Repo Men
News Items. By John Ellis.
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1. In one of the boldest state-led efforts to expand access to higher education, New Mexico is unveiling a plan today to make tuition at its public colleges and universities free for all state residents, regardless of family income. The move comes as many American families grapple with the rising cost of higher education and as discussions about free public college gain momentum in state legislatures and on the presidential debate stage. Nearly half of the states, including New York, Oregon and Tennessee, have guaranteed free two- or four-year public college to some students. But the New Mexico proposal goes further, promising four years of tuition even to students whose families can afford to pay the sticker price.
2. For the first time in more than a decade, the Federal Reserve injected cash into money markets Tuesday to pull down interest rates and said it would do so again Wednesday after "technical factors" led to a sudden shortfall of cash. The pressures relate to shortages of funds banks face resulting from an increase in federal borrowing and the central bank’s decision to shrink the size of its securities holdings in recent years. It reduced these holdings by not buying new ones when they matured, effectively taking money out of the financial system.The cost of borrowing cash overnight via repurchasing agreements, known as repos, surged on Tuesday morning to as high as 10 per cent, a more than fourfold increase from Monday morning, according to Refinitiv data.
3. Banking agencies moved to ease a post-crisis rule that could free up nearly $40 billion for big global banks, the latest regulatory victory for Wall Street. The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency approved a proposal that would reduce the amount of cash large lenders, including JPMorgan Chase and Goldman Sachs, must post to cover the risk of trades going bad in the swaps market.
4. Banks are set to ramp up their sale of high-risk debt to investors desperate for new ways of bolstering their profits as rock-bottom interest rates hit their portfolios. Demand for the riskiest — and often the most rewarding — form of bank capital debt, known as CoCo bonds, has risen sharply in recent months as the return on the bonds of Germany and other countries have dwindled to worse than nothing. Nearly half of European corporate debt now carries negative yields, and with rates falling in the United States, demand for bank capital has increased as investors accept higher risk in exchange for some sort of return. Now banks are preparing a raft of such bond sales as they look to boost their balance sheets ahead of schedule.
5. If you think negative interest rates are weird, brace yourself. The European Central Bank is about to start lending to some banks at less than it pays them for putting money on deposit. This perverse outcome is the result of the interaction of the ECB’s multifarious efforts to boost inflation. But it could also be the first step toward creating a new weapon for monetary authorities rapidly running out of traditional firepower.
6. European Commission President Jean-Claude Juncker said on Wednesday that the risk of a no-deal Brexit on October 31 is now “palpable,” sparking a drop in the pound. Juncker, speaking to the European Parliament in Strasbourg, France, after a meeting with U.K. Prime Minister Boris Johnson on Monday, said the main sticking point continued to be the so-called backstop to avoid a hard Irish border and demanded that the U.K. provide its proposals for an alternative in written form as soon as possible.
7. Mark Carney may be asked to extend his term as Bank of England governor again if the U.K.’s exit from the European Union is delayed, according to the Financial Times. The prospect of an election in coming months is making the imminent naming of a successor less and less likely, meaning the former Bank of Canada chief could be asked to stay on beyond his current departure date of Jan. 31, the newspaper reported, citing unidentified government officials.
8. European car registrations fell sharply in August, deepening the woes of an industry battling sluggish demand in key markets and the challenge of rolling out electric vehicles. Sales dropped 8.4%, the steepest decline this year, according to the European Automobile Manufacturers Association. The fall was partly due to exceptionally high growth in the same month a year earlier as manufacturers rushed out models ahead of tough new emissions-testing rules.
9. U.S. industrial production, on the other hand, rose in August, a welcome sign of resilience in the economy after recent weak readings. Industrial production, a measure of factory, mining and utility output, rose a seasonally adjusted 0.6% in August from the prior month, the Federal Reserve said Tuesday, well above economists’ expectations for a 0.2% increase.
10. Japanese exports fell for a ninth straight month in August as China's slowdown, the Sino-American trade spat and softness in the global tech sector weighed on demand. The value of shipments abroad dropped 8.2% from a year earlier, compared with an estimated 10% decline. The trade balance was a deficit of 136.3 billion yen ($1.3 billion).
11. Saudi Arabia will soon restore most of its oil output and return to normal production levels in weeks, the country’s energy ministry said Tuesday, following the attacks last weekend on the country’s facilities that hobbled the world’s largest oil exporter. The kingdom has restored 50% of production lost in Saturday’s attacks as of Tuesday, newly appointed Energy Minister Prince Abdulaziz bin Salman said. He added that the kingdom is using reserves to supply oil to its customers at pre-attack levels and normal production of 9.8 million barrels a day will return by the end of September. Some Saudi officials said a return to normal will take longer.
12. Pentagon officials claimed to have pinpointed the launch area for the weekend’s devastating attack on Saudi oil facilities, saying that cruise missiles were fired from western Iran. They told US television stations last night that radar imagery and other intelligence suggested that the missiles flew south from the Khuzestan region on the Iranian side of the head of the Gulf, near the Iraqi border.
13. U.S. and Saudi military forces and their elaborate air-defense systems failed to detect the launch of airstrikes aimed at Saudi Arabian oil facilities, allowing dozens of drones and missiles to hit their targets, U.S. officials said. Saudi and U.S. focus had been largely on the kingdom’s southern border with Yemen, where Riyadh has been fighting Iranian-backed Houthi rebels in Yemen’s civil war, the officials said. The attacks, however, originated from Iranian territory in the northern Persian Gulf, people familiar with the investigation into the strikes said.
14. Tehran has concluded that its recent aggressions have effectively strengthened its leverage with the West and in the region. And despite his occasional outburst of threats, Mr. Trump is deeply reluctant to risk an open-ended military confrontation in the Middle East that would endanger world oil supplies in the middle of a re-election campaign. “Iranian hard-liners consider Trump’s inconsistency to be weakness,” said Ali Ansari, a professor of Iranian history at the University of St. Andrews in Scotland. For Iranian hard-liners, he said, “their policy of ‘maximum resistance’ is working.”
15. The Trump administration announced that Secretary of State Mike Pompeo would fly to the Persian Gulf on Wednesday to discuss a response to an attack on Saudi oil facilities, as Iran’s supreme leader ruled out any direct talks with the United States. Mr. Pompeo’s spur-of-the-moment trip, which will include stops in Saudi Arabia and the United Arab Emirates, underscores the danger that tensions with Iran could spiral into a military conflict. President Trump has said that Iran was probably responsible for the attack, but that he would “like to avoid” a war, while Pompeo has assigned blame more directly.
16. Benjamin Netanyahu’s gamble to hold elections for a second time this year backfired after a stunning deadlock left Israel rudderless and convulsed by a new wave of political turmoil. The inconclusive race against his centrist rival, former military chief Benny Gantz, dealt a tough blow to Israel’s longest-serving prime minister. At best, he’ll return to office badly weakened at a time when Israel’s diplomatic and security challenges are mounting and the Trump administration prepares to present its Middle East peace plan. At worst, he’ll be forced from power and rendered more vulnerable to prosecution on corruption charges.
17. Spaniards will head back to the polls for the fourth time in as many years after King Felipe said last night he had found no candidate to form a government. Although the Socialist Party, led by Pedro Sánchez, 47, the acting prime minister, won the most votes in a general election five months ago, its 123 MPs fell well short of a majority in the 350-seat parliament. Snap elections will be held on November 10.
18. Former Vice President Joe Biden and Massachusetts Sen. Elizabeth Warren have gained support since the summer in their fight for the Democratic presidential nomination and are beginning to separate themselves from the rest of the party’s sprawling 2020 field, a new Wall Street Journal/NBC News poll finds. Mr. Biden was the top choice of 31% of Democratic primary voters, while Ms. Warren was favored by 25% in the poll, which was conducted after the party’s third primary debate, in Houston, last week. Vermont Sen. Bernie Sanders was the only other candidate with double-digit support, at 14%.
19. Creepy: The smart TVs in our homes are leaking sensitive user data to companies including Netflix, Google and Facebook even when some devices are idle, according to two large-scale analyses. Researchers from Northeastern University and Imperial College London found that a number of smart TVs, including those made by Samsung and LG, and the streaming dongles Roku and Amazon’s FireTV were sending out data such as location and IP address to Netflix and third-party advertisers. The data were being sent whether or not the user had a Netflix account. The researchers also found that other smart devices including speakers and cameras were sending user data to dozens of third parties including Spotify and Microsoft.
20. Researchers have generated a long list of genetic mutations linked to cancer, but sorting out which ones really drive tumors to grow uncontrollably and which ones don’t has been a challenge. A new mathematical model developed by researchers at the Broad Institute of MIT and Harvard and Massachusetts General Hospital (MGH) could help with this task, by accurately picking out the “driver” mutations from the less important “passenger” ones. Doing this more accurately could help drug developers focus their work on the true drivers of cancer.
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Quick Links: The repo market: What it is, and why everyone is talking about it again. Investors braced for aftershocks following momentum sell-off. How rock-bottom bond yields spread from Japan to the rest of the world. European banks fear no escape from negative rates. UK inflation falls to weakest level since late 2016. Why rentier capitalism is damaging liberal democracy. Ninety-one percent of people worldwide live in areas where air pollution levels exceed the World Health Organization’s recommended limits. Return of the Blob? New marine heat wave threatens Pacific. Where does all the plastic go? Climate change could put insurance firms out of business. How Generation Z is redefining business. AI learned to use tools after nearly 500 million games of hide and seek. Nobody wants a used electric vehicle in China, unless it’s a Tesla. James Murdoch on life after Fox. Mike Yastrzemski, grandson of Red Sox legend Carl, homers at Fenway. List of the winners of the Lasker Awards. Chewy, another company that will soon be crushed by Amazon, loses yet more money. Amazon’s Alexa masters Hindi and Hinglish in time for Diwali. Why do so many incompetent men win at work? Three close encounters videos confirmed by the US Navy. Drinking tea improves brain health, study suggests.
Political Links: Unpacking the intelligence community whistleblower complaint. Corey Lewandowski channels Oliver North. China and Trump are making Japan nervous. ISIS seeks new outposts across the Indian Ocean. Europe’s far-right seeks return to power in Austria vote (September 29). The Italy of the two Matteos (use Google translate). U.K. Supreme Court weighs whether Boris Johnson broke the law in suspending Parliament. Boris Johnson has become more popular since becoming prime minister. Trump administration to revoke California’s power to set stricter auto emissions standards. The U.S. abortion rate falls to lowest level since Roe v. Wade. AARP launches an all-out attack on the pharmaceutical industry. Millennial movers have hastened the growth of left-leaning metros in southern red states such as Texas, Arizona, and Georgia. The fight for the Latino vote in Florida. Elizabeth Warren’s fans aren’t naive about her plans. Sanders campaign wracked by dissension. Michael Bennet releases new TV ads in Iowa. Whatever our differences, we all agree on Bill de Blasio. Cokie Roberts, the highly-regarded NPR correspondent and ABC News commentator, has died. She was 75 years old.