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Powell Cautious on Pace of Recovery; Bank of England Official Sees More Monetary Stimulus
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Good day. Friday's U.S. jobs report was better than expected, but around 11.5 million fewer people had jobs in August than in February and Fed Chairman Jerome Powell warned that it's unclear how fast that number will fall. "I think we’re not really going to know the pace…of the recovery with any clarity for a couple more months," he said in a radio interview Friday. Meanwhile, calm in the vast repo market doesn’t mean the Fed is done dealing with issues in the short-term funding market, the Journal's Michael S. Derby writes. Elsewhere, a Bank of England policy maker said Friday he thought it "quite likely that additional monetary stimulus will be appropriate" for the U.K.
Now on to today’s news and analysis.
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Fed’s Powell Says Interest Rates Likely to Stay Low for Years
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Fed Chairman Jerome Powell said in an interview Friday that the economy would benefit if more people wore masks and practiced social distancing. PHOTO: HANDOUT/SHUTTERSTOCK
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Federal Reserve Chairman Jerome Powell said Friday’s report showing 1.4 million Americans found or resumed work in August was good news, but the economy likely will require low interest rates for years. In an interview with National Public Radio, Mr. Powell also said he was concerned employment in hardest-hit sectors of the economy—including travel, leisure and hospitality—might not return to a normal level of activity anytime soon due to the coronavirus pandemic. Mr. Powell also said now isn’t the time to worry about the public debt, while on the question of more fiscal relief, he said, “My guess is that, in time, more will be done. And certainly I think more will be needed.”
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Cleveland Fed President Says Monetary Policy Is Well Communicated
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The Fed has appropriately telegraphed its intentions to keep rates low for a long time to support the economy through the pandemic-induced downturn, making any more explicit interest-rate guidance less urgent, Cleveland President Loretta Mester in an interview.
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Derby's Take: Repo Market Woes Unlikely to Return but IOER Tweak Looms
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The Federal Reserve has an enormous number of things to worry about as the coronavirus pandemic rages on. The repo market, by and large, is no longer one of them. Read more.
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Mortgage Refinancings Boom, Even as Coronavirus Hits Economy
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The mortgage market recorded its best quarter in years this spring, a reflection of how the housing market is booming in 2020 even as much of the economy stumbles. Lenders issued $1.1 trillion in home loans between April and June, according to mortgage-data firm Black Knight. That was the biggest quarter in the company’s records, which date to 2000. Refinancings, up more than 200% from a year ago, drove the increase.
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U.S. Unemployment Rate Fell to 8.4% in August as Hiring Continued
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Employers added 1.4 million jobs last month, helping push down the unemployment rate to 8.4% from 10.2% in July, and the rate’s decline—it has dropped from near 15% in April at the beginning of the pandemic—put it below the peak from the 2007-2009 recession.
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Risk Creeps Into Municipal Bond Market, Yet Prices Stay High
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Prices remain at or near pre-pandemic highs even as borrowers’ finances have become more precarious and Moody’s Investors Service has lowered its outlook to negative on all municipal bond sectors except for housing-finance agencies and water, sewer and public power.
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Key Developments Around the World
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U.K. Likely Headed for More Monetary Stimulus, BOE Official Says
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Michael Saunders, a member of the Bank of England's rate-setting Monetary Policy Committee, said in a speech Friday he thought it "quite likely that additional monetary stimulus will be appropriate" for the British central bank to reach its official 2% annual inflation target. He also said the current state of the U.K. labor market was "very worrying" and the economy might underperform the already dire forecast of the central bank from last month. (Dow Jones Newswires)
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China’s Exports Ramp Up as Countries Emerge From Lockdowns
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Outbound shipments rose 9.5% in August from a year earlier, beating July’s 7.2% increase and economists’ median forecast for 7.3% growth, data released by the General Administration of Customs showed Monday.
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Financial Regulation Roundup
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Malaysia Drops Goldman Sachs Criminal Charges Over 1MDB
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Malaysia has dropped criminal charges against units of Goldman Sachs over the bank’s role in the alleged theft of billions of dollars from a government investment fund, a key step under the terms of a recent $3.9 billion settlement.
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Monte Dei Paschi Issues €300 Million Bond Bond
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Banca Monte dei Paschi di Siena SpA fulfilled one of the conditions set by the European Central Bank to greenlight its bad-loan plan by issuing a €300 million ($355.6 million) tier 2 subordinated bond. The issuance is one of the ECB’s conditions for the state-owned Italian bank’s plan to get rid of about €8.1 billion of bad loans. The plan was approved with the condition that the bank boosts its capital buffers. Italy's finance ministry will have to subscribe for up to 70% of the issuance. (Dow Jones Newswires)
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Citigroup Feuds With Hedge Funds Over Botched Payment
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Citigroup and a big hedge-fund client are locked in an uncharacteristically public feud that has embroiled top executives at both firms and laid bare a $900 million mistaken payment by the bank.
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Treasury and Delaware Sign Pact to Boost Sanctions Enforcement
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A new agreement between the U.S. Treasury Department and officials in Delaware could lead to more aggressive enforcement of economic sanctions on nonfinancial companies, particularly those that may seek to hide transactions behind anonymous entities.
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Spanish Deal Talks Raise Prospect of European Bank Consolidation
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Caixabank SA and Bankia SA said they are exploring a merger to create Spain's largest domestic lender, raising the often-debated prospect of consolidation in Europe’s banking system as countries brace for further fallout from the coronavirus pandemic.
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Japan Could Pursue Regional Bank Consolidation More Aggressively
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The Japanese government could pursue the consolidation of regional banks more aggressively in coming years as Chief Cabinet Secretary Yoshihide Suga, a leading candidate to succeed Prime Minister Shinzo Abe according to local media, said last week that there are too many regional banks in Japan. (DJN)
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3 p.m.: Federal Reserve releases July U.S. consumer-credit data
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Time N/A: National Bank of Poland releases policy statement
10 a.m.: Bank of Canada releases interest-rate decision
10 a.m.: U.S. Labor Department releases July Job Openings and Labor Turnover Survey
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The Fed Puts Its Independence on the Line
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"The Fed is on a one-way path to a larger role in our economy and government," writes Kevin Warsh, a distinguished visiting fellow in economics at Stanford University’s Hoover Institution and a former Fed board member, for the WSJ opinion page. "On the current trajectory, the Bank of Japan might be the model for Fed policy: a large buyer of public stocks and an indistinguishable partner with fiscal authorities. The unimaginable can become the inevitable. What has been the response to Fed flexing? Most on Wall Street are thrilled. They quite like stimulus for all seasons and all reasons...Main Street is rightly more circumspect."
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News Monday offered an insight into one factor that may be holding the yuan back, Mike Bird writes for Heard on the Street, noting the U.S. is weighing import controls against China’s largest chip maker, heaping additional risk on the ownership of Chinese assets.
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Container imports are flowing back into the U.S. after a six-month hiatus, with U.S. retailers knocked back by pandemic lockdowns stocking up before the holiday season. Last month likely will have been the best August in the history of the Port of Los Angeles.
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German industrial production rose 1.2% in July, federal statistics office Destatis said. On a year-on-year basis, total industrial output fell 10% in calendar-adjusted terms. (Dow Jones Newswires)
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South Korea's Korea Development Institute, a state-run think tank, cut its domestic growth forecasts for this year and the next, saying it expects gross domestic product to contract 1.1% for 2020, compared with its May projection of 0.2% expansion. (DJN)
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Canada's labor market continued its rebound in August, recovering almost two-thirds of the roughly three million jobs lost in March and April. A net 245,800 jobs were added in August on a seasonally adjusted basis, Statistics Canada said, and the unemployment rate fell 0.7 percentage points to 10.2% from July. (DJN)
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Venezuela has greater oil stores than any other country, but after years of corruption, mismanagement and more recently U.S. sanctions, its oil output has dropped to a tenth of what it was two decades ago.
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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
Follow us on Twitter:
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