Aurelia Butler

(Reuters) – Minneapolis Federal Reserve Bank President Neel Kashkari said he and his fellow U.S. central bankers are “totally united” on getting too-high inflation back down to their 2% goal, but it is out of their control if doing so brings on a recession.”We know that we have to, and we will, get inflation back down,” Kashkari said in Helena, Montana on Thursday. The bank distributed a recording https://www.youtube.com/watch?v=uHe9fSezBsY of his remarks on Friday. “We don’t know” if a recession will follow from the Fed’s aggressive rate hikes, he said. “Whether this actually leads to a recession or not is going to depend on, do we get help on the supply side?” More

NEW YORK (Reuters) – A better-than-expected U.S. jobs report eased some worries about an imminent recession but also bolstered the case for the Federal Reserve to continue aggressively hiking rates, threatening more turbulence for asset prices this year.Hopes that a weakening economy could push the Fed to slow or stop its rate hikes earlier than previously expected have bolstered stocks and bonds in recent days. The S&P 500 rebounded 6% from its June lows while the 10-year U.S. Treasury yield, which moves inversely to prices, hit a low of 2.75% this week.That view took a hit on Friday, as traders bet on bigger Fed rate hikes after the report, which showed U.S. employers hiring far more workers than expected in June. Rate futures contracts now reflect a base-case view that the Fed’s policy rate will be in the 3.5%-3.75% range by year end, higher than Fed policymakers themselves predicted three weeks ago.To some investors, that means the volatility that has rocked markets in the first half of the year should continue as uncertainty over how restrictive Fed policy will need to be threatens risk appetite across Wall Street. “We don’t know if inflation peaked, we don’t know if Fed hawkishness has peaked,” said Phil Orlando, chief equity market strategist at Federated Hermes (NYSE:FHI). “The combination of uncertainty about inflation, Fed policy and earnings trends suggest that stocks should go lower.”Immediate reaction to the report was muted in stocks, with the S&P 500 recently down 0.1%. Treasury yields shot higher, with the 10-year recently at nearly 3.1%.Investors now turn to the monthly U.S. consumer price index report for a gauge on inflation, due next week, as well as to the start of a second-quarter earnings season that investors fear will come in weaker than forecast.Stocks and bonds reeled last month after data showed inflation running at its hottest pace in more than four decades, prompting a 75-basis-point interest rate increase by the Fed, its biggest hike since 1994. “June’s US Employment Report lends support to our forecast that the Federal Reserve will raise interest rates by more than is currently discounted in markets, pushing up Treasury yields this year,” analysts at Capital Economics wrote. “Although we think a US recession will be avoided, we still expect US equities to be weighed down by both rising discount rates and disappointing growth in corporate earnings.”Meanwhile, OANDA’s Edward Moya wrote that “Wall Street should get used to a choppy stock market for the rest of the summer as the Fed tries to navigate a soft landing.”Friday’s report found that nonfarm payrolls increased by 372,000 jobs last month, while economists polled by Reuters had forecast 268,000 jobs were added last month. The unemployment rate was unchanged at 3.6% for a fourth straight month.Other recent numbers have been more ominous, however, and some investors believe it’s only a matter of time before the Fed’s rate hikes are broadly reflected in economic data.Data on Thursday showed the number of Americans filing new claims for unemployment benefits unexpectedly rose last week, while another report last week showed U.S. manufacturing activity slowed more than expected in June.“Jobs reports are lagging economic indicators that are often strong entering a downturn,” said Richard Flynn, managing director at Charles Schwab (NYSE:SCHW) in the UK. “Despite today’s good news, stocks are likely to continue to feel the weight of monetary tightening, shrinking liquidity, and slower economic growth.” More

UK households face a 65 per cent increase in their gas and electricity bills this winter to more than £3,200 a year, according to research that highlights the escalating cost of living crisis.Energy consultancy Cornwall Insight said the energy price cap for the average home is now expected to reach £3,244 when it is revised by regulators in October, up from £1,971 in April. Cornwall predicted the price cap would rise further to £3,363 in January. Morgan Wild, head of policy at Citizens Advice, said it would be “hugely worrying news for families . . . being pummelled from all sides by rising costs”, adding: “The government has stepped in with welcome support on energy bills, but . . . it must make sure money reaches those who need it most.”The expected jump in prices comes after Russia last month slashed gas exports to Germany in apparent retaliation for western sanctions following its invasion of Ukraine. Gas prices, which feed into electricity costs as well as home heating, have almost doubled in the past month.While the UK obtains only a relatively small portion of its gas directly from Russia, prices are closely linked to those on the European mainland as both markets are connected by pipelines, allowing gas to flow where it is most needed. It is highly reliant on imported gas, using the fuel to generate roughly a third of its electricity and to heat the vast majority of homes.The government has already offered support to households in the form of a council tax rebate and a £15bn support package, which should add up to about £1,200 for the 8mn households on means-tested benefits. But campaigners have indicated that more help will probably be needed given the scale of the increase, as government measures were decided back when ministers thought the average bill would rise to roughly £2,800 rather than close to £3,400.How much help to offer households with surging energy bills is likely to be a key pillar of the contest to replace Boris Johnson as leader of the Conservative party and prime minister, after he announced his resignation this week.

Describing the expected increase as “absolutely horrifying”, the End Fuel Poverty Coalition called on candidates in the contest to “commit to further, short-term, financial support for people in fuel poverty this winter” and to “mitigate any further increases in the price cap” above £2,800.For single-earner households on the average UK salary, energy bills at the level predicted by Cornwall Insight would absorb almost 15 per cent of take-home pay. In 2019, before the pandemic and Russia’s invasion of Ukraine, the price cap for the average household was set below £1,200.Energy regulator Ofgem has faced severe criticism after the surge in prices led dozens of smaller energy retailers to go bust, with many of the costs passed on to bill- and taxpayers.Jonathan Brearley, Ofgem’s chief executive, on Friday said record gas prices were “driving the cost of living crisis, causing real harm to customers and the wider economy”.The regulator is making initial proposals to lower energy bills in the long term, including moving the energy system away from imported gas and reforms to wholesale electricity markets to reduce the impact of gas on pricing.Additional reporting by Gill Plimmer in London More

Good evening,A much stronger than expected US jobs report has damped fears of recession in the world’s largest economy and fuelled expectations of more aggressive interest rate rises from the Federal Reserve.Non-farm payrolls grew by 372,000 in June, leaving the unemployment rate at a historically low level of 3.6 per cent, just short of its pre-pandemic position. The red-hot labour market remains the bright spot for policymakers as growth slows and consumers start to rein in spending.Average hourly earnings also edged up but the number of Americans either in work or actively looking dipped to 62.2 per cent, still shy of pre-pandemic levels.

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Wider trends in the US labour market are also becoming more apparent. Ellen Zentner, chief US economist at Morgan Stanley, has argued in the Financial Times that recent increases in wage deals are here to stay as labour takes an increasing share of corporate income.Workers are certainly more prepared to flex their muscles, helped by Jennifer Abruzzo, President Joe Biden’s top labour lawyer, who told the FT this week of her intentions to restrain some of the anti-trade union policies of the country’s biggest employers. Union leaders have complained for decades that businesses have too much power over their workers, but interest in joining unions has surged as the tight labour market and a more welcoming government — Biden calls himself “the most pro-union president leading the most pro-union administration in American history” — have given workers greater bargaining power. One route to mitigate labour shortages is for families to be able to access cheap and flexible childcare, says columnist Rana Foroohar. Women aren’t going back into the workforce at the same rate they did before the pandemic, she notes, putting the US very much at odds with the rest of the rich world.Another route is to loosen job requirements so that those with a criminal record can re-enter the workforce, a trend that is beginning to catch on with employers in Canada as well as the US.Latest newsCanada’s jobless rate falls to record low of 4.9 per centLufthansa and Air France-KLM cancel hundreds of flights and limit ticket salesUK fuel retailers are not inflating pump prices, finds probeFor up-to-the-minute news updates, visit our live blogNeed to know: the economyThe euro came close to parity with the dollar for the first time in two decades as concerns grew over the European economic outlook. Minutes from the European Central Bank’s June policy meeting showed some policymakers think it may need to raise interest rates more aggressively than planned. Germany is rationing hot water, dimming street lights and closing swimming pools as the energy crunch spreads from industry following the huge increase in gas prices, which Goldman Sachs said yesterday had put the eurozone “on the edge of recession”.Latest for the UK and EuropeThe drama is (almost) over. The UK will have a new prime minister by September after Boris Johnson announced he would quit. But business is agitating for swifter action to restore confidence in the British economy.Underscoring the scale of the challenge, the Office for Budget Responsibility said the country’s public finances were on an “unsustainable” path, denting any new premier’s hope of cutting taxes. Economics editor Chris Giles gets his advice in early: “Cutting taxes does not magically boost economic performance. Any politician suggesting otherwise is lying to you.”“Unsustainable” is not something that seems to apply to UK house prices, which new data showed rose in June at the fastest rate in 18 years, driving the typical UK house price to a record £294,845. Homebuilder Vistry said demand remained robust.One of the key tasks for Johnson’s successor is to reset relations with Europe, writes Timothy Garton Ash, professor of European Studies at Oxford university. The task will not be easy, notes Peter Foster in his Britain after Brexit newsletter, quoting one Brussels insider: “They’re crazy, the lot of them. We’ve given up on them long ago.”The UK unveiled its biggest round of clean energy subsidies (aka “contracts for difference”) including for offshore wind, which has become the country’s cheapest form of clean energy, beating solar and onshore wind.In its first climate stress test, the ECB said today that eurozone banks had underestimated short-term losses from climate change, putting the total at €70bn.Russia is taking greater state control of private business and the workforce, as it signalled it was preparing for the long haul in its battle to control Ukraine. Moscow is introducing new powers to force businesses to fulfil state defence contracts as well as change their terms. The long-term Russian love affair with the London property market meanwhile is finally over.The reconstruction plan for Ukraine is right to focus on the need to “build back better” and prepare the way for EU membership, says FT commentator Martin Sandbu.Global latestTwo senior Fed officials warned of the “significant risk” to the US economy from soaring inflation, minutes from the last Fed policy meeting revealed. It will decide whether to raise rates by 0.50 or 0.75 percentage points at its meeting this month.Need to know: businessRolls-Royce said it was seeing early signs of a recovery in demand for new large aircraft from airlines. Meanwhile, airline and tour operator Jet2 warned UK airports were “woefully ill-prepared” for the holiday season, as easyJet’s business model is coming under fire. However, a damaging summer strike involving BA check-in staff at Heathrow has been called off. SMBC Capital Aviation, one of the world’s biggest aircraft lessors, announced a $1.6bn write-off to cover the loss of 34 of its planes stuck in Russia following the invasion of Ukraine. It said it was “unlikely” that it would be able to recover the aircraft “within a reasonable timeframe, or at all”.Samsung, the world’s biggest smartphone and memory chipmaker, reported smaller than expected second-quarter profits as higher inflation dented consumer demand for electronic gadgets.There may be plenty of reason for governments to intervene in highly uncertain times for the global economy, but the US focus on centralised state spending to keep or create manufacturing at home is rarely the best way to do it, argues Alan Beattie in the Trade Secrets newsletter.Shell said it would revise up the value of its oil and gas assets after raising its long-term outlook for commodity prices. It now expects the 2023 price for Brent crude, Europe’s benchmark, to hit $80 a barrel. The company will reverse up to $4.5bn in writedowns previously taken on the value of those assets.Science round-upChina’s progress in developing a homegrown messenger RNA vaccine, seen as essential to any shift away from Beijing’s zero-Covid policy, risks being outrun by rapid mutations of the Omicron variant.CureVac is suing fellow German pharma company BioNTech, alleging it infringed vital patents relating to messenger RNA technology.More than two years into the pandemic, policymakers are rethinking their approach to vaccines to take into account different levels of immunity through infections and shots.The US has begun the vaccination of under-5s, becoming the first major western nation to do so. The programme will be closely watched elsewhere as regulators consider approving shots in the next few weeks.Although the number of severe cases has dropped, the sheer volume of coronavirus infections means hundreds of thousands of people are unwell for the long-term. John Burn-Murdoch looks at long Covid and its effect on the labour force as UK infections continue to rise, according to official data published today.Get the latest worldwide picture with our vaccine trackerAnd finally . . . “One consequence of tribalism is that we rarely examine in detail any of the reasons that we believe anything,” says columnist Tim Harford. So how can we actually change someone’s mind?The ideals of debate are a wonderful thing so why does it rarely work in practice? © Guillem Casasus More

Passengers endure check-in chaos and cancellations. Yet the aviation industry insists it is on course for recovery. Rolls-Royce has flagged an uptick in demand for new large aircraft. Willie Walsh, boss of industry body Iata, has forecast a return to industry-wide profitability next year. It is, he claims, a time for optimism.That message has not been lost on workers, including those at IAG — which Walsh ran until recently. At its British Airways subsidiary, unions have secured a “vastly improved” pay deal, averting a strike by check-in staff. Across the industry, Iata expects a 7.9 per cent rise in the wage bill — the industry’s second biggest cost — this year. This is nearly twice the forecast 4.3 per cent increase in job numbers. Fuel costs are an even bigger headache. Assuming the price of Brent crude averages $101 per barrel this year, Iata calculates fuel will account for about a quarter of the industry’s costs, up from 19 per cent in 2021.Hedging softens the blow. Ryanair, for instance, locked in an equivalent price of $65 per barrel for most of this year’s fuel needs. It has been a resilient performer, with low costs and a strong balance sheet. Its shares — trading in line with their historic average on a price/earnings multiple of 12 — are down by 5 per cent since February 24. That is a quarter the decline of the S&P Global 1200 airlines index. But in the medium term, even discounter Ryanair expects higher oil prices, together with environmental charges, to push up average fares up by at least a quarter to €50. Confidence about passengers’ willingness to prioritise holidays if they have to tighten their belts must wither. They have done so in past recessions, but that was against a backdrop of declining real air travel costs. As airport queues demonstrate, the lifting of Covid-19 restrictions has unleashed pent-up demand. But that could soon peter out in harsh economic conditions. So could hopes of a rapid return to profitability. More

“We can move by 75 basis points at the next meeting and not see a lot of protracted damage to the economy,” Bostic said in an interview with CNBC.Bostic said a report out earlier Friday showing U.S. job growth increased more than expected and the unemployment rate remained at 3.6% in June “reaffirms that the economy is strong and there is still a lot of momentum in the labor market and that is a good thing.” Still, he said, the data shows some early signs of a slowing economy. “They are really just minor signs and …what I’m going to be looking for over the next several months is evidence that that slowing is becoming much more sustained, and much more significant across the board,” he said. More