Few Banks Shielded Themselves From Fed's Rate-Raising Campaign; Inflation Hot for Bakery Goods

Few Banks Shielded Themselves From Fed's Rate-Raising Campaign; Inflation Is Hot for Bakery Goods By James Christie

Good day. As investors take a fresh look at the health of U.S. banks with more of them reporting first-quarter results this week, a research paper makes the case that Silicon Valley Bank and parent SVB Financial weren't alone in declining to shield assets against rising rates during the Federal Reserve's monetary-tightening campaign last year. Across the banking sector, only about 6% of bank assets were protected by interest-rate swaps, contracts a bank can buy to ease the pain of rising rates, the authors found, drawing on public financial filings. Meanwhile, today's Pro Take looks at price pressures for baked goods and how they reflect the myriad forces that the Fed faces as the central bank lifts rates to tame inflation while also handling a rattled banking sector and trying to avoid plunging the U.S. economy into a hard recession.

Now on to today's news and analysis.

Top News Few Banks Are Hedging Interest-Rate Risk

Few U.S. banks protected themselves against rising interest rates during the Federal Reserve's monetary-tightening campaign last year, according to a research paper that says unhedged securities holdings are more widespread than investors may realize.

The paper-"Limited Hedging and Gambling for Resurrection by U.S. Banks During the 2022 Monetary Tightening?"-contends that hundreds of other banks share that risk, which played a role in the collapse last month of Silicon Valley Bank. The paper didn't single out individual institutions, instead presenting an analysis of aggregate data.

Pro Take: A Persistent Holdout in the Fed's Inflation Fight Leads to the Bakery Aisle By Bob Fernandez

Food prices flatlined in March after rising 8.5% over the past year. But with summer "bun season" right around the corner, a time of baseball outings and barbecue, inflation doggedly holds on in baked goods.

White bread prices surged 16.5% in the past year and rose 1% in March, the government reported last week in its consumer-price index. Cookie prices climbed 16.6% for the year and 0.5% in March. Prices for frozen and refrigerated bakery products such as pies and turnovers rose 16.2% over the year and 2.8% in March. Read more .

U.S. Economy McCarthy Says House GOP to Vote on Debt Limit, Spending Cuts

House Speaker Kevin McCarthy said House Republicans plan to pass legislation raising the debt ceiling and curbing federal spending in coming weeks, to establish a solidified GOP position in negotiations with President Biden.

Bosses Pay Workers to Move Closer to Offices

Companies are bringing back relocation benefits, paying for workers to move across the country and around the world again, in a sign of how much employers really do want workers back in the office.

They Can't Even: A Generation Avoids Facing Its Finances

The pandemic's economic whiplash followed by high inflation is making financial avoidance more common, and the consequences of ignoring bank and credit-card accounts include overspending, damaged credit and deep debt.

Key Developments Around the World China's Economy Rebounds After Three Years of Zero-Covid Isolation

China's economy rebounded in the first three months of the year after Beijing dismantled its heavy-handed Covid-19 controls, teeing up a revival in growth that is expected to buoy the global economy as the U.S. and Europe slow.

Xi Jinping Seeks to Shake Trans-Atlantic Solidarity With Diplomacy G-7 Countries Claim Unity on China After Macron Comments U.S.-China Tensions Over Taiwan Put Pressure on Europe RBA Signals Rate Pause May Not Be End of Tightening Cycle

The Reserve Bank of Australia said that despite announcing a pause in interest-rate increases this month, it doesn't want to send a message that the tightening cycle is over .

Iran Invites Saudi Arabia's King to Visit as Bitter Rivalry Recedes

Iran has invited Saudi Arabia's King Salman bin Abdulaziz to visit the country, an Iranian Foreign Ministry spokesman said Monday, a sign of the rapidly improving ties between two longtime regional rivals.

WSJ Reporter Appears in Russian Court for Detention Hearing

The jailed Wall Street Journal reporter Evan Gershkovich appeared in a Moscow court on Tuesday, where an appeal on his detention was being heard.

Financial Regulation Roundup State Street, Schwab See Deposits Drop

Brokerage giant Charles Schwab Corp. and custody bank State Street Corp. both reported a decline in customer deposits , the latest sign that rising interest rates continue to weigh on banks' balance sheets.

Climate Rules Expose Surprising Splits Among Businesses

Regulators knew they were facing a political hornet's nest when they launched a plan that would force businesses to disclose their carbon emissions and other climate data, and the fight has been just as bitter among companies .

New York Regulator to Bill Crypto Firms for Annual Supervision Fees

The new rule aligns the crypto sector more closely with how the New York State Department of Financial Services bills insurance and banking firms in New York for the assessment fees that fund the agency's operations.

SEC Sues Bittrex Crypto Exchange and Former CEO

The Securities and Exchange Commission in a lawsuit accuses Bittrex Inc., once the biggest U.S.-based platform for trading digital assets, of operating an illegal securities exchange , broker-dealer and clearinghouse.

SEC's Gensler to Defend Climate, Crypto Plans Before GOP-Led Panel Forward Guidance Tuesday (all times ET)

8:30 a.m.: U.S. housing starts for March; Canada consumer-price index for March

11 a.m.: Bank of Canada's Macklem and Rogers speak to House of Commons Standing Committee on Finance

1 p.m.: Fed's Bowman speaks at Psaros Center for Financial Markets and Policy

Wednesday

2 a.m.: U.K. consumer-price and producer-price indexes for March

5 a.m.: EU harmonized consumer-price index for March

6:35 a.m.: ECB's Lane speaks at Enterprise Ireland Summit in Dublin

8:15 a.m.: Canada housing starts for March

11 a.m.: ECB's Schnabel speaks at Leibniz-Zentrum für Europäische Wirtschaftsforschung in Mannheim

2 p.m.: Federal Reserve Beige Book

5:30 p.m.: Chicago Fed's Goolsbee speaks on NPR, Marketplace with Kai Ryssdal

7 p.m.: New York Fed's Williams speaks to Money Marketeers

Research Fed Pause Could Depend on Tighter Lending Conditions

The likelihood of a pause in the Federal Reserve's interest-rate raising campaign after the next Federal Open Market Committee meeting depends on how much damage the banking crisis has caused, BNP Paribas Chief U.S. Economist Carl Riccadonna says. He estimates that tighter lending conditions stemming from the Silicon Valley Bank debacle are worth up to 50 basis points in the fed-funds rate. It would make an expected 25 basis point rate increase in May, to 5%-5.25%, enough to achieve the Fed's goal for now. "If banks are doing less, the Fed will need to do more," Mr. Riccadonna says. Markets are pricing in a pause in June, but odds of another 25 basis point hike are increasing, according to the CME FedWatch Tool.

-Paulo Trevisani

ECB Expected to Raise Rates at Each of Next Three Meetings

The European Central Bank could raise interest rates by a total of 75 basis points over the next three months, according to DZ Bank analysts. "There is some uncertainty about the size of the hike at the next council meeting on 4 May, however," DZ Bank analyst Christian Reicherter writes in a note. Given the uncertain environment, DZ Bank analysts favor the ECB taking a more cautious approach in the coming months, Mr. Reicherter says, expecting a 25 basis point interest-rate rise at each of the next three ECB Governing Council meetings.

-Emese Bartha

Basis Points Confidence among U.S. home builders improved in April for a fourth consecutive month, as a limited number of residential properties on the resale market helped boost demand for new homes, despite supply issues for construction materials, data from the National Association of Home Builders showed Monday. Its housing-market index, which gauges the single-family housing market, increased from 44 in March to 45. The reading, while the highest since September, suggests more builders view conditions as poor rather than good as it came in below 50. (Dow Jones Newswires) Manufacturing activity in New York state expanded in April after contracting for four months, suggesting persistent weakness in the region's factory sector could be bottoming out, according to data from the Federal Reserve Bank of New York. Its Empire State Manufacturing Survey's general business conditions index increased sharply from minus 24.6 in March to 10.8 this month, the highest reading since July and beating the minus 15 consensus forecast of economists polled by The Wall Street Journal. The index signals activity expanded as it came in above the zero threshold separating expansion from contraction. (DJN) Canadian wholesale trade retreated in February from a record high in January, led by a fall in food sales and continued weakness in motor vehicles and parts. Wholesale sales fell 1.7% on a seasonally adjusted basis from January to 85.59 billion Canadian dollars, the equivalent of $64.05 billion, Statistics Canada said. The decline was slightly steeper than the data agency's advance estimate of a fall of 1.6% for the month and marked a sharp turnaround from an upwardly revised 6.1% jump in the first month of the year. (DJN) Bank Indonesia held its seven-day reverse repo rate steady on Tuesday, as inflation looks set to stay on target and the rupiah is trading relatively strong versus other Asian currencies. The central bank kept its benchmark interest rate at 5.75%, as projected by all six economists polled by The Wall Street Journal. The Monetary Authority of Singapore's Managing Director Ravi Menon is set to leave the central bank this year, Bloomberg reports , citing sources familiar with the matter. Chia Der Jiun, one of Menon's former deputies and who is presently the Ministry of Manpower's

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04-18-23 0715ET