ECB Slows Asset Purchases as Draghi Heads for Stimulus Exit
The European Central Bank will reduce its monthly bond purchases next year in a step toward ending a program that has spent more than 2 trillion euros ($2.4 trillion) trying to revive euro-area inflation. Policy makers agreed to scale back buying to 30 billion euros a month starting in January and continue for nine months until the end of September, a decision that was in line with economists’ estimates. That’ll take its total holdings to at least 2.55 trillion euros. Still, the central bank also emphasized that it’ll move extremely cautiously. It kept its pledge to step up or extend buying further if needed, changed the language on its reinvestment strategy for maturing debt, and reiterated that banks will be able to borrow as much as they need in refinancing operations. “The door is left open to extend the asset-purchase program yet again,” said Ken Wattret, an economist at TS Lombard in London. “Though the likelihood of this happening for a fourth time looks rather lower now for various reasons, including the positive economic outlook.” The euro dropped after the announcement, trading down 0.5 percent at $1.1758 at 2:11 p.m. Frankfurt time, and European government bonds jumped.
U.S. business spending on equipment robust, new home sales surge
New orders for key U.S.-made capital goods increased more than expected in September and shipments rose for an eighth straight month, pointing to robust business spending that should help to mitigate the impact on the economy from the hurricanes. Other data on Wednesday showed new single-family home sales vaulting to a near 10-year high last month. The signs of strong business investment on equipment in the third quarter and a pick-up in the housing market supported views the Federal Reserve will increase interest rates in December. “The positive reports keep the economy’s wheels turning, and the Fed on track for another rate hike this year,” said Chris Rupkey, chief economist at MUFG in New York. “Businesses don’t invest in the future if they don’t think consumers will be there to buy their goods and services.” The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 1.3 percent last month after an upwardly revised 1.3 percent increase in August.
China says will not set target to double GDP from 2021, in change from the past
China will not set a goal of doubling its gross domestic product starting in 2021 so it can focus more on higher-quality, long-term growth, a senior Communist Party official said, in a break from past practice. The world’s second-largest economy is well on track to hit its target of doubling GDP and per capita income by 2020 from 2010, and market speculation over new targets had intensified in the run-up to the twice-in-a-decade Communist Party congress that ended on Tuesday. While China’s pursuit of strong growth targets over the years has helped lift the global economy from recession after the financial crisis, its corporate and local government debt has soared, regional economic disparities have widened and environmental damage has worsened. Yang Weimin, vice minister of the Office of the Central Leading Group on Financial and Economic Affairs, told a news conference in Beijing on Thursday that China will not solely pursue economic expansion and will emphasize the quality of its growth. The shift away from ambitious long-term government growth targets is a departure from past practice in China, and marks a new strategy for longer-term economic development.