oil Flows After Dispute
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The central Iraqi government and Kurdish authorities struck a deal Tuesday to end a standoff over oil sales that had blocked nearly 500,000 barrels a day in exports and sent crude prices rising.
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Financial Regulation Roundup
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Credit Suisse Chairman: ‘I Am Truly Sorry’
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Credit Suisse Group AG’s annual shareholder meeting Tuesday was supposed to be the launchpad for its recovery. Instead, it became the final chapter of the Swiss bank’s nearly 167-year-old history.
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China’s New Tech Weapon: Dragging Its Feet on Merger Approvals
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The U.S. encouraged China to set up a robust antitrust regime. Now, Beijing is holding back its required green light for mergers that involve American companies as a technology war with Washington intensifies.
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Industry Groups Warn on EU Foreign-Subsidy Reporting Rules
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Industry groups representing major multinational companies are urging changes to the European Union’s new rules for reporting foreign subsidies, saying they could affect investment in the bloc.
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8:15 a.m.: ADP National Employment Report for March
8:30 a.m.: Canada trade report for February; U.S. trade report for February
10 a.m.: ISM Report on Business Services PMI for March; ECB’s Lane speaks at University of Cyprus
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8:30 a.m.: U.S. weekly jobless claims; Canada labor force survey for March
10 a.m.: St. Louis Fed’s Bullard speaks at Arkansas State Bank Department’s Day with the Commissioner
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ECB to Keep Raising Rates Despite Market Turbulence
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The European Central Bank’s course of action is likely to be little changed despite turmoil in financial markets, economists at Citi write in a note. Recent turbulence has considerably widened the range of possible outcomes for the eurozone economy and for monetary policy, but the ECB is expected to keep increasing interest rates at a prudent pace until it sees a turnaround in core inflation, the economists write. They expect the ECB to raise rates by 25 basis points in May, followed by similar increases through the spring and summer. The peak deposit rate is seen reaching 4% and the ECB will cut interest rates at some point in 2024, the economists write.
—Xavier Fontdegloria
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Lower Job Openings Could Be a Welcome Sign for U.S. Economy
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What might be happening is that many workers getting laid off are getting reabsorbed by employers that have been straining to find employees, contributing to the decline in job openings, Justin Lahart writes.
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After Credit Suisse, Chinese Banks Aren’t a Great Safe Harbor
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Chinese banks are unlikely to be dragged into the banking crisis in the U.S. and Europe, but they face anemic growth and declining margins, along with persistent concerns about undercounted problem loans, Jacky Wong writes.
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U.S. manufacturing-sector orders fell again in February, driven again by a decline in transportation equipment and durable goods orders, but at a slower pace than in January. New orders for manufactured goods fell 0.7% on month to $536.4 billion, compared with a revised 2.1% fall in January, data from the Commerce Department showed Tuesday. Economists surveyed by The Wall Street Journal expected a 0.6% decrease in February. (Dow Jones Newswires)
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Americans’ outlook for the U.S. economy is brighter than it has been in 16 months, according to findings from a new IBD/TIPP Poll. The overall IBD/TIPP U.S. Economic Optimism Index rose in April by a half-point to 47.4, its highest level since December 2021. Still, the index remained in pessimistic territory, below the 50 neutral level, for a 20th straight month. Currently 55% of adults polled think the economy is in a recession, up from 53% the prior two months. However, that figure reached 61% in October. (Investor’s Business Daily)
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JPMorgan Chase & Co. CEO Jamie Dimon used the word “crisis” 17 times in his annual letter to shareholders as he mulled challenges facing the global economy, pointing to “potential trouble brewing from unprecedented fiscal spending, quantitative tightening and geopolitical tension.” (MarketWatch)
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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, Nell Henderson, Nick Timiraos, Paul Hannon, Kim Mackrael, Tom Fairless, Megumi Fujikawa, Perry Cleveland-Peck, Nihad Ahmed, Michael Maloney, Paul Kiernan, James Glynn
Follow us on Twitter:
@WSJCentralBanks, @NHendersonWSJ, @NickTimiraos, @PaulHannon29, @kimmackrael, @TomFairless, @megumifujikawa, @pkwsj, @JamesGlynnWSJ, @cleveland_peck
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