More Spending in Brazil Risks More Inflation; Rate Increases Hit U.S. Housing Again

More Spending in Brazil Risks More Inflation; Rate Increases Hit U.S. Housing Again By James Christie

Good day. Brazil's Congress on Wednesday suspended the government's spending cap, a move that opens the door to increased spending on social-welfare programs and public works. Barclays had expected more government spending next year, so it raised its inflation forecast for 2023 from 4.8% to 5.3%, and projected Brazil's central bank to start cutting interest rates only late in the third quarter of next year. The Central Bank of Brazil earlier this month left its benchmark lending rate, the Selic, unchanged at 13.75% at its final policy meeting this year and reiterated that it is ready to resume interest rate increases if inflation doesn't behave as expected. Meanwhile, rate increases in the U.S. pushing up borrowing costs continue to hammer the housing market. The National Association of Realtors said Wednesday existing-home sales slid in November for a 10th straight month, extending a record streak of declines as high mortgage rates and home prices pushed many buyers out of the market.

Now on to today's news and analysis.

Top News Brazil's Incoming President Lula da Silva Wins Approval to Spend Big

SÃO PAULO-Brazil's Congress suspended the government's spending cap to allow incoming President Luiz Inácio Lula da Silva to raise expenditures on social welfare and public works, prompting concerns in financial markets about the fiscal health and long-term growth of Latin America's biggest economy.

The constitutional amendment, backed by 65% of members of Congress in a final vote Wednesday, allows Mr. da Silva, who takes office on Jan. 1, to spend an extra $28 billion in 2023 outside of the country's spending cap, sidestepping a fiscal anchor designed to keep free-spending governments in check.

U.S. Home Sales Post Record 10th Straight Month of Declines

Sales of previously owned homes declined 7.7% in November from the prior month to a seasonally adjusted annual rate of 4.09 million, the weakest rate since May 2020 , and sales fell 35.4% from a year earlier.

U.S. Economy High Commodity Prices Feed a Boom in the U.S. Farm Belt

U.S. net farm income is expected to surge to $160.5 billion this year , boosted by increased prices for farm goods ranging from wheat to milk, according to a key U.S. Department of Agriculture forecast.

States Attempt to Help Americans Facing Rising Energy Costs

States are trying to beef up energy-assistance programs as heating costs for homes using natural gas are expected to rise 25% this winter compared with the previous winter, according to the U.S. Energy Information Administration.

Key Developments Around the World Chinese Semiconductor IPOs Surge as Chip Arms Race Heats Up

Companies that make chips or chip-making equipment raised the equivalent of $12 billion from domestic initial public offerings in the year through Dec. 15, nearly three times what they raised in 2021.

Europe Skirts Winter Slump, but War Clouds Its Economic Future

Europe's economy looks set to avoid the severe shock that the region feared amid the energy crisis resulting from Russia's invasion of Ukraine. But the region's medium-term problems look harder to fix.

Coal Keeps Europe's Lights on Through Frigid Weather Europe Is Rushing Arms to Ukraine but Running Out of Ammo Russia's Draft Patched Holes but Also Exposed Flaws in War Machine Indonesia's Central Bank Raises Interest Rates by 25 Bps as Expected

Bank Indonesia raised its benchmark seven-day reverse repo rate at its December meeting, though at a slower pace compared with previous months, in line with the expectations of six out of seven economists polled by the Journal.

Financial Regulation Roundup Crypto Giant Binance Offers Little Transparency After FTX Collapse

Crypto exchange Binance processes more transactions than most of its rivals combined, accounting for roughly half of crypto spot trading and two-thirds of derivatives trading, yet to many investors it remains a black box .

Sam Bankman-Fried's Extradition Approved by Judge Bitcoin Miner Core Scientific Files for Chapter 11

New York Flags Climate Risks for Banks

Banks both big and small should pore over how climate change could impact their business, New York's influential state banking regulator said in a proposal that would heighten risk management expectations for financial institutions.

Forward Guidance Thursday (all times ET)

8:30 a.m.: U.S. real consumer spending for third quarter; U.S. gross domestic product for third quarter

10 a.m.: The Conference Board Leading Economic Index for November

Friday

8:30 a.m.: U.S. durable goods orders for November; U.S. personal consumption expenditures (PCE) price index for November; U.S. personal income and spending for November

10 a.m.: University of Michigan consumer sentiment for December (final); U.S. new home sales for November

Research Bank of Canada Seen as Having Done Enough to Pause on Rates

The Bank of Canada's actions to date will be enough to dampen economic activity in the quarters ahead and, therefore, inflationary pressures, despite a disappointing November consumer-price index report, National Bank of Canada says. It notes the core measures of inflation favored by the BOC, trim and median, both rose 0.3% in November and remain at a somewhat uncomfortable level for the central bank. But National Bank of Canada says there has been a marked improvement in both since earlier this year, and the trend is encouraging, such that it still believes the BOC will pause following its aggressive tightening of interest rates in 2022.

-Robb Stewart

Commentary Homing in on a Housing Recovery

With this year's sharp jump in mortgage rates, Americans have almost completely soured on the idea of buying a home, but it could be a great time to start betting on a housing recovery , Justin Lahart writes.

Japan's Yield Curve Control Is a Tool Worth Keeping

Like a power drill, the Bank of Japan's policy of capping bond yields seems to be difficult to use without cracking the wall. Unlike many tools tested by central banks since 2008, it may be worth keeping in the box, writes Jon Sindreu.

Basis Points U.S. consumer confidence jumped to an eight-month high of 108.3 in December on The Conference Board's confidence index, reflecting fewer worries about inflation and more optimism about jobs and the economy. The closely followed index rose 6.9 points - the first increase in three months - from 101.4 in November. Economists polled by The Wall Street Journal forecast the index to rise to 101.2. (Dow Jones Newswires) Mortgage applications in the U.S. are ticking up as buyers slowly return to the market, lifting a mortgage market index by 0.9% to 212.5 for the week ending Dec. 16, the Mortgage Bankers Association said. A year ago, the index stood at 588.4. (DJN) The U.S. multifamily housing market is expected to cool in 2023 amid higher interest rates and economic uncertainty, Freddie Mac said. The lender's Multifamily 2023 Outlook sees rent growth moderating, vacancies ticking up and loan originations slowing for the year. Freddie Mac also expects multifamily fundamentals to start 2023 slowly but rebound in the second half of the year. (DJN) U.S. auto sales in 2023 will face an uncertain landscape in the face of worse economic circumstances, S&P Global Mobility said, noting its auto outlook for next year "carries a countercyclical narrative: Expected production levels will continue to increase, even as economic conditions are expected to deteriorate through the early stages of next year." (DJN) Canadian annual inflation eased slightly to 6.8% in November from 6.9% the previous two months, missing only marginally the consensus forecast for 6.7% but taking CPI further from the summer's peak of 8.1%. Given the average of the Bank of Canada's preferred measures of core inflation averaged 5.7% for the month, compared with 5.5% in October and 3.3% in November 2021, more signs of dampened demand and cooling inflation likely are needed to rule out any further interest-rate increases in 2023. (DJN) Brazil recorded a current-account deficit of $60 million in November, down from a deficit of $4.6 billion in October, the country's central bank said Wednesday. (DJN) The governor of India's central bank warned that the next financial crisis will be caused by private cryptocurrencies , if these assets are allowed to grow. "Cryptocurrencies have...huge inherent risks for our macroeconomic and financial stability," Shaktikanta Das, governor of the Reserve Bank of India, said at an event. (CNBC) The U.K. economy contracted at a steeper pace than previously thought in the third quarter, and the short-term outlook remains bleak as the country is widely expected to slid toward a recession. Gross domestic product fell 0.3% from July to September compared with the previous three-month period compared with the 0.2% contraction previously estimated, according to data from the Office for National Statistics released Thursday. (DJN) Turkey's central bank on Thursday held its policy rate at 9%, ending a four-month interest-rate cutting cycle despite a surge in inflation. In an unorthodox move driven by political pressure, the bank has reduced interest rates by 500 basis points from August to November even as inflation hit its highest levels in 25 years. (DJN)

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

12-22-22 0715ET