Bank of Canada Holds Rates Steady; ECB Expected to do the Same Today

Bank of Canada Holds Rates Steady; ECB Expected to Do the Same Today By James Christie

Good day. As anticipated, the Bank of Canada held its main interest rate at 5% on Wednesday. Governor Tiff Macklem, in an interview with The Wall Street Journal, said senior officials are "concerned about the persistence in underlying inflation. We want to see inflationary pressures continue to ease and clear downward momentum in underlying inflation." Macklem said it was premature to discuss possible rate cuts. "We need to hold where we are," he said. Today, the European Central Bank will also announce a rate decision, this one also likely to hold off on easing. ECB President Christine Lagarde recently said the central bank is unlikely to think about reducing rates until the summer.

Now on to today's news and analysis.

Top News Bank of Canada Leaves Rates Unchanged, Frets About Core Inflation

The Bank of Canada kept its main interest rate unchanged at 5% on Wednesday, and said senior officials are focused on how long the rate needs to stay at its current level to wrestle down stubbornly high inflation .

Bank of Canada Gov. Tiff Macklem said the central bank hasn't ruled out further policy rate increases should new developments, such as a widening conflict in the Middle East, push inflation higher. However, he said officials don't believe another rate increase is necessary, based on its forecasts, and officials have pivoted "from whether monetary policy is restrictive enough to how long to maintain the current restrictive stance."

Macklem Expects Evidence to Emerge of Slowing Inflation

The Bank of Canada expects inflation to ease later this year and downward pressure to emerge on underlying prices, conditions that could set the stage for interest-rate cuts, Governor Tiff Macklem said Wednesday in an interview with The Wall Street Journal . But Macklem said it remains "premature" to talk about rate cuts because senior officials remain worried about core inflation.

ECB Plays Down Rate Cuts. Like the Fed, It's Expected to Pause.

The European Central Bank will probably keep interest rates unchanged on Thursday. Like the Federal Reserve, the big question is when it will consider cuts. The 20 nations sharing the euro are enjoying historically low unemployment rates. But the growth outlook is weak, and rapidly slowing inflation will soon put the pressure on the ECB to lower borrowing costs. ( Barron's )

U.S. Economy What to Watch in the GDP Report: How 2023 Defied Recession Fear

The U.S. economy grew at a solid pace in the fourth quarter of 2023, forecasters say, capping a year in which widespread recession fears were allayed by persistent hiring and resilient consumers.

Economists surveyed by The Wall Street Journal estimate gross domestic product grew at an annual rate of 2% in the fourth quarter from the third. That growth, adjusted for seasonality and inflation, would be a slowdown from the torrid 4.9% pace in the third quarter, but in line with prepandemic patterns.

Regional Banks Had Another Ugly Quarter

The 2023 bank crisis is over, but the worst may be yet to come for some regional and community lenders, as profits dropped in the fourth quarter , including at the bigger ones that have generally fared better than their smaller peers.

Insurers Rake In Profits as Customers Pay Soaring Premiums

After suffering some of the worst years in their history, insurers say they now see a path to profitability for home and auto policies. Big rate increases are driving up revenue, while inflationary pressures appear to be easing.

Five Elite Universities to Settle Price-Fixing Lawsuit for $104.5 Million

Brown, Columbia, Duke, Emory and Yale universities agreed to settle a lawsuit accusing them of colluding to limit students' financial-aid packages , bringing to eight the number of schools that have settled, out of a total 17.

Key Developments Around the World Norway Central Bank Holds Key Rate at 4.5%

Norway's central bank kept its key policy rate on hold at 4.5% Thursday and said it will likely stay at that level for some time ahead as high wage growth and last year's krone depreciation will probably prevent a quick fall in inflation.

Turkey's Central Bank Lifts Key Rate, But Signals It Will Now Pause

Turkey's central bank on Thursday lifted its key interest rate for an eighth straight meeting but signalled it would now end its cycle of increases. The bank raised the benchmark one-week repo rate to 45% from 42.5%, in line with consensus expectations, per a FactSet poll of economists. With this hike, the tighter monetary environment brought about by successive interest-rate increases has now been achieved, the bank's monetary policy committee said. Pressures on domestic price inflation remain, the bank said, including stickiness in services inflation, still-high demand, and geopolitical risks. But strength in foreign-exchange reserves and rebalancing of the current-account balance, as well as demand for lira-denominated assets, has helped ease trends in price rises, it said. (Dow Jones Newswires)

The Middle East Crisis Is Starting to Weigh on Europe

Europe's economy is beginning to feel the pain from supply-chain problems caused by the crisis in the Middle East, as businesses had to wait longer for parts after attacks on cargo ships in the Red Sea disrupted routes from Asia.

Chinese Investors Are Pouring Into the U.S., Japan

Chinese individual investors are desperate to shift their money out of the country-and they are willing to pay a big premium to do so. Some this week have been buying funds that offer exposure to Japanese stocks at a 20% premium.

Australian Government Says Income Tax Rejig Won't Add to Inflation

Australian Prime Minister Anthony Albanese confirmed Thursday that the already-legislated income tax cuts would be retargeted to better benefit low and middle-wage earners, while adding that the rejig won't add to inflation.

Financial Regulation Roundup Swiss Financial Regulator Appoints ECB Executive as Head

Swiss financial regulator Finma appointed European Central Bank executive Stefan Walter as its new head. Walter will take over on April 1, following criticism of the regulator over its handling of the collapse of Credit Suisse.

SPAC Mania Is Dead. The SEC Wants to Keep It That Way.

The SEC voted 3-2 to adopt rules that seek to make it clearer to SPAC investors if they are getting a raw bargain, likely driving another nail into the coffin of a recent Wall Street fad fueled by market froth and regulatory arbitrage.

SEC Wants Some Banks to Disclose More on CRE Exposure

The Securities and Exchange Commission is questioning some community and regional banks about their exposure to commercial real estate in their loan portfolios, as potential losses could spur them to further cut lending.

British Billionaire Pleads Guilty to Insider Trading

British billionaire Joe Lewis pleaded guilty to securities-fraud charges, resolving an insider-trading case that accused him of tipping off pilots, personal assistants and romantic partners about companies in which he invested.

Forward Guidance Thursday (all times ET)

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

Friday

4 a.m.: EU money supply for December

8:30 a.m.: U.S. personal income and spending, and personal consumption expenditures price index (PCE price index) for December

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

Research China's RRR Cut Doesn't Solve Long-Term Economic Concerns

The timing and scale of the People's Bank of China's policy easing this week may have surprised investors and given stock markets a much-needed lift, but the move does little to resolve long-term economic concerns . The fact that the China central bank governor announced the cut in banks' reserve requirement ratio at a press conference for the first time indicates that authorities "are very serious about easing monetary policy," said Raymond Yeung, chief economist of Greater China at ANZ Research. But Wednesday's RRR cut looks like other recent signals from senior Chinese officials aimed at boosting market sentiment rather than addressing the underlying risk of deflation, which has been dragging stocks lower, Yeung added. It cannot solve the problem of deflationary pressure in the world's second-largest economy and "China needs to avoid the scenario of Japan's lost decade," he said.

-Jiahui Huang

Commentary The Fed Risks Getting Caught Up in Politics, Whatever It Does

The Federal Reserve's desire to avoid political controversy helps explain why traders are still pricing around a 50-50 chance of a March cut, despite stronger than expected jobs and inflation figures and pushback from Fed policymakers against imminent easing, James Mackintosh writes.

Trumponomics 2.0: Less Tax Tailwind, More Trade Turmoil

Donald Trump wants to expand the trade war he started six years ago with steep new tariffs, Greg Ip writes, noting retaliation, higher costs and supply-chain disruptions make for a less benign landscape than before the Covid-19 pandemic.

Property Deals Have Collapsed. Prices Haven't Yet.

Property investors sat on the sidelines last year waiting for enticing opportunities, but the 2009-style discounts they were hoping for haven't materialized-at least not for the kinds of buildings they want to own, Carol Ryan writes.

(MORE TO FOLLOW) Dow Jones Newswires

01-25-24 0716ET