Economy

Single-family housing starts, which account for the bulk of homebuilding, surged 15.8% to a seasonally adjusted annual rate of 992,00 units last month, the Commerce Department’s Census Bureau said on Wednesday. Data for July was revised higher to show starts falling to a rate of 857,000 units instead of the previously reported 851,000 pace. Some of the decline in starts in July was blamed on Hurricane Beryl. A surge in mortgage rates in spring weighed on home sales, resulting in excess supply of newly built houses. Existing home inventory has also risen, reducing the incentive for builders to construct new houses.Mortgage rates have since retreated to 1-1/2-year lows and could drop further, with the Federal Reserve expected to start its policy easing cycle on Wednesday. Given the supply overhang, economists do not expect a sharp increase in new construction. A National Association of Home Builders survey on Tuesday showed homebuilder sentiment improved marginally in September after sliding for four consecutive months, but noted that “builders will face competition from rising existing home inventory in many markets as the mortgage rate lock-in effect softens with lower mortgage rates.”New housing supply is near levels last seen in early 2008. Permits for future construction of single-family homes increased 2.8% to a rate of 967,000 units in August. More

The costs of 30-year mortgages and new car loans have been inching down in recent months, welcome news for borrowers who have endured years of high prices and high interest rates. These borrowing costs are expected to fall further: The Federal Reserve is poised to cut its benchmark interest rate on Wednesday, and officials are […] More

Italy’s second-largest bank took a 9% stake in Commerzbank last week, catching German authorities off guard and getting a hostile reception from local management, who want to fend off any takeover attempt.It will now be up to the European Central Bank whether to allow UniCredit to increase its stake, so any comment from the Bundesbank – whose representative sits on the ECB’s Supervisory Board – is likely to be closely scrutinized. “We need strong and robust banks so that companies can tackle and finance their future tasks,” Nagel told a Commerzbank event in Frankfurt.”In case of possible mergers, it is important that a competitive institution is created which fulfils this task as best as possible,” Nagel said, without any specific reference to either of the lenders. UniCredit is among the best capitalised banks in Europe, with a common equity tier 1 or CET1 capital ratio of 16.2% at the end of the first half, despite a generous dividend and share buy-back programme. This would suggest that UniCredit has the financial capacity to engineer a viable takeover. However, any deal is likely to be politically charged since Germany’s banking sector is dominated by two large institutions: Deutsche Bank and Commerzbank. The sale of Commerzbank to UniCredit would increase competition for Deutsche Bank and leave Commerzbank under foreign control, a potentially sensitive issue for a government facing elections next year. However, the ECB has repeatedly voiced support for cross-border mergers to improve European banking competitiveness, so the supervisor is unlikely to block the deal if UniCredit can present a plan that creates a financially sound mega-bank. More

JAKARTA (Reuters) -Indonesia’s central bank delivered its first rate cut in more than three years on Wednesday, just hours ahead of the widely expected start of the U.S. Federal Reserve’s easing cycle in efforts to bolster growth in Southeast Asia’s largest economy.Bank Indonesia (BI) unexpectedly trimmed the benchmark rate by 25 basis points to 6.00%, its first rate cut since February 2021. Only three out of 33 economists polled by Reuters had predicted the move, while the rest expected no change.The decision is consistent with BI’s expectation inflation will remain low in 2024 and 2025, and the rupiah staying stable, BI governor Perry Warjiyo said. It also aligns with BI’s efforts to bolster economic growth, he added.A clearer direction on monetary policy moves by the Fed, a bigger drop in U.S. Treasury yields and tendency for the dollar to ease have given BI the window for the rate cut, he said.”These three factors were very different from last month…so we did not have to wait for the Fed funds rate decision,” Warjiyo said. “The time is right,” he said.BI will continue to assess room for further easing, the governor said. BI’s monetary policy stance is now a balance between stability and growth, Warjiyo said, switching from its previous “pro-stability” stance.The rupiah had been under pressure earlier this year in response to changing risk appetite in global financial markets, but has since reversed those losses against the U.S. dollar to be trading slightly firmer than last year’s close. The main stock index is also up 7.8% so far this year in a sign of returning capital inflows.”Recent rupiah gains and markets pricing in a near certain cut by the U.S. Fed, likely offered BI the headroom to kick-start the easing cycle earlier,” said DBS Bank economist Radhika Rao. “For now, we expect one more rate cut by end year.” The currency briefly weakened after BI’s announcement, but regained its losses to stand at 15,330 per dollar by market close.Warjiyo said BI will continue using its monetary operation instruments to attract capital inflows, as well as conduct market intervention when necessary to support the rupiah.Inflation returned to within BI’s target range in mid-2023 and has remained there since. The inflation rate in August of 2.12% was the lowest annual rate since February 2022.The central bank maintained the 2024 GDP growth forecast at 5.1%, the midpoint of its 4.7% to 5.5% range, but growth in 2025 may be higher than the midpoint of its 4.8% to 5.6% outlook range, Warjiyo said.These forecasts, Warjiyo said, suggested the economy was doing well, but it needed further stimulus to grow even faster.BI said among factors for the rate cut was that it would help fiscal financing by lowering bond yields.On Tuesday, a parliamentary budget committee approved a 6% rise in spending for the incoming government of President-elect Prabowo Subianto, who is set to take office next month.Capital Economics’ Gareth Leather said inflation is unlikely to emerge as a concern for BI anytime soon, giving the central bank room to further cut rates. The consultancy has revised its outlook for BI’s end-2024 benchmark rate to 5.50%, from 5.75% previously, in light of Wednesday’s cut and BI’s dovish commentary, Leather said. More

WASHINGTON (Reuters) -The Republican-controlled U.S. House of Representatives will vote on legislation on Wednesday that pairs a must-pass spending bill with tighter voting rules, setting up an election year clash with the Democratic-majority Senate that risks a partial government shutdown.Congress must pass spending legislation before the start of the new fiscal year on Oct. 1 to avoid furloughing thousands of federal workers and shutting down a wide swath of government operations just weeks before the Nov. 5 election.But lawmakers are at odds over an attached Republican voting bill that would require those registering to vote to provide proof of U.S. citizenship. Spurred by Republican presidential candidate Donald Trump’s false claims about election fraud, House Republicans say the bill is a necessary step to prevent people living in the country illegally from voting. For their part, Democrats say it aims to drive down voter participation. A 2017 study found 30 possible instances of noncitizens voting out of more than 25 million ballots cast.It is not clear whether Republicans will even muster enough support to pass the bill out of the House. With a narrow 220-211 majority, Republicans have few votes to spare and some have said they will vote against it. House Republicans have spent much of the past two years paralyzed by infighting, and Speaker Mike Johnson shelved a vote on the package last week due to lack of support.”I certainly hope that it passes,” he told CNBC in an interview.Even if the bill clears the House this time, it is certain to be rejected by the Senate, leaving the two chambers at odds with less than two weeks before government funding expires.Senate Republican Leader Mitch McConnell on Tuesday appeared to show little enthusiasm for the fight, saying his party would likely be blamed if Congress allows the government to shut down shortly before the election. “I’m for whatever avoids a government shutdown,” he told reporters.Johnson said House Republicans were looking “to run the right bill at the right time on the right principle … We’re going to get the job done.”Congress faces an even more critical self-imposed deadline on Jan. 1, before which they must act to raise or extend the nation’s debt ceiling or risk defaulting on more than $35 trillion in federal government debt. More

The FCA, which last year launched a review of the cash savings market, said it had worked with Lloyds (LON:LLOY), HSBC, NatWest, Santander (BME:SAN) UK, Barclays, Nationwide Building Society, TSB, Virgin Money (LON:VM) UK and the Cooperative Bank.Under the FCA’s Consumer Duty, which came into force last July and is one of the regulator’s top priorities, banks, asset managers and other regulated financial services companies have to ensure customers receive fair value and that no group is receiving a worse deal than others on the same product.Savers will receive a total of around 4 billion pounds ($5.3 billion) per year in extra interest payments after average rates on easy access savings accounts rose to 2.11% in June from 1.66% last July. Almost 175 instant access accounts offered rates above 4%, the FCA said. But the largest firms can still pay below the market average for standard easy access products and the watchdog queried how some firms assessed the value of their products.”We expect firms will improve fair value assessments over time and we will take appropriate action where we consider this is not the case,” the FCA said.Regulatory action can range from working with firms to improve customer value to penalties.The Bank of England cut bank rates to 5% from a 16-year high of 5.25% in August and economists expect further easing this year, amid hopes that Britain’s battle with weak growth and high inflation might be coming to an end.($1 = 0.7560 pounds) More

Lawmakers must reach an agreement by September 30 to prevent such a disruption, with expectations leaning towards a deal materializing, albeit “likely not till the last minute,” according to Evercore ISI strategists.“There’s little appetite on either side to have a shutdown five weeks before an election, and lawmakers with close races want to spend October on the campaign trail with few distractions from Washington,” strategists said in a Tuesday note.Although a “relatively clean” continuing resolution (CR) ultimately gets passed, Speaker Johnson’s politics remain complicated, Evercore points out.Johnson is aiming to distance himself from the internal conflicts that plagued his predecessor, Speaker McCarthy, especially as Republicans strive to maintain their majority. However, Johnson’s leadership could be undermined if he appears overly accommodating to Democrats, which might jeopardize his position in the next term, assuming Republicans stay in control.Complicating matters, former President Trump has advised Republicans against supporting a CR unless it includes new voter ID requirements, a demand that Democrats find unacceptable. Johnson has scheduled a vote for a six-month CR with these voter ID stipulations on Wednesday, risking further political strife.Historically, government shutdowns have had a minor and short-lived impact on the macroeconomy. Nonetheless, they create significant disruptions for households and businesses and cast doubt on U.S. fiscal management.“If there is a shutdown, perhaps the biggest market impact would be uncertainty arising from a lack of official economic data – most immediately, the next jobs report on October 4 could be postponed,” strategists continued.As negotiations are expected to reach a climax next week, a key point of contention is the duration of the CR. Johnson has proposed a six-month CR, aligning with Republicans who believe they will have greater leverage next year. However, this is contested by Democrats and some Republican defense advocates who worry that a six-month CR would set up another funding battle too close to an April 30 deadline.That deadline is important as it could trigger a 1% cut in discretionary spending compared to levels in the fiscal 2023 year (FY23) if a budget is not passed due to the terms set under the 2023 debt limit deal. This mechanism was designed to pressure Congress into passing appropriations bills, which they did for FY24 in March, but the outcome for FY25 remains uncertain. More

The ECB cut rates for the second time this year on Thursday and markets are now trying to guess when the next move is coming, with most bets focused on December and some also putting money on another cut in October. Nagel would not, like some of his colleagues, close the door on December, but noted that hurdles remained.”Inflation is currently not where we want it to be,” he told a speech in Frankfurt.While inflation fell to 2.2% in August and may fall even closer to the ECB’s 2% target this month, it will likely rise again towards the end of the year and could end 2024 around 2.5%.A key issue is that wage growth remains rapid and could put upward pressure on private consumption, and thus prices. “In Germany, high wage increases were agreed in the most recent collective bargaining agreements,” Nagel said. “And relatively high new agreements are also expected in the upcoming negotiations.”He added that labour shortages in Germany would likely keep upward pressure on wages even in the longer term.While Nagel declined to say he preferred only quarterly interest rate cuts, like some other prominent conservatives, he did argue for “staying power” to defeat inflation.”Depending on the incoming data, the time intervals between the potential steps may vary,” he said. “This is because the monetary policy course must remain sufficiently tight for long enough for the inflation rate to return to the 2% target in the medium term.”We now need to show that we have enough staying power,” Nagel said. More