China to Cut Banks' Reserve Ratio; No Change Expected in Canada's Rates Today; Bullard Says Fed Rate Cuts Could Come as Soon as March

China to Cut Banks' Reserve Ratio; No Change Expected in Canada's Rates Today; Bullard Says Fed Rate Cuts Could Come as Soon as March By James Christie

Good day. In a surprise move, China's central bank said this morning that it will cut banks' reserve requirements, sending a new signal that officials are eager to curb the stock-market selloff, while also stepping up support for the broader economy. Still, the move is unlikely to cheer economists who say that what the world's second-largest economy needs isn't cheaper or more abundant loans but rather a pickup in government spending, as well as more forceful efforts to bring a drawn-out real-estate crunch to a close and boost consumer confidence. Meanwhile, economists widely believe the Bank of Canada will keep its main interest rate unchanged on Wednesday, saying it is premature to lower borrowing costs with inflation and wage growth at elevated levels. And, James Bullard, former president of the Federal Reserve Bank of St. Louis, said on WSJ's Take on the Week podcast that he sees an opening for the Fed to start cutting interest rates as soon as March.

Now on to today's news and analysis.

Top News China to Cut Banks' Reserve Ratio to Shore Up Growth

China's central bank announced new steps to boost bank lending to households and businesses, an early move in what is expected to be a broad but restrained campaign by authorities to prop up growth this year after a lackluster 2023.

People's Bank of China Governor Pan Gongsheng the central bank would lower the amount of reserves banks need to hold against their deposits starting Feb. 5, freeing up around 1 trillion Chinese yuan , equivalent to $139 billion, that can then be funneled into new loans.

Bank of Canada Expected to Hold Rates Steady at Wednesday Meeting

All 14 economists polled last week by The Wall Street Journal said the Bank of Canada would leave its target for the overnight rate unchanged on Wednesday at 5%, for the fourth straight fixed-date policy announcement.

Bullard: Fed Will Cut Rates Before Inflation Hits 2%

Former Federal Reserve Bank of St. Louis President James Bullard said he expects the Fed to begin lowering interest rates before inflation hits 2%, and that cuts could come as soon as March . Bullard predicts the core inflation rate, which excludes food and energy prices, will slow to around 2% before October. The personal consumption expenditures price index, or PCE, fell to 2.6% in November from a year earlier. The next report will be published on Friday. "Inflation on a 12-month core basis, you could get to 2% by the third quarter of this year," Bullard said in an interview with the WSJ ' s Take on the Week podcast . He said that brings up a tricky issue for the Fed: "They don't want to get into the second half of 2024, and inflation's already at 2% and you still haven't moved the policy, right? That would be too late."

U.S. Economy Credit Card Debt Is Up-and It's Taking Longer to Pay Down

Consumers are putting more purchases on credit cards-and taking longer to pay them off , with the four biggest U.S. banks reporting higher credit card spending in 2023 compared with the previous year.

The Money-Market Bonanza Is Over. So Is Now the Time for Stocks?

For much of 2023, the boring money-market fund became one of the hottest investments on Wall Street. Now it is losing its luster. If the Fed begins to bring interest rates down later this year, money-market returns will fall further .

The Companies Cutting Jobs in 2024: Here's the List

Some companies are kicking off the new year by trimming staff as a steady labor market shows signs of cooling off. Google, Amazon and Macy's are among those slashing staff, though layoffs are expected to be smaller than those last year.

Key Developments Around the World Malaysia Central Bank Keeps Policy Rate on Hold

Bank Negara Malaysia maintained its overnight policy rate at 3.00% on Wednesday, stretching a holding pattern that started in July 2023. Its last hike was in May. The decision was in line with the expectations.

Australian PM Seeks Party Support to Re-Target Income Tax Cuts

Australian Prime Minister Anthony Albanese is expected to seek support to adjust already-pledged income tax cuts at a meeting on Wednesday, re-targeting the cuts more fully toward low- and middle-wage earners.

Cooling New Zealand Inflation Turns Attention to Rate-Cut Timing

Inflation pressures across New Zealand's economy cooled sharply in the fourth quarter, affirming the conviction of most economists that interest rates have peaked and that the discussion should turn to the timing of rate cuts .

Forward Guidance Wednesday (all times ET)

9:45 a.m.: Bank of Canada interest-rate decision and monetary policy report

10:30 a.m.: Bank of Canada interest-rate decision press conference

Thursday

8:15 a.m.: ECB rate decision

8:30 a.m.: U.S. advance durable goods for December; U.S. advance international trade for December; U.S. gross domestic product, first release for fourth quarter; U.S. weekly jobless claims

10 a.m.: U.S. new home sales for December

Research Global Trade Flows Rose in November, According to WSJ Indicator

Global trade flows rose in November, a sign that the value of goods moving across international borders may steady this year after a decline in 2023. An indicator of goods trade flows developed by The Wall Street Journal and published Tuesday points to a 2.3% increase from October, adjusted for the seasonal ups and downs of exports of goods between countries. The rise is a signal that global demand for goods is stabilizing after weakening through much of last year as consumers favored services they were denied access to during the Covid-19 pandemic. Consumer demand for goods has also been weakened by rising prices and higher borrowing costs. The World Bank estimates global trade in goods fell by 2.2% in 2023, adjusted for price changes, following a rise of 4.4% in 2022.

-Paul Hannon

Commentary A Smarter Way to Play 'China Bailout Roulette'

Will Beijing bring out its big bazooka to rescue China's stock market? That is the billion-dollar question as investors try to time the bottom for Chinese stocks. But they might be wise to also look at some easier bets , Jacky Wong writes.

Houthi Attacks Won't Threaten Global Natural-Gas Security

Unlike 2022, when shipping and natural gas pipeline disruptions thrust Europe into an energy crisis, high inventories and muted Asian demand in 2024 make a repeat unlikely , Megha Mandavia writes.

Basis Points Factory activity in the Richmond Fed's district slowed for the third consecutive month in January, according to the regional Fed bank. Its Fifth District Survey of Manufacturing Activity index came in at minus 15 points, compared with minus 11 in December. (Dow Jones Newswires) U.S. home prices rose 0.4% month-over-month in December, the smallest increase since June, Redfin said. December represented the third straight month of slowing price growth. On a year-over-year basis, prices increased 6.6%. (DJN) Canadian Prime Minister Justin Trudeau said Tuesday he wasn't keen to restrain government spending despite warnings that his administration's fiscal plans are in danger of entering risky territory. (DJN) Consumer confidence in the eurozone unexpectedly fell in January, with shoppers less confident about spending following a slight uptick in inflation in the bloc. The European Commission's flash consumer confidence indicator stood at minus 16.1, worsening from minus 15.1 in December and reversing two straight months of improvement in the indicator. Economists polled by The Wall Street Journal expected the index to improve to minus 14.3. (DJN) Economic activity improved in the eurozone at the start of the year, falling at its slowest rate in half a year , according to a purchasing managers' survey published Wednesday. The HCOB Flash Eurozone Composite PMI Output Index-a gauge of activity in the manufacturing and services sectors-rose to 47.9 in January from 47.6 in December. (DJN) Japan's exports rebounded in December, led by growth in auto shipments, data from the Ministry of Finance showed Wednesday. Exports rose 9.8% from a year earlier , reversing from the decline in November. Economists polled by data provider FactSet had expected exports to rise 9.1%. (DJN) Global demand for electricity is set to grow at a faster rate over the next three years, but with record power generation from renewables and nuclear expected to cover the surge, emissions will likely go into structural decline, according to the International Energy Agency. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

01-24-24 0715ET