Aurelia Butler

A shortage of homebuilding supplies had affected the availability of new homes, cushioning prices from the impact of sky-high interest rates that curbed the spending power of potential buyers. Still, February data signaled that the worst of the housing market downturn could be over as U.S. single-family homebuilding and permits for future construction rebounded.Pulte reported quarterly profits of $2.35 per share, beating analysts’ estimates of $1.81, according to Refinitiv IBES.The company also announced a $1 billion increase to its share buyback program.”With interest rates more stable and the supply of new and existing homes generally in balance with demand, we remain optimistic about the housing industry,” CEO Ryan Marshall said in the company’s earnings statement. The Atlanta-based company said it closed 6,394 homes in the quarter, up 6% from the prior year, and reported a 9% increase in average selling prices.Revenue for the first quarter ended March 31 was $3.58 billion, compared with estimates of $3.27 billion. More

By Naomi Rovnick, Yoruk Bahceli and Dhara RanasingheLONDON (Reuters) – As calm returns to markets roiled by banking havoc in March, it’s time to reflect on the policy response.The International Monetary Fund has warned of a “perilous combination of vulnerabilities” in markets. The Bank of International Settlements says for the first time since World War Two that central banks are dealing with surging inflation coinciding with very high debt levels, threatening economic stability. “The risks to the financial system are not as pressing as they were in March but that doesn’t mean the crisis has passed,” said Northern Trust (NASDAQ:NTRS) chief economist Carl Tannenbaum, who worked in the Fed’s risk section during the 2008 global financial crisis.Here, experts weigh in on what policymakers did well in March with takeaways for the future. Central banks’ dilemma https://www.reuters.com/graphics/GLOBAL-MARKET/xmpjkjdebvr/Screenshot%202023-04-18%20at%2016.37.56.png 1/ STICK WITH THE PLANThe Federal Reserve and the European Central Bank continued hiking rates in March as Silicon Valley Bank (SVB) failed and Credit Suisse (CS) was forced to merge with UBS. Rapid rate rises after years of ultra-low rates have caused pain. But changing course as markets slid could have exacerbated that.”If they hadn’t have done those rate increases, there was a danger that people would look at that and say, oh, my god, the situation is even worse than we thought it was,” said Dario Perkins, managing director, global macro at TS Lombard and a former advisor to Britain’s Treasury.A measure of volatility in the Treasury market has eased after hitting its highest level since 2008 in March.Low and stable inflation is good for markets and the economy, so central banks had to show their seriousness on inflation, Tannenbaum added. U.S. bonds volatility https://www.reuters.com/graphics/USA-BONDS/akveqxzrqvr/Screenshot%202023-04-21%20at%2011.47.44.png 2/ LOUD AND CLEARAfter staying the course comes selling the message.The Fed met just 12 days after the SVB failure and the ECB’s March 16 meeting was two days before Credit Suisse’s rescue. U.S. regional bank stocks tanked 36% in March.Central banks softened rate rises with communication that was mindful of instability risks, showing reassuring “humility”, said Perkins.Not all communication has been stellar.The Swiss National Bank said on March 15 Credit Suisse met capital and liquidity requirements. “And then days later Credit Suisse was gone,” said Gael Combes, head of fundamental research at Swiss fund manager Unigestion. That reversal highlighted prospects of central bankers being “caught on the back foot,” Combes said.Aggressive tightening may still create another financial crisis, said Dartmouth economics professor and former Bank of England rate setter David Blanchflower.U.S. banks face borrowers defaulting on car loans and student debt, while UK mortgage borrowers rolling off cheap fixed rate loans onto more expensive deals could spark defaults, Blanchflower added. “The tentacles,” of bank failures, he said, “are much longer than folks think.” 3/ TAKE THE PAINThe 2008 crisis prompted global efforts to stop taxpayers funding bailouts of troubled banks. Credit Suisse’s rescue took the pain elsewhere, as Swiss regulators ruled holders of the bank’s Additional Tier 1 bonds, a shock absorber against losses, would be wiped out. Shareholders got $3.3 billion. Former ECB chief economist Peter Praet said the success of CS’s rescue was shown by turmoil not spreading to other banks and creditors bearing the cost to a large extent, which was “very rare” for a systemic institution.But lenders are uncertain about holding AT1s, putting the idea of shock absorbing capital buffers at risk. “The bank resolution framework created after the great financial crisis,” said Francesco Papadia, senior fellow at Bruegel and former ECB director general for market operations, “is proving difficult to implement.” CoCo crisis https://www.reuters.com/graphics/GLOBAL-MARKETS/klpygbkompg/chart.png 4/ UNITED WE STANDAfter CS’s rescue, the Fed and other big central banks supported market liquidity with dollar swap lines. Keeping the global reserve currency flowing, in an effort not seen since the 2020 COVID-pandemic, likely prevented fears of international institutions dumping U.S Treasuries to secure dollars or foreign central banks becoming unable to deliver dollars, experts said.”It comforts the market,” said Mahmood Pradhan, global head of macro at Amundi Institute and former deputy director of the IMF’s European department. “Often the amount of the facility extended is not needed, but it’s a safety measure,” he said. The race to raise rates https://www.reuters.com/graphics/GLOBAL-MARKETS/lbvggjjagvq/chart.png 5/ MORAL HAZARD In the U.S. the Fed, the Treasury and the Federal Deposit Insurance Corporation took the rare decision to give SVB’s customers access to all non-insured deposits. Political backlash followed, with Republicans opposing universal deposit guarantees on the basis such tools encourage moral hazard. Amundi’s Pradhan said the “case by case” central bank responses to individual lenders failing in March exposed the lack of a coordinated bank resolution system. “We’ve seen very little resolution of how to wind down a bank,” he said. “What we have not resolved is the resolution system itself.” More

The global economy is already experiencing climate-driven inflation that will contribute to stubbornly high price rises and a long period of low investment returns, according to the head of Norway’s $1.3tn oil fund.“Inflation is going to be tough to get down,” Nicolai Tangen, chief executive of the world’s largest sovereign wealth fund, said in an interview with the Financial Times on Tuesday.Labour costs are already leaking into global price rises, but “we are seeing a climate impact” he added, pointing to rising prices for olive oil, potatoes and coffee as anecdotal signs that food costs could pump up inflation for years to come.A heavy price tag for the green energy transition and a reversal of the globalisation that has held down manufacturing costs for decades are also part of the “mosaic”, he said.Tangen, speaking ahead of the oil fund’s inaugural investment conference, said the investor was “absolutely” seeing signs of so-called greedflation, where companies pump up prices beyond the extent that their own price pressures would demand.Tangen’s views are closely watched in financial markets as the oil fund on average owns 1.5 per cent of every listed stock in the world. The former hedge fund manager, who took over at the fund in 2020, has long warned of the persistence of inflation, cautioning that investor returns could be low for the next decade as prices and interest rates remain high.He stressed in the interview that the wave of inflation that has already struck the financial system, and the aggressive interest rate increases by central banks to try to tame it, have exposed cracks in markets, particularly in the form of the implosion of Silicon Valley Bank and the fire sale of Credit Suisse last month.He added that he thought the “worse of that is behind us” but warned that with $30tn of losses in global stocks and bonds last year there were still more losers to be revealed in the financial system.Tangen said it was “difficult to see from the outside” which financial companies were in the worst shape but that the fund was working hard to strip out “rotten apple” businesses from its portfolio. “We have cranked up the efforts on weeding out these things,” he added.The fund now employs four forensic accountants in that effort, along with the use of linguistics analysis and artificial intelligence, and that number was likely to rise. More

Some politicians and analysts have blamed the huge sums of central bank money created by the BoE and other central banks since the 2008 financial crisis, and more recently during the COVID-19 pandemic, for the recent surge in inflation.British consumer price inflation hit its highest in more than 40 years in October at 11.1%, and remained above 10% in the most recent data for March.Broadbent – in line with recent BoE statements – said supply-chain disruptions caused by the pandemic and the surge in natural gas prices after Russia’s invasion of Ukraine in 2022 were clearer causes of the jump in prices than money supply.”As an explanation for the inflation we’ve experienced I think this fits the actual data better than the single fact of strong household money growth during the pandemic,” he said in a speech on Tuesday to the National Institute of Economic and Social Research, a think tank.Some economists have accused the BoE, U.S. Federal Reserve and the European Central Bank of missing signals from an increase in money supply that should have served as warnings of the risk of rising inflation. “In major economic areas, money supply growth was running at rates which would have set the alarm bells ringing not many years earlier. But somehow central banks thought that this did not matter,” Roger Bootle, the chairman of consultancy Capital Economics, wrote in the Telegraph newspaper on SundayBroadbent said the BoE did not ignore money supply, but said it needed to be kept in context with other economic variables, and that quantitative easing in practice was different to the ‘helicopter drop’ of money found in economic text books.”No monetary policymaker should ignore information that’s relevant for future inflation. That includes the monetary aggregates,” he said.”But like most economic data they need interpretation. Certainly the very strongest claims – that QE inevitably leads to rapid growth of commercial bank deposits (M4), on a par with that in the central bank’s balance sheet, and that this, in turn, inevitably leads to excessive inflation – are not well supported by the evidence.” More

At NatWest’s annual investor meeting in Edinburgh, banking veteran Davies said it was an appropriate time to start a search for his successor, as he approaches nine years as chairman – the recommended limit under UK corporate governance rules.The British economist, who has steered Natwest through a sweeping restructuring and return to profitability, said he expected a handover to take place to his successor by July 2024.Davies has been a key figure in the City of London for four decades, having previously held roles including chairman of regulator the Financial Services Authority and deputy governor of the Bank of England.In the 1980s he was a special adviser to Britain’s then-finance minister Nigel Lawson, and he later became director of the London School of Economics. During his tenure, NatWest has undergone a multi-year overhaul and deep cost-cutting since he took the role in 2015. He presided over its return to majority private ownership in March 2022 following its 45 billion pound bailout during the 2008 financial crisis. NatWest also became one of few major British companies with women in its top two executive positions, with Alison Rose as CEO and Katie Murray serving as chief financial officer.But his time at the bank has not passed without controversy. NatWest became the first bank to be hit with a criminal money laundering fine in 2021, while the lender has also faced criticism for past mistreatment of struggling small companies. More

WASHINGTON (Reuters) – Republican lawmakers who control the U.S. House of Representatives will be tested in coming days to muster the 218 votes needed to adopt a plan to slash spending while raising the government’s $31.4 trillion debt ceiling, a move they hope will jumpstart talks with President Joe Biden.Their leader, Speaker Kevin McCarthy, is trying to hold together his narrow 222-member majority to back the bill, which would raise the borrowing limit by $1.5 trillion. Just five Republican “no” votes would doom it, if all 213 Democrats united in opposition.The proposal has little chance of passing the Democratic-controlled Senate, but Republicans hope a show of unity would force Biden to negotiate after a months-long standoff. Biden has insisted Congress raise the debt ceiling without conditions, as it did three times under Republican President Donald Trump.Washington and Wall Street are focused on the coming “X-date,” possibly just weeks away, when absent action by Congress the U.S. Treasury would no longer be able to pay all its bills, triggering a default that would shake the global economy.The House of Representatives Rules Committee, a gatekeeper on legislation, will take up the bill on Tuesday afternoon. That panel’s approval could be followed by a House floor vote as early as Wednesday.The last prolonged standoff over the debt limit, in 2011, led to a downgrade of the U.S. credit rating, which shook financial markets and raised borrowing costs. Lawmakers currently do not know their deadline, but financial analysts estimate it could come as soon as early June.”The highest risk scenario is: they don’t have the votes this week, the deadline is before June 15 and now we’re really looking at a month to get things done. That’s the scenario that introduces the greatest amount of risk into the equation,” said Rohit Kumar, co-leader of PwC’s national tax office in Washington.”If they fail, if they can’t pass something, then it clearly emboldens the Biden administration’s perspective of no negotiation, send us a clean debt limit increase.”Debt markets are already flashing warning signs as investors grow wary. Investors expect the Treasury Department to offer a new “X-date” forecast in the coming weeks.HOW MANY ‘NO’ VOTES?Multiple Republicans, ranging from hardline Representative Andy Biggs to Tim Burchett and Nancy Mace, have raised concerns about the bill, saying it does not do enough to cut the deficit. Some have also raised concerns that cuts to programs providing tax credits for renewable energy programs would hurt their home states.”At this moment, I’m a no,” Mace said in an interview. “We’re just putting our children and grandchildren in a more dire economic situation by not addressing the spending issues that we have today.”The White House on Monday reiterated its call for Congress to raise the debt-ceiling without conditions.”We have been very clear: There will not be any negotiation around the debt ceiling,” Press Secretary Karine Jean-Pierre said. “This is something that is their constitutional duty to do.”Representative Kevin Hern, who chairs the 175-member conservative Republican Study Committee, said he was confident McCarthy would rally enough support to pass the legislation and pressure Biden and his Democratic allies in Congress to commence serious negotiations.”Speaker McCarthy will have meetings until the last minute, and he will do what’s needed to get it passed,” Hern told Reuters. “He certainly understands how to negotiate with members, as every speaker does.” More

The Fed started offering dollars in daily tenders from late March after the failure of Silicon Valley Bank and the sale of Credit Suisse sent jitters across financial markets and raised the risk of liquidity shortages that could have morphed into a broader financial crisis. But the central banks of the euro zone, Japan, Britain and Switzerland will now revert to their usual weekly tenders, indicating that the extraordinary backstop is no longer needed as markets are functioning as intended.While there was some take-up in the daily tenders in the early days, especially from Switzerland, the daily facility was barely used and there was little to no interest on most days. “These central banks stand ready to re-adjust the provision of U.S. dollar liquidity as warranted by market conditions,” the ECB said in a statement.Swap lines are liquidity backstops to ease strains in global funding markets and they have been a permanent feature of the cooperation between top central banks for more than a decade.Central banks’ local currency liquidity operations have also been little used in the past month, suggesting that copious excess liquidity, part of the banking system for the past decade, continues to keep the bank sector well oiled. Still, some policymakers have warned that the volatility is likely to leave a more permanent mark by making banks more cautious in how they lend, pushing up borrowing costs and tightening lending standards. This could then reduce the need for central banks to raise interest rates in their fight against sky high inflation as commercial banks do their work for them.The extent of such a tightening is far from clear, however, and it could still take weeks if not months for policymakers to assess the longer term impact. Big central banks with the notable exception of the Bank of Japan have been raising rates at a brisk pace with the Fed and ECB both expected to move again next week. More

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