Even Split on Outlook for Bank of Canada Rate Increase; India Central Bank Raises Key Rate; U.S. Inflation Could Ease Along With Rents By James Christie

Good day. Half of economists surveyed by The Wall Street Journal said they expect the Bank of Canada will raise its benchmark interest rate by a half-percentage point today. The other half said they expect a quarter-point increase. Regardless, the economists indicated the central bank is near the end of its rapid tightening phase, one of the quickest in the developed world, with most expecting a pause once rates reach 4.25%. Earlier on Wednesday, India increased its policy rate by 35 basis points as the battle against high inflation continues. Meanwhile in the U.S., private-sector indexes of rents on new leases may be pointing to an easing in housing-related price pressures, such that inflation could be below the Federal Reserve's 2% target by 2024, according to Alan Detmeister, an economist at UBS.

Now on to today's news and analysis.

Top News Economists Divided on How Much Bank of Canada Will Raise Rates

Economists are evenly split on how big a rate increase the Bank of Canada will deliver on Wednesday, with the debate focused on whether inflation and consumer demand have slowed sufficiently to allow the central bank to ease off tightening.

In a survey of a dozen economists conducted by The Wall Street Journal, half of analysts predicted the Bank of Canada would raise its benchmark interest rate by a half-percentage point on Wednesday, to 4.25% from 3.75%. The other half expected a smaller quarter-point increase, to 4.0%.

India's Central Bank Raises Rate to Rein In Inflation

India's central bank increased its policy repo rate by 35 basis points to 6.25% in a bid to contain inflation. Five of the seven economists surveyed by the Journal expected a 35-basis-point hike, while two projected a 25-basis-point increase.

IMF's Gopinath: Supply Shocks Making Central Bankers' Job Harder

Gita Gopinath, first deputy managing director of the International Monetary Fund, said at the WSJ CEO Council summit in Washington the inflation framework for central bankers has shifted in recent years because of supply shocks. She highlighted energy, particularly in Europe, as a supply shock that central bankers are now facing after decades of relative stability. Supply shocks "will make it much harder for central bankers to manage inflation while keeping economic activity at the right level," she said. Given uncertainty surrounding the economic outlook, and surprise shocks, she also said there is a high probability central bankers will make mistakes in calibrating monetary policy. (Dow Jones Newswires)

U.S. Economy Housing Costs, Inflation's Biggest Component, Are Poised to Ease

The end is in sight for one of the biggest sources of inflation in the U.S., as the surging housing costs that helped keep inflation high this year have likely already swung into reverse , economists say.

Goldman CEO David Solomon Prepares for a Possible Recession

Goldman Sachs Group Inc. Chief Executive David Solomon signaled Tuesday the firm will likely have to trim its operations as it deals with a slowing economy , and he gave a 35% chance of a "soft landing" for the economy.

U.S. Trade Deficit Widened in October on Lower Energy Exports

The trade gap in goods and services expanded in October to a seasonally adjusted $78.2 billion amid slowing global demand for U.S. energy goods, the Commerce Department said Tuesday, up from a revised $74.1 billion in September.

Key Developments Around the World High Debt Levels Could Pressure Developing Countries

By the end of 2021, developing countries owed about $9.3 trillion in external debt , more than twice what they owed in 2010, according to the World Bank. That represents about 26% of their gross national income, up from 22% in 2010.

China Scraps Most Testing, Quarantine Requirements

China took another step away from its stringent Covid-19 controls Wednesday, easing quarantine and testing requirements and curtailing the power of local officials to shut down entire city blocks and raise barriers to domestic travel.

EU Sues China in WTO Over Trade Retaliation on Lithuania Hungary Blocks EU Plan to Raise Over $18 Billion for Ukraine

European Union finance ministers failed to agree on providing more than $18 billion of vital economic assistance for Ukraine next year, with Hungary stymying for now efforts to secure the loan through common EU debt issuance .

Russian Oil-Price Cap Adds to Fiscal Pressure on Moscow

Fresh Western curbs on Russian crude sales might not affect the country's public coffers immediately, but they add financial pressure that threatens its sanctions-stricken oil industry and long-term ability to fund the war in Ukraine.

Russian Seizes 400,000 Acres of Ukrainian Farmland, Owners Say Oil Price Cap Triggers Tanker Traffic Jam in Turkish Straits Financial Regulation Roundup Lawmakers Want Answers From Silvergate About FTX Transfers

Lawmakers are demanding information from Silvergate Capital Corp. about transfers of customer funds between Sam Bankman-Fried's collapsed trading firm, Alameda Research, and his cryptocurrency exchange, FTX.

Robinhood Wants Your Retirement Money

Robinhood Markets Inc. is offering retirement accounts, hoping the tax-advantaged products can help reverse its decline in trading activity after millions of novice traders flocked to the brokerage during pandemic lockdowns.

IRS Proposes New Rules to Police Land-Conservation Tax Deals

The Internal Revenue Service moved to shore up its ability to attack aggressive land-rights tax deals after losing several court decisions , proposing rules to require participants and promoters to disclose deals to the government.

Forward Guidance Wednesday (all times ET)

8:30 a.m.: U.S. revised third-quarter productivity and costs

9:30 a.m.: Speech by ECB's Panetta at LBS-AQR Insight Summit of AQR Asset Management Institute at London Business School

10 a.m.: Bank of Canada rate decision

4 p.m.: Central bank of Brazil rate decision

Thursday

7 a.m.: Pre-recorded remarks by ECB's Lagarde at the Sixth Annual Conference of the European Systemic Risk Board

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

12:45 p.m.: Bank of Canada's Kozicki presents economic progress report at Institut de développement urbain Montréal, Quebec

Research U.S. Economy, Inflation Both Seen as More Resilient

Strong consumption and lower Treasury yields indicate the U.S. economy is more resilient than previously thought, Joel Prakken and Chris Varvares of Standard & Poor's wrote in a report. They raised their real gross domestic product growth projection for this year from 1.8% to 1.9% and their forecast for next year from a 0.2% contraction to a 0.3% expansion. "The forecast still includes a mild recession, but now starting first quarter of 2023 rather than late this year," they wrote. GDP is expected to expand 1.8% in 2024, they added. They noted that "an emerging risk is that the economy remains stronger for longer than previously anticipated, requiring a more aggressive and persistent monetary tightening to contain inflation."

-Paulo Trevisani

Commentary There Is No Free Money in Bitcoin

Who wouldn't want to buy a dollar for 60 cents? The same answer would hold if the currency in question were euros, yen or even bitcoin. But, in the case of one of the largest holders of bitcoin, there is a catch , Telis Demos writes.

Basis Points Sentiment among U.S. farmers through November stayed steady, with a survey by Purdue University and CME Group unchanged from the previous month. The mid-term elections did little to assuage uneasiness, leaving farmers concerned about how they may fare next year as grain prices turn back to levels seen before the Russia-Ukraine conflict and worried they may face high input costs. (Dow Jones Newswires) Canada logged its ninth goods-trade surplus of the year after it unexpectedly widened to C$1.21 billion in October, with most export sectors posting gains. (DJN) Mexico produced 279,000 cars and light trucks in November, 8% more than a year earlier, bringing output for the first 11 months of the year to 3.1 million units, a 9.6% increase, statistics institute Inegi said. (DJN) China's exports fell for a second consecutive month in November, weighed down by weakening global demand, official data from the General Administration of Customs showed. Outbound shipments declined 8.7% on year in November, compared with a 0.3% decline in October. The drop was much steeper than the 2% fall expected by economists polled by The Wall Street Journal. (DJN) China's foreign-exchange reserves rose in November, official data showed, thanks to a continued trade surplus and other valuation effects. The country's hoard of foreign exchange, the world's biggest, was $3.117 trillion in November, up $65.1 billion from October, the People's Bank of China said. The result was slightly lower than the $3.122 trillion expected by economists polled by the Journal. Australia's economy grew by less than expected in the third quarter, even as consumer spending continued to rise despite a flurry of interest-rate rises by the country's central bank. The economy grew 0.6% over the quarter, and 5.9% over the year, according to the Australian Bureau of Statistics. The average economist forecast had been for GDP growth of 6.3% from the year-earlier period. (DJN) The eurozone economy expanded at a slightly faster pace than previously estimated in the third quarter, but the region is broadly expected to fall into a recession at year-end. Gross domestic product grew 0.3% from July to September compared with the previous three-month period, up from the 0.2% expansion previously estimated, the European Union's statistics agency Eurostat said. (DJN) German industrial production fell less than expected in October. Industrial output fell 0.1% in October after rising an upwardly revised 1.1% in September, as high energy prices weighed on manufacturing, data from the German statistics office Destatis showed.

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12-07-22 0718ET