Good day. The Federal Reserve's chief tool to control the momentum of the economy is ticking lower again, raising the possibility that officials may have to take technical action to bump it back up. Meanwhile, China's services sector suffered an unexpectedly severe blow in August as a wave of coronavirus infections sparked new lockdowns across the country, sending an official gauge of nonmanufacturing activity into contractionary territory.
Now on to today's news and analysis.
Top News
Covid-19 Delta Variant Pummels China's Services Sector
China's official nonmanufacturing purchasing managers index, which tracks activity in the construction and services sectors, plummeted to 47.5 in August, from 53.3 the prior month, according to data released Tuesday by the National Bureau of Statistics, breaking through the 50 mark that separates expansion from contraction. The 47.5 reading -- which fell well short of economists' forecasts for a reading comfortably above 50 -- marks the measure's first dip into contractionary territory since February 2020, at the height of the initial explosion of the coronavirus, which led to the lockdown of the province of Hubei.
Derby's Take: Funds Rate Softens, Raising Specter of Technical Rate Boost
By Michael S. Derby
Since around mid-August, the effective federal-funds rate has started to slide after having been firmed up earlier in the summer following a technical rate increase from the Fed. The funds rate, having hung around 0.10% for most of the summer, ticked down to 0.9% on Aug. 18, and ticked down again to 0.8% on Monday. If the funds rate stays soft or gets softer and that shift proves persistent, the Fed may have to react by lifting again the settings of its rate-control tool kit. Read more.
Key Developments Around the World
Oil Industry Surveys Damage After Hurricane Ida Slams Louisiana
Energy companies were assessing the health of refineries, pipelines, petrochemical plants and offshore oil platforms along the central Gulf of Mexico on Monday, the day after Ida struck Louisiana as a powerful Category 4 hurricane.
Unfinished Tractors, Pickup Trucks Pile Up as Components Run Short
Manufacturers are stacking up unfinished goods on factory floors and parking incomplete vehicles in airport parking lots while waiting for missing parts, made scarce by problems in supply chains disrupting multiple industries.
New Life and Work Choices Revitalize Exurbs, Bringing New Strains
Exurban areas grew at almost twice the national rate over the past decade and there are signs growth is accelerating as Americans prepare for a landscape where increased working from home reduces the need to commute.
EU Recommends Halting Nonessential Travel From the U.S.
The European Union recommended halting nonessential travel from the U.S. because of the rise of Covid-19 cases, diplomats said Monday, ending a summer-vacation reprieve for American tourists.
Financial Regulation Roundup
SEC Chairman Warns on Payment for Order Flow
Shares of Robinhood Markets Inc. tumbled Monday after the head of the Securities and Exchange Commission signaled he was open to banning payment for order flow, which accounts for most of the online brokerage's revenues.
Members Exchange Urges Regulators to OK Half-Penny Stock Prices
Investors could see Apple Inc. and Bank of America Corp. stocks selling for $152.005 or $42.115 a share if regulators sign off on a proposal submitted this week. Members Exchange, a startup exchange backed by major Wall Street firms, said in a proposal that the Securities and Exchange Commission should allow some heavily traded stocks to be priced in increments of half a cent.
Direct Listings Have Paid Off for Investors So Far
Eyewear maker Warby Parker Inc. is the latest company to file paperwork with the SEC for a direct listing, illustrating the staying power of the alternative path to public markets for companies that don't need to raise money.
Forward Guidance
Wednesday (all times ET)
9:30 p.m.: Bank of Japan's Wakatabe speaks at a meeting with local leaders in Hiroshima
Thursday
8:30 a.m.: U.S. Commerce Department releases July international trade data
Research
Goldman Sachs Says Eviction Wave Looms
Some 750,000 American households now face eviction from rental properties in the wake of the latest round of policy shifts that had been protecting the financially distressed, Goldman Sachs says in a note to clients. The investment bank estimates that between 2.5 million and 3.5 million households are behind on rent and owe landlords as much as $17 billion, amid a slow pace of government aid to renters. "The strength of the housing and rental market suggests landlords will try to evict tenants who are delinquent on rent unless they obtain federal assistance," the note says. That may not have much of a negative effect on the national economy, according to Goldman Sachs analysts. They say in the note that "Our literature review indicates a small drag on consumption and job growth from an eviction episode of this magnitude."
-- Michael S. Derby
Basis Points
Asking rents for houses rose nearly 13% for the year to date through July, the highest annual increase in the past five years as tracked by real-estate data company Yardi Matrix.
U.S. pending home sales declined in July for the second consecutive month, according to the National Association of Realtors, whose Pending Home Sales Index fell 1.8% from June to 110.7. Pending home sales were down compared with a year earlier in July, by 8.5%. (DJN)
Manufacturing output in Texas softened in August, with the production index of the Dallas Fed's Manufacturing Outlook Survey falling to 20.8 from 31 in July. The general business activity index, which assesses broader business conditions in the sector, fell from 27.3 to 9. (Dow Jones Newswires)
Aluminum forwards on the London Metal Exchange have climbed by a third this year and prices are around 80% higher than at their low in May 2020, when the pandemic slashed sales to the aerospace and transportation industries.
German inflation in August came in at 3.9% year-on-year, up from 3.8% in July. (Dow Jones Newswires)
Eurozone business and household confidence declined slightly in August following July's all-time high, the European Commission said, noting its economic sentiment indicator fell from 119.0 in July to 117.5. Economists polled by The Wall Street Journal expected the index to come in at 118.0. (DJN)
Canada's quarterly current-account surplus widened to 3.58 billion Canadian dollars, or the equivalent of $2.84 billion, during the second quarter as exports of goods rose, Statistics Canada said. First-quarter data were revised, Statistics Canada said, adding that the current-account surplus in the first three months of the year was C$1.82 billion, compared with an earlier estimate of C$1.18 billion. (DJN)
(END) Dow Jones Newswires
08-31-21 0935ET
