US ECONOMY & POLITICS

Fed Minutes to Reveal Long-Awaited Details on Balance-Sheet Plan – Bloomberg, 4/6/2022

• The Federal Reserve will unveil details of its likely plans to shrink its massive balance sheet with the release of minutes of the U.S. central bank’s March meeting, as policy makers confront the highest inflation in four decades.
• The minutes, published at 2 p.m. Washington time Wednesday, will probably show a much faster pace of reduction than the last time it conducted this exercise between 2017 and 2019.
• This could include details on monthly caps that increase over time to govern the roll off of the Fed’s holdings of maturing Treasuries and mortgage-backed securities, which officials bought aggressively to shield the economy as Covid-19 spread.
• Governor Lael Brainard said Tuesday that the process could start as soon as May and go considerably faster than in 2017, when they rose over the course of a year to a maximum monthly roll off of $50 billion combined.
• Economists say the caps on runoff could total roughly $100 billion monthly, allowing around $1 trillion in reductions per year.
• JPMorgan Chase’s Michael Feroli estimates caps at $60 billion for Treasuries and $30 billion for MBS, while Evercore ISI’s Krishna Guha sees $50 billion and $30 billion and Deutsche Bank expects $60 billion and $45 billion.

Fed’s Harker Expects Series of ‘Deliberate, Methodical’ Rate Hikes – Bloomberg, 4/6/2022

• Philadelphia Federal Reserve Bank President Patrick Harker said inflation is “far too high” and steady interest-rate increases and balance sheet reduction should help reduce price pressures over the next few years.
• “Inflation is running far too high, and I am acutely concerned about this,” Harker said Wednesday in prepared remarks to the Delaware State Chamber of Commerce. “Russia’s invasion of Ukraine will add to inflation pressure, not only hiking oil and gas prices but other commodities, like wheat and fertilizer, as well.”
• Harker is currently voting on monetary policy as an alternative member of the Federal Open Market Committee, in place of the Boston Fed, which is currently without a president.
• Its new leader, University of Michigan economist Susan Collins, will take up the post on July 1.

Surging interest rates push mortgage demand down more than 40% from a year ago – CNBC, 4/6/2022

• Rising interest rates are crushing the mortgage market, as precious few homeowners can now benefit from a refinance and more potential homebuyers become priced out.
• Total mortgage application volume fell another 6% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Volume was down 41% from the same week one year ago.
• The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 4.90% from 4.80%, with points decreasing to 0.53 from 0.56 (including the origination fee) for loans with a 20% down payment.
• That rate was just 3.36% one year ago. That is the fourth consecutive week of increases.
• Applications to refinance a home loan, which have been falling steadily for months, dropped another 10% week to week.
• Refinance demand was 62% lower than the same week one year ago.
• The refinance share of all applications fell to 38.8% from 51% a year ago.

Biden Extends Pause on Federal Student-Loan Payments Through August – Wall Street Journal, 4/6/2022

• President Biden on Wednesday extended through Aug. 31 the pause on payments of federal student loans, arguing that resuming the payments would impose significant economic hardships on borrowers.
• Payments and interest accrual have been suspended for borrowers with federal student loans since March 13, 2020, at the start of the pandemic. The pause was scheduled to expire on May 1.
• Mr. Biden, in a statement, cited a recent analysis from the Federal Reserve that said millions of borrowers could face delinquency and default if payments resumed next month as scheduled. He said the extension of the pause will help borrowers prepare to resume paying their loans and give the Education Department more time to improve student-loan programs.
• In the report cited by Mr. Biden, The Federal Reserve Bank of New York found that around 37 million federal student-loan borrowers were spared $195 billion in loan payments since the government froze their payments at the onset of the pandemic.
• It also predicted that many of them are likely to struggle with their debts when the moratorium is lifted.

EUROPE & WORLD

China’s Services Sector Posts Steepest Decline Since Pandemic’s Start – Wall Street Journal, 4/6/2022

• Activity in China’s services sector tumbled in March at its fastest pace since the onset of the Covid-19 pandemic, as lockdowns aimed at smothering outbreaks in major cities kept millions at home and pummeled consumer spending.
• On Tuesday, authorities extended a sweeping lockdown in Shanghai, an industrial powerhouse and major port, adding to renewed anxiety over global supply chains.
• Logistics operators report that restrictions are already making it harder to move goods around and keep factories operating at full capacity.
• The Caixin China services purchasing managers index dropped to 42.0 in March from 50.2 in February, Caixin Media Co. and research company IHS Markit said. A reading below 50 indicates activity is contracting rather than expanding.
• Service-sector employment fell again, according to the index, while new orders and export demand also declined.
• Business confidence reached a 19-month low.
• The purchasing managers index for Hong Kong’s manufacturing, services and construction sectors came in at 42 in March, IHS Markit said Wednesday, down from 42.9 in February, which was below the 50-mark signaling expansion.
• The latest decline was the fastest since April 2020, IHS Markit said, as Hong Kong’s struggles with Covid-19 were aggravated by widening lockdowns on the mainland.
• The number of ships awaiting a berth in Shanghai and the nearby port of Ningbo is increasing, according to data from Kuehne+Nagel International AG, a Switzerland-based global logistics operator.
• Around 100 vessels were waiting to dock on Monday, up from 82 on Friday and 62 Jan. 1, data shows.

Tesla Halted, Chips Pile Up as Shanghai Lockdown Upends Business – Bloomberg, 4/5/2022

• Tesla’s factory shutdown has stretched out to at least 12 days, much-needed semiconductors are piling up at manufacturers amid a shortage of truck drivers, and bankers are camping in their offices as Shanghai’s Covid-19 lockdown disrupts businesses in China’s financial hub.
• Electric-car pioneer Tesla on Tuesday told some suppliers and workers that its Shanghai factory — which has been shuttered since the city went into a phased lockdown on March 28 — will remain closed at least through Thursday, according to people familiar with the matter, who asked not to be identified because the information isn’t public.
• Staff at banks and fund management firms that were called back to work before the lockdown started remain stuck in their offices.
• Some companies, including chip giants Taiwan Semiconductor Manufacturing Co. and SMIC, as well as iPhone assembler Pegatron have been able to keep plants running by implementing a so-called closed loop system where workers live on-site and are tested regularly.
• For the likes of SMIC, a new headache is emerging: securing the trucks they will need to get their chips to clients.
• A representative for SMIC declined to comment on logistics.

Peru Deploys Army to Control Violent Protests Disrupting Exports – Bloomberg, 4/5/2022

• Peru deployed the armed forces to control violent protests against inflation that have intensified since last week, causing clashes with police, temporary food shortages in Lima, and disrupting agricultural exports.
• Bus drivers began a strike earlier in the day, blocking highways and extending a crisis that had started last week when protesting truckers and farmers interrupted the supply of food to the capital.
• The country’s agricultural exports, including blueberries, avocados and grapes, are now suffering disruptions, according to an association of exporters.
• President Pedro Castillo, who just survived a second impeachment attempt by congress last week, lowered fuel taxes and increased the minimum wage by 10% over the weekend to help Peruvians struggling with the fastest inflation in 24 years.
• Yet the measures did little to appease bus drivers, most of them working informal jobs without fixed salaries.
• Housewives angry with rising food costs also joined the protests on Monday and local media showed mini-markets being looted in the southern region of Ica. School classes were suspended until Tuesday amid the chaos.

In stunning reversal, protests leave Sri Lanka’s ruling dynasty teetering – Reuters, 4/6/2022

• In 2020, Mahinda Rajapaksa won elections to become Sri Lanka’s prime minister, serving under his brother and president Gotabaya. In 2021, another sibling, Basil, was named finance minister, tightening the family’s hold on power.
• Less than a year later, the country’s pre-eminent political dynasty is in trouble, as protesters take to the streets making demands that would have been unthinkable before the economic crisis struck: that the president steps down.
• From beachside towns in the south to the Tamil-speaking north, more than 100 demonstrations have broken out across the island nation since last week, according to the WatchDog research collective.
• Basil resigned on Sunday along with other members of the cabinet, and on Tuesday at least 41 lawmakers walked out of the ruling coalition, leaving the government with a minority in the 225-member house and opening up the possibility of a no-confidence motion.
• The president’s office did not immediately respond to a request for comment on the crisis and on calls for him to resign.

Ruble Erases Invasion Loss Even as Default Risk, Sanctions Swirl – Bloomberg, 4/6/2022

• The Russian ruble has wiped out the steep losses it incurred in the weeks after President Vladimir Putin sent troops into Ukraine.
• The currency on Wednesday advanced past 81.16 per U.S. dollar in Moscow trading, the level it closed at on Feb. 23 — the day before Putin launched his attack. It’s a recovery that comes at an ironic moment, as sweeping sanctions cripple Russia’s economy and send the government teetering on the edge of default.
• The ruble strengthened for a 11th session in 13 on Wednesday, locally advancing an additional 2.6% to 81.1 against the greenback, despite signs of further pressure.
• The European Union and the U.S. are coordinating a new raft of financial sanctions against Russia, while the Finance Ministry said its attempt to service debt in dollars had been blocked, potentially moving the country closer to its first external default in about a century.

Factmonster – TODAY in HISTORY

• Joseph Smith and five others organized the Church of Jesus Christ of Latter-day Saints in Fayette, New York. (1830)
• The Battle of Shiloh in the American Civil War began. (1862)
• First modern Olympic Games opened in Athens, Greece. (1896)
• U.S. declared war on Germany and entered World War I. (1917)
• The presidents of Rwanda and Burundi were killed in a plane crash. (1994)