Bank of England Raises Interest Rates; Most Americans Doubt Their Children Will Be Better Off By James Christie
Good day. The Bank of England's move yesterday mirrors that of the Federal Reserve, which Wednesday approved another quarter-percentage-point interest-rate increase. The European Central Bank last week raised its key rate by a half percentage point, and the Swiss National Bank matched that move Thursday as it raised its key rate to 1.5%, while the central banks of Norway, the Philippines and Taiwan also increased borrowing costs. Signs of strain in the banking system are partly rooted in the rapid pace of rate rises implemented by central banks over the past year. That tightening of policy was intended to cool economic growth and inflation but has also depressed the value of bonds owned by commercial banks. A group of central bankers and bank supervisors from around the world-which includes representatives from the Fed and the BOE-said Thursday that they would "be vigilant to the evolving outlook ... Years of unprecedentedly low interest rates underpinned the build-up of leverage across household and corporate sectors," the Basel Committee on Banking Supervision said. "As most central banks raise interest rates to combat inflation, borrowers are now facing sharply rising debt service burdens. A broad-based repricing in asset markets could also expose banks to additional risks."
Now on to today's news and analysis.
Top News Bank of England Lifts Rates by Quarter Point, Following Fed
The Bank of England raised its key interest rate by a quarter percentage point Thursday, a fresh sign that policy makers around the world are determined to press down on inflation despite strains in the banking system.
The central bank had previously indicated that it might pause a series of rate increases that dates back to December 2021, but an unexpected pickup in inflation during February helped persuade policy makers that another increase in borrowing costs was needed to cool price rises.
Most Americans Doubt Their Children Will Be Better Off, Poll Finds
An overwhelming share of Americans aren't confident their children's lives will be better than their own , according to a new Wall Street Journal-NORC Poll that shows record low levels of overall happiness.
The Future of UBS Rests With Credit Suisse Customers in Asia
Executives at UBS Group AG, which until recently competed with rival Credit Suisse Group AG to win business from Asia's biggest companies and richest people, must now tackle how to combine the two banks in the region.
Charles Schwab Says It Could Ride Out a Deposit Flight First Republic Bonds Rally Despite Uncertain Outlook It's the Most Thankless Job in Banking. SVB Didn't Fill It for Months. Companies Big and Small Lose Access to Credit Amid Bank Stress Where to Put Your Money During a Banking Crisis U.S. Economy Steady Jobless Claims Show Labor Market Remains Strong
Worker filings for unemployment benefits held nearly steady last week, despite large companies announcing layoffs. Initial jobless claims, a proxy for layoffs, decreased slightly by 1,000 to a seasonally adjusted 191,000 last week.
Bosses Who Praised Remote Work Sour on Productivity From Home
The latest back-to-office push reflects a renewed sense of control among bosses and their concern that employees' at-home productivity is falling to unaffordable levels and that remote work is unsustainable in a slowing economy.
Key Developments Around the World China's Economic Lifeline to Russia Gives Beijing Upper Hand
Xi Jinping's visit to Moscow-and trade, energy and other deals discussed during it-has laid bare an uncomfortable truth for Russia : In a relationship the Kremlin has long treated with caution, China is gaining the upper hand.
Countries Compete to Lure Manufacturers From China
Executives are circling the globe looking for factory space or local tie-ups to reduce their dependence on China and its vast factory floor-and governments are pulling out the stops to welcome them.
Big Oil Eyes New Deals in North Africa Amid Rising Energy Demand
After years of underinvestment in North Africa's energy infrastructure, global oil-and-gas giants from Halliburton Co. and Chevron Corp. to Eni SpA are ramping up their presence in the region as demand from Europe grows.
In Peru, Protests Reveal Deep Social Divide
The ouster of leftist President Pedro Castillo in December sparked violent protests, highlighting a stark divide between indigenous communities in mineral-rich, rural areas and the wealthier, coastal cities where most Peruvians live.
Zimbabweans Are Printing Their Own Money
The country that brought the world the one-hundred-trillion-dollar bill, has reached a new stage of monetary dysfunction: Businesses are printing their own "money"- scraps of paper that customers can use for future purchases.
Financial Regulation Roundup Crypto Promoter Draws the Spotlight, This Time From Regulators
Crypto entrepreneur Justin Sun, who grabbed headlines for once paying millions to have lunch with Warren Buffett, is getting attention again-only this time for allegedly breaking U.S. securities laws .
Suspected Crypto Fugitive Arrested in Montenegro
The U.S. Justice Department charged South Korean cryptocurrency entrepreneur Do Kwon with fraud on Thursday as officials in Montenegro arrested the creator of the failed TerraUSD stablecoin.
Forward Guidance Friday (all times ET)
5 a.m.: Eurozone flash PMI for March
8:30 a.m.: U.S. durable goods advance report for February
Sunday
11 a.m.: ECB's Schnabel in discussion at Chicago Booth Conference on the Global Economy and Financial Stability
Research Tougher Lending Standards a Substitute for Fed Rate Increases
U.S. banks tightening their lending standards will allow for fewer interest rate increases by the Federal Reserve, economists at Bank of America write in a report. They now project one more 25-basis point increase for a terminal rate range of 5%-5.25%, down 25 basis points from their prior forecast. They conclude from Wednesday's Fed communication that most market participants "see appropriate policy as calling for a lower terminal rate than Fed communications were guiding markets to just a few weeks ago." They add the U.S. economy "may see tighter lending standards than what could be explained by macroeconomic fundamentals. If so, our view is that it could indeed substitute for further rate hikes."
-Paulo Trevisani
BOE Could Raise Rates More Than Markets Expect
The Bank of England could raise interest rates beyond market expectations in an effort to lower the inflation rate in the U.K., Validus Risk Management head of global capital markets Marc Cogliatti writes in a note. According to Mr. Cogliatti, markets have priced in one more 25 basis-point BOE rate increase by June and expect no further rate rises. "Although another 25 bps hike is fully priced into the market by June, there is little expected beyond there," he writes. "In our view, this underestimates the risk of rates having to go higher in the months ahead to avoid inflation expectations becoming further embedded and CPI spiraling further out of control."
-Miriam Mukuru
SNB to Keep High Rates for Longer After Hawkish Comments
Switzerland will likely have higher interest rates for longer, with the country's central bank now expecting average inflation at 2.6% this year, compared with forecasts in December of 2.4%, ING economists Charlotte de Montpellier and Francesco Pesole write in a note. The Swiss National Bank also expects 2.0% average inflation in 2024 and 2025, meaning inflation would be above the central bank's target for its entire forecast horizon. It is a hawkish message, suggesting a further rate increase in June, though with recent turmoil in the banking system, it is likely to be limited to 25 basis points, to 1.75%, and will probably be the last, they write. "After that, the interest rate is likely to remain at this level for a long period," they add.
-Edward Frankl
Commentary Did UBS Just Get the Deal of the Decade?
Paying nothing for a fat tranche of Credit Suisse's junior debt and almost nothing for its shares will leave UBS with a very large cushion of capital, but regulatory scrutiny will be even more intense, Stephen Wilmot writes.
Banks Aren't Busting the Economy, Politics Is Busting Banks
We're in the grip of a banking crisis, although it's not what you think, because what's in the news now is an emerging, slow-rolling bank panic prompted by a mass repricing of risk as interest rates rise, Joseph C. Sternberg writes. He adds the crisis is something different-a crisis of banking, because "banks" aren't really banks in the way they used to be.
Basis Points Roughly 26% of the world's population lack access to safe drinking water, according to a United Nations Educational, Scientific and Cultural Organization report published Wednesday . An additional 3.6 billion people, or 46%, lack access to safely managed sanitation, the report said. The U.S. economy grew in February at a pace below its historical average, dragged by sluggish manufacturing production and consumption, according to data from the Federal Reserve Bank of Chicago. The Chicago Fed National Activity Index declined to minus 0.19 in February from 0.23 in January. Any reading below zero suggests U.S. economic activity grew below its average historical trend over the month. (Dow Jones Newswires) Manufacturing activity in the central U.S. remained broadly stable in March for the second month in a row, suggesting the factory sector continued to face headwinds amid weakening demand. The Federal Reserve Bank of Kansas City said its Tenth District manufacturing survey's composite index was unchanged at zero this month. Economists polled by The Wall Street Journal expected a decline to minus 2. (DJN) New home sales in the U.S. rose 1.1% to an annual rate of 640,000 in February from the prior month, the Commerce Department reported Thursday. Sales rose a revised 1.8% to 633,000 in January, compared with the initial estimate of a 7.2%
(MORE TO FOLLOW) Dow Jones Newswires
03-24-23 0715ET
