Markets Are Anxious About Fed's Response to 'No Landing'; Barkin Backs Steady Pace of Rate Rises By James Christie
Good day. Investors are starting to worry the U.S. economy doesn't look anywhere close to a recession and that a "no landing" scenario is shaping up. Their growing fear is that if the economy remains too hot, it will force the Federal Reserve to raise interest rates higher and hold them there for longer than they anticipate, which would raise the chances of a sharp downturn. That in turn would likely lead to more pain for markets. Meanwhile, Richmond Fed President Tom Barkin said he supported the central bank's plans to continue raising interest rates in quarter-point increments until it is comfortable inflation will return to the Fed's 2% goal. Elsewhere, the Reserve Bank of Australia said in the minutes of its latest policy meeting published Tuesday that it debated raising official interest rates by 50 basis points as recent wages and prices data have exceeded expectations. "If it did persist, there would be significant costs," it said.
Now on to today's news and analysis.
Top News Investors Worry Economy Will Prompt More Aggressive Fed Rate Path
Wall Street spent much of the past several months hoping the Federal Reserve would be able to pull off a "soft landing," or a scenario in which the U.S. ends up avoiding a severe downturn. Evidence of the economy's resilience, coupled with signs that inflation has been moderating, helped bonds and risky assets like stocks take off to begin the year.
A recent string of hot data, however, have convinced some investors that there may be "no landing."
Fed's Barkin Supports Measured Pace of Interest-Rate Increases
"I like the 25-basis-point path because I believe it gives us the flexibility to respond to the economy" depending on how economic data evolves, Richmond Fed President Tom Barkin told reporters after a speech on Friday.
RBA Debated Raising Cash Rate by 50 Bps at February Meeting
In minutes of its Feb. 7 policy meeting, the Reserve Bank of Australia said argument for a 50-basis-point hike stemmed from the concern that there has been a pattern of incoming prices and wages data exceeding expectations.
U.S. Economy Debt-Ceiling Standoff Prompts Backup Plans, but They Face Hurdles
Potential alternatives to addressing the borrowing limit-from simply ignoring it, to minting a trillion-dollar coin, to prioritizing certain payments- all face hurdles , underlining doubts about any fallback plan.
More Auto Payments Are Late, Exposing Cracks in Consumer Credit
Some 9.3% of auto loans in the U.S. extended to people with low credit scores were 30 or more days behind on payments at the end of last year, the highest share since 2010 , according to an analysis by Moody's Analytics.
Venture Fundraising Hits Nine-Year Low
Venture firms raised $20.6 billion in new funds in the fourth quarter, down 65% from the year-earlier quarter and the lowest fourth-quarter amount since 2013, according to data firm Preqin Ltd., which tracks venture-fund data.
Office Landlord Defaults Are Escalating
The number of big office landlords defaulting on their loans is on the rise , fresh evidence that more developers believe that remote and hybrid work habits have permanently impaired the office market.
Stocks Rally Despite Squeeze on Profitability
This year's stock rally has a surprising feature : a smaller share of revenue at big U.S. companies is reaching the bottom line. The net profit margin of companies in the S&P 500 has fallen to 11.3% from the peak of 13% in 2021.
Key Developments Around the World Europe's Economy Picks Up After Year of War in Ukraine
Business activity in the eurozone and the U.K. increased faster than expected in February, a boost for the global economy and a new sign of the region's resilience as Russia's war on Ukraine is poised to enter its second year.
Workers' Pay Globally Hasn't Kept Up With Inflation
Wage growth across advanced economies is plateauing or declining from high levels. For central banks, it is good news: There are no signs of a spiral in which wages push up prices, which push up wages again.
China's Benchmark Lending Rates Kept Unchanged
Benchmark lending rates in the world's second-largest economy were kept unchanged, leaving the one-year loan price rate at 3.65% and the five-year LPR at 4.3%, the People's Bank of China said on Monday.
China's State-Owned Property Developers Shun Private-Sector Deals In China, Worries About a Weakened Russia Prompt a Rethink
North Korean-Russian Trade Rebounds, Satellite Images Show
Trade at the main railroad crossing between Russia and North Korea has rebounded in recent months to prepandemic levels, as the Ukraine war leads to deepening economic ties between the two countries.
U.S., Allies to Boost Efforts to Stop Russia Skirting Sanctions
In a speech Tuesday, Treasury Deputy Secretary Wally Adeyemo is expected to say the U.S. and its allies will broaden export controls or sanction Russian companies that have been repurposed to help the military effort.
Financial Regulation Roundup The Man Trafigura Blames for a $577 Million Nickel Upset
Even before Trafigura Group said phony nickel shipments could cost it up to $577 million, some decided to steer clear of Prateek Gupta -the businessman Trafigura says is responsible for the alleged misconduct-and a firm he acquired.
China's Securities Regulator Releases Rules on Overseas Listings
The China Securities Regulatory Commission has released its long-awaited rules on international listings, removing a key hurdle to internet companies selling shares overseas after a prolonged crackdown on the sector.
Hong Kong's Proposed Crypto Rules Seek Investor, Deposit Protection Some FTX Customers Get Their Money Back-in Japan, at Least
The Japanese subsidiary of bankrupt crypto exchange FTX said it started allowing customers to withdraw their assets on Tuesday, a relatively quick reboot that Tokyo regulators see as the fruit of their strict crypto laws.
Forward Guidance Tuesday (all times ET)
8:30 a.m: Canada consumer-price index for January
10 a.m.: U.S. existing-home sales for January
Wednesday
Time N/A: European Central Bank Governing Council non-monetary policy meeting in Finland
5:30 p.m.: New York Fed's Willliams in fireside chat on taming inflation at 'Credibility of Government Policies' conference
Research Bank of America Adds June Rate Rise to Forecast
Bank of America is adding a 25 basis point interest rate increase by the Federal Reserve in June to its baseline rates forecast. The bank had been anticipating 25 basis point rate rises in March and May and then a pause. But it now says resurgent inflation and solid employment gains mean the risks to that outlook are too one-sided for its liking. "March and May hikes appear very likely, and the Fed might have to hike further if inflation, job growth, and consumer demand refuse to soften," BofA economists say. To balance these risks, they are adding a 25 basis point increase in June, which would push the terminal rate up to 5.25%-5.5%. BofA anticipates a first rate cut in March 2024.
-Patrick Sheridan
Hawkish Pressures Could Put U.S. on Path to Recession
The U.S. economy is in "a slow dance towards recession," Steven Blitz, chief U.S. economist at TS Lombard, writes in a note. He argues the Federal Reserve is under pressure to increase interest rates and keep them high "at least until unemployment rises." The move toward recession, he writes, "is looking normal-mixed signals on spending but with a softer bias while still strong inflation and employment keep the Fed on course, raising rates." He adds that with the prospect of a hefty 50-basis point rate increase in March, "financial conditions become less easy and weaker equities will, in turn, pull down discretionary spending."
-Paulo Trevisani
Commentary China's Angry Pensioners Are Symptomatic of Deeper Problems
Protests by retirees over healthcare benefits epitomize a thicket of interrelated problems entangling China: an aging population, strained local government finances, an inadequate social safety net and heavy debt, Jacky Wong writes.
It's a Richcession, Not a Recession. Here's Your Investing Playbook.
The U.S. could still skirt a recession, but it is already in a richcession, or when, amid economic uncertainty, the well-off feel more of the bite , Justin Lahart, Spencer Jakab, Jinjoo Lee, Laura Forman and Telis Demos write.
Chinchillas, Crypto and Crackdowns
The future of cryptocurrencies might be found in the history of chinchillas , Telis Demos writes, as debates about what constitutes a security continue in wake of the Securities and Exchange Commission's actions on stablecoins.
Basis Points The Conference Board's Leading Economic Index decreased 0.3% to 110.3 in January after a 0.8% decline in December, matching expectations from economists polled by The Wall Street Journal. The index measuring U.S. business cycles has declined for ten straight months. (Dow Jones Newswires) Prices of imported goods to the U.S. fell in January for a seventh month in a row on lower fuel prices. Import prices decreased 0.2% in January compared with the previous month after falling 0.1% in December, according to the Labor Department. December's reading was revised down from an initially estimated 0.4% increase. (DJN) Producer prices in Canada edged higher in January, recovering after declines the previous two months. Statistics Canada's industrial product price index rose 0.4% from December. On a 12-month basis, the producer-price index rose 5.4% in January. (DJN) The Bank of Japan said Monday it offered to buy outright on February 21 up to Y150.0 billion in Japanese government bonds maturing in over 25 years. The bank's previous operation in the same maturity range was Y200.0 billion. (DJN) The Bank of Korea is likely to stand pat at its rate-setting meeting Thursday. All 23 analysts surveyed by The Wall Street Journal expect the central bank to keep its policy rate unchanged at 3.50% after raising it for
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02-21-23 0719ET
