Aurelia Butler

NEW YORK (Reuters) – Volatility has been the watchword for markets in the last several months, as worries over a hawkish Fed, sky-high commodity prices and geopolitical tensions stemming from the war in Ukraine roil asset prices.The S&P 500 was recently down 1.2% on Friday and yields on the benchmark 10-year Treasury were at a near 4-year high of 3.12%, capping off a week that saw massive swings in stocks and bonds in the days following the Fed’s monetary policy meeting. Here are charts showing how volatility has broken out across markets and various factors driving the moves. GRAPHIC: Volatile world – https://fingfx.thomsonreuters.com/gfx/mkt/gkplgkewnvb/Pasted%20image%201651850464155.png A VOLATILE YEAR Volatility has surged across asset classes over the last year, with stocks, bonds, currencies and commodities all experiencing more pronounced moves. Worries over how aggressively the Fed will tighten monetary policy in response to surging inflation has been a key driver of the moves, sparking gyrations in fixed-income markets, boosting the dollar to 20-year highs and weighing on stocks.Concerns over how monetary policy tightening by central banks will affect global growth have recently come to the fore, with the Bank of England warning Thursday that Britain risks a double-whammy of a recession and inflation above 10% as it raised interest rates to their highest since 2009. GRAPHIC: Real bad – https://fingfx.thomsonreuters.com/gfx/mkt/mypmnyroevr/Pasted%20image%201651850295599.png THE REAL DEAL Another culprit – linked to expectations of a hawkish Fed – has been the sell-off in Treasuries which sent yields on the 10-year past 3% for the time since late 2018 on Thursday. As yields climb, they can dull the allure of stocks, particularly those in high growth sectors such as technology, where companies’ cash flows are more weighted in the future and diminished when discounted at higher rates.”If rates are going to shift into a higher range, then that begets a new valuation regime,” wrote Michael Purves, CEO of Tallbacken Capital. “Regardless of the fundamentals, the process of regime shift is inherently volatile.”Meanwhile, real yields on the U.S. 10-year Treasuries – which subtract projected inflation from the nominal yield – recently turned positive for the first time since March 2020, eroding a key support for U.S. equities. GRAPHIC: Stock swings – https://graphics.reuters.com/USA-MARKETS/VOLATILITY/znpnemgbevl/chart.png BIG SWINGSAs a result, the year has so-far been marked by big moves in asset prices, especially equities. Through May 5, the S&P 500 has logged 44 daily moves of one percent or more so far this year – the second highest total in at least a decade and twice the number it had registered at this point in 2021. Graphic: Dip-buyers feel the pain – https://graphics.reuters.com/USA-MARKETS/VOLATILITY/lgvdwgbnapo/chart.png BUY THE DIP? Volatility has weighed on investors and hammered sentiment. One possible casualty may be the strategy of buying the dip, or taking advantage of stock market weakness to scoop up shares.While dip buyers were generally rewarded over the last two years, as a dovish Fed helped buoy markets, stepping in to buy on weakness has become far riskier in recent months. There have also been signs that retail investors – who have been avid dip buyers in the past – are more hesitant to do so.Still, some investors see little evidence of the outright panic that has tended to mark past market bottoms.”To find a bottom we typically like to see a vol spike, panic and another leg lower in (the S&P 500) to turns things around, wrote Christopher Murphy of Susquehanna International Group, in a Friday note.An even more aggressive policy tightening by the Fed could potentially lead to such a state of panic, he wrote. “That of course risks breaking some unforeseen things and would result in a lot of pain.” More

WASHINGTON (Reuters) – Federal Reserve Chair Jerome Powell this week laid out a hoped-for evolution of the U.S. job market that included a rising labor participation rate that would pave the way for continued job growth while tapping the brakes on the pace of wage increases.The prospect of more Americans entering the workforce, he told reporters after the end of a two-day policy meeting, would help the U.S. central bank tame high inflation without a large increase in joblessness.The release of the Labor Department’s April nonfarm payrolls report on Friday offered little immediate sign that Powell’s message had been received: businesses added another 428,000 jobs, the labor force declined and wages grew at a rapid, 5.5% annual pace.Still, economists said the report may show the start of the sort of adjustment the Fed chief hopes to see: STRONG JOB GAINS, EASING WAGE GROWTH When all is said and done, the Fed wants more people working one month to the next. Despite the discussion about businesses struggling to hire, the fact that payrolls rose by more than 400,000 for a 12th straight month is a plus. The gain brought the U.S. economy a step closer to recovering its pre-pandemic employment level, with just 1.2 million remaining positions to reach that goal – and just 500,000 in the private sector. The country may even get back to its prior trend level next year. That means more household income and, all things equal, a more resilient economy. Graphic- The jobs hole facing Biden and the Fed: https://graphics.reuters.com/USA-ECONOMY/JOBS/jbyprzlrqpe/chart.png Even more to Powell’s liking, the monthly pace of wage growth appears to be easing. At an average 0.3% over the last three months, the pace is the lowest in a year. “Today’s employment report is consistent with a soft-landing scenario. Solid job gains … yet despite that we are seeing a moderation in average hourly earnings,” said Ellen Gaske, lead economist at PGIM Fixed Income. “We have unwound the surge that we saw toward the end of last year.” Graphic- Wage growth moderates: https://graphics.reuters.com/USA-FED/JOBS/klpyklrglpg/chart.png PEAK MISMATCH?Powell has focused on the outsized numbers of job openings compared with the ranks of the unemployed, a mismatch of historic proportions with nearly two vacancies for each person who is unemployed. Gaske believes that is almost certainly tied to the COVID-related disruptions and the equally disruptive reopening of the economy.”If you wanted to open your doors, you had to hire somebody,” she noted, a situation that also made companies “pretty insensitive to wage increases.”At this point, the dynamics may be shifting, particularly with high inflation and market volatility leading to more caution when it comes to hiring plans.Payroll provider UKG, which tracks shift work in real time, noted that in late April, after the Labor Department surveys for that month’s jobs report had been completed, demand for workers slipped noticeably in a number of industries, including retail, logistics and manufacturing.That could be a harbinger of an imminent slowdown from the average half a million or so jobs gained each month since the start of 2021 to something more like the 178,000 per month seen in the two years before the pandemic.”What we have seen is an acceleration to the downside over the past couple weeks,” said Dave Gilbertson, vice president at UKG.Moody’s (NYSE:MCO) Analytics economist Sophia Koropeckyj projected monthly job growth would fall to about 200,000 by the end of this year.FEWER BODIES A slight drop in the labor force participation rate last month, to 62.2% from 62.4% in March, along with a decline of nearly 400,000 in the number of people either employed or looking for work, was a step backwards. After steady improvement in recent months, the drop left the economy’s participation rate still 1.2 percentage points below where it was before the pandemic.Nick Bunker, economic research director for Indeed Hiring Lab, said that data should be viewed in the context of a recent surge in labor supply that has included what he called a “silver lining” in the rising employment rate for those aged 55-64, and gains for younger “prime-age” workers that may see their participation fully recovered over the summer.But it does add a note of caution about what’s ahead. Fewer bodies in the job market could mean more pressure on wages rather than less. The current unemployment rate of 3.6% is historically low for the U.S. economy, and the Fed has struggled in the past to curb inflation without slowing the economy so much that joblessness rises. Graphic- https://graphics.reuters.com/USA-FED/JOBS/gdpzymnnavw/chart.png Jefferies economist Aneta Markowska believes the job market at this point is continuing to strengthen and projects the unemployment rate will fall to 3% by the end of December, wage growth will accelerate to 6%, and inflation will remain too high for the Fed’s liking.”Underneath the noise, the labor market is still hot and likely to get even hotter,” she wrote in an analysis of Friday’s jobs report. More

(Reuters) – The owners of British supermarket group Asda are set to buy McColl’s out of administration, saving around 16,000 jobs after the convenience store chain’s lenders rejected a rescue deal from Asda’s rival Morrisons. People with knowledge of the situation said on Friday that EG Group, the petrol station and food retail business owned by brothers Zuber and Mohsin Issa and private equity group TDR Capital, was set to agree a deal as soon as Monday. The deal will keep on all McColl’s stores and staff with higher pay for many, but will not include its pension scheme, they said.EG Group declined to comment. The Issa brothers and TDR also own Asda. EG and Asda are run as separate businesses.McColl’s runs 1,100 stores, including convenience outlets under its own name and Morrisons Daily, as well as Martin’s newsagents. Around 6,000 of its staff are full-time. The company earlier announced it was going into administration, a form of protection from creditors, appointing PriceWaterhouseCoopers (PWC) as administrators.It said that while talks with Morrisons, with which it has a wholesale supply deal, had progressed, “the lenders made clear that they were not satisfied that such discussions would reach an outcome acceptable to them.”McColl’s, which has just under 170 million pounds ($210 million) of debt, said it expected PWC to sell the business as soon as possible.Sky News first reported that EG was expected to seal a deal.Morrisons said its proposal would have preserved the vast majority of jobs and stores, as well as protecting pensioners and lenders.”For thousands of hardworking people and pensioners, this is a very disappointing, damaging and unnecessary outcome,” said a Morrisons spokesperson of McColl’s move into administration.McColl’s requested the London listing of its shares be suspended with immediate effect. Shareholders had already seen the value of their investment virtually wiped out over the last year.McColl’s, which has suffered from availability issues and patchy trading, had been in talks with lenders for weeks to try to resolve funding issues.Morrisons, which trails market leader Tesco (OTC:TSCDY), Sainsbury’s and Asda, has been owned since October by U.S. private equity group Clayton, Dubilier & Rice (CD&R).Morrisons’ deal with McColl’s has seen over 200 stores converted to Morrison’s Daily with a target of 450 by November 2022. Morrisons’ 2021 annual report put its potential exposure to its McColl’s contract at 65-130 million pounds.Smiths News, which supplies McColl’s with newspapers and magazines, said the retailer represented a bad debt risk to it of 6-7 million pounds, with 1.2 million pounds being overdue.($1 = 0.8115 pounds) More

Good evening,Data released by the Bureau of Labor Statistics today shows the US added 428,000 jobs in April, matching the revised figure in March. The unemployment rate was steady at 3.6 per cent, similar to the level in February 2020 before the first coronavirus wave hit the country.However, the persistence of a tight labour market and high inflation pose concerns for the Biden administration and the Federal Reserve. This week, the US central bank raised its benchmark interest rate by 0.5 percentage points for the first time since 2000 — to a target range of between 0.75 and 1 per cent — to curb rising prices. Inflation in the US is currently running at a 40-year high.Meanwhile, US stocks fell on Friday, extending sharp losses from the previous session, as signs of a tightening jobs market compounded inflation worries. European shares also declined, with the regional Stoxx 600 index losing almost 2 per cent, putting it on track to end the week more than 4 per cent down. London’s FTSE 100 lost 1.3 per cent and Germany’s Xetra Dax also fell 1.3 per cent.The Nasdaq Composite, comprised of many of the largest US technology companies, closed down 5 per cent yesterday, in its biggest one-day decline since 2020. The blue-chip S&P 500 index also declined on Thursday with a 3.5 per cent loss.As the world continues to deal with the economic impact of the pandemic, the war in Ukraine is exacerbating inflationary problems. Central banks are faced with the risk that controlling rising prices could lead to economic decline.The Bank of England warned yesterday that the UK economy was heading towards a recession and inflation would hit 10 per cent this year, as it lifted the interest rate to 1 per cent, the country’s highest level since 2009.With UK prices likely to rise at their fastest rate in more than 40 years as sustained double-digit inflation becomes possible for the first time since the 1970s, the BoE — which is celebrating 25 years of independence this week — faces challenges that it has not encountered in the past quarter of a century, writes economics editor Chris Giles.Latest newsUkraine urges Médecins Sans Frontières to evacuate wounded from Azovstal steel plantGlass Lewis advises Amazon shareholders to vote against pay policyGerman industry suffers biggest drop in output since start of pandemicFor up-to-the-minute news updates, visit our live blog.Need to know: the economyChina’s president Xi Jinping has reaffirmed his commitment to the country’s controversial zero-Covid strategy, warning against “any slackening” in the effort and vowing to crack down on criticism of the policy despite signs of damage to the economy.US homebuyers are stretching their budgets to buy new homes and rushing to strike deals to avoid higher mortgage financing costs, according to the latest industry data. Mortgage rates have reached their highest levels in more than a decade, according to the recent Freddie Mac survey.Latest for the UK/EuropeMomentum is building for the European Central Bank to raise interest rates in July to fight soaring inflation, after dovish policymakers indicated they were ready to accept an end to almost eight years of negative borrowing costs.The EU is considering providing more time and money to Hungary to adapt to an embargo on Russian oil after talks on Brussels’ plans for imposing sanctions became “stuck”.Vodafone, the UK telecoms group under pressure from an activist investor, has strengthened its board with two appointments. They are Simon Segars, former chief executive of Arm, the UK-based chip business, and Delphine Cunci, an industry heavyweight in France. Europe’s largest activist fund Cevian Capital has been pushing the mobile group to refresh its management, which it believes has insufficient experience.Help us compile our ranking of Europe’s Diversity Leaders. Employees and workplace experts are invited to complete a short survey to assess companies’ progress on inclusivity by June 12.

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UK prime minister Boris Johnson faces renewed pressure on his leadership after the Conservatives suffered significant defeats in yesterday’s local elections, including big losses in London.Coronavirus infections in England have fallen to their lowest level since the start of the year, according to official data published today, as the spread of the disease slows across the UK.Global latestUS regulators have travelled to mainland China to discuss a potential compromise over audit disclosures that could stop around 270 Chinese companies from being delisted by New York exchanges, according to two people close to the matter.Tomorrow you can hear Henry Kissinger, Chimamanda Ngozi Adichie and more at our inaugural US FTWeekend Festival in Washington, DC. As a newsletter subscriber, you can claim an exclusive limited-time offer of 50 per cent off your pass using promo code: FTNewslettersxFTWF22.Need to know: businessGerman sportswear group Adidas has warned that its operating profit this year would be lower than previously expected, as the company struggles with disrupted supply chains, closed shops in China and rising costs. Operating profit tumbled 38 per cent to €437mn in the first quarter as the company was hit by the economic fallout from China’s strict Covid policies.Australia’s biggest investment bank Macquarie Group profited from volatility on global commodity markets and record dealmaking, driving full-year net profit up 56 per cent from the previous year to a record high of A$4.7bn ($3.3bn).British Airways has been forced to cut flight schedules further as it struggles to hire staff quickly enough to meet renewed demand for travel after culling nearly 10,000 jobs during the pandemic, raising concerns that the carrier could miss out on a bumper summer for European airlines.France has warmly welcomed Binance’s bid to put down roots in one of Europe’s top financial centres, drawing a deep divide with watchdogs in the UK that rejected the crypto giant. Binance this week received a nod from French financial regulators, a move that clears the way for the crypto exchange to establish a significant presence in the G7 nation that could also help the company unlock access to other jurisdictions across Europe.Boeing will move its headquarters to the Washington, DC area from Chicago, bringing the company closer to federal lawmakers and rival defence contractors. The move comes during a tumultuous period for the company, which has been subject to greater regulatory scrutiny following two fatal crashes of its 737 Max jet in 2018 and 2019 as well as the discovery of flaws in its 787 Dreamliner.Science round-upThe true total global pandemic death toll was about 15mn by the end of 2021, based on an analysis of excess mortality, said the World Health Organization. Ten countries, including India, the US and Russia, accounted for about two-thirds of the total excess deaths in a two-year period.“We have found that the global death toll is higher for men than for women”, splitting 57 per cent to 43 per cent, said Dr William Msemburi, an official in the WHO’s department of data and analytics. The excess deaths were also concentrated in older people, with 82 per cent of deaths estimated to have occurred in the over-60s. The data highlights the need for better health systems and continued development of treatments and vaccines.US drugmaker Moderna is developing an Omicron jab to be released in the autumn, aiming for those in the northern hemisphere to get boosted in October. The bivalent booster stimulates an immune response against two antigens, including mutations in the Omicron variant.Meanwhile, US regulators are limiting the use of Johnson & Johnson’s Covid vaccine for adults because of the potential risk posed by a rare and life-threatening blood clotting disorder.Get the latest worldwide picture with our vaccine trackerAnd finally . . . Whether you like it or not, face-to-face gatherings are back as Covid-19 restrictions ease and hybrid working becomes more common. After two years of online meetings, networking at an in-person event can be daunting. If this applies to you, one tip from this article on networking in a hybrid era is to pace yourself and attend fewer events as you gradually ease yourself back into real life — and get used to talking about the weather with strangers again.

Author Julia Hobsbawm says employers should think about creating a chief networks officer to help staff More

Ofgem was so keen to encourage competition in the energy retail market that it gave new entrants a “free bet” — enabling them to join with minimal risk and to exit with almost no downside, a report commissioned by the regulator has found.Instead of checking or monitoring new suppliers for their financial resilience, Ofgem left it to the market without fully understanding the consequence for consumers, the study by consultancy Oxera said. “Ofgem’s approach to regulating the market created the opportunity for suppliers to enter the market and grow to a considerable scale while committing minimal levels of their own equity capital,” the report said.“By pursuing a high-risk/high-reward business model, the suppliers would benefit from any upside, while being able to exit without any downside.”This approach — combined with rising wholesale gas prices — helped trigger the collapse of 30 suppliers in the past year, representing 10 per cent of the market and causing distress to their 4mn customers. Consumers are paying the price through a £68-a-year increase to already fast rising energy bills to pay for the cost of bailing out the failed companies.Many of these failed suppliers shared similar characteristics such as negative equity balances, over-reliance on customer credit balances to finance operations and counting on spot daily prices rather than “hedged” gas that has been bought in advance. Customer credit balances accounted for 80 per cent of Avro’s total assets in 2020 and 90 per cent of the assets of both Utility Point and Green Supplier. All three have collapsed.The protection from the consequences of risk-taking may have led to incentives to pursue riskier business models than if suppliers had greater levels of “skin in the game”, the report said.Although most customers of collapsed suppliers have been transferred to other providers, Bulb, the largest, has been taken over by the government at an expected cost of £2.2bn, making it the biggest state bailout since Royal Bank of Scotland in 2008. Co-founder Hayden Wood is still being paid £250,000 a year to run the business while around £2mn is being paid on bonuses to retain key staff. Wood and co-founder Amit Gudka each extracted more than £4mn from the lossmaking company in 2018. The owners of liquidated companies may also benefit from the sale of assets once creditors are paid off in insolvency proceedings, the report warned, although the loophole has since been closed through a temporary 12-month tax law.Stakeholders are concerned that “the cost of failure is mutualised and borne by bill payers, while any residual asset value at the point of failure could accrue to the shareholders of the failed firm”, the report said.It also identified concerns with how the energy price cap — introduced in 2018 to protect consumers — had been implemented. The six-month gap between each calculation of the price cap meant that at times of rising wholesale costs providers could be left to cover the difference between the prices they could charge consumers and the higher cost of buying energy. This “may have left suppliers with insufficient headroom to deal with shocks”, the report argued. Ofgem said it accepted the findings and recommendations, including the need for tougher checks on companies as well as protecting customer credit balances and increasing the financial requirements for companies starting up, saying “many . . . were already being implemented”. “The board will ensure all recommendations are carried out to further strengthen the regulatory regime,” it added. More