For Central Banks, a Turning Point in Inflation Fight; U.S. Consumers Pull Back Spending -November 16, 2023 at 07:16 am EST

For Central Banks, a Turning Point in Inflation Fight; U.S. Consumers Pull Back Spending By James Christie

Good day. Stefan Gerlach, a former deputy governor of Ireland’s central bank, says the global economy is at a turning point with regard to inflation. “Investors may be surprised at how rapidly central banks cut interest rates next year, maybe by one-and-a-half percentage point,” he adds. Such optimism comes with inflation falling faster than expected across advanced economies, spurring investors to price in interest-rate cuts by the Federal Reserve and European Central Bank starting next spring, and by the Bank of England next summer, according to data from Refinitiv. Meanwhile, U.S. consumers spent less last month, with retail sales edging down from September, the Commerce Department said Wednesday, another sign the U.S. economy is cooling. Forecasters expect overall economic growth to ease in the final months of the year. S&P Global Market Intelligence economists estimate the economy will slow to a 1% growth rate in the fourth quarter.

Now on to today’s news and analysis.

Top News The Global Fight Against Inflation Has Turned a Corner

Inflation is falling faster than expected across advanced economies, marking a turning point in central banks’ two-year battle against surging prices.

Declines in consumer price growth, to below 5% in the U.K. last month and around 3% in the U.S. and eurozone, are fueling expectations that central banks could take their feet off the brakes and pivot to cutting interest rates next year.

U.S. Retail Sales Fall for First Time Since March

Consumers cut their spending at stores, dealerships and gas stations last month, tapping the brakes on economic growth ahead of the holiday shopping season.

U.S. retail sales fell 0.1% in October from a month earlier, the Commerce Department said Wednesday. That is the first decline since March and comes after a 0.9% increase in September and robust gains earlier in the summer. The retail figures, combined with slower hiring and easing inflation, indicate that the economy is cooling after surprisingly strong growth much of this year.

U.S. Economy Wall Street Loves Washington’s New Debt Approach-For Now

Swelling deficits and weak investor appetite for long-term U.S. debt are pushing the Treasury Department to get more creative with how it borrows. Markets are thrilled-but the approach comes with risks.

Fed’s Barkin Says More Needs to Be Done to Make Housing Affordable

Regions and municipalities should look to incentives and novel plans to make owning a home and renting more affordable, the Richmond Fed’s Tom Barkin said at a housing conference in Virginia.

Senate Approves Short-Term Spending Bill

Congressional shutdown brinkmanship is taking a break, but it could be back with a vengeance soon. House lawmakers of both parties agreed to back a Republican plan that extends the status quo until early next year.

U.S. Crude-Oil Inventories Rise by 3.6 Million Barrels

Commercial crude-oil stockpiles stood at 439.4 million barrels at the end of last week, and were about 2% below the five-year average for this time of year, the Energy Information Administration said Wednesday.

Breaking Down Your Thanksgiving Costs

There is no avoiding relatives this year. Thanksgiving gatherings are expected to look a lot more like they did prepandemic, as prices for turkey and travel moderate. Inflation is easing overall. American families are expected to gather in pre-Covid-size crowds of nine people on average, according to turkey seller Butterball-as big as or bigger than last year’s Thanksgiving. Consumers also might catch a break on travel.

Key Developments Around the World Xi Draws Applaud From U.S. Business Leaders-and Some Doubts

At a dinner with U.S. corporate chiefs and other guests, Chinese leader Xi Jinping sought to enlist corporate America’s help in easing bilateral tensions but made no mention of boosting trade or investment.

Biden, Xi Jinping Dial Back Rancor in Summit to Stabilize Ties China Pledges to Attract More Foreign Investment, Boost Consumption New Home Prices in China Fell at a Slightly Faster Pace in October Philippine Central Bank Keeps Rates Unchanged

The Philippine central bank said it would keep its overnight reverse repurchase rate steady at 6.50%, in line with expectations of most economists surveyed by The Wall Street Journal. It also held its benchmark lending rate at 7.00% .

As Putin Girds for a Long War, Europe Seeks to Harden Sanctions

The European Union proposed new measures aimed at tightening sanctions against Russia, which has largely succeeded in resisting Western efforts to undermine the Kremlin’s ability to fund its war in Ukraine.

Covid’s Biggest Economic Winner Is Running Out of Steam

Ireland was one of very few economies to get a boost from the pandemic. No other country grew as fast during this time apart from Guyana, which saw an oil boom. That unusual dividend is now unraveling , in a fresh blow to Europe.

Financial Regulation Roundup FDIC Chairman Denies Being Investigated, Then Changes Testimony

Federal Deposit Insurance Corp. Chairman Martin Gruenberg testified he had never been investigated for inappropriate conduct. But the FDIC had tapped an investigator to examine complaints about him, former officials said.

FDIC Chair, Known for Temper, Ignored Bad Behavior in Workplace UBS Spared $2 Billion in Penalties

UBS Group won’t have to pay around $2 billion after the French Supreme Court partly overturned a decision that fined the bank in a tax-fraud case, but confirmed a ruling the bank had helped wealthy clients in France evade taxes.

Forward Guidance Thursday (all times ET)

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

8:30 a.m.: U.S. weekly jobless claims

9:15 a.m.: U.S. industrial production and capacity utilization for October

Friday

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

8:30 a.m.: U.S. housing starts for October

Research Fed’s Preferred Inflation Gauge Could ‘Swerve’ Markets

Core personal-consumption expenditures price index inflation could damp the euphoria triggered in global markets by the latest U.S. price indexes, Santander Chief U.S. Economist Stephen Stanley writes in a note. Based on softer-than-expected consumer and producer price gauges for October, Stanley estimates core PCE for October due to be released later this month will fall within a narrow 0.2%-0.3% range. In September, the PCE gauge was 0.3%, which represented an acceleration from August’s 0.1%. After stocks rallied and Treasury yields plummeted on benign consumer-price and producer-price indexes for October, “what a swerve it would be if the core PCE deflator, the inflation gauge that the Fed actually cares most about, rises by 0.3% in October!” Stanley writes.

-Paulo Trevisani

Commentary How Consumers Are Spending Is a Reason for Cheer

With inventories in much better shape than last year, the job market strong and savings built during the pandemic apparently not depleted, consumer spending doesn’t look as if it is about to give up the ghost, Justin Lahart writes.

Squeezed Property Owners Put Their Faith in the Fed

The Fed might be done raising rates. But can the cost of debt drop fast enough to save struggling landlords? After the good news on inflation, indebted commercial landlords need interest-rate cuts to follow fast, Carol Ryan writes.

It’s Too Soon to Bet on China’s Housing Turnaround

To put a floor under the housing market, Beijing needs to directly address households’ plummeting faith in housing as a reliable store of wealth-or allow local governments to do the same, Jacky Wong writes.

Basis Points U.S. producer prices fell 0.5% in October , according to the Labor Department, marking the biggest drop since the measure fell 1.2% in April 2020, around the onset of the Covid-19 pandemic. U.S. business inventories rose an adjusted 0.4% in September, the same as the rate in August, data from the U.S. Commerce Department showed Wednesday. September’s reading also matched economists’ expectations, according to a Wall Street Journal poll, and suggests business investment could be recovering moderately as inflation eases. (Dow Jones Newswires) Manufacturing activity in New York state ticked up in November, reversing October’s decline, but firms’ feelings for the near term worsened severely, according to the Federal Reserve Bank of New York. Its Empire State Manufacturing Survey’s general business index jumped from minus 4.6 in October to 9.1, the highest reading since April. (DJN) Canadian wholesale trade rose for a third consecutive month in September, driven by increased sales of motor vehicles and parts. Wholesale sales rose 0.4% on a seasonally adjusted basis from the month before to 83.07 billion Canadian dollars, the equivalent of $60.67 billion, Statistics Canada said. The figure topped the advance estimate for no change, following a downwardly revised 1.8% rise for August. (DJN) Existing home sales in Canada dropped 5.6% in October, a fourth-consecutive month-on-month decline, as higher interest rates continued to weigh on spending. On an unadjusted basis, sales fell 0.9% from a year earlier, according to the Canadian Real Estate Association. (DJN) Australia’s unemployment rate continued to rise in October, potentially ruling out a further hike in interest rates in December. The jobless rate climbed to 3.7% in October from 3.6% in September, despite employment jumping by 55,000 over the month, the Australian Bureau of Statistics said Thursday. Nigeria’s annual inflation rate ticked up to 27.3% in October from 26.7% a month earlier, the country’s National Bureau of Statistics said Wednesday. The acceleration marks the 10th consecutive month of rising inflation in the West African country. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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11-16-23 0715ET