Hopes for Fed Rate Slowdown Help Lower 10-Year Yield; RBA Raises Cautiously; Rate Decisions Loom in Canada and Brazil

Hopes for Fed Rate Slowdown Help Lower 10-Year Yield; RBA Raises Cautiously; Rate Decisions Loom in Canada and Brazil By James Christie

Good day. The 10-year U.S. Treasury yield has been falling to its lowest levels since September, thanks in part to Federal Reserve Chairman Jerome Powell pointing to the central bank slowing the pace of its interest-rate increases when policy makers meet this month. Expectations that inflation is easing also are having an effect on the yield, as many market participants expect the Fed will be able to start cutting rates within the next 12 months. Elsewhere, the Reserve Bank of Australia continued to raise interest rates cautiously at its final board meeting of the year earlier today, while central bankers in Canada and Brazil are set to make their next move tomorrow. Economists are split on how big a rate increase the Bank of Canada will deliver, while Brazil's central bank is expected to hold the Selic at 13.75% for a third consecutive meeting, according to a survey by the bank.

Now on to today's news and analysis.

Top News Bond Rally Drags 10-Year Treasury Yield Back Down to 3.5%

Hopes that inflation is easing have driven a weekslong rally in government bonds, pulling the 10-year U.S. Treasury yield back to its lowest levels since September.

Treasurys started rallying with stocks after the Labor Department released better-than-expected consumer-price index data on Nov. 10. That move was supercharged last week when Federal Reserve Chairman Jerome Powell sent the clearest signal yet that the central bank plans to raise short-term interest rates by half a percentage point at its Dec. 13-14 meeting, a step down from the 0.75 percentage point increases of the past four meetings.

RBA Raises Rates; Says Path to Soft Landing Is Narrow

The Reserve Bank of Australia raised the official cash rate by 25 basis points to 3.10% at its final meeting of the year. The central bank has maintained the pace of increases despite early signs that inflation may be peaking.

U.S. Economy Are Unions Seeing the Start of a Movement-or Is it Just a Moment?

An Amazon union's victory and the difficulty in capitalizing upon it highlight how 2022 served up-but left unsettled- a critical question : Have we witnessed the rejuvenation of a movement or merely a moment?

Railroads Focus on Stabilizing Workforce After Strike Is Averted

President Biden signed a bill Friday restricting U.S. rail workers from striking, but the railroad industry is still struggling with a big problem: having enough employees on hand to handle customer demand.

Investors Yank Money From Commercial-Property Funds

Big and small investors are queuing up to pull money out of real-estate funds , the latest sign that the surge in interest rates is threatening to upend the commercial-property sector.

TSMC Raises Arizona Chip Investment to $40 Billion as Biden Visits

Taiwan Semiconductor Manufacturing Co. plans to build a second semiconductor factory in Arizona and increase its investment there to $40 billion , the White House said ahead of a visit by President Biden.

Key Developments Around the World Putin Grips Economy Tighter to Supply Russian War Machine

After a string of battlefield losses in Ukraine in recent months, President Vladimir Putin faces a big test at home: mobilizing Russia's economy to feed the war effort. Russian officials have crisscrossed the country to increase production and replenish dwindling stockpiles of missiles.

Germany's New Favorite Sport: Competing to Save Energy

Russia stopped piping natural gas to much of Europe this fall, hoping to show Europeans that supporting Ukraine in the war might become too uncomfortable to bear. It didn't count on Germans' love of thrift .

Financial Regulation Roundup FTX Effort to Save Itself Failed on Questionable Assets

Struggling to raise cash, FTX seized billions of dollars worth of collateral from its trading arm and used it to try to convince investors of its health, former Chief Executive Sam Bankman-Fried said. But much of it didn't add up .

More Crypto Exchanges Verify Reserves, But Questions Remain Celsius Faces Bankruptcy-Court Test on Crypto Ownership

Stablecoin Firm Circle Ends SPAC Deal

Circle Internet Financial, the company that operates the USD Coin stablecoin , is ending its current attempt to go public though a special purpose-acquisition merger, but said still plans to pursue a public stock offering.

Forward Guidance Tuesday (all times ET)

Time N/A: ECB's de Guindos at ECOFIN meeting in Brussels

8:30 a.m.: U.S. trade report for October; Canada trade report for October

Wednesday

2:10 a.m.: Speech by ECB's Lane at Global Perspective 2022 organized by Chinese State Administration of Foreign Exchange

7 a.m.: Speech by ECB's McCaul at Kangaroo Group virtual debate on revised CRD6/CRR3 package

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

Research Brazil's Central Bank Seen Leaving Selic Unchanged

Brazil's central bank will leave its benchmark lending rate, known as the Selic, unchanged at 13.75% at its final monetary policy meeting of the year on Wednesday, according to the median forecast of 131 economists surveyed last week by the bank. Banco Central do Brasil policy makers began raising the Selic early last year, from a record low of 2%, to try to slow rapidly rising prices and have left the rate unchanged at their two most recent meetings. The bank's policy committee has said it is watching the effect of the rate increases on inflation and the economy.

-Jeffrey T. Lewis

U.S. Services Surveys Point to Divergent Performance

The two main surveys that track services activity in the U.S. gave conflicting signals about the state of the key services sector in November. While the survey compiled by S&P Global pointed to deepening contraction amid weak demand, the survey from ISM suggested activity is still holding up well and pointed to decent growth in the fourth quarter overall. "On balance, we suspect the truth will lie somewhere in between the two surveys," Capital Economics senior U.S. economist Andrew Hunter said in a report. Still, any remaining resilience is likely to fade in 2023 as higher interest rates start to take a bigger toll on consumer spending and recent temporary factors supporting consumption fade, Mr. Hunter said.

-Xavier Fontdegloria

Commentary Services Come With a Smile, but Economy Could Still Be Frowning

The heady appetite for goods in the U.S. set off by the pandemic has begun to ease, and the hope is services will take up manufacturing's slack, but that might not be so easy to accomplish , Justin Lahart writes.

Basis Points Orders for U.S. manufactured goods rose 1% in October, the twelfth increase in the past thirteen months, the Commerce Department said. Economists surveyed by the Wall Street Journal expected a gain of 0.7%. Durable-goods orders rose a revised 1.1% in October compared with the initial estimate of a 1% gain, while orders for nondurable goods were up 1% in the month. (Dow Jones Newswires) The Conference Board's Employment Trends Index fell from a revised 118.74 in October to 117.65 in November, according to data from the private-research group. The index has declined for a second consecutive month, suggesting the current strength in the U.S labor market isn't likely to last long. (DJN) Fitch Ratings revised down world GDP forecasts for 2023, citing central banks intensifying their fight against inflation while the outlook for China's property market deteriorates. Fitch said it now expects 2023 world GDP growth of 1.4%, down from 1.7% in September. (DJN) Canadian building permits slipped for a second month in a row in October, driven by a drop in the residential sector that more than offset strength in the non-residential segment. The total value of building permits fell by 1.4% from September and by 6.3% from a year earlier to a seasonally adjusted 9.99 billion Canadian dollars ($7.42 billion), Statistics Canada said. (DJN) Global semiconductor industry sales totaled $46.9 billion in October, off 0.3% from September and down 4.6% from a year ago, the Semiconductor Industry Association said. It added that the year-to-year sales decline was the largest percentage since December 2019. (DJN) South Africa's economy rebounded in the third quarter, averting a technical recession, as agriculture, industrial and mining activity recovered from the flood-related disruptions even as electricity outages persisted. Gross domestic product increased 1.6% from July to September on quarter, after contracting by 0.7% in the preceding three-month period, according to Statistics South Africa. (DJN) Manufacturing orders in Germany increased in October after falling the previous two months. Factory orders rose 0.8% in October compared with the previous month, according to price-adjusted data from the German statistics office Destatis. The increase beats the 0.2% rise expected by economists in a poll by The Wall Street Journal. (DJN) Retail sales in the U.K. rose on year in November, according to the latest report by KPMG and the British Retail Consortium--though given high inflation rates, the rise masked a much larger drop in volumes. Retail sales between Oct. 30 and Nov. 26 rose 4.2% compared with the same period a year before, the report found. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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12-06-22 0715ET