'Shadow Banks' at Risk From Rising Rates; U.S. Hotel Industry Faces Hot Inflation; GDP Report Out Today By James Christie
Good day. The interest-rate havoc that brought down Silicon Valley Bank may well ripple through debt-owning financial institutions outside the U.S. banking industry, according to the Wall Street Journal's Greg Ip. Though banks are the most visible debtholders, he writes, collectively, just as much debt is held by pension and mutual funds, private-credit funds, life insurers, business-development companies, hedge funds and other nonbanks-or, as they are sometimes called, shadow banks. Meanwhile, in our Pro Take column, Bob Fernandez takes a look at inflation in the U.S. hotel industry, which ran at 8.5% in January, 7.4% in February and 8.1% in March, stoutly above the Federal Reserve's 2% inflation target. And later today, the Commerce Department releases its estimate of U.S. gross domestic product in the first three months of the year, expected at 8:30 a.m. EDT.
Now on to today's news and analysis.
Top News Banking Problems May Be Tip of Debt Iceberg
The biggest question facing the economy lately has been: How bad will the banking turmoil be? Though two U.S. banks failed a month ago, and a third is still struggling, emergency lending by the Federal Reserve seems to have prevented broader harm.
The next question should be: Will it spread beyond the banks? That is because the collapse of Silicon Valley Bank a month ago, which touched off this bout of turmoil, was a symptom, not a cause, of broader forces at work in the financial system and the economy.
First Republic Bank Is a Problem With No Easy Solution
First Republic Bank faces a grim reality in its fight for survival: There are seemingly no good options, as the darkening economic outlook, bad lending decisions and limits on Washington policy makers pose hurdles for any intervention .
Pro Take: Hotel Inflation Runs Hotter Than the Fed's Target and a Shortage of Workers Isn't Helping By Bob Fernandez
The Trapp Family Lodge in the mountains of Stowe, Vt., has seen bookings cool off a bit this year following a boom in 2022, when people rushed back into leisure travel after pandemic restrictions.
But staffing up remains is still tough, said sales and marketing director Bob Schwartz, as the 300-employee resort looks to fill 25 to 30 positions. For one hard-to-fill night auditor job, the lodge has sweetened its offer with a $1,000 signing bonus, according to the job listing on online site Indeed.
A shortage of labor-which has fueled industrywide higher wages-is just one factor feeding into inflation as the hotel industry emerges from pandemic upheavals and is making vacations and weekend getaways more expensive for American consumers. Whatever the reason, hotel inflation is still running too high more than a year into the Federal Reserve's tighter-money campaign. It's a piece of the central bank's sticky inflation puzzle as it considers more rate increases. Read more .
U.S. Economy GDP Report to Show Pace of U.S. Growth in First Quarter
A government report on U.S. economic output in the first quarter will shed light on how consumers and businesses are faring under high inflation, rising interest rates and the onset of banking problems. Consumer spending, the primary driver of growth, and hiring were surprisingly strong at the start of the year, but more recently slowed as the Federal Reserve continued raising interest rates to cool the economy and curb rapid price increases.
The Commerce Department's estimate of gross domestic product in the first three months of the year, to be released Thursday at 8:30 a.m. EDT, will give Fed officials and investors a broad view on the extent to which higher interest rates are working as intended.
Republicans Advance Debt-Ceiling Bill, Aim to Spark Talks With Biden
House Republicans passed a bill proposing to raise the nation's $31.4 trillion borrowing limit in exchange for deep cuts in government spending, aiming to jump-start negotiations with President Biden.
What Is the Debt Ceiling and How Does It Work?
Biden Runs on an Improved, but Still Troubled Economy
President Biden launches his re-election campaign facing voters soured on a U.S. economy contending with high inflation , climbing interest rates and a strong but cooling labor market.
Key Developments Around the World Russian Oil Prices Surge, Put Sanctions to Test
Booming demand in India and China has pushed the price of Urals crude, Russia's main grade of oil, up to about $55 a barrel from a daily low of $35 in January, according to commodities-data firm Argus Media.
China Dominates U.S. Solar Market as Lawmakers Tussle Over Tariffs
China is maintaining its tight grip on the U.S. solar market despite efforts to loosen it, according to new data, underscoring how tough it is to supplant Chinese producers with domestic suppliers.
Back From the Brink, Chinese Developer Resumes Buying Land
Country Garden Holdings Co., one of China's largest real-estate developers, bought residential land in a local government auction for the first time since December 2021, signaling confidence in its liquidity and a recovering housing market .
Bank of Canada Discussed April Rate Rise Due to Resilient Growth
Bank of Canada officials considered raising interest rates in April, due to stronger-than-expected growth, but in the end kept rates unchanged given indicators suggesting domestic demand and inflation were easing, according to minutes of their latest deliberations . The Bank of Canada issued its rate decision on April 12, at which time it kept its main interest rate unchanged at 4.50%. The minutes, released Wednesday, largely reflect public statements from Bank of Canada Gov. Tiff Macklem in the aftermath of the decision. (Dow Jones Newswires)
Financial Regulation Roundup SEC Climate Rules Could Decide Whether U.S. Firms Face EU Law
The European Union plans to require thousands of U.S. companies to disclose extensive details on how their operations affect climate-unless the SEC passes rules that EU officials see as tough enough to take their place.
Crypto's Cure for a Shrinking Customer Base: Buy Government Bonds
Cryptocurrency firms are leaning on traditional financial products to attract customers to the flagging market, and more decentralized finance companies have bought up Treasurys to sweeten yields on blockchain-based financial services.
Forward Guidance Thursday (all times ET)
8:30 a.m.: U.S. weekly jobless claims; U.S. gross domestic product, advance estimate for first quarter
12:15 p.m.: Presentation by ECB's Panetta on digital euro at European Association of Co-operative Banks board meeting
Friday
Time N/A: ECB's Lagarde, Panetta and Enria in Eurogroup meeting in Stockholm; ECB's Lagarde and Panetta in informal ECOFIN meeting in Stockholm
5 a.m.: Eurozone gross domestic product, first estimate for first quarter
8:30 a.m.: Canada gross domestic product for February; U.S. income and outlays for March; U.S. Employment Cost Index for first quarter
9:45 a.m.: Chicago Business Barometer for April
10 a.m.: University of Michigan consumer survey, final for April
4:15 p.m.: Federal Reserve report on assets and liabilities of commercial banks in U.S.
Research BOE Likely to Pause After Another Interest-Rate Increase in May
The Bank of England is expected to lift interest rates by 25 basis points at its next meeting and after that will likely pause its tightening cycle, Oxford Economics Chief U.K. Economist Andrew Goodwin writes in a note. Markets are overestimating how much interest rates will increase in the U.K., predicting a bank rate of 5% by the end of the year from the current 4.25%, an unlikely outcome given the effect of previous rate increases and the weight of disinflationary forces at play, he writes. Still, a stronger-than-expected economy and persistence of underlying inflation mean that interest rates could stay high for some time, Mr. Goodwin writes.
-Xavier Fontdegloria
Riksbank Could Opt for 50 Basis-Point Move Before Loosening Policy
The Riksbank raised its key rate by 50 basis points to 3.5% on Wednesday and indicated a further 25 basis-point rise, but Capital Economics still thinks Sweden's central bank is more likely to lift by a further 50 basis points before ending its tightening, the firm's chief Europe economist Andrew Kenningham writes in a note. The Riksbank now sees a peak of 3.65% later this year, from 3.3% previously, implying at most another 25 basis-point increase. But Mr. Kenningham writes that, "We are forecasting a peak policy rate in Sweden of 4% in the summer rather than the peak of 3.75% which the bank itself sees." Capital Economics suspects the Riksbank will begin to loosen policy earlier than most central banks, perhaps with a first rate cut in January of next year.
-Dominic Chopping
Commentary First Republic's Catch-22
The beleaguered bank needs to shed assets from its balance sheet to pay back the expensive debt propping it up, but rising rates have cut the market value of those assets, so it can only sell them quickly at a loss, Aaron Back writes.
WSJ Pro Secondary Survey
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04-27-23 0715ET
