The Bank of England indicated that it could cut interest rates below zero for the first time in its 326-year history as it tries to shore up a U.K. economic recovery that is facing the dual headwinds of the coronavirus and Brexit, Yahoo Finance reports.
“Federal Reserve officials projected no plans to raise interest rates through 2023 and said they were committed to providing more support to an economy that faces an uneven recovery from the coronavirus pandemic,” the Wall Street Journal reports.
“Federal Reserve officials don’t like to wade into political debates, which is why it can be a distress signal when they do,” the Wall Street Journal reports.
“In normal times, central bankers generally avoid making specific recommendations on hot-button spending, tax and other policy matters handled by elected officials, because they want to preserve their autonomy to manage monetary policy with minimal interference.”
“These aren’t ordinary times. Fed Chairman Jerome Powell has delicately but resolutely said in recent months he expects Congress will need to do more to compensate for income losses sustained by unemployed workers and revenue holes facing hard-hit businesses and city and state governments because of the coronavirus pandemic.”
Paul Krugman: “But the stock market isn’t the economy: more than half of all stocks are owned by only 1 percent of Americans, while the bottom half of the population owns only 0.7 percent of the market.”
“Jobs and G.D.P., by contrast, sort of are the economy. But they aren’t the economy’s point. What some economists and many politicians often forget is that economics isn’t fundamentally about data, it’s about people. I like data as much as, or probably more than, the next guy. But an economy’s success should be judged not by impersonal statistics, but by whether people’s lives are getting better.”
“And the simple fact is that over the past few weeks the lives of many Americans have gotten much worse.”
“The Federal Reserve looks likely to keep short-term interest rates near zero for five years or possibly more after it adopts a new strategy for carrying out monetary policy,” Bloomberg reports.
“The new approach, which could be unveiled as soon as next month, is likely to result in policy makers taking a more relaxed view toward inflation, even to the point of welcoming a modest, temporary rise above their 2% target to make up for past shortfalls.”
“The presidential election is three months away, but some traders are preparing for the possibility that prolonged political uncertainty will stoke stock-market mayhem,” the Wall Street Journal reports.
“The investors are going beyond the normal hedging ahead of a potential change in power in Washington. Instead they are betting on volatility and a possible market tumble later in the year. Among the concerns expressed by some: speculation that President Trump could try to delay the election or disrupt mail-in voting, as well as the chance that a result remains unclear for weeks after polls close.”
“A collapse in real yields — the return that bond investors can expect once inflation is taken into account — is rippling through global financial markets and driving record rallies in assets from gold to technology stocks,” the Financial Times reports.
“The yield on 10-year inflation-linked US government bonds, known as Tips, sank below minus 1 per cent last week to a historic low, as investors bet that a surge in coronavirus cases would prolong the damage to the world’s biggest economy — and that the Federal Reserve’s efforts to stimulate demand could stir inflationary pressures.”
“The deeply negative Tips yield implies that large chunks of the Treasury market are expected to lose investors money, in real terms, over the next decade.”
“The Securities and Exchange Commission is investigating the circumstances around Eastman Kodak’s announcement of a $765 million government loan to make drugs at its U.S. factories,” the Wall Street Journal reports.
“News of the loan last week caused Kodak’s shares to rise as high as $60, before falling to about $15 on Monday due to a dilution in the shares. Amid the heightened volatility, trading volume has surged. The price spike briefly produced a potential windfall for company executives who owned stock-option grants, some of which were granted on July 27, the day before the loan became public.”
Goldman Sachs says the U.S. dollar’s reign as the world’s reserve currency is coming under threat, as evinced by the recent surge in gold prices, Bloomberg reports.
“The greenback faces several risks, including that the U.S. Federal Reserve may shift toward an ‘inflationary bias,’ a rise in political uncertainty and growing concerns surrounding another spike in coronavirus infections in the country… They added that the debt buildup as a result of the pandemic may lead to debasement fears.”
Wall Street Journal: “Now, some analysts see recent signs of a ‘melt-up’ in which investors are buying things simply because they are rising, with little regard for economic fundamentals or the mixed signals sent by assets including stocks and bonds rising together. Traders are riding the momentum in everything from large technology stocks like Apple Inc. to the precious metal silver.”
“Such powerful rises are a concern for analysts who worry that the investments will suddenly fall in tandem if trading patterns shift or the pandemic worsens, driving a broad market retreat. Memories remain fresh of a bruising March selloff during which investors sold stocks and dumped assets normally deemed havens as governments halted business and travel.”
Sen. Mitt Romney said he will vote against Judy Shelton, one of two Trump administration nominees to the Federal Reserve’s Board of Governors, Bloomberg reports.
“If, as expected, Democrats vote in unison to reject Shelton’s controversial candidacy, her confirmation could be blocked by Romney and three additional Republicans voting against. No floor vote has yet been scheduled for either nominee.”
“The Senate Banking Committee voted 13-12 to approve Judy Shelton’s nomination to the Federal Reserve Board of Governors on Tuesday, sending the controversial, conservative economist to be considered before the full Senate,” the Washington Post reports.
“Shelton has drawn scrutiny for her views on related to the long-abandoned gold standard, along with her calls for closer ties between the White House and the Fed.”
Wall Street Journal: “JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. said Tuesday they took large hits to their second-quarter profits to collectively stockpile $28 billion to cover losses as consumers and businesses start to default on their loans.”
“The provisions amount to a sharp increase above what they put away in the first three months of the year, reflecting a shift in their assumptions about the length and severity of the pandemic’s economic toll. JPMorgan, the largest U.S. bank by assets, said it put aside extra to prepare for an unemployment rate that remains at double digits well into next year and a slower recovery in gross domestic product than the bank’s economists assumed three months ago.”
“Betting markets have turned decisively toward an expected victory for Joe Biden in November — and asset managers at major investment banks are preparing for not only a Biden win, but potentially a Democratic sweep of the Senate and House too,” Axios reports.
Quite the statement from JP Morgan:
“The consensus view is that a Democrat victory in November will be a negative for equities. However, we see this outcome as neutral to slight positive.”
“Several U.S. ambassadors actively shed their stock holdings as President Trump tried to downplay the coronavirus outbreak in its early stages,” CNBC reports.
“Ambassadors to Uruguay, France, Morocco and Italy sold shares in transactions that could have made them millions of dollars… Much of their sales were in January and continued throughout February, the records show. Their transactions line up with a timeline of federal and congressional announcements as the virus started sweeping across the globe earlier this year.”
“U.S. stocks wrapped up their best quarter in more than 20 years, a remarkable rally after the coronavirus pandemic brought business around the world to a virtual standstill,” the Wall Street Journal reports.
“Just three months ago, investors were lamenting the end of the bull market—and the longest economic expansion on record—after major U.S. stock indexes lost about 35% of their value in less than six weeks. The subsequent rebound has been nearly as brisk.”