Aurelia Butler

Initial claims for state unemployment benefits rose 19,000 to a seasonally adjusted 200,000 for the week ended April 30, the Labor Department said on Thursday. Economists polled by Reuters had forecast 182,000 applications for the latest week. Claims had hovered below the 200,000 level since mid-February amid strong demand for workers. Government data this week showed there were a record 11.5 million job openings on the last day of March, which widened the jobs-workers gap to a record 3.4% of the labor force from 3.1% in February.The labor market imbalance is forcing employers to increase wages, contributing to soaring inflation. Compensation for American workers logged its largest increase in more than three decades in the first quarter, government data showed last week.On Wednesday, the Federal Reserve raised its policy interest rate by half a percentage point, the biggest hike in 22 years, and said the U.S. central bank would begin trimming its bond holdings next month as it battles sky-high inflation. It started raising rates in March. Fed Chair Jerome Powell told reporters that “the labor market is extremely tight, and inflation is much too high.”Claims, which have dropped from a record high of 6.137 million in early April 2020, will be closely watched for signs of whether rising borrowing costs are curbing demand.The government is expected to report on Friday that nonfarm payrolls increased by 391,000 jobs in April after rising 431,000 in March, according to a Reuters survey of economists. Job growth has exceeded 400,000 for 11 straight months.But there are signs that high labor costs are starting to hurt small businesses, especially those in the leisure and hospitality industry. A separate report from global outplacement firm Challenger, Gray & Christmas on Thursday showed job cuts announced by U.S.-based companies increased 14% to 24,286 in April. The second straight monthly increase in layoffs was led by the leisure and hospitality industry.”Job cut plans appear to be on the rise, particularly as companies assess market conditions, inflationary risks, and capital spending,” said Andrew Challenger, senior vice president at Challenger, Gray & Christmas. “Workers who are being cut will have lots of opportunities and will likely land quickly.”The rise in layoffs was in sync with the ADP National Employment report on Wednesday, which in April showed the smallest private payrolls gain in two years as employment at businesses with less than 50 workers fell. The leisure and hospitality sector added the fewest jobs since late 2020. More

ISTANBUL (Reuters) -Turkey’s annual inflation jumped to a two-decade high of 69.97% in April, according to data on Thursday, fuelled by the Russia-Ukraine conflict and rising energy and commodity prices after last year’s lira crash. The surge in prices has badly strained households just over a year before presidential and parliamentary elections that could bring the curtain down on President Tayyip Erdogan’s long rule.Erdogan first came to power as prime minister in 2003 before switching the country to a presidential system, and the unorthodox interest rate cuts made last year under pressure from him have been blamed for lighting a fire under inflation. Month-on-month, consumer prices rose 7.25%, the Turkish Statistical Institute said, compared to a Reuters poll forecast of 6%. Annually, consumer price inflation was forecast to be 68%.”It’s about food and energy price increases but also the spectacular failure of monetary policy in Turkey – and it’s about the abject and total failure of Erdogan’s unorthodox monetary policy,” said strategist Timothy Ash at Bluebay Asset Management.Last year’s currency slide was triggered by a 500 basis point-easing cycle which began last September under pressure from Erdogan, prompting the sustained surge in consumer prices that was stoked by fallout from Russia’s invasion of Ukraine.The surge in consumer prices was driven by a 105.9% leap in the transportation sector, which includes energy prices, and a 89.1% jump in food and non-alcoholic drinks prices, the data showed.Month-on-month, food and non-alcoholic drink prices rose the most with 13.38% and house prices rose 7.43%.The lira dipped 0.9% to 14.8525 against the dollar after the release of the data.Presidential and parliamentary elections are due by June 2023 and opinion polls show Erdogan’s support declining.”The really remarkable thing here is that opinion polls still suggest that the next election is still in the balance. Perhaps that says as much about the opposition as Erdogan,” Ash said.LITTLE REPRIEVEThe government has said inflation will fall under its new economic programme, which prioritises low interest rates to boost production and exports with the goal of achieving a current account surplus.However, economists see inflation remaining high for the rest of 2022 due to the war, with the median estimate for inflation at year-end standing at 52%. The current account deficit has also widened sharply at the start of the year.Last week’s Reuters poll showed annual inflation was expected to be 52% by year-end. Inflation was last at current levels in 2002, having hit 73.1% in February of that year.Inflation has continued to rise despite tax cuts on basic goods and government subsidies for some electricity bills to ease the burden on household budgets.Last week the central bank forecast annual inflation will peak at around 70% by June before declining to near 43% by year-end and single digits by end-2024.The central bank held its key policy rate steady at 14% in four meetings this year and said measures and policy steps will prioritise so-called liraization in the market. The domestic producer price index climbed 7.67% month-on-month in April for an annual rise of 121.82%. More

The Bank of England has warned that the UK economy will slide into recession this year as higher energy prices push inflation above 10 per cent, a forecast that pushed sterling to a two-year low.Rising prices would cause the worst squeeze in household finances for many decades, the bank’s Monetary Policy Committee said as it voted on Thursday to raise the main interest rate by a quarter-point to 1 per cent, its highest level since February 2009. Three of the nine MPC members voted for a half-point rate increase.The pound added to its losses after the BoE decision, leaving it down 2 per cent against the dollar at $1.2363 in early afternoon trading. The two-year gilt yield, which is highly sensitive to monetary policy expectations, tumbled 0.25 percentage points to 1.37 per cent. Bond yields fall when prices rise. In tightening monetary policy, the committee members decided that this winter’s surge in gas and electricity prices would not cause enough financial pain to bring inflation sustainably back under control, so additional action to raise borrowing costs and damp spending was needed.The MPC said it was “unable to prevent” UK households from becoming worse off and its role was to ensure inflation came down to its 2 per cent target sustainably in the medium term. The message for households suffering a cost of living crisis was less aggressive on interest rates than financial markets had expected, with inflation being forecast to fall well below the BoE’s target if it followed traders’ expectations that rates would rise to 2.5 per cent by the middle of next year. Instead, most MPC members signed up to a statement that said: “Some degree of further tightening in monetary policy might still be appropriate in the coming months.” Two members of the committee thought this guidance that interest rates needed to rise further “was not appropriate”.Speaking of the squeeze on households forecast by the BoE, its governor Andrew Bailey said: “I recognise the hardship that this will cause.” The committee also decided not to follow the US Federal Reserve and start active sales of the £875bn of assets that the BoE built up under its quantitative easing programmes since 2009, preferring instead to “work on a strategy for UK government bond sales” that would start at the earliest in August.Unlike the Fed, the BoE was not confident it could engineer a soft landing for the economy while also bringing inflation down to its 2 per cent target. Instead, unusually gloomy BoE forecasts predicted a recession by the end of the year as gas and electricity costs rise another 40 per cent when the new price cap for most consumers is set in October. It said these rises in energy bills were likely to push inflation up to 10.2 per cent in the fourth quarter of 2022, the highest in 40 years, slash real household incomes because wages would not keep pace and result in UK gross domestic product falling 1 per cent in the quarter. Another dip in GDP was likely in the third quarter of 2023, the BoE added, when the government’s temporary incentives for business investment ended, leaving the economy 0.8 per cent smaller than in the summer of 2022. Unemployment, it said, would rise from 3.8 per cent to 5.5 per cent by 2025 and this would help moderate wage claims and bring down inflation. Thereafter, the MPC now expects the UK economy to recover only weakly from the coming recession, suggesting that the economy could not withstand growth of much more than 0.6 per cent a year without inflation taking off again.This persistent weakness, the BoE said, reflected “further sharp increases in global energy, other commodity and tradable goods prices”. Its latest predictions showed the economy to be 2 per cent smaller by the middle of the decade compared with its February forecasts, just before Russia invaded Ukraine. Economic weakness and a few more interest rate rises would not be enough to bring inflation down, according to the three MPC members — Jonathan Haskel, Catherine Mann and Michael Saunders — who voted to raise interest rates by half a percentage point.This minority on the committee thought that initial momentum in the economy would continue to add to inflationary pressures and a larger increase was needed to “lean strongly against risks that recent trends in pay growth, firms’ pricing strategies and inflation expectations in the economy more widely would become more firmly embedded”. Vivek Paul, chief UK investment strategist at the BlackRock Investment Institute, said the BoE’s dilemma over how to bring down inflation without inflicting pain on the economy was “especially acute”.“While inflation has continued to climb beyond the bank’s previous expectation of an April peak, this is squeezing household income and the UK’s growth forecast is now the weakest among G7 economies, according to the IMF,” said Paul. “Given the weakness of the economic outlook, we expect the bank will ultimately choose to live with some inflation.”Additional reporting by Tommy Stubbington More

The writer is co-head of foreign exchange strategy for Goldman SachsThe yen has been the worst performing major currency this year, sliding around 12 per cent against the dollar and underperforming even the Turkish lira and Argentine peso.Relative to a basket of trading partner currencies and adjusted for inflation, the yen has fallen to levels last seen in the early years of the Reagan administration, before the 1985 Plaza Accord. But this state of enyasu (weak yen) will probably be shortlived. The yen is an undervalued haven asset at a time of rising recession risks around the world and structural threats to the dollar. It will find support from long-horizon investors looking to protect their capital. If global inflation pressures remain high, the Bank of Japan will eventually allow bond yields to rise, rather than let the currency spiral downward.Recent yen depreciation reflects shorter-term, cyclical factors: sharply rising bond yields in the US and Europe, higher commodity prices that lead to a larger import bill for Japan and the Omicron Covid wave, which has held back the economic reopening process throughout Asia. The BoJ was right to say last week that Japan’s cyclical position — low core inflation and a more limited rebound in economic output — warrants an easier monetary policy stance compared with its G10 peers.But structurally the Japanese economy is not that different from other developed markets. It had an earlier and larger real estate bubble and bust, but the pattern was largely the same as played out in western economies over the past decade.

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Japanese inflation has been low, but inflation rates elsewhere moved closer to Japan-like levels over the last business cycle. Between 2010 and 2019, Japan’s consumer price index inflation averaged 0.5 per cent, compared with 1.4 per cent in the euro area, 1.1 per cent in Sweden and zero in Switzerland. Over that same period, Japan’s real per capita growth in gross domestic product averaged 1.3 per cent, slightly above the average of the rest of the G10.Moreover, Japan has the attributes of a natural “haven”. Most importantly, it is a wealthy nation with a large stock of foreign assets. Japan holds about ¥1,260tn in foreign assets ($9.6tn) compared with liabilities of about ¥850tn ($6.5tn).This net international asset position amounts to roughly 75 per cent of Japan’s GDP and produces income for the nation worth nearly 4 per cent of GDP every year. The Japanese government has a large debt stock, but this is held mostly as assets by its residents and the BoJ. The Japanese nation is not going broke and its large current surpluses over the years mean the currency is not vulnerable to sudden capital flight.Investors should be warier of Japanese bonds than the currency. If we have entered a period of stubbornly high global inflation pressures, Japan will not be immune. Between 1960 and 1989, when US inflation averaged 5 per cent, Japanese inflation averaged 5.6 per cent — there is nothing about Japan that implies permanently low inflation. Muted wage growth and price inflation trends in the country won’t change overnight. Inflation expectations appear anchored at relatively low levels. It may take repeated upside inflation surprises for the Japanese public to expect a steadily rising price level. But this now seems to be a meaningful risk. Most other economies experienced a wave of price pressures as they reopened. For the BoJ, which has been trying to secure an end to deflation for years, this should be good news. Bringing underlying inflation closer to the central bank’s 2 per cent target will allow it to move nominal interest rates back above zero and improve policy flexibility.BoJ governor Haruhiko Kuroda should be preparing for his victory lap. Ending negative rates and a policy of yield curve control — which effectively caps 10-year government bond yields at 0.25 per cent — would be no tragedy. Instead, it would signal that officials successfully ended deflation through a sustained cross-government macro policy campaign.The yen may very well experience further depreciation pressure over the coming weeks — needless to say, we are in a complex and volatile period for global markets. But beyond the near-term there are a number of paths to recovery for the yen. In a recession, US Treasury yields and commodity prices would likely come down, narrowing interest rate differentials with Japan and lowering the cost of its commodity imports. If global inflation remains high, low interest rates in Japan will eventually move up toward the levels in other developed markets. Investors can anticipate a rebound in the yen over time and should consider owning this haven asset as a hedge against global recession and other tail risks. More

Rising prices of energy and raw materials are hitting UK businesses hard, particularly in the hospitality sector, according to official data released on Thursday that fuel concerns about a further rise in consumer inflation and a new economic downturn.Half of UK businesses reported an increase in the prices of materials, goods or services bought in March, according to a comprehensive survey published by the Office for National Statistics.The proportion rises to 77 per cent in the accommodation and food services sector and is well above 50 per cent in construction, retail trade and manufacturing.Some of the rising costs were passed on to consumers, with 23 per cent of businesses also reporting increased prices of sold goods and services. This points to consumer inflation rising further in the months ahead after hitting a 30-year high in March. However, about two in five companies reported they had had to absorb the rising costs.Jack Sirett, head of dealing at global financial services firm Ebury, said the figures laid bare the “challenges facing companies as well as the further pain that is still to come the way of customers”.The data comes as demand is also weakening. One in five businesses reported that their turnover decreased in March compared with the previous month, ONS data showed, a share that rises to more than one in three in the hospitality sector.The figures were released as businesses in the services sector reported the highest input costs since records began in 1996, according to the final reading of April’s S&P Global purchasing managers’ survey. The closely watched survey also showed business confidence dropping to the lowest level in a year and a half. Growth in the services sector, which makes up 80 per cent of the UK economy, slowed sharply with the headline PMI index for services dropping to 58.8 in April from 62.6 in the previous month. Andrew Harker, economics director at S&P Global, said: “The twin headwinds of the cost of living crisis and the war in Ukraine started to bite on the UK service sector during April.” He added that “worryingly, companies seem to be expecting impacts to be prolonged, with business confidence dropping to the lowest in a year-and-a-half”.

Economic growth had slowed to a crawl in February with Thursday’s data pointing to faltering activity in the most recent months.The figures show “that the intensifying squeeze on households’ real disposable incomes is starting to slow the economic recovery”, said Samuel Tombs, economist at Pantheon Macroeconomics. He expected the economy to shrink by 0.4 per cent in the second quarter and to grow modestly thereafter. He added that “the growth wobble in Q2 would reinforce the Monetary Policy Committee’s case for only ‘modest’ increases in its benchmark interest rate in the next few months”. Tombs said he expected no more than a 25 basis points rise on Thursday and a further 25 basis points increase in August, leaving the rate at 1.25 per cent at the end of this year. More