Aurelia Butler

European retailers could soon sell off excess inventory built up as a buffer during the pandemic as economic stress rises, according to the world’s largest operator of pallets. Brambles, the Australian logistics company, said global retailers had built up large amounts of stock to shield against supply chain problems during Covid-19. In the UK, retailers had also created a buffer of inventories to prepare for Brexit, which was due to be unwound in 2023 after the Christmas trading period this year.Graham Chipchase, chief executive of Brambles which owns the Chep pallet business used by most of the world’s largest retailers and consumer goods companies, said US and Australian economies were resilient but the outlook had changed in Europe and the UK.“There’s clearly more stress in the system,” he said, pointing to the war in Ukraine, soaring food and energy prices and rising interest rates as reasons for retailers to clear out excess inventory. “I think if anyone is going to realise that they want to unwind a bit quicker, it will be Europe,” he said. Brambles — which calls itself the “invisible backbone” of the global economy — has an almost unparalleled view of the world’s supply chain. It estimates that 80 per cent of the world’s consumer goods touch one of its 350mn blue-painted pallets at some point in the journey between production and sale. In the UK, where Chipchase is based, he said it would be “pointless” for retailers to hold on to excess stock if the country slid into recession and consumer demand collapsed. “It feels like there are a number of things driving people back to normal levels of stock rather than elevated ones,” he said of the British market. Brambles traces its roots to 1875 and takes its name from a young roustabout, or unskilled labourer, called Walter Bramble, who established a butchery business that later expanded into logistics and transport. The pallet pooling business was created after the second world war when the Australian government set up the Commonwealth Handling Equipment Pool, or Chep, using equipment left behind by the US army. Brambles acquired that business in the 1950s. Brambles has raised its outlook three times this year but has historically struggled to manage a consistent financial performance. It was derided two decades ago when its chair Don Argus told an annual shareholder meeting that the company had not lost 15mn pallets — they were merely “missing”. The company still “loses” 10 per cent of its stock, or 35mn crates, a year, each costing $20. It has started testing QR code-based tracking systems and is rewarding customers that return them quickly. It is also using more sophisticated techniques to find lost pallets. In one example, it found that thousands were disappearing in the “middle of nowhere” in the southern US. It used a drone to discover that a recycling company was hiding a huge mound of Chep crates behind walls of cheaper white models. The Australian company is also developing algorithms using digital information from pallets that will be able to identify bottlenecks in trade. Chipchase said that removing half a day of transit could add several days of shelf life for a food product, reducing wastage.Brambles was the subject of a A$20bn ($13.5bn) takeover approach this year from CVC, the private equity company, but they did not agree to a deal. Chipchase said Brambles was not a utility but was resilient during a recession. “People eat and drink the same amount and still require toilet paper,” he said. The energy crisis, however, had raised some concern within the company that people might steal its wooden pallets for fuel. “I hope they’ll go for other things to burn,” he said, noting that the blue paint would produce unpleasant fumes if used as kindling. More

Brussels is proposing wide-ranging powers to require businesses to stockpile supplies and break delivery contracts in order to shore up supply chains in the event of a crisis such as the coronavirus pandemic.Draft legislation seen by the Financial Times would give the European Commission considerable leeway to declare an emergency, triggering a series of interventionist measures aimed at preventing product shortages in critical industries. Businesses are unhappy after being briefed on the plan, which is intended to protect the single market from supply shocks. “We would be very concerned if this proposal was adopted in such an interventionist shape,” said Martynas Barysas, director for the internal market at BusinessEurope, which represents employers in the bloc.“It could oblige member states to override contract law, force companies to disclose commercially sensitive information, and share their stockpiled products or dictate their production under any type of crisis the commission decides upon,” Barysas said.Of most concern to businesses is a system of “priority rated orders” under which Brussels could direct what companies produce and who they sell it to, potentially breaching contracts with customers.Barysas said companies agreed with a proposal for a mechanism that would prevent a repeat of disruption suffered during the coronavirus pandemic, when some member states closed borders and restricted exports. But he said companies believed the current plan was too intrusive and should give business more flexibility.There is internal opposition to the plan, which was devised by Thierry Breton, the internal market commissioner, and it could change. One EU official said: “The instrument was meant to be targeted in scope, so as to address the risk of fragmentation in the single market in the event of [a] large-scale crisis. Now it is growing into an octopus of the planned economy, imagining it can stretch its tentacles across global supply chains and control them.”The final version of the proposals should be adopted by the EU commissioners on September 13 as a centrepiece of commission president Ursula von der Leyen’s State of the Union address the next day.According to the draft, the commission, consulting member states, would first declare “vigilance” when it detected a crisis could be coming. That would allow it to ask relevant companies for information about their supply chains and customers. It could ask governments to build up strategic stocks. Under some circumstances it could make these measures compulsory, on pain of fines.A second phase, requiring member state approval, would hand the commission powers to direct market activity and procure goods directly, again backed by unspecified fines for non-compliance. During the pandemic, the EU passed legislation allowing export bans on vaccines in retaliation for the US blocking shipments of shots to the bloc. Governments also asked companies to shift production to face masks, gowns and ventilators amid a global shortage.

EU officials say there are similar issues today with fertilisers. High gas prices have cut production by 70 per cent across the bloc and driven up prices for farmers. One said: “Over the past years we have risked shortages of masks, ventilators, vaccines, grain and fertilisers. Instead of improvising solutions, we need to be better prepared to anticipate and respond to the next crisis.”The official noted several countries had measures in place for strategic reserves and priority-rated orders, including the US Defense Production Act. “We have drawn a lot of inspiration from the Americans,” the official said. “We don’t list the products because we don’t know what the next crisis will be. But obviously we are not talking about yoghurt. They have to be vital for the economic and social activities of the single market.” More

The contraction shows that a recovery of the world’s third-largest economy remains fragile at best and is worrying at a time when the global growth outlook is turning increasingly pessimistic.The final au Jibun Bank Japan Services purchasing managers’ index (PMI) dropped to a seasonally adjusted 49.5, marking the first contraction since March. The figure was slightly better than a 49.2 flash reading but worse than a slight expansion in activity of 50.3 in July. The 50-mark separates contraction from expansion.”A renewed drop in services activity accompanied a further drop in manufacturing production, with the latter falling at the quickest pace since September 2021,” said Annabel Fiddes, economics associate director at S&P Global (NYSE:SPGI) Market Intelligence, which compiles the survey.”However, service providers noted a weaker drop in output than those seen at the start of 2022, when there was also a spike in infections, as pandemic-related restrictions have been eased notably since then.”Average cost burdens faced by services firms expanded at a marked pace in August due to hikes in energy, fuel and raw material costs, while firms continued to raise their fees modestly.The composite PMI, which is estimated by using both manufacturing and services, shrank for the first time since February, dropping to 49.4 from July’s 50.2 final.”It’s likely that Japan’s private sector will remain under pressure in the months ahead,” added Fiddes. More

SYDNEY (Reuters) – Asian shares slipped on Monday while the euro took a fresh spill after Russia shut a major gas pipeline to Europe, leading some governments there to announce emergency measures to ease the pain of soaring energy prices.The euro was down 0.4% at $0.9908 and looking likely to test its recent 20-year low of $0.90005 as markets priced in more risk of a European recession.Germany announced plans to spend 65 billion euros ($64.7 billion) on shielding customers and businesses from rising costs, while Finland and Sweden offered liquidity guarantees to keep power companies open.Oil prices jumped along with the whole energy complex as a holiday in U.S. markets made for thin trading conditions. News of more coronavirus lockdowns in China only added to the jittery mood.MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.1%, and Japan’s Nikkei was off 0.3%. Wall Street fared better as S&P 500 futures edged up 0.3% and Nasdaq futures 0.2%, though EUROSTOXX 50 futures were expected to open lower.The energy crisis is an added complication for the European Central Bank (ECB) as it meets this week to consider how much to raise interest rates.”Europe is faced with a dire energy outlook, with numerous anecdotes of firms cutting back production,” said Tapas Strickland, head of market economics at NAB.”The ECB will undoubtedly decide to hike rates this week,” he added “Markets are close to fully pricing in a 75bp hike after numerous ECB officials said they were leaning that way, though there is still likely to be a debate around 50 v 75.”EURO, STERLING STRUGGLECentral banks in Canada and Australia are also expected to raise interest rates this week, while Federal Reserve Chair Jerome Powell and several other policy makers will make appearances and are likely to sound hawkish on inflation.While the August U.S. jobs report showed some welcome signs of cooling in the labour market, investors are still leaning toward a hike of 75 basis points from the Fed this month.The two-year U.S. Treasury yield did fall almost 12 basis points on Friday and futures were trading flat on Monday amid general risk aversion.The shift to safety again benefited the U.S. dollar, which hit another two-decade high on a basket of major currencies at 110.040. The dollar was firm at 140.50 yen, just short of Friday’s 24-year top of 140.80.Sterling was struggling at $1.1481, after diving as deep as $1.1458 and levels last seen in March 2020 at the start of the pandemic.”We now expect the EUR/USD and GBP/USD rates to reach $0.90 and $1.05 respectively next year as the economic slowdown and the terms of trade shock hitting the region take their toll,” said Jonas Goltermann, a senior economist at Capital Economics. British foreign minister Liz Truss said on Sunday she would set out immediate action in her first week in power to tackle rising energy bills and increase energy supplies if she is, as expected, appointed prime minister on Monday.The strong dollar kept gold flat at $1,709 an ounce. [GOL/]Oil prices were supported by expectations gas prices would leap in Europe later in the day.”Ultimately, Germany would need to cut natural gas consumption by 15% to keep gas storage facilities from running empty,” said analysts at ANZ. “Gas rationing looks very likely, as even at 95% full, storage would only last 2.5 months.” OPEC+ is meeting on Monday and is likely to keep oil output quotas unchanged for October, although some sources would not rule out a small production cut to bolster prices that have slid due to fears of an economic slowdown. [O/R]Brent was up $1.54 at $94.56, while U.S. crude rose $1.38 to $88.25 per barrel. More

BENGALURU (Reuters) – Australian house prices will fall sharply this year and next as rising mortgage rates and cost of living pressures drag on demand, a Reuters poll found, but for many people buying a home will still remain far out of reach.Pandemic-related stimulus and cheap loans have nearly doubled house prices since the 2007-09 global financial crisis, increasing homeowners’ wealth, but that has also kept millennials and first-time homebuyers off the property ladder.After rising about one-third during the pandemic, home prices nationally sank 1.6% in July. It was the largest monthly drop since 1983 and dragged annual price growth down to 4.7%, from a peak above 21% late last year.Average home prices were expected to decline 6.5% this year, according to an Aug 15-Sept. 2 Reuters survey of 10 property analysts, versus an expected 1.0% rise in a May poll.A further 9.0% fall was expected next year. “The property boom is well and truly over as the surge in mortgage rates is pulling the rug out from under it,” said Shane Oliver, chief economist at AMP (OTC:AMLTF).”There are three reasons why this downturn will likely be deeper and the recovery slower than in past cycles: high household debt levels, high home price to income levels and an end in the long-term downtrend in interest rates.”The Reserve Bank of Australia (RBA) has already lifted rates by 175 basis points since May and is expected to hike by another half-point on Tuesday in an effort to contain surging inflation. [AU/INT]Markets are wagering the current 1.85% cash rate could be near 4.0% by the middle of next year. Banks have sharply raised borrowing costs on new fixed-rate mortgages and tightened lending standards.”The path of interest rates will dominate the housing outlook. A steep increase in mortgage rates between May and the end of this year will weigh heavily on house prices,” said Adelaide Timbrell, senior economist at ANZ.”Still, a substantial correction is required to return housing affordability and housing prices to fair levels.”It will also be a greater challenge for some of the more heavily-indebted households in a country, which currently has a record A$2 trillion ($1.4 trillion) of mortgage debt outstanding.ANZ, Bank of Queensland, Capital Economics and Knight Frank said average house prices would have to fall by between 10-35% – roughly the amount U.S. house prices tumbled during the global financial crisis – to make Australian housing affordable.Property prices in Sydney, the world’s second-most expensive housing market after Hong Kong, and Melbourne were forecast to fall 7.0-10.0% this year and 7.0% next.(For other stories from the Reuters quarterly housing market polls:)($1 = 1.4686 Australian dollars) More

LONDON (Reuters) – Liz Truss is expected to be named leader of the governing Conservative Party and Britain’s next prime minister on Monday, poised to take power at a time when the country faces a cost of living crisis, industrial unrest and a recession.After weeks of an often bad-tempered and divisive party leadership contest that pitted Truss against Rishi Sunak, a former finance minister, Monday’s announcement at 1130 GMT will trigger the beginning of a handover from Boris Johnson. He was forced to announce his resignation in July after months of scandal.On Tuesday, the winner will travel to Scotland to meet Queen Elizabeth, who will ask the new leader to form a government.Long the front runner in the race to replace Johnson, Truss, if appointed, will become the Conservatives’ fourth prime minister since a 2015 election. Over that period the country has been buffeted from crisis to crisis, and now faces what is forecast to be a long recession triggered by sky-rocketing inflation which hit 10.1% in July.Foreign minister under Boris Johnson, Truss, 47, has promised to act quickly to tackle Britain’s cost of living crisis, saying that within a week she will come up with a plan to tackle rising energy bills and securing future fuel supplies.Speaking in a TV interview on Sunday she declined to give details of the measures she says will reassure millions of people who fear they will be unable to pay their fuel bills as winter approaches.She has signalled during her leadership campaign she would challenge convention by scrapping tax increases and cutting other levies that some economists say would fuel inflation.That, plus a pledge to review the remit of the Bank of England while protecting its independence, has prompted some investors to dump the pound and government bonds.The Institute for Fiscal Studies cast doubt last month on Britain’s next prime minister having room to make large, permanent tax cuts.’SECOND MOST DIFFICULT POST-WAR BRIEF’Truss faces a long, costly and difficult to-do list, which opposition lawmakers say is the result of 12 years of poor Conservative government. Several have called for an early election – something Truss has said she will not allow.Veteran Conservative lawmaker David Davis described the challenges she would take on as prime minister as “probably the second most difficult brief of post-war prime ministers” after Conservative Margaret Thatcher in 1979.”I actually don’t think any of the candidates, not one of them going through it, really knows quite how big this is going to be,” he said, adding that costs could run into tens of billions of pounds.Truss has said she will appoint a strong cabinet, dispensing with what one source close to her called a “presidential-style” of governing.First she will turn to the urgent issue of surging energy prices. Average annual household utility bills are set to jump by 80% in October to 3,549 pounds ($4,084), before an expected rise to 6,000 pounds in 2023, decimating personal finances.Britain has lagged other major European countries in its offer of support for consumer energy bills, which opposition lawmakers blame on a “zombie” government unable to act while the Conservatives ran their leadership contest.In May, the government set out a 15-billion-pound support package to help households with energy bills as part of its 37-billion-pound cost-of-living support scheme. Italy has budgeted over 52 billion euros ($51.75 billion) so far this year to help its people. In France, increases in electricity bills are capped at 4% and Germany said on Sunday it would spend at least 65 billion euros shielding consumers and businesses from rising inflation.($1 = 0.8690 pounds)($1 = 1.0049 euros) More

The war in Ukraine, Covid-19 and the rise of China will force multinational companies to embrace a new version of globalisation, where cutting costs comes second to a “predictability premium”, the US ambassador to Japan has said.In an interview seven months after his arrival in Tokyo, Rahm Emanuel said recent supply chain upheaval and Beijing’s regulatory unpredictability had exposed the dangers of over-reliance on China, drawing Japanese companies to invest in the US.A two-month spree of multibillion-dollar investment pledges in the US by some of Japan’s biggest companies, including Toyota, Panasonic and Honda, was just the start, said Emanuel, a former chief of staff for Barack Obama who has close ties to US president Joe Biden.“You really have a different iteration of globalisation emerging,” he said. “The last 20 years have been organised around cost and efficiency. That’s being either balanced against or replaced by stability and sustainability.”The ambassador, who has taken an unusually hands-on approach to attracting Japanese investment to the US, said his view on the new economic landscape was formed through exchanges with more than a hundred chief executives at companies including Honda, Takeda, NEC, Nissan and Hitachi.Companies were facing historic uncertainty about market growth, inflation and the terms of competition, Emanuel said. “We all know the term ‘risk premium’, well, there’s a predictability premium out there . . . business people and governments; that’s all they’re talking about,” he said.The Biden administration is offering generous incentives to attract multinationals to build supply chains for chips, batteries and other key technologies in the US in order to eliminate dependency on China. A critical pillar of that US strategy is the recently passed Inflation Reduction Act, Biden’s flagship climate, tax and healthcare bill that offers tax credits of up to $7,500 for electric vehicles assembled in North America.Emanuel said the Chips and Science Act, a bill passed last month that aims to provide incentives for the reshoring and growth of a domestic semiconductor industry, was another key element in US plans to attract stabilising investment around strategic technology.The US this week threatened China’s access to high-end processors from Nvidia, telling the chipmaker it would need special licences to sell the products to Chinese customers.

The Nvidia case illustrates the speed at which a form of economic decoupling between the US and China has been imposed on the market. Emanuel said delegations of top US politicians would be visiting Japan in the coming months to explain the full implications of the chips act to chief executives throughout Japan’s semiconductor production chain.While companies were still attracted to the growth opportunities in China, Emanuel also said they were rapidly moving to reduce risks in the supply chains. “Do multinationals want access to the China market? Yes. Do they want to be dependent on China sourcing? Not a chance,” he said. More

Minister Choo Kyung-ho made the remarks at the beginning of a scheduled meeting of top economic and finance officials, which also included the heads of the central bank and two financial markets regulatory agencies.The meeting was convened as aggressive policy tightening by the U.S. Federal Reserve and other major central banks and signs of slowing in most of the major economies have pulled down the won, bond and stock prices.He did not elaborate on action the authorities might take.Choo said external factors were mostly to blame for the increased volatility in the local markets, adding the country’s economic fundamentals remained strong, such as the current account balance still in surplus. More