Aurelia Butler

WASHINGTON (Reuters) – Utah homebuilder Ivory Homes still has a pipeline of several hundred houses under construction, but CEO Clark Ivory isn’t pulling permits for any more at this point, and in a year of retrenchment for the single-family home industry, he has laid off just under 10% of his workers.But don’t look for that to be reflected in overall U.S. construction employment or spending data, a canary that is very much still breathing inside what would usually be the toxifying air of rising U.S. interest rates.While housing starts are falling, “there is still a fair amount of completion happening,” Ivory said, adding that contractors can move on to other jobs once finished with his company’s projects. “There are other areas of construction – public works, industrial, roads and infrastructure. There is so much money out there,” he said, from pandemic spending programs as well as recent federal government initiatives like the Inflation Reduction Act. Graphic-Nonresidential building takes over (https://www.reuters.com/graphics/USA-FED/ANNIVERSARY/lbpggjbmapq/chart.png) A year after the Federal Reserve began a historic drive to arrest inflation with rapid interest rate hikes, Fed officials meeting this week face a wildly confusing economy that by some measures continues operating beyond capacity – a recipe for rising prices – and by others seems to be approaching a serious fissure given how a banking crisis has rattled markets in the last two weeks.Is the economy really standing firm against the Fed’s aggressive rate moves? Rate increases have averaged more than half a percentage point at each of the eight Fed meetings since March of 2022, and pushed the benchmark overnight interest rate from the near-zero level to the current 4.50%-4.75% range. Or are businesses and consumers just slow to respond, with the full impact perhaps developing now?As the tightening orchestrated by Fed Chair Jerome Powell hits the one-year mark, the extent of the influence depends on where you look. A MIXED INFLATION SCORECARDThe Fed’s purpose throughout its aggressive tightening cycle has been to reduce inflation from the 40-year-high reached last summer down to the 2% annual rate the central bank regards as consistent with its generic goal of “price stability.”Inflation has slowed. But recent progress has been less than hoped. As of March 8, in his last public comments before the Fed’s March 21-22 meeting, Powell said recent data had “reversed the softening trends” the central bank had hoped were becoming established, and that meant higher interest rates might be needed to slow an economy that doesn’t want to buckle. GRAPHIC: Rates and inflation (https://www.reuters.com/graphics/USA-FED/INFLATION/gkvlgnaywpb/chart.png) DOGS THAT DIDN’T BARK (YET)Construction: The status of the construction industry shows the Fed’s pandemic-era dilemma.Monetary policy works on the economy through many different channels, but housing is an important one. As interest rates rise, buying slows, spending that would have taken place on home building supplies and new home furnishings plummets, and existing homeowners shy away from financing major improvements.Since the 1970s, declines in housing starts have been followed by drops in construction employment, and been associated with the onset of recession. It is not happening the same way this time. Graphic-U.S. housing starts and construction jobs (https://www.reuters.com/graphics/USA-ECONOMY/ANNIVERSARY/zdpxdqnwapx/chart.png) Employment: The job market overall in fact has shown only initial signs of slowing – and the Fed has put a lot of weight on tempered job and wage growth as a necessary condition for inflation to fall. Between ongoing demand and the difficulty of hiring, many businesses seem to be holding on to existing workers and adding headcount when they can to try to stay fully staffed. The number of job openings for each available worker has barely budged from the record levels set during the COVID-19 pandemic, and monthly job growth remains in the hundreds of thousands. Graphic-Mo GRAPHIC: re jobs Job gains than remain jobseekers strong https://www.reuters.com/graphics/USA-FED/POWELL/xmvjkrbdgpr/chart.png in the US (https://www.reuters.com/graphics/USA-FED/JOBS/egvbkmeoepq/chart.png) Income: For households, that means the pump is still primed. Even after adjusting for inflation, after-tax income – the amount of money left to spend or save – has been rising. GRAPHIC: Graphic-Real disposable personal income https://www.reuters.com/graphics/USA-FED/ANNIVERSARY/akpeqemrlpr/chart.png SIGNS OF STRESS?The Fed’s rate increases have had an impact. Manufacturing: A broad index of industrial output published by the Fed is among the top-line data that economists watch for signs the U.S. is entering recession. It is currently declining. GRAPHIC: Industrial production dips https://www.reuters.com/graphics/USA-ECONOMY/RECESSIONTEMPLATE/gkvlwbdelpb/chart.png Capital expenditures: Business investment is also weak, and detracted from overall economic output last year – also a common precursor to recession and a sort of proxy vote by firms about the outlook and a sign they are delaying spending. GRAPHIC: Business investment lags https://www.reuters.com/graphics/USA-FED/ANNIVERSARY/zgpobakdevd/chart.png Credit: Tighter monetary policy is starting to show up in measures of credit as well, and recent stress among midsized banks may add to that if financial firms become more cautious in their lending. As long as it remains orderly, a credit crunch could be positive for the Fed. If businesses and households are less free to borrow, they are likely less free to spend – and demand for goods and services will fall, as should the pressure to raise prices. GRAPHIC: Tighter business credit conditions https://www.reuters.com/graphics/USA-FED/ECONOMY/egpbyjagzvq/chart.png More

The IMF’s board has finally backed a $3bn bailout for Sri Lanka to help the country restructure its debts and relieve a “catastrophic” economic and social crisis.The deal on the bailout, which was first agreed in principle last September, was reached after resistance from China, the country’s biggest bilateral lender, was overcome earlier this month. The country was thrown into turmoil last year after Russia’s war in Ukraine led to soaring inflation and shortages, exacerbating years of mismanagement and policy errors.The IMF said on Monday that Sri Lanka had been hit hard by “a catastrophic economic and humanitarian crisis” and that it faced significant challenges “stemming from pre-existing vulnerabilities and mis-steps”. Sri Lanka appealed for IMF support after its former president fled the country and resigned last July following months of mass street protests. The deal is designed to help restructure $95bn-worth of public debt — a figure that amounts to around 130 per cent of GDP — owed mostly to foreign governments and commercial lenders, including international and domestic bondholders.In return for the bailout, Sri Lankan authorities have agreed to far-reaching fiscal, monetary and governance reforms to fight corruption and raise tax revenues. Kristalina Georgieva, IMF managing director, said overcoming the crisis would require “swift and timely implementation” of the IMF programme including “strong ownership” of reforms agreed between IMF staff and Sri Lankan authorities.Sri Lanka will get one immediate and eight subsequent disbursements, each of about $333mn, over the course of the four-year IMF programme.Payouts will depend on Sri Lanka meeting the programme’s conditions, starting with an agreement with its creditors on how to restructure its public debts.The IMF would normally expect this to be largely complete before its first six-month review. But given the complexity of Sri Lanka’s debts, analysts say, reaching agreement with all creditors could take 18 months. A preliminary deal with bilateral lenders is thought to be enough to trigger the release of the second tranche, however. Reforms include measures to tackle corruption and inefficiency at state-owned enterprises; fight inflation and rebuild foreign currency reserves; recapitalise the banking sector; and overhaul the tax system, under which half of all the country’s taxpayers pay less than 5 per cent of their income to the state. China agreed two weeks ago to join other bilateral creditors, including India and Japan, in supporting the deal. More

Christine Lagarde has acknowledged that turmoil in the banking sector could force the European Central Bank to stop raising interest rates, should the recent market jitters hit lending to the eurozone’s businesses and households. The ECB president told MEPs on Monday that eurozone banks had “very limited exposure” to Credit Suisse after it was taken over by its rival UBS in a weekend rescue deal that imposed losses on shareholders and wiped out SFr16bn of risky additional tier 1, or AT-1, debt.“We are not talking about billions [of exposure to Credit Suisse] here, we are talking about millions,” Lagarde said, adding that the eurozone banking system was “strong in terms of its aggregate capital and liquidity position”.However, Lagarde warned that the turmoil risked worsening a recent contraction in the supply of credit. “We are already seeing some tightening of financial conditions,” Lagarde said. “That might be accentuated by the tensions in the banking system and we will have to take that into account as part of the data we review as part of our next monetary policy decision.”Total eurozone lending by banks in the bloc contracted by €61bn between January and February, the biggest monthly decline since 2013. The ECB said in January that its quarterly survey of lenders showed they had tightened their lending criteria on business loans by the most since the region’s sovereign debt crisis in 2011. Demand for mortgages fell at the fastest pace on record.The tensions over the past two weeks were “not trivial”, Lagarde said, adding that the collapse of Silicon Valley Bank in the US and crisis at Credit Suisse would “not be without repercussions”. She warned banks would need to prepare for “a potentially less favourable environment” owing to lower growth, rising funding costs and higher defaults.The ECB last week raised rates by half a percentage point, taking its deposit rate to 3 per cent, to tackle inflation that remains more than four times above its 2 per cent target. The decision came despite calls for it to pause to see how the turmoil in the banking system plays out. Markets are pricing in a high chance that last week’s rate increase will be followed by a pause by the ECB at its next policy meeting on May 4.The US Federal Reserve and Bank of England are due to announce their rate decisions later this week.“There may come a point where central banks have no choice but to let inflationary concerns take a back seat and cut interest rates to shore up confidence,” said Vicky Redwood, a former Bank of England official who advises research group Capital Economics.However, Lagarde repeated that there was “no trade-off” between fighting inflation and maintaining financial stability. She said the ECB was “ready to respond as necessary” to preserve price and financial stability in the euro area. It was monitoring markets and its toolkit was “fully equipped to provide liquidity support to the euro area financial system if needed”.She also said eurozone lenders were “well supervised”, with more than 2,200 banks in Europe covered by Basel III rules requiring them to maintain a minimum level of liquid assets. In the US, fewer banks are required to meet globally-agreed Basel standards, with only the biggest lenders needing to follow the rules. More

Today’s top storiesThe UN said a 1.5C rise in global temperature was “more likely than not” in the near-term, with the risk greater than previously thought. It also concluded that the lack of political commitment was a key barrier to progress in what was a “rapidly closing window”.Chinese president Xi Jinping met Russian counterpart Vladimir Putin in his first state visit to Moscow for four years. Police and soldiers in South Africa were deployed to quell a threatened “national shutdown” by the radical opposition Economic Freedom Fighters who are demanding the removal of president Cyril Ramaphosa.For up-to-the-minute news updates, visit our live blogGood evening.“Banking is a massive, complicated and delicate confidence trick. Normally it works fine. But as soon as people worry that it could fall apart, it often does, sometimes spectacularly.”That was the view of Frankfurt bureau chief Martin Arnold after Credit Suisse was taken over by larger rival UBS at the weekend. The $3.25bn deal was finalised yesterday after Swiss regulators rushed to safeguard the country’s banking sector and prevent the crisis spreading across global markets.Ever since the current turmoil began with the collapse of lenders in the US (see Business section below), investors have worried about which other banks could be vulnerable. Credit Suisse was already in serious trouble after a series of scandals and management shake-ups and the shotgun wedding with UBS follows a $54bn failed lifeline from the Swiss central bank last week.Although the deal cements UBS’s position as the world’s largest wealth manager, with invested assets of $5tn, CS bondholders are in uproar and contemplating legal action after $17bn of the bank’s debt was wiped out. Bondholders with additional tier 1 (AT1) bonds — a form of debt introduced after the global financial crisis to make banks increase their capital levels — will receive nothing, while shareholders will get some SFr3bn ($3.2bn). EU authorities have also expressed concern. CS staff will however still collect their bonuses. As Arnold points out, Europe’s institutions, although in a stronger position than in the previous crisis, are not immune to the current turmoil. Lenders are also likely to become more cautious, reducing the flow of credit, increasing the risk of a recession and raising stress in already vulnerable areas such as commercial property — none of which is good for banks, he notes.European Central Bank chief Christine Lagarde today welcomed the Credit Suisse takeover and said the ECB was “ready to respond as necessary” to preserve price and financial stability. She stressed that the eurozone banking system was “resilient, with strong capital and liquidity positions”.Although the bank failures in Europe and the US have different circumstances, one thing they have in common is the effect of sharp rises in global interest rates, with the current tumult potentially acting as a brake on central banks’ plans, starting with decisions from the Federal Reserve on Wednesday and the Bank of England on Thursday.The other major development of the weekend was a co-ordinated plan from the Fed and five other central banks to improve access to US dollars “to ease strains in global funding markets”.The big question however remains: are banks on the edge of a 2008-style meltdown?FT deputy editor Patrick Jenkins, writing before the CS deal, said that even if the chances of another full-blown financial meltdown were low, our ability to deal with it might be less. “Back in 2008, policymakers were able to slash interest rates, launch quantitative easing and flood the banks with rescue capital and liquidity,” he writes. “With government balance sheets today far more stretched, and interest rates needing to rise to combat inflation, the weaponry at their disposal is dangerously diminished.” Need to know: UK and Europe economyThe DUP, Northern Ireland’s biggest unionist party, will vote against Rishi Sunak’s deal on the province’s post-Brexit trading arrangements, dealing a blow to the prime minister and the chances of any imminent return of its power-sharing government.One part of the UK’s rail disputes has ended, after RMT union members accepted a pay offer from infrastructure owner Network Rail. The union is still in dispute with a group of train operating companies, while drivers remain in talks with train companies in their own dispute over pay.A think-tank chaired by former chancellor George Osborne recommended council tax, stamp duty and business rates in England should be replaced with a devolved land-value tax as part of a radical overhaul of local government funding.A Bank of England plan to revamp bank capital rules risked a 25 per cent cut in lending to small businesses, according to a new report.Need to know: Global economyOur latest Big Read looks at how Singapore and Hong Kong, two of Asia’s biggest financial centres, are vying to rival offshore locations such as the Cayman Islands and shift the global centre of gravity for hedge funds and the world’s richest families.India’s high-growth economy — forecast by the IMF to expand 6.1 per cent this year — is failing to create enough jobs, especially for young people, leaving many without work or toiling in labour that does not match their skills. Companies are replanting millions of hectares of trees and generating revenue through carbon credit sales as Brazil gears up to reforest the Amazon.Need to know: businessThe banking crisis on the other side of the Atlantic continues too. The bid deadline for failed Silicon Valley Bank has been extended as buyers hold back; shares in First Republic plunged again today after its credit rating was cut for the second time in the space of a week; and New York Community Bank agreed to buy most of the operations of collapsed Signature Bank. The failures of Signature and Silicon Valley Bank have thrown the spotlight on smaller and regional lenders, shaking the post 2008-view that the biggest systemic dangers lay with losses at the Wall Street giants. Hollywood is bracing for a strike as screenwriters and movie studios begin contract negotiations that are expected to be the most contentious since 2007, when the film and television industry ground to a halt for 100 days. The Writers Guild of America is targeting compensation practices that have taken root in the streaming era — including how royalties are paid.Big Pharma wants the US government to extend chip industry tax breaks to the biotech sector. President Joe Biden announced a national biotechnology and biomanufacturing strategy in September to strengthen supply chains, create American jobs and ward off competition, particularly from China. Poul Weihrauch, the head of consumer group Mars, hit out at “nonsense” attacks on corporate ESG (environmental, social, and governance) commitments: “We don’t believe that purpose and profit are enemies.” One of our charts of the week: Profit margins of US companies have reached levels not seen since the aftermath of the second world war.The World of WorkAbout 6 per cent of the UK’s working age population is currently “inactive” — not seeking or available for work — due to long-term sickness, the highest rate in almost 18 years.

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Consumer editor Claer Barrett welcomes new UK plans to improve childcare but says the government’s “gross neglect and chronic underfunding” of the early years sector means it will take years before women truly benefit from the changes.Columnist Jemima Kelly skewers the new workplace buzzword: “mattering”. The concept is not about honouring working hours, or making sure employees are achieving a proper work-life balance, but rather cultivating the belief that you are important to others in your workplace.Columnist Simon Kuper argues the higher paid should work longer than their lower paid counterparts who suffer miserable conditions and a shorter lifespan.Some good newsSuccessful cataract surgeries on king penguins in a Singaporean wildlife park mark a milestone in veterinary medicine. “While intraocular lens implants are common for humans and some domestic mammals, it is likely the first time they have been successfully used on penguins,” the park says.

A veterinary ophthalmologist gives the once over to a king penguin at Jurong Bird Park in Singapore © Mandai Wildlife Group More

Northern Ireland’s biggest unionist party will vote against Rishi Sunak’s Brexit deal on Wednesday in a blow to the UK prime minister and the chances of a swift restoration of the region’s power-sharing government.The Democratic Unionist party’s decision-making body — its 12 officers — met on Monday and unanimously agreed to oppose a key element of Sunak’s agreement with the EU, the Windsor framework.Sunak is also braced for a rebellion by Eurosceptic Tory MPs, who have been working closely with the DUP and will meet on Tuesday to discuss a report by a “star chamber” of lawyers who have been poring over the deal.“Some MPs may be led by the DUP’s decision,” said one senior Conservative official. The lawyers, working for the pro-Brexit European Research Group of Tory MPs, are expected to conclude that Sunak’s deal is deficient. The opposition of the DUP and Tory Eurosceptics will be a setback for the prime minister, but he is expected to easily win the House of Commons vote on his deal on Wednesday.This is because the vast majority of Conservative MPs are due to vote for the deal, while Labour has also said it would back it.One senior member of the European Research Group said: “The group will split. Maybe a dozen could vote against, but it will be a futile protest. It’s time to bank the gains we have made.”The Commons vote will be on a mechanism in the Windsor framework dubbed the Stormont brake, which is designed to allay the concerns of unionist politicians over the introduction of new EU legislation in Northern Ireland.Under the Northern Ireland protocol in Boris Johnson’s 2019 Brexit deal with the EU, the region remains in the bloc’s single market for goods and abides by relevant rules.The Stormont brake gives Northern Ireland’s assembly at Stormont the right to object to new or updated EU rules, and in turn provides Britain with the opportunity not to implement the measures.Sir Jeffrey Donaldson, DUP leader, said it was “vital” that Stormont legislators had “democratic mechanisms that are effective in law” to decide if new or amended laws are implemented. “Whilst representing real progress, the ‘brake’ does not deal with the fundamental issue which is the imposition of EU law by the protocol,” he added.Unionist politicians object to how the protocol treats Northern Ireland differently to the rest of the UK, which left the EU single market and customs union in January 2021.The DUP resents being “bounced” into the Commons vote while its own panel canvasses unionist views and considers the Windsor framework.Donaldson said the party was looking for “clarification, change and reworking” of the text.The news came as a disappointment to Downing Street, which has been trying to persuade the DUP to back Sunak’s deal and end its 10-month boycott of the Stormont executive over its objections to the protocol.One senior UK government figure said: “Their voters don’t like the deal at all — so they are in a bind. The question is whether they can complain about it and say they want to improve it, but still go back into Stormont.”Donaldson has said it is important to get Sunak’s deal right despite the looming 25th anniversary on April 10 of the Good Friday Agreement, which ended Northern Ireland’s three decades of conflict and established power-sharing.US president Joe Biden has confirmed he will visit Belfast to mark the occasion, but no date for his visit has yet been set.The Windsor framework eases some of the trade frictions resulting from the protocol, which sought to avoid a hard border on the island of Ireland.The framework creates a green lane for goods going from Great Britain to Northern Ireland, involving minimal checks. There is also a red lane for detailed checks on goods destined for the Irish Republic.

Video: The Brexit effect: how leaving the EU hit the UK More

(Reuters) -PDD Holdings Inc, which owns discount e-commerce platforms Pinduoduo (NASDAQ:PDD) and Temu, missed expectations on Monday for fourth-quarter revenue as China’s post-reopening consumer recovery remains patchy.U.S.-listed shares of PDD Holdings fell as much as 13.9% in premarket trading.PDD reported revenue of 39.82 billion yuan ($5.79 billion) for the quarter ended Dec. 31, up 46% year-on-year, but this fell short of estimates for 41.01 billion yuan, based on Refinitiv data.The group had reported 65% revenue growth in its third- quarter earnings last November.PDD’s fourth quarter included only the first few weeks of China’s reopening from its strict zero-COVID rules in December.The company’s revenue growth compares with single-digit gains reported by Chinese competitors Alibaba (NYSE:BABA) and JD (NASDAQ:JD).com for the same period, leading Bo Pei, an analyst at US Tiger Securities, to note that “investors do seem to be a bit overreacting to the miss.”PDD Holdings Chairman and Chief Executive Chen Lei told analysts on a call following the earnings announcement there was “strong resilience” in China’s consumption market in the quarter.”Sales volumes of daily essential products on the platform showed steady growth, meanwhile consumer demand for high quality merchandise is growing, categories like mobile phones, beauty and cosmetics and baby products all had decent growth,” he said.JD.com warned in March that consumer confidence in China would take time to rebuild amid economic uncertainties.China’s total retail sales contracted 1.8% in December, while the country’s economic growth in 2022 slumped to one of its worst levels in half a century. Discounting campaigns by rivals have also intensified competition for PDD, which has gained market share since it first came on the scene in 2015 by targeting price conscious consumers with discounted goods.”We believe that healthy competition is beneficial to consumers and the entire industry but when competition intensifies, sometimes peers react [by going] in a different direction,” Chen said in an apparent nod to increased discounting in the market. “We need to focus on our own healthy development and embrace industry competition even when sometimes it involves unsustainable practices from peers,” he added.PDD’s fast-growing international platform Temu, which was launched in September to U.S. shoppers, sells a variety of goods, from shoes, jewellery, electronics and homewares directly from Chinese merchants. Temu’s gross merchandise value – the total sales before expenses – increased to $192 million in January from $3 million in September, based on analysis from data company YipitData.Temu’s 2023 expansion will include rollouts in Canada, Australia, New Zealand and the UK.”Different markets and different regions have many differences and we still have a lot to learn and a lot to improve,” Chen said. ​($1 = 6.8799 Chinese yuan renminbi) More

(Reuters) – Wall Street’s main indexes were set for a subdued open in volatile trading on Monday as investors weighed a state-backed takeover of Credit Suisse and the odds of the Federal Reserve keeping interest rates unchanged this week.Traders have raised bets of the Fed likely hitting a pause on rate hikes on Wednesday to ensure financial stability as bank sector troubles triggered by the collapse of Silicon Valley Bank and Signature Bank (NASDAQ:SBNY) threaten to snowball. Over the weekend, UBS agreed to buy rival Credit Suisse for $3.23 billion, in a shotgun merger engineered by Swiss authorities to avoid more market-shaking turmoil in global banking. U.S.-listed shares of Credit Suisse plummeted 57.9% in premarket and were set to open at a fresh record low, while those of UBS lost 3.5%, as focus shifted to the hit to some Credit Suisse bondholders from the acquisition. “Market’s been digesting the shotgun wedding between UBS and Credit Suisse. Systemic risks are a little bit more minimized (and) everyone is just looking forward to what the Fed’s going to do,” said Matt Orton, chief market strategist at Raymond James Investment Management.”The Fed really is between a rock and a hard place because it’s got to stay committed to monetary policy. It’s worked hard to regain its credibility and this banking issue really throws a wrench into it.”Traders’ bets are now tilted towards a no-hike scenario, with 43% expecting the Fed to raise rates by 25 basis points.Investors also await economic data including existing home sales, weekly jobless claims and durable goods this week to gauge the strength of the U.S. economy.U.S. stock futures reversed course to rise marginally in choppy trading. At 8:24 a.m. ET, Dow e-minis were up 9 points, or 0.03%, S&P 500 e-minis were up 0.75 points, or 0.02%, and Nasdaq 100 e-minis were up 1.75 points, or 0.01%.Top central banks also moved on Sunday to bolster the flow of cash around the world, with the Fed offering daily currency swaps to ensure banks in Canada, Britain, Japan, Switzerland and the eurozone would have the dollars needed to operate.Big U.S. banks such as JPMorgan Chase & Co (NYSE:JPM), Citigroup (NYSE:C) and Morgan Stanley (NYSE:MS) seesawed between losses and gains.Regional bank First Republic Bank (NYSE:FRC) slid 19.2%, following a downgrade by S&P Global (NYSE:SPGI) and a report of more fundraising that fanned worries about the bank’s liquidity despite a $30-billion rescue last week.PacWest Bancorp was among the rare bright spots, jumping 19.7%, after the bank said deposit outflows had stabilized and its available cash exceeded total uninsured deposits.The S&P Banking index and the KBW Regional Banking index on Friday logged their largest two-week drop since March 2020. Among other stocks, Bed Bath & Beyond (NASDAQ:BBBY) dropped 14.2% after seeking shareholder approval for a reverse stock split. More