Economy

WELLINGTON (Reuters) -New Zealand’s economy missed forecasts for growth in the fourth quarter and instead shrank 0.6%, official data showed on Thursday, raising the chances of a recession and making further interest rate hikes less likely.Gross domestic product (GDP) failed to meet analysts’ expectations of a 0.2% contraction in the December quarter and was well below the Reserve Bank of New Zealand’s (RBNZ) forecast of 0.7% growth. It was a reversal from revised growth of 1.7% seen in the third quarter.The weakness in the economy is broad-based and conditions are already recessionary for manufacturing, retail, trade and accommodation, according to the Statistics New Zealand data. The central bank and treasury had both forecast the country would enter a shallow recession in the second quarter of 2023.Economists said the weak data released on Thursday meant it was possible the country was already in recession, particularly given the impact that severe weather in January and February was likely to have on the economy.”The outlook for Q1 remains gloomy,” Capital Economics said in a note. New Zealand spent two quarters in recession in 2020 because of tight restrictions when the COVID-19 pandemic hit, but prior to that the economy had not contracted since late 2010. Regardless of whether the country is entering a recession, the economy is much less overheated than the Reserve Bank of New Zealand (RBNZ) had expected. The central bank has undertaken its most aggressive policy tightening since 1999, when the official cash rate was introduced, lifting it by 450 basis points since October 2021 to 4.75%. The market is betting the RBNZ’s plan to hike the official cash rate (OCR) by a further 75 basis points this year to 5.5% by the third quarter will be pared back.”We see no need for the RBNZ to go to 5.50%, which would risk causing unnecessary losses in activity and employment,” Citi analysts said in a note, predicting GDP contractions in the first and second quarter.NZ bank bill futures have surged as the market priced in a lower peak for RBNZ rates. The market is now 50-50 on whether the RBNZ hikes 25 basis points (bps) in April, while the terminal rate is seen at 5.11% rather than the bank’s projection of 5.5%.The New Zealand dollar was down before the data but extended the fall to be off 0.6% at $0.6145. Two-year swaps are near a two-month low of 4.925% having fallen sharply overnight as bank sector concerns drove down bond yields globally. ASB Bank said in a note that the data weakness and increased financial market jitters overseas suggested less urgency for RBNZ rate hikes.”Uncertainty is elevated, but we have shaded down our 50 basis point April OCR call to a 25 basis point hike,” the note said. More

Figures from the Australian Bureau of Statistics showed net employment rose 64,600 in February from January, when they fell a revised 10,900. Market forecasts had been for a rebound of 48,500.The jobless rate dropped to 3.5%, from 3.7%, when analysts had looked for a dip to 3.6%. Hours worked jumped by 3.9% in another signal of resilient activity. More

Japan’s Nikkei fell 2% in early trade. Australian shares slumped 2% as well, led by losses for banking stocks, while miners dropped heavily too as the spectre of worldwide banking stress has traders getting out of all kinds of growth-sensitive assets.Hang Seng futures were down 2%. Oil has slumped to 15-month lows. Gold touched a six-week high overnight. [O/R][GOL/]In New York the S&P 500 fell 0.7% but the focus was on banks and in Europe where Credit Suisse shares crashed 30% to a record low after its biggest shareholder, Saudi National Bank, said it could not provide further financial help.Switzerland’s central bank pledged to fund Credit Suisse “if necessary,” which lifted Wall Street indexes from lows in afternoon trade, but the intervention isn’t exactly soothing market fears. The Swiss franc fell 2% in its steepest drop for seven years. In a joint statement, the Swiss financial regulator and the nation’s central bank said Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks.”They said the bank could access liquidity from the central bank if needed. The moves follow the collapse of U.S. lenders Silicon Valley Bank and Signature Bank (NASDAQ:SBNY) in recent days which have sent financial markets on a roller-coaster ride. The Bank of England was holding emergency talks with international counterparts the Telegraph newspaper reported on Wednesday. The Bank of England declined to comment.Expectations for a 50 basis rate hike in Europe have evaporated as markets radically rethink the global interest rate outlook in light of the banking jitters.Money market pricing implies a less than a 20% chance of a 50 bp hike from the ECB, down from 90% a day earlier. Shares in big U.S. banks including JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Bank of America (NYSE:BAC) fell overnight, pushing the S&P 500 banking index down 3.62%.Bonds rallied hard, driving two-year U.S. Treasury yields to their lowest since September at 3.72% at one point overnight. Benchmark 10-year yields fell 14 bps to 3.494%. [US/]The euro also dropped heavily overnight as the U.S. dollar surged, falling 1.4% to $1.0578. The flight to safety lent support to the yen and it rose 0.6% to 132.59 per dollar in Asia trade on Thursday. More

(Reuters) -Boeing Co predicted a surge in worldwide aircraft financing towards pre-pandemic levels this year, highlighting a rebound in demand for air travel just as aviation was swept up in a stock market rout over banking sector woes on Wednesday.The availability of finance for the 1,000 or more new jetliners rolling off production lines each year is a key barometer for the $100-billion-plus a year jet industry, dominated by Boeing (NYSE:BA) and its European rival Airbus.But publication of Boeing’s widely watched annual forecasts coincided with the loss of billions of dollars of value in planemakers, airlines and travel firms as concerns over Credit Suisse washed through global markets. Any new financial crisis could affect business and consumer confidence and cut demand for premium travel as bankers and other high-value customers rein in spending, putting pressure on airline profitability and jet demand, executives said.Aviation is also widely seen as vulnerable to any downturn in an economy already scarred by inflation, with United Airlines shares falling this week after it signaled demand during off-peak months was waning.Still, Boeing forecasts drawn up before this week’s chill in the banking sector, and published on Wednesday, suggest airlines will absorb $94 billion in delivery funding this year, close to $98 billion seen in 2019 and well above $69 billion last year.Boeing said it was seeing increased interest from financiers and investors to aid commercial airplane deliveries. Cash continues to be a significant source of funding as airlines improve their operations and lighten balance sheets stretched by the pandemic. But Boeing said capital markets, bank debt and government export credits would all expand this year.”This positive trend reaffirms that our industry’s fundamentals are strong and aircraft financiers and investors are well positioned as travel continues to recover,” said Rich Hammond, vice president of Customer Finance at Boeing.Boeing closed down 4.4% after falling as much as 7% as a slump in Credit Suisse sent shares lower everywhere.For now, airline executives said, the Credit Suisse upset is viewed as a relatively isolated issue rather than a repeat of the liquidity crisis which rocked aviation and other sectors in 2008-2009.Boeing’s forecast was the first since the planemaker folded decades-old standalone financing arm Boeing Capital into its airplanes unit as part of a corporate streamlining.Anchored mainly in Dublin, the fast-growing aircraft financing sector has benefited from investors chasing relatively high dollar-denominated returns during the decade of central bank stimulus that followed the global financial crisis.Financiers at the industry’s annual summit in January said ample funds remained for aviation but at tighter conditions, given rising interest rates and a sharper focus on quality.Leasing firms may face more competition from other sources of finance this year, Boeing predicted in Wednesday’s report. More

Yellen: US Treasury secretary Janet Yellen will appear before the Senate finance committee to testify on President Joe Biden’s fiscal year 2024 budget. She will probably be asked about the response from Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation, which implemented measures to calm panic among deposit holders and prevent contagion after the failures of Silicon Valley Bank and Signature Bank.Earnings: Parcel group FedEx, often an economic bellwether, will report earnings after the market closes. Analysts anticipate the company to have earned $2.70 a share on revenue of $22.7bn, in the quarter to February, compared with $4.20 a share on revenue of $23.6bn during the prior-year period.Discount retailer Dollar General reports earnings before the opening bell. Analysts predict the chain will have earned $3 a share on revenue of $10.2bn in the three months to January, up from $2.57 a share on revenue of $8.65bn a year before.Economic data: Economists expect 205,000 claims for state unemployment aid to have been made during the week ending March 11, according to Refinitiv. Such a figure would keep US jobless claims, which are a proxy for lay-offs, above 200,000 for the second week in a row. Separately, economists expect new housing starts in February to have held steady at 1.3mn from January. More

(Reuters) -Payments processor Stripe on Wednesday raised $6.5 billion in a funding round led by existing and new investors at a sharply reduced valuation of $50 billion, down nearly 50% from two years ago.Stripe said it would use the cash to cover a large tax bill associated with stock granted to employees and to provide liquidity to employees. About $3.5 billion of the newly-raised capital will be used to cover the tax bill, with the rest being used to buy shares from employees, according to a person familiar with the matter, who requested anonymity as these discussions were confidential.The latest funding marks a steep decline in the valuation of the fintech startup, which was valued at $95 billion in March 2021.Stripe said it did not need the new funds to run its business. Venture capital firms including Andreessen Horowitz, Baillie Gifford, Founders Fund, General Catalyst, MSD Partners, and Thrive Capital led the latest funding round, according to a statement from the company. While Stripe still plans to eventually proceed with an initial public offering, that is unlikely this year, the person said.Stripe had initially targeted a fundraising of about $4 billion, but ended up garnering more demand from investors than it initially anticipated, the person added. New investors such as Singapore’s sovereign wealth fund GIC, Goldman Sachs (NYSE:GS) Asset and Wealth Management and Temasek also participated in the round, Stripe said. After years of signing big checks for high-flying startups, investors have turned more cautious as the U.S. Federal Reserve’s monetary tightening drains out excess liquidity.Startup metrics such as profitability and cash burn are being scrutinized more closely. Last year, Swedish buy now, pay later giant Klarna also raised capital at a significantly lower valuation.Stripe, which counts Amazon.com Inc (NASDAQ:AMZN), Ford Motor (NYSE:F) Co, Salesforce (NYSE:CRM) and BMW among its customers, has previously said it is aiming to turn profitable before going public.Goldman Sachs served as the sole placement agent on the funding round. J.P. Morgan acted as a financial advisor to the company, Stripe said. More

(Reuters) – With just six days to go before Federal Reserve policymakers sit down in Washington, exactly what decision they’ll make on interest rates now and in coming months has become pretty much anyone’s guess, and investors and Wall Street economists are doing just that. Over the past year, Fed leadership has gone out of its way to signal its intentions on interest rate hikes aimed at quashing hot inflation, relying on a steady stream of economic data inputs to guide its actions.But now Fed Chair Jerome Powell and his colleagues find themselves needing to respond in real time to turmoil in the banking system after the collapse of two large regional U.S. banks and Swiss regulators having to pledge assistance to Credit Suisse, developments that are reshaping domestic and international financial conditions on a daily – or even hourly – basis.In one of the most vivid – and relevant – examples, on Monday the yield on the 2-year Treasury note, among the top traded securities in the world that also stands as a proxy for Fed policy expectations, plummeted by more than half a percentage point, the most since the day after Black Monday in October 1987. It then recovered roughly half that on Tuesday only to drop by another third of a point on Wednesday.And it is all unfolding during the central bank’s premeeting blackout period that prevents officials from offering public clarity on their assessment of the situation, and its effect on monetary policy decisions The Fed’s next move? The Fed’s next move?, https://www.reuters.com/graphics/USA-FED/zjvqjnkwypx/chart.png It was only last week that Powell signaled the central bank might accelerate its interest-rate-hike campaign in the face of persistent inflation. Traders moved to price in a half-point hike in the benchmark interest rate at the Fed’s March 21-22 meeting, from its current 4.5%-4.75% range, and further rate hikes beyond. Traders now see next week as a tossup between a smaller quarter-point hike and a pause, with rate cuts seen likely in following months as the turbulence at Credit Suisse renewed fears of a banking crisis that could cripple the U.S. economy.Analysts also sought to make sense of fast-moving events, including Friday’s failure of Silicon Valley Bank, the creation over the weekend of an emergency Fed backstop for the banking sector, fresh data showing slow progress in the inflation fight, and a renewed banking stock swoon on Wednesday.”I think they do indeed hike 25 bps next week,” said Jefferies’ Thomas Simmons. “They need to keep up the fight on inflation to maintain credibility, and a pause here at these levels isn’t going to stop the bleeding in the markets.” A pause, he argued, risks undoing the work of the Fed’s 4.5 percentage points of rate hikes since last March. “They’d also risk sending a signal to the market that the macroeconomic impact of these microeconomic phenomena is worse than we think,” he said. Former Boston Fed President Eric Rosengren took the opposite view. “Financial crises create demand destruction,” Rosengren said on Twitter. “Banks reduce credit availability, consumers hold off large purchases, businesses defer spending. Interest rates should pause until the degree of demand destruction can be evaluated.”WILD SWINGSAt heart, the uncertainty over the Fed’s next move comes down to difficulty knowing how swiftly and deeply the current turmoil in the banking sector will filter through to the real economy. After all, the Fed’s rate hikes are designed to slow the economy, and for months some policymaker have expressed puzzlement over why after such aggressive policy tightening there was so little of that to see beyond the sharply-hit housing sector. After the bank failures in recent days, “We’re getting a better sense of who’s suffered due to the Fed’s aggressive tightening,” JPMorgan (NYSE:JPM)’s Michael Feroli wrote. Slower growth in lending by mid-size banks will sheer off a half to a percentage point of economic growth overall, he predicted, “broadly consistent” with the view that higher interest rates will trigger a U.S. recession that will in turn slow inflation. But the Fed’s work in Feroli’s view is not yet done. A key inflation report earlier this week showed a 6% rise in the consumer price index last month from a year earlier. “A pause now would send the wrong signal about the seriousness of the Fed’s inflation resolve,” Feroli said. The Fed next week will publish new projections for the future path of the U.S. benchmark rate. In December policymakers had seen it topping out at 5.1%, and as recently as last week traders expected it to rise above 5.5%. Now, they are looking for one more Fed rate hike if that, and then a string of reductions to bring the target range down below 4% by year end. “The Fed has a very difficult policy decision to make at next week’s meeting,” said Paul Ashworth, chief North America economist at Capital Economics, which for now still leans towards the Fed raising interest rates by a quarter percentage point. “It is a very close call… the risk of a full-blown contagion remains, and a lot can happen in the week until the announcement.” More

(Reuters) -Richard Branson’s Virgin Orbit on Wednesday said it was pausing all operations from March 16 and a source familiar with the matter told Reuters that the satellite launch company was also furloughing nearly all of its employees.Chief Executive Dan Hart told staff in a meeting that the furlough was intended to buy Virgin Orbit time to finalize a new investment plan to help pull the company out of its financial woes, according to the source, who attended the meeting.Virgin Orbit’s shares dropped 18.8% to 82 cents in extended trading. The duration of the furlough was unclear, but Hart said he would provide employees an update by the middle of next week on when they could return, the source said. In a statement to Reuters, the company confirmed the operational pause but it did not give details on the furloughs. CNBC first reported the news. Last month, Virgin Orbit said it was investigating the failure of its mission in January to deploy nine small satellites into lower Earth orbit (LEO) from the coastal town of Newquay in southwest England. The mission failure was a major blow to the business and deepened its financial struggles.”On the ops side, our investigation is nearly complete and our next production rocket with the needed modification incorporated is in final stages of integration and test,” the company said on Wednesday. More