Economy

“The increases in interest rates that we still have to do are relatively marginal, most of the work has been done,” said Villeroy, who was speaking at an event hosted by various French media organisations and the Toulouse School of Economics.Data published earlier on Thursday showed that euro zone inflation had eased by more than expected last month, fuelling a debate about the need for further ECB rate hikes beyond an increase later this month.Inflation in the 20 nations sharing the euro eased to 6.1% in May from 7.0% in April, below expectations for 6.3% in a Reuters poll of economists.ECB President Christine Lagarde added on Thursday that euro zone inflation was still too high, so further monetary policy tightening from the ECB was necessary even if there is a growing body of evidence that past rate hikes are staring to work. More

Private sector employment increased by a seasonally adjusted 278,000 for the month, ahead of the Dow Jones estimate for 180,000, ADP reported.
The ADP report noted that the distribution of job grains was “fragmented” as increases were concentrated in just a few industries.
Salary growth is still strong showing signs of decelerating, the payroll processing firm said.

The U.S. labor market posted another month of surprising strength in May as companies added jobs at a pace well above expectations, according to a report Thursday from payroll processing firm ADP.
Private sector employment increased by a seasonally adjusted 278,000 for the month, ahead of the Dow Jones estimate for 180,000 and a bit lower than the downwardly revised 291,000 in April. May’s increase took the payroll growth so far in 2023 to 1.09 million.

The ADP report noted that the distribution of job grains was “fragmented” for the month, as increases were concentrated in leisure and hospitality, which added 208,000 positions, and natural resources and mining, which saw a gain of 94,000.
Construction added 64,000 jobs, but multiple other categories saw declines.
For instance, manufacturing saw a drop of 48,000, financial activities lost 35,000 and education and health services was off by 29,000. Trade, transportation and utilities posted an increase of 32,000 while the other services category added 12,000.
From a size perspective, companies with 500 or more workers lost 106,000 jobs. Small firms, with fewer than 50 workers, added 235,000 positions.
One area of note for ADP was a slowdown in the pace of wage gains, with annual pay up a still-robust 6.5% in May but down from the 6.7% increase in April. Those switching jobs reported an annual increase of 12.1%, off a percentage point from the month before.

“This is the second month we’ve seen a full percentage point decline in pay growth for job changers,” ADP chief economist Nela Richardson said. “Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring.”
The ADP count comes a day ahead of the Labor Department’s more closely watched nonfarm payrolls report, which is expected to show job growth of 190,000 in May following a gain of 253,000 in April.
ADP’s report serves as a precursor to the government’s tally, though the two sometimes can differ considerably. The Labor Department said private payrolls rose by 230,000 in April.
The payroll gains have come despite the Federal Reserve’s efforts to tackle inflation and slow the labor market through a series of interest rate increases. Central bank officials have said in recent days that they may be in favor of skipping another hike in June as they weigh the impact of policy tightening that began in March 2022.
A separate report Thursday showed that initial filings for unemployment benefits were little changed last week.
Jobless claims totaled 232,000 for the week ending May 27, up 2,000 from the previous week and slightly below the Dow Jones estimate for 235,000. Continuing claims edged higher as well to 1.795 million. More

TORONTO (Reuters) – Canada’s residential construction activity has slowed in recent months due to a tight labor market and higher borrowing costs, a factor that could thwart government plans to reduce a housing shortfall and add to the recovery in home prices.That would be bad news for the Bank of Canada as it seeks to lower inflation but also a problem for Prime Minister Justin Trudeau who has vowed to improve housing affordability.While a federal election is not due until 2025, housing affordability is among the top concerns for Canadians who have grappled with supply shortages. The Liberal Party government’s ambitious plan to welcome 500,000 immigrants per year by 2025, or about 1.25% of its population, is expected to fuel robust demand for housing.A slowdown in residential construction “is absolutely at odds with plans for the supply of housing to increase to keep step with immigration”, said Randall Bartlett, senior director of Canadian economics at Desjardins.In April 2022 the federal government announced plans to double housing construction over the next decade. Housing starts, however, will decline to 212,000 units in 2023 from 262,000 in 2022, held back by labor shortages, the high cost of materials and increased financing costs for developers, Canada Mortgage and Housing Corporation, the national housing agency, projected last month.”When combined with the surge in demand as a result of immigration, this lackluster supply will put further upward pressure on (home) prices,” Bartlett said.On Tuesday the Canadian Home Builders’ Association said 64% of builders expect to have fewer starts this year than last, while investment in residential building construction, after adjusting for inflation, fell in March to its lowest level since June 2020. Interest rates could rise further after data on Wednesday showed stronger-than-expected economic growth, while there are other obstacles to new home construction, such as environmental opposition to building on protected land, and resistance to urban density, said James Laird, co-founder of mortgage rate comparison site Ratehub.ca.”The ‘not in my back yard’ mentality applies throughout every city,” Laird said. “That really slows things down.”AVERAGE HOME PRICE UP 17% IN 3 MONTHSAfter a year-long slump, the average home price has jumped 17% in the three months since January, when the Bank of Canada signaled a pause in its tightening campaign. Coupled with higher mortgage rates, a recovery in home prices would make it more costly for Canadians to buy homes, an issue opposition Conservative Party leader Pierre Poilievre has already pounced on.”Trudeau promised to make housing more affordable. It’s been eight years (since he took power), and now, housing costs have doubled,” Poilievre said on Twitter last month.Speaking with the heads of Canada’s municipalities last week, Trudeau said the government’s next “long term infrastructure” plan will be revealed this autumn.”I can share with you today that this funding will have very direct links to housing,” he added.Affordability and housing are among the top priorities for Canadians, especially in the vote-rich Greater Toronto Area, where housing supply is a big problem, said Darrell Bricker, CEO of pollster Ipsos Public Affairs.”The people who could vote for the Conservative Party are… middle-class aspirants who are feeling that they’re being denied because of the price of real estate, the height of interest rates, and the lack of construction supply,” Bricker said. More

Initial claims for state unemployment benefits rose 2,000 to a seasonally adjusted 232,000 for the week ended May 27. Economists polled by Reuters had forecast 235,000 claims for the latest week. Claims remain very low by historical standards despite 500 basis points worth of interest rate increases from the Federal Reserve since March 2022, when the U.S. central bank embarked on its fastest monetary policy tightening campaign since the 1980s to tame inflation. Though the employment growth has slowed from last year’s robust pace, demand for labor remains strong. The government reported on Wednesday that there were 10.1 million job openings at the end of April, with 1.8 vacancies for every unemployed person, well above the 1.0-1.2 range that is consistent with a labor market that is not generating too much inflation.Though there have been high-profile lays offs in the technology sector and interest rate sensitive industries like housing, employers have been generally hoarding workers following difficulties finding labor in the aftermath of the COVID-19 pandemic.The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 6,000 to 1.795 million during the week ending May 20, the claims report showed. The claims data does not have a bearing on Friday’s employment report for May as it falls outside the survey period.According to a Reuters survey of economists, nonfarm payrolls likely increased by 190,000 jobs in May after rising 253,000 in April. The unemployment rate is seen ticking up to 3.5% from a 53-year low of 3.4% in April. Expectations for a slowdown in job growth were supported by the Fed’s Beige Book report on Wednesday, which described the labor market as having “continued to be strong” in May, but noted that “many contacts” were “fully staffed.” It added that some “were pausing hiring or reducing headcounts due to weaker actual or prospective demand or to greater uncertainty about the economic outlook.”A separate report from global outplacement firm Challenger, Gray & Christmas on Thursday showed job cuts announced by U.S.-based employers increased 20% to 80,089 in May. Companies have announced 417,500 layoffs this year, a 315% surge from the same period last year. Excluding 2020, when the pandemic started, this is the highest January-May total since 2009. More

Eurozone inflation has fallen more than economists expected to hit its lowest level since Russia’s invasion of Ukraine more than a year ago, but the head of the European Central Bank signalled more interest rate rises were needed to tame persistent price pressures.Annual consumer prices in the 20-country single currency bloc rose 6.1 per cent in the year to May, a decline from 7 per cent in April, according to data published by the EU statistics agency Eurostat on Thursday. It is the lowest level since February 2022 and was below the 6.3 per cent forecast by economists in a Reuters poll.ECB president Christine Lagarde said in a speech shortly after the data was released that inflation was still “too high” and more interest rate rises were needed to bring it down to its 2 per cent target.Eurozone rate-setters are particularly focused on core inflation, which strips out energy and food prices. This measure fell from 5.6 per cent in April to 5.3 per cent in May, which was more than expected but seemed unlikely to convince policymakers to stop raising rates at their next meeting on June 15.Eurozone sovereign bond markets fell and the euro rose against the dollar as investors bet inflation was not falling fast enough for the ECB to stop raising rates. Germany’s rate-sensitive two-year bond yield rose 4.8 basis points to 2.76 per cent, while the euro gained 0.25 per cent to $1.072.Economists said the fall in core inflation was in large part due to the impact of Germany’s launch of a subsidised €49-a-month public transport ticket in May, which damped growth in transport service prices.“While further gradual declines in the core rate seem likely, we don’t think that will stop the ECB from raising interest rates in June and probably July,” said Jack Allen-Reynolds, an economist at research group Capital Economics.Annual inflation fell in 18 out of the 20 eurozone member countries, rising only in the Netherlands. Price pressures also cooled in all product areas for the first time since they started to rise at the fastest pace for a generation more than 18 months ago. But Lagarde cautioned that “there is no clear evidence that underlying inflation has peaked”. While eurozone lending has stalled, Lagarde told a German banking event in Hannover that ECB consumer surveys “show that tighter monetary policy is not going to affect people’s holiday plans”.The ECB has already raised its deposit rate at an unprecedented pace from minus 0.5 per cent last July to 3.25 per cent in May. Investors are betting it will lift rates by another quarter-percentage point at its next meeting in two weeks’ time and once more in July before pausing.A number of ECB governing council members only agreed to support a smaller rate rise of a quarter percentage point in May if it also signalled that more rate rises were coming, according to the official account of its last policy meeting published on Thursday. Some council members said smaller rate rises would allow them to “keep raising rates for longer, if underlying inflation pressures persisted or even strengthened through the summer”. It was even “contended that signs of a wage-profit-price spiral were emerging” by some rate-setters.Price pressures have stayed higher in the eurozone than in the US, where consumer price inflation fell to 4.9 per cent in April. Prices in both the eurozone and the US have cooled faster than the UK, where inflation hit 8.7 per cent in April.Rising wage growth is “becoming a more important driver of inflation,” Lagarde warned. While eurozone workers have suffered a 4 percentage point fall in real wages since the pandemic hit in 2020, she said tight labour markets meant they “have considerable bargaining power, which they are starting to use to recoup these losses”.Eurozone unemployment fell to a new record low of 6.5 per cent in April, separate Eurostat data showed on Thursday.Eurozone energy prices fell 1.7 per cent from a year ago in May, after rising 2.4 per cent in the previous month. Services inflation dipped from 5.2 per cent to 5 per cent, while goods inflation eased from 6.2 per cent to 5.8 per cent. Lagarde said falling energy prices should “limit firms’ ability to further raise profit margins, which has been a key factor driving recent price pressures”. It was the ECB’s responsibility to “restrict demand enough” to prevent a self-reinforcing spiral of wages, profits and prices, she said.Food prices cooled slightly in May, while still rising at a rapid rate. Fresh food inflation dipped from 10 per cent to 9.6 per cent, while the price of processed food, alcohol and tobacco rose 13.4 per cent — down from 14.6 per cent a month earlier. More

Financial watchdogs must “significantly” increase their budgets in the wake of recent banking crises, said the head of the umbrella body for central banks, arguing that more intensive day-to-day oversight was critical to preventing future failures. Global policymakers are weighing rule changes to better insulate banks from risks such as changing interest rates and a swifter flight of deposits, two factors that fuelled the biggest spate of collapses since the global financial crisis of 2007-08. Among the most high-profile failures, Silicon Valley Bank was shut down by the Federal Deposit Insurance Corporation in early March, while Credit Suisse was forcibly sold to Swiss rival UBS a week later. Agustín Carstens, head of the Bank for International Settlements, said that while there was a case for making regulatory “adjustments”, the approach had its limitations because “there is simply no reasonable level of minimum capital and liquidity that can make a bank viable if it has an unsustainable business model or poor governance”. “The main cause of recent bank crises was the failure of directors and senior managers to fulfil their responsibilities,” he told the European Banking Federation’s annual conference in Brussels on Thursday. “Business models were poor, risk management procedures woefully inadequate and governance lacking.”Carstens, whose institution has responsibility for global financial stability and hosts the Basel Committee on Banking Supervision, said those issues “existed well before depositors ran and investors lost confidence” and that many of them should have been “identified and remedied ahead of time”. “Banking supervision needs to up its game,” he said, arguing that spending must rise “significantly” to help supervisors ensure banks were better run and could cope with the impact of changing interest rates or advances in technology that enable faster bank runs. Increased spending on regulation could be funded by a “range” of options, including higher contributions from banks. “Some will no doubt complain,” he said. “But this would be money well spent. Financial crises give rise to massive social and financial costs. By reducing their likelihood, investments in a more effective supervisory framework will certainly pay off.” Carstens did not specify which regions should spend more. Most of 2023’s failures were in midsized US lenders such as Signature Bank and First Republic. The Federal Reserve said supervision of the California-based SVB lacked “sufficient force and urgency” but its implosion was primarily caused by a relaxation of rules during Donald Trump’s presidency, including a change that allowed midsized banks not to set any capital aside for unrealised losses in their securities portfolios. A recent report by Oliver Wyman found that average supervisory fees paid by US banks are already running at twice the level of fees in the EU, though smaller banks in the European bloc face higher supervisory costs than in the US. An executive at one global bank said large jurisdictions spent substantial amounts on supervision, citing the $2.4bn operational budget of the FDIC. “The question is, are they [regulators] spending money in the right way,” he added. Carstens called on supervisors to “find and develop sufficient expertise in areas like cyber security, data analytics and artificial intelligence” so they can keep pace with the “far reaching impact of technological disruption” and improve their efficiency. “With sufficient resources and the aid of technology, supervisors will be able to identify more vulnerabilities at an early stage and to act on them before problems become too large and complex to handle,” he said, adding that “such investments will certainly reduce” the likelihood of bank failures and their ability to destabilise the financial system. More

ZURICH (Reuters) – Swiss National Bank Chairman Thomas Jordan on Wednesday defended recent interest rate hikes to tackle inflation, saying they were neither damaging for Swiss financial stability nor responsible for the downfall of Credit Suisse.The SNB has increased interest rates four times over the past year to reduce inflation which has persisted above the central bank’s target of 0%-2%.The market currently expects 25 basis point rise from the current 1.5% level when the central bank makes its next assessment in June.”Interest rates in Switzerland are still very low,” Jordan told an event in Lugano, southern Switzerland. “We don’t see a big risk in over tightening monetary policy.”It is not something that will damage financial stability in general in Switzerland,” he added.Indeed, higher rates can be seen as a positive for financial stability by helping banks to restore their profit margins, he said.”We had this financial stability issue with Credit Suisse, but that was something different,” Jordan said. “This is an individual case, where interest rates were not the problem but rather a lack of trust of market participants in an institution.”Jordan said he was concerned by the pace of bank withdrawals which ultimately led to the stricken bank’s rescue and takeover by UBS in an operation engineered by the government and the SNB.He referred to a separate case where 90% of deposits left another bank in a matter of days.Jordan said. “That is surely something we have to look at very carefully and see what we can do to avoid these kind of bank runs.”Jordan said he also remained concerned about Swiss inflation, which eased in April to 2.6%, but remained outside the SNB’s target range for the 14th month in succession.The longer inflation remains above the central bank’s goal, the more it becomes entrenched in the perception of companies and households and becomes harder to reduce, Jordan said.”We have to bring it back below 2% as soon as possible,” Jordan said. More

BERLIN (Reuters) – Rising rents, less venture capital and a shortage of talent are taking the shine off Berlin as a hub for startups.”The one single thing more difficult to find in Berlin than an apartment is a programmer,” said Avitosh Sawhney, 36, who moved his tech startup Ynertia to the German capital from Paris in 2020 but found it did not offer the plentiful space, funding and workers that had once made the city so attractive.The government has taken note, and is drawing up legislation to ensure the country and its capital stay attractive for entrepreneurs to help drive the economy of Europe’s industrial powerhouse.But Finance Minister Christian Lindner’s proposals, which include tax allowances for shareholders in a bid to entice more startups, face headwinds from members of the ruling coalition. The Greens say the plans help the rich at the expense of those less well off.Greens lawmaker Katharina Beck told Reuters that Lindner “cannot ask others to save and then propose millions in tax cuts himself if he wants to draw up a serious budget for a sustainable Germany.”The German capital took off as a hub for startups after the fall of the Berlin Wall in 1989, when it offered lots of cheap living and office space, as well as a buzzing social scene that welcomed newcomers.Berlin still has its attractions. A survey of would-be entrepreneurs by Startup Heatmap Europe showed 37% wanted to set up a business in Berlin, giving it the No. 1 popularity rank, although London is still top in overall rankings when taking into account everything from funding to talent availability.London generated $2 billion in venture capital funding in the first quarter of 2023, compared to Berlin’s $800 million, a DEEP Ecosystems analysis of Dealroom data showed. TOUGHER TIMESIn 2022, 501 startups were founded in Berlin, a fifth of Germany’s total.But the city is now a tougher place for those trying to kick off a new business. Room rents rose faster last year than any other European city, hitting 800 euros ($880) in the first quarter of 2023 up from 600 euros a year earlier, Housing Anywhere data showed.With the average price of a one-bedroom apartment now 1,700 euros, it is just 11 euros below Paris.Higher rents drive away workers and raise wage costs for startups, in a nation already facing an acute labour shortage.”Today in Berlin, renting office space and salary costs place large financial burdens on companies, which makes it harder to continue to grow their technology,” said Maximilian Tayenthal, who was a co-founder of N26, a digital bank that took off in Berlin a decade ago.A Manpower survey showed 86% of German companies reported trouble filling vacancies, the highest share among European countries and above the average of 77%. About a fifth of openings at startups were vacant and more than half were struggling to fill posts, German Startups Association said.German banks, like other European institutions, have become more cautious in what the European Central Bank has described as the fastest net tightening of credit since 2011. In Germany, it has been accompanied by the sharpest contraction in venture capital funding in Europe in the past 12 months, down 42%.FUNDING CRUNCH”There is new caution and restraint on the part of venture capital investors, even if their current funds are still fundamentally well filled,” German Startups Association Managing Director Christoph Stresing said.The funding crunch is hitting Germany’s push to encourage the growth of new renewables businesses, given manufacturing startups are particularly capital intensive.”As you scale very fast, you find yourself quickly in a situation in which the next climate tech facility you want to build has a value that’s bigger than your own company’s worth,” said Tobias Lechtenfeld, spokesperson for the Tech for Net Zero Alliance, a network of climate tech startups and investors.Chancellor Olaf Scholz’s government aims to offer incentives to improve access to credit and talent with the Future of Financing Act. It will include proposals to simplify listing and post-listing requirements for startups and to digitalise capital markets. It also wants to increase the tax allowance for employee share ownership to 5,000 euros from 1,440 euros.Startups particularly welcome the share ownership move, according to a Bitkom survey, as it would help attract talent when they are not able to offer high salaries.The new legislation’s key points were presented in April by the finance and justice ministries, both led by the pro-market Free Democratic Party (FDP). Other ministries led by other parties in the coalition are discussing them with the aim of having a first draft ready in summer and implementing the law in 2024.($1 = 0.9084 euros) More