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Banks Cashing In With ECB Program; Eurozone Inflation Jumps; U.S. Home-Price Growth Notches Record

Good day. Eurozone banks are cashing in with a program of the European Central Bank that basically pays them to lend to make sure credit is flowing into Europe's economy to support its recovery. The program shows the extent the ECB has been willing to keep economies in the eurozone afloat during the pandemic by unleashing liquidity to businesses to avoid a credit crunch. Broad consumer prices in Europe rose 3% in August from a year earlier, a pickup from the 2.2% rate of inflation recorded in July and the sharpest rise since November 2011. Meanwhile, home-price growth in the U.S. climbed to a record in June, as robust demand continued to outpace the number of homes on the market.

Now on to today's news and analysis.

Top News

Europe's Banks Get a Cash Boost From ECB Credit Moves

The European Central Bank wants to make sure credit is flowing into Europe's economy to support its recovery as the pandemic drags on, and banks are cashing in.

Eurozone banks are making money from an ECB program that basically pays them to lend, boosting their earnings and helping offset some of the costs associated with the continent's long-running negative interest rates.

Eurozone Inflation Hits Decade High as Bottlenecks Bite

Inflation in the eurozone hit its highest level in almost a decade in August amid signs that shortages of semiconductors and other important manufacturing components are pushing up prices paid by consumers.

RBA Has Strong Case to Suspend Taper as Lockdowns Cloud Outlook

By James Glynn

Australia's economy grew faster than expected in the second quarter, damping recession fears and setting the scene for what is expected to be a fairly vigorous debate around the Reserve Bank of Australia's board table on Tuesday over whether it should start withdrawing some monetary stimulus. Read More.

U.S. Economy

U.S. Home-Price Growth Rose to Record in June

The S&P CoreLogic Case-Shiller National Home Price Index rose 18.6% in the year that ended in June, up from a 16.8% annual rate the prior month. June marked the highest annual rate of price growth since the index began in 1987.

Social Security Costs Expected to Exceed Total Income This Year

Trustees for the Social Security trust fund in an annual report released Tuesday said the program is expected to pay benefits that exceed its income in 2021, the same as it anticipated last year at the outset of the pandemic.

Hurricane Ida Could Cause Over $15 Billion in Insured Losses

Wells Fargo and Fitch Ratings both estimate damages could total $15 billion to $20 billion. In comparison, Hurricane Katrina, which struck Louisiana 16 years to the day before Ida, caused a record $65 billion in insured losses, Fitch says.

Key Developments Around the World

Bank of Mexico Raises 2021 Economic Growth Forecast

Citing an expectation that the recovery will continue in the second half of the year, the Bank of Mexico said it sees gross domestic product expanding 6.2% this year from 2020, up from its previous estimate of 6%.

India's Economy Is Healing but Battered by Covid-19 Waves

India's gross domestic product grew 20.1% in the three months ended in June amid one of the world's worst Covid-19 surges of the pandemic, compared with a year earlier when it shrank by about 24%, the sharpest decline on record.

Financial Regulation Roundup

Treasury Seeks Public Input on Insurance Company Climate-Risk Data

A Treasury office is seeking public input on how climate change could affect private insurers, including which data are needed to develop standardized climate-related financial risk disclosures for the insurance sector.

Obama White House Veteran Tapped for New York Financial Regulator

New York Gov. Kathy Hochul has nominated Obama administration veteran Adrienne Harris to lead the New York State Department of Financial Services, which oversees insurance companies and state-chartered banks.

Forward Guidance

Wednesday (all times ET)

9:30 p.m.: Bank of Japan's Wakatabe speaks at a meeting with local leaders in Hiroshima

Thursday

8:30 a.m.: U.S. Commerce Department releases July international trade data

Research

Bank of America Games Out Fed Rate Increase Strategies

When the time comes for the Federal Reserve to start raising interest rates, how it increases them is unlikely to look like past tightening campaigns given the central bank's shift to an average inflation targeting system, Bank of America analysts wrote in a research note Tuesday. Future rate raising campaigns may be more choppy, as "Stop-go or stop-pause-cut scenarios are more likely than in the past -- assuming inflation does what it has done in the past 25 years," the analysts wrote. They added that the Fed's current regime "leads to high-probability outcomes in which the Fed remains on hold for long periods of time, or even cuts rates at times with no threat of recession. And if inflation falls below 2% by the beginning of 2023, we could be in for a very long wait before the Fed hikes."

-- Michael S. Derby

Commentary

China's July Jitters Become a Summer Slump

It has been a difficult summer for the world's second-largest economy, a fact fully confirmed by China's official August purchasing managers' indexes, and the big question now is how Beijing will respond, Nathaniel Taplin writes.

Basis Points

U.S. consumer confidence fell sharply in August as the spread of the Covid-19 Delta variant and concerns about inflation soured households' mood, pushing The Conference Board's consumer confidence index down to 113.8 from a downwardly revised 125.1 in July. Economists polled by The Wall Street Journal expected the indicator to decrease to 123.1. (Dow Jones Newswires)

The Chicago Business Barometer of MNI Indicators fell from 73.4 in July to 66.8 in August, a two-month low and below expectations of economists polled by The Wall Street Journal who forecast it to stand at 69.4. Readings above 50 point to expansion of activity, while readings below 50 indicate contraction. The indicator has signalled growth since July 2020. (DJN)

Canada's gross domestic product contracted at a 1.1% annualized rate in the second quarter to 2.071 trillion Canadian dollars, or the equivalent of $1.643 trillion, Statistics Canada said. Market expectations were for a 2.5% annualized advance in the quarter, according to economists at TD Bank. (DJN)

The French economy expanded more than initially estimated in the second quarter after stagnating in the first three months of the year, as gross domestic product grew by 1.1% from April to June compared with the previous three-month period, according to a second estimate released by statistics office Insee. The gain was above the previously estimated 0.9% expansion. (DJN)

The 10-year German Bund yield broke above -0.40% for the first time in about a month Tuesday, according to Tradeweb data, propelled higher by rising eurozone inflation and prospects that the European Central Bank will make a cautious reduction in the pace of the Pandemic Emergency Purchase Programme into the fourth quarter. (DJN)

 

(END) Dow Jones Newswires

September 01, 2021 08:48 ET (12:48 GMT)

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