September 16, 2019
New York Fed Factory Gauge Slumps With Spending Outlook Dimmer
“A Federal Reserve measure of manufacturing in New York state cooled more than expected in September as capital-spending expectations fell to the lowest since 2016, adding to signs the U.S. factory slump is deepening. The Empire State index, a survey of factories the state, fell to 2 from 4.8 as readings for new orders and shipments deteriorated, according to New York Fed data released Monday. The measure of capital spending expected six months ahead plunged the most in three years, to 4.6 from 23.2. The regional snapshot follows other gauges of American manufacturing that have shown growing weakness amid trade tensions with China and slowing global economic growth. The Institute for Supply Management’s purchasing managers index contracted in August for the first time since 2016 as the gauge of new orders dropped to a seven-year low. The report comes two days before Fed policy makers are expected to make a second-straight interest rate cut as they seek to protect the longest-ever U.S. economic expansion.”
Bank Profits Plunge in Denmark as Negative Rates Take Toll
“Banks in Denmark have seen their aggregate profits sink this year, according to calculations by the industry’s main lobby group, which has repeatedly urged monetary policy makers to provide relief from long-term negative interest rates. Industry profits fell 20% in the first half of this year, Finans Danmark said on Monday. Denmark’s 17 biggest banks and mortgage lenders reported after-tax profit of 15.6 billion kroner ($2.3 billion), it said in a statement. That compares with profit of 19.4 billion a year earlier. “Banks continue to earn money, but since that peaked in 2017 the trend is clear: banks’ profits are falling,” Ulrik Nodgaard, who heads the Copenhagen-based organization, said in a statement. “A precondition for banks to meet their obligation to society by supporting growth and development in the economy is robust profits.” Denmark’s banking industry has lived with negative rates since 2012. Last week the central bank lowered its key rate to minus 0.75%, matching a crisis low. It also rebuffed industry pleas to provide relief, citing the potential adverse effects on monetary policy, tax coffers and even banks’ profitability. The fallout of negative rates isn’t all bad for banks. The policy has so far helped reduce the stock of bad loans. But Nodgaard says that’s unlikely to continue given an expected slowdown in growth. He also says that income from bank fees hasn’t been enough to offset the decline in interest income. Finans Danmark wants the central bank to expand a facility that allows banks to park excess cash at no less than 0%. But the central bank has argued deposits — including the facility, which is currently capped just under $5 billion — depend on the size of currency reserves needed to maintain the krone’s peg to the euro; it shouldn’t be used as a tool to support bank profits. Last week, it advised banks to use their excess liquidity to buy securities or reduce their debt. Another option, it said, would be to provide more loans.”
China’s Economy Slows Again, Adding Pressure for Policy Action
“China’s slowdown is deepening just as risks for the global economy mount, piling pressure on the authorities to do more to support growth. Industrial output rose 4.4% from a year earlier in August, the lowest for a single month since 2002, while retail sales came in below expectations. Fixed-asset investment slowed to 5.5% in the first eight months, with the private sector lagging state investment for the 6th month. The data add support to the argument that policy makers’ efforts to brake the slowing economy aren’t sufficient as the nation grapples with structural downward pressure at home, the risk of yet-higher tariffs on exports to the U.S. and now surging oil prices. Nomura International Ltd. said this all raises the likelihood that the People’s Bank of China will cut its medium-term lending rate on Tuesday. “In terms of policy room, we still think there’s quite a lot for both the Ministry of Finance and the PBOC, but now it’s a matter of whether they want to use it,” Helen Qiao, chief Greater China economist at Bank of America Merrill Lynch said on Bloomberg television. “What I worry about is that policy makers are hesitating at the moment because of the potential implications on the long term impact, so they’re really fallen behind the curve.”
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