Economy

Job cuts are very much on corporate minds. A first round of swingeing culls hit the technology sector in November. US companies including Goldman Sachs, Microsoft and Amazon followed by laying off nearly 103,000 people in January, the highest monthly total since the height of the pandemic.Now the misery is spreading, as executives hunker down ahead of a possible recession. Tech groups are retrenching further after overestimating how much the pandemic changed customer habits. Financial companies and consultants are dealing with choppy markets and reduced deal flow. Meanwhile, carmakers are having to adjust to rising demand for electric vehicles.Management experts caution that there are better and worse ways to reduce payrolls. Some of the biggest employers may be falling into common traps that could inflict lasting damage on morale and future growth. One of the worst mistakes, they agreed, is to give employees the sense that quick fix cost-cutting targets — rather than longer term strategic plans — are driving the process.“To have a skittish response to the threat of tumultuous economic times will set a company back,” said Angie Kamath, dean of New York University’s School of Professional Studies. “Making very sharp turns right now is a mistake . . . [and] smells to me of very poor management.”A striking example in the recent mass redundancies is McKinsey, the consultancy famous for advising other businesses on how to bring down costs. The company is cutting up to 2,000 of its 45,000 people, hitting divisions that do not serve clients directly, such as human resources, technology and communications. Until recently McKinsey’s headcount had been growing and it has been an active participant in a bidding war for top recruits. McKinsey, Bain and Boston Consulting Group increased annual base pay for MBA hires in the US to more than $190,000 last year, one of the biggest rises this century. Employers must act fastManagement experts warn companies embarking on mass lay-offs not to let the process drag on. “The worst thing people can do is to do it very slowly and painfully,” said Kairong Xiao, associate professor of finance at Columbia Business School. “If you say, ‘we’re going to do it in three months’, during those three months no one is getting work done.”Wall Street banks Goldman and Morgan Stanley, which are making big cuts after bulking up headcount significantly during the pandemic, have taken contrasting approaches.At Morgan Stanley, 1,800 redundancies, slightly more than 2 per cent of staff, were made in early December, with little build-up or angst. Goldman, which is cutting 3,200 jobs, 6.5 per cent of its headcount, moved more slowly. Team leaders were instructed in early December to draw up lists of employees who could be let go. News of the planned cull leaked, kicking off weeks of uncertainty about who was on the way out.

Chief executive David Solomon admitted to Goldman Sachs executives last month that he should have reduced headcount sooner © Mike Blake/Reuters

The anxiety was not helped by a year-end voicemail message from chief executive David Solomon, instructing employees that lay-offs would be announced in early January. Younger employees reportedly dubbed the day of reckoning as “David’s Demolition Day”. When the axe finally fell, managers described the process as “brutal”. Solomon ended up offering a mea culpa to the bank’s senior executives, telling them he should have cut jobs sooner. “If you do it in one fell swoop, it is an action plan,” said Brandy Aven, an associate professor at Carnegie Mellon’s Tepper business school. “That is a much better situation than piecemeal, because that starts to degrade [employees’s views of] your competence and your benevolence.”At Amazon, the process that led to 18,000 job losses, the most in the company’s history, was also lengthy. Last year it imposed a hiring freeze, followed by job cuts in lossmaking or experimental units, such as the team behind the Alexa voice assistant.Early talk of cuts in the region of 10,000 jobs prompted an admission in January that nearly twice that number would need to go. In a note to staff, chief executive Andy Jassy said “these changes will help us pursue our long-term opportunities with a stronger cost structure”.Some soon-to-be Amazon employees described offers being rescinded while they were in the process — quite literally packing their bags — of relocating to Seattle to start a role. Internal discussions on workplace communications tool Slack, seen by the Financial Times, showed frustrated employees feeling they had been left in the dark. In an interview shortly after the losses were announced, Jassy told the FT his company had no intention of any more cuts.Consider where to swing the axeOnce the need for job losses is clear, companies have choices about where to make them. It can be easy to target the most recent arrivals, management experts say. But that wastes the money that has just been spent to recruit and train them and may leave the company missing a generation of workers in the future.“A better approach is to use it as an opportunity to think about the strategic direction of the company,” Columbia’s Xiao said. When cuts focus on non-core businesses, “the whole team is gone and there is nothing personal about it.”Job losses announced by Ford last month were specifically driven by larger business decisions at the US carmaker: a shift to electric cars and a thinner vehicle line-up.

A worker assembles an integrated drive module for a Ford electric car. The company is planning more redundancies as it takes fewer people to build electric models © Mauricio Palos/Bloomberg

Chief executive Jim Farley estimates that about 40 per cent fewer people will be needed to build electric models in future because they contain fewer parts and are simpler to design and engineer.“The amount of work needed to be done [in electric cars] is less because of that simplification, and the fact these are electrified products,” said Tim Slatter, head of Ford in the UK.The carmaker is also reducing the number of models it offers in Europe, eliminating the Fiesta, its smallest car, and the slightly larger Focus. It has already axed the Mondeo, its once-popular family car. Slatter said the latest redundancies in Europe — which follow cuts in other parts of the company last year — would “make sure the business is set up for the future”.Staff will leave over the next two years, on a “voluntary” basis, while Ford also has a “proactive programme to retrain people,” he added.Rank and yankSome companies intend to use job cuts to weed out poor performers, but their assessment systems may not be up to the task, said Carnegie Mellon’s Aven. “With ‘rank and yank’ [programmes], the underlying assumption is that some people are better,” she said. “It’s reductive. You can miss key measures and thwart your overall performance. It is really important to look at how this person contributes to overall organisational performance.”Last September, Facebook owner Meta’s chief executive Mark Zuckerberg ordered directors to draft lists of 15 per cent of their teams to be put on performance review. Less than two months later, Meta laid off 11,000 people, 13 per cent of its total workforce at the time — the deepest single-day cull in its history.The cuts were largely performance based and affected all departments, although certain areas such as recruitment were harder hit. Meta is now exploring further redundancies, according to insiders. Zuckerberg said last month that he planned to be “more proactive” about cutting low-performing or low-priority projects, and to “remove some layers in middle management to make decisions faster”. The shake up has been nicknamed “the flattening” internally. One disappointment about the 2023 lay-offs is that few companies appear to be trying to find creative ways to cut labour costs, NYU’s Kamath said. Some businesses are clearly facing cyclical pressures, yet there seems little appetite for trying furloughs or moving people to part time until business picks up again. “Those are viable options and companies should think more about that,” she said. “The war for talent is expensive. With the cost of severance and signing bonuses, [lay-offs can be] a wash.”Additional reporting by Peter Campbell, Joshua Franklin, Dave Lee, Hannah Murphy and Michael O’Dwyer More

An avalanche of hot inflation data over the past month has lifted US borrowing costs to the highest point in a decade and a half, intensifying debate over how much further interest rates must rise to rein in soaring consumer prices. The yield on the two-year Treasury note hit 4.94 per cent on Thursday, a level last reached in 2007 before the global financial crisis. Yields on 10-year and 30-year Treasuries this week broke through 4 per cent for the first time since November. The moves follow weeks of unrelenting data showing inflation in the US running hotter than economists had expected, putting pressure on the Federal Reserve to redouble efforts to tamp down growth by raising interest rates. “I don’t recall this dramatic of a reassessment of economic conditions in such a short time period, with the exception of major shocks like Covid-19 and the collapse of Lehman Brothers,” said Rick Rieder, global chief investment officer for fixed income at BlackRock, the asset manager. He added: “I would never have thought you would have seen this kind of re-acceleration in inflation.”The latest in the string of hot inflation data was a report released on Thursday that showed unit labour costs — the average cost of labour per unit of output — rose 3.2 per cent on an annualised basis in the last quarter, revised up from a previous estimate of 1.1 per cent. Last week came an acceleration in the Fed’s preferred gauge of inflation, the personal consumption expenditures price index, to 0.6 per cent month on month in January from 0.2 per cent in December. Early in February, the US reported that consumer price index in January had cooled less than economists had forecast. The initial trigger for the bond sell-off was a US jobs report on February 3 that said more than half a million workers had been hired in January, nearly three times what economists had expected. Taken together, the economic data has dashed hopes the Fed will soon be able to pause interest rate increases. The outlook for borrowing costs will be in focus next week as Fed chair Jay Powell testifies in front of Congress just days before the next jobs report, in which the US is expected to report that 215,000 people were hired in February. On Thursday, Fed governor Christopher Waller said that if inflation and jobs data cool off, he would endorse a peak in interest rates between 5.1-5.4 per cent, up from current levels of 4.5-4.75 per cent. But if the data continues to come in too hot, “the policy target range will have to be raised this year even more”, he said. Futures markets show investors are now betting that the Fed’s critical policy rate will peak at 5.45 per cent in September before dipping slightly to 5.33 per cent at the end of the year, higher than the Fed’s last forecast of 5.1 per cent, issued in December. At the start of February markets had been pricing in a peak in rates in the second quarter just below 5 per cent, with two interest rate cuts by the end of 2023. “Markets have caught up with the data and the Fed. That is evident in the move in Treasuries,” said Adam Abbas, co-head of fixed income at Harris Associates.

Adding to evidence of resilient US economy was data Thursday showing a drop in new unemployment claims in the week that ended on February 24. Weekly initial claims figures have been less than 200,000 since early January after spending much of last year above that level. Stronger jobs data suggests upward pressure on wages, one big driver of inflation. “The market had gotten way ahead of itself with the ‘inflation is dead’ narrative,” said Matt Raskin, head of US rates research at Deutsche Bank.The Fed next meets on March 21-22. Economists expect the central bank to lift its policy rate by another 0.25 percentage points, matching the increase announced at its meeting last month. The rate of increase is less than the half-point and 0.75-point rises the Fed executed several times last year.“The Fed has a problem because they have already moved down to 0.25 percentage points. The status quo does not work for the US central bank right now,” said Ajay Rajadhyaksha, global chair of research at Barclays. More

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BENGALURU (Reuters) – Unfazed by the dollar’s recent strength, analysts polled by Reuters predict a weaker greenback in a year amid an improving global economy and expectations the U.S. Federal Reserve will stop hiking interest rates well ahead of the European Central Bank.Bucking the latest downward trend, the dollar rose nearly 3% in February, its first monthly gain since September, surprising FX markets which were betting on the currency to remain on the back foot for the remainder of the year.The dollar index is up over 1% for 2023 largely because of stronger-than-expected U.S. economic data and a corresponding change to expectations of interest rate hikes by the U.S. central bank.”You’ve had this recent hawkish repricing of Fed rate hike expectations … which obviously helped the dollar to rebound in February. So we can certainly see that being sustained in the very short term,” said Lee Hardman, a currency economist at MUFG.”Beyond that, though, we still are sticking to our view for further dollar weakness through the rest of this year.”The dollar was forecast to trade lower than current levels against all major currencies in the next 12 months, according to the Feb. 28-March 2 poll of 69 currency specialists.While analysts have been predicting a weaker dollar 12 months out for over five years, their predictions only came true in 2020 when the currency weakened more than 6.5%.There was also no clear consensus among analysts in the poll over dollar positioning, which turned net short dollar last November.When asked what change in dollar positioning they predicted by the end of March compared with the last available data from the end of January, analysts were mostly split. While 11 of 39 expected a decrease in short positions, 10 said they would be around the same. Among the remaining 18, a dozen forecast a reversal to net long positions and six predicted an increase in net short positions.”The positioning certainly is more neutral or has been scaled back because the conviction in the short term is not strong over dollar moves,” MUFG’s Hardman added.The euro was forecast to trade around $1.07, $1.08 and $1.10 in the next one, three and six months, respectively. It was then expected to strengthen around 6% to change hands at $1.12 in a year. It was last trading around $1.06 on Thursday.Even the British pound, which dropped more than 10% last year, was expected to claw back around half of those losses in 12 months.Sterling was predicted to rise from its latest level of $1.19 to $1.22, $1.23 and $1.26 in the next three, six and 12 months, respectively.”I think you’re going to see people saying, ‘well, what do I want to buy if I don’t want to be in dollars? I think the dollar’s topped out but I’m not confident in that. Where do I want to be?'” said Gavin Friend, senior markets strategist at NAB.”I think Europe would be one of those, UK would be one of those because it’s been so cheap,” he said.(For other stories from the March Reuters foreign exchange poll:) More

BENGALURU (Reuters) – The Reserve Bank of Australia will hike its interest rate again by 25 basis points to 3.60% on Tuesday, followed by one more lift next quarter, before pausing until next year, taking the peak rate higher than previously thought, a Reuters poll found.Despite 325 basis points in rate increases since May, controlling inflation has been a major challenge for the RBA as it reached a more than three-decade high of 7.8% last quarter, considerably above the target range of 2%-3%.The central bank was forced to abandon its previous plan to pause at its February policy meeting and signaled more rate hikes could be needed in the months ahead.All but one of the 28 economists in the Feb. 27-March 2 Reuters poll said the RBA would raise its official cash rate by 25 basis points, reaching a more than decade-high of 3.60%, at its March 7 meeting. One saw a 15 basis-point move.”The RBA does seem more concerned about inflation. The fact demand is a key driver and not just the supply side, we think they have got more work to do to ensure inflation comes back to target,” said Catherine Birch, senior economist at ANZ, who forecast a 25 basis point hike at the upcoming meeting.It is then expected to lift rates to 3.85% in the April-June quarter – a level not seen since April 2012 – and hold them for the rest of the year.The minutes from last month’s meeting showed the RBA discussed only two options – hiking by 50 basis points or 25 basis points. This was a marked change from December when it had considered staying put.A strong minority of more than one-third of respondents, 10 of 28, predicted rates to peak even higher at 4.10% next quarter. One economist had a peak of 4.35% in the third quarter.The expected peak has been raised by markets to around 4.10%, up from 3.60% at the beginning of the year. This suggests there could be at least three more rate increases in the near future.Yet even with further rate increases, inflation was not expected to return to the RBA’s 2-3% target range before the second half of 2024, pointing to a long period of pain ahead, a separate Reuters poll showed.”If global inflation resurges or domestic supply chains are disrupted by weather events, we may need to see interest rates move even higher to quell prices,” said Harry Murphy Cruise, economist at Moody’s (NYSE:MCO) Analytics.”Our baseline suggests interest rates won’t need to exceed 3.85% to bring down inflation. That said, several factors could knock Australia off this path.”Several economists foresee trouble ahead for the Australian economy, partly because higher interest rates have already slowed activity in the housing market, where prices are expected to fall more than double the correction during the 2008 financial crisis.Just over a quarter of economists, 8 of 28, forecast at least one rate cut by year-end. More

BENGALURU/NEW YORK (Reuters) -U.S. boutique investment firm GQG Partners Inc has bought shares worth $1.87 billion in four Adani group companies, marking the first major investment in the Indian conglomerate since a short-seller’s critical report sparked a stock rout.Seven listed Adani companies have lost some $135 billion in market value since Jan. 24, when Hindenburg Research accused it of improper use of offshore tax havens and stock manipulation. The group, led by billionaire Gautam Adani, denied the allegations. It later called off a $2.5 billion share sale.The investment also comes on a day when India’s top court asked market regulator SEBI to investigate the group for any lapses related to public shareholding norms or regulatory disclosures.The group has been trying reassure investors with road shows and calls with bond holders. According to sources, Adani has told creditors it has secured a $3 billion loan from a sovereign wealth fund.U.S.-based, Australia-listed GQG has, through block deals, bought shares worth 154.46 billion rupees in four Adani group companies, including the conglomerate’s flagship firm Adani Enterprises, a regulatory filing showed. The shares were sold by an Adani family trust, using Jefferies as a broker.Based in Fort Lauderdale, Florida, GQG manages $88 billion in assets, in global, U.S. and emerging markets equities funds.In early Australian trade, GQG Partners shares were down 2.3% while the S&P/ASX200 was up 0.4% on Friday.”We believe that the long-term growth prospects for these companies are substantial,” said Rajiv Jain, GQG’s chairman and chief investment officer, adding the firm’s investments take into account a five-year horizon. Before founding GQG, Jain spent 22 years at Vontobel Asset Management.GQG took a 3.4% stake in Adani Enterprises for about $662 million, 4.1% in Adani Ports for $640 million, 2.5% in Adani Transmission for $230 million, and a 3.5% stake in Adani Green Energy for $340 million, according to the filing.Jain said that as an investor in infrastructure companies, he has been following Adani for six years. “Our view was that these assets would not be low forever,” he told Reuters.Before investing, Jain said GQG did a “deep dive on our own” as part of due diligence, including conversations with the group’s vendors, bankers and partners. “We actually disagree with (Hindenburg’s) report,” he said, adding that infrastructure companies are subject to tight regulation and therefore the risk of fraud is low.Jefferies approached GQG about the deal roughly five weeks ago, when its senior leadership was in Miami, two sources familiar with the matter said. Jefferies has been working with GQG for years and understands its investment style, one of the sources added. “This transaction marks the continued confidence of global investors in the governance, management practices and the growth of Adani Portfolio of companies,” said Adani Group CFO Jugeshinder Singh. In the run-up to the announcement, Adani group shares rallied, with Adani Enterprises climbing nearly 35% over the last three sessions, Adani Ports 11% and Adani Green Energy 16%. Adani Transmission rose 10% in the previous two sessions.”For the short-term, this will definitely be a big positive for the sentiment for Adani stocks,” said Avinash Gorakshakar, head of research at Profitmart Securities.”But in the longer term, the market is going to look at how growth is going to come.”Jefferies India was the sole broker for GQG’s transaction. ($1 = 82.5180 Indian rupees) More

TOKYO (Reuters) -Core consumer inflation in Japan’s capital Tokyo slowed in February as the effect of government energy subsidies kicked in, though an index stripping away the effect of fuel hit a fresh three-decade high in a sign of broadening inflationary pressure.Separate data showed Japan’s jobless rate hit a three-year low of 2.4% in January, suggesting intensifying labour shortages will prod companies to raise wages and help ease the pain households are feeling from rising costs of living.The readouts cast doubt on the Bank of Japan’s view the recent cost-driven inflation will prove temporary, and will likely keep the central bank under pressure to phase out its massive monetary stimulus, analysts say.”Inflation in the capital has fallen less than we expected last month, which suggests some upside risks to our forecast for inflation to fall below the Bank of Japan’s 2% target by mid-year,” said Darren Tay, Japan economist at Capital Economics.Core consumer prices in Tokyo, a leading indicator of nationwide trends, rose 3.3% in February from a year earlier, matching market forecasts and slowing from a nearly 42-year high of 4.3% hit in January, government data showed on Friday.The Tokyo core consumer price index (CPI), which excludes fresh food but includes fuel costs, exceeded the BOJ’s 2% target for nine straight months.The slowdown was mostly due to the effect of government energy subsidies to curb soaring utility bills, the data showed.A separate index for Tokyo stripping away both fresh food and energy prices, which is closely watched by the BOJ as a gauge of price pressures driven by domestic demand, was 3.2% higher in February than a year earlier, picking up from January’s 3.0% rise.It marked the fastest year-on-year pace of increase since August 1991, when the index also rose 3.2%.Energy costs rose 5.3% in February from a year earlier, much slower than a 26.0% spike in January. But ex-fresh food prices were up 7.8% in February, faster than a 7.4% rise in January.Service inflation, which the BOJ sees as key to achieving sustained wage growth, perked up to 1.3% in February from 1.2% in January, the data showed.Nationwide core consumer prices rose 4.2% in January from a year earlier, hitting a fresh 41-year high, as an increasing number of companies passed on higher costs to households.With inflation exceeding its 2% target, the BOJ has seen its yield curve control (YCC) come under attack from investors betting it will soon have to change policy and allow a near-term interest rate hike.Markets are rife with speculation the central bank will phase out or abandon YCC under incoming BOJ Governor Kazuo Ueda, who succeeds incumbent Haruhiko Kuroda in April.BOJ policymakers have repeatedly stressed the need to maintain ultra-loose policy until inflation is seen sustainably hitting their 2% target accompanied by higher wage growth.Under YCC, the BOJ guides short-term interest rates at -0.1% and the 10-year bond yield around 0% with an implicit ceiling set at 0.5%. More

LONDON (Reuters) – Major central banks resumed their quest to ramp up interest rates in February after a tepid start to the year with price pressures proving more sticky than markets and many policy makers had hoped for. February saw six interest rate hikes across six meetings by central banks overseeing the 10 most heavily traded currencies. Policy makers in Australia, Sweden, New Zealand and Britain joined the U.S. Federal Reserve and the European Central Bank in lifting key lending rates by a total of 250 basis points (bps). All banks expected more hikes ahead. January had seen just one interest rate hike of 25 bps by Canada across three meetings by G10 central banks.”A combination of stronger than expected growth and more persistent than expected inflation indicators has prompted an abrupt change in the market narrative over the past month away from ‘soft landing’ and towards a ‘more extended tightening cycle’ by major central banks,” said Nikolaos Panigirtzoglou at JPMorgan (NYSE:JPM). Developed markets interest rates https://www.reuters.com/graphics/GLOBAL-MARKETS/RATES/akpeqoewwpr/G10230301.gif Recent inflation and labour data from some of the world’s top economies had surprised markets and prompted analysts to lift expectations on where Fed and ECB rates will peak. Markets now price ECB rates peaking at just above 4% at the turn of the year, while Fed rates are seen as high as 5.5%-5.75%. In emerging markets, the rate hike push showed some evidence of slowing down. Thirteen out of 18 central banks in the Reuters sample of developing economies met to decide on rate moves, but only four hiked by a total of 175 bps — Mexico, Israel, the Philippines and India. Turkey delivered a 50 bps cut in the wake of the deadly earthquake. The February move follows January that saw six out of 18 central banks delivering a total of 225 bps of hikes in January while another six met but decided to keep rates unchanged. “This (inflation) shock came for everyone together, but it might disappear at different rates,” said Gabriel Sterne at Oxford Economics. “The disinflation trend is looking surprising good in Asia now for example where services inflation has already turned a corner.” Emerging markets interest rates https://www.reuters.com/graphics/GLOBAL-MARKETS/RATES/zgvobnaxdpd/EM18230301.gif More