Economy

NEW YORK (Reuters) – After a disappointing third-quarter reporting period, analysts are projecting that fourth-quarter U.S. earnings will decline for the first time in two years as rising interest rates and slowing growth further dampen the outlook.Estimates have been falling for 2023 quarters as well, and Goldman Sachs (NYSE:GS) recently cut its 2023 S&P 500 earnings per share growth forecast to zero, citing weakening profit margins. As of Friday, analysts were forecasting a 0.4% fall in year-over-year fourth-quarter earnings for S&P 500 companies, according to IBES data from Refinitiv. That compares with the 5.8% increase they forecast on Oct. 1.The last time there was a quarterly decline in S&P 500 earnings was in the third quarter of 2020, when companies were still reeling from the initial shock of and disruptions caused by the coronavirus pandemic.The weakening profit outlook only adds to worries for investors, who have been concerned that aggressive interest rate hikes by the Federal Reserve to control inflation could lead to a recession. The S&P 500 is down about 17% for the year-to-date.”Third-quarter earnings, they missed expectations. But what we’ve been focusing on really is 2023,” said Michael Mullaney, director of global markets research at Boston Partners in Boston. “For the Fed to achieve their inflation targets, they’re going to have to push the economy into a recession,” which means 2023 profit estimates “have to come down a lot more,” he said. S&P 500 year-over-year profit growth https://graphics.reuters.com/USA-STOCKS/jnpwyexmlpw/chart.png Technology and tech-related companies have accounted for more than half of the negative S&P 500 profit revisions for the fourth quarter, Jonathan Golub, head of U.S. equity strategy and quantitative research at Credit Suisse, wrote in a recent research note.Several of the big tech and growth companies including Amazon.com (NASDAQ:AMZN) and Facebook (NASDAQ:META) parent Meta Platforms hit investors with big disappointments for the third quarter and gave disappointing forecasts for the fourth quarter.Rising Treasury yields have pressured shares of tech and growth companies especially hard.Top retailers were also among those reporting disappointing results, led by Target (NYSE:TGT), although Walmart (NYSE:WMT) delivered cheer to investors.With results in from 475 of the S&P 500 companies as of Friday, third-quarter earnings are now estimated to have increased just 4.2% from a year ago. That is weaker than the 4.5% gain predicted at the start of October, based on Refinitiv data.Estimates for future earnings tend to fall as companies give guidance, but strategists said the declines this time have been larger than usual.Analysts expect S&P 500 technology sector earnings to drop 7.8% in the fourth quarter, compared with a gain of 1.0% forecast on Oct. 1. Earnings for the communication services sector are predicted to fall 20.9%, compared with a 9.2% decline forecast on Oct. 1, per Refinitiv data.Overall, seven of the 11 major S&P 500 sectors are expected to show a decline in fourth-quarter earnings from the year-ago period, based on the data. More

Speaking at an event hosted by the ministry, Guedes said any retreat in any economic dimension in relation to what the current administration is doing would be a mistake.Leftist former President Luiz Inacio Lula da Silva defeated right-wing incumbent Jair Bolsonaro in a tight presidential runoff in October. Since last week, Lula has been shaking financial markets with speeches in which he underscores the priority of social spending over fiscal responsibility.”We launched the biggest social program ever, with fiscal responsibility. So what is this story about a conflict between social and fiscal? This reveals ignorance and lack of knowledge, technical inability to solve problems,” said Guedes.The minister stated that the welfare program Auxilio Brasil, which the next government will rename as Bolsa Familia, could indeed be increased but financed by taxes on dividends, which are currently exempt. Lula’s government transition team proposed stripping nearly 200 billion reais ($37 billion) of expenditures from a constitutional budget cap for an indefinite period, with no counterpart on the revenue side, to pay for social benefits to low-income families and increase public investments.Earlier on Friday, central bank chief Roberto Campos Neto said that the final design of the spending package approved by Congress could force policymakers to “react,” implying the risk of a possible monetary policy shift. IDBGuedes also said he thinks former central bank governor Ilan Goldfajn, the Brazilian nominee to head the Inter-American Development Bank (IDB), will win the Nov. 20 election. Lula did not endorse Goldfajn’s candidacy. A close aide of his even asked the United States and other countries to support the postponement of the elections until next year so Brazil’s nomination could reflect its newly elected government. More

(Reuters) – The way the banking system manages its cash suggests the financial system may not be as flush as many now understand, and that could have implications for how the Federal Reserve manages the size of its balance sheet, a paper from the Federal Reserve Bank of New York said Friday.That’s because even though institutions like the Fed have flooded the banking system with reserves, many banks continue to manage fast-moving inflows and outflows of cash much like they always have, and that is tightly, the paper said. The authors argue this way of managing cash positions could become an issue for the Fed as it seeks to draw down the size of its holdings of bonds, which reduces the level of bank reserves in the system. Banks view their daily reserve balance levels as “scarce resource,” the paper’s authors said, adding “even in the era of large central bank balance sheets, rather than funding payments with abundant reserve balances, we show that outgoing payments remain highly sensitive to incoming payments.” “There is still a potential for strategic cash hoarding when reserve balances get sufficiently low,” the researchers wrote.”As central banks around the world respond to inflation by tightening their monetary stance and shrinking their balance sheets, the potential consequences for the wholesale payment system of the ongoing draining by central banks of reserves will likely be an important input into policy making,” the paper said. The paper, by economists at the New York Fed, the Bank for International Settlements and Stanford University, comes as the Fed has been cutting the size of its massive balance sheet as part of its broader effort to tighten monetary policy to lower the highest levels of inflation seen in 40 years. The main part of that effort rests on rate hikes. But the contraction of its balance sheet, which peaked at $9 trillion versus $4.2 trillion in March 2020 when the coronavirus pandemic struck, is also key to that campaign. Fed holdings now stand at $8.6 trillion. Fed officials have been confident that the effort of shedding $95 billion per month in Treasury and mortgage bonds per month, known as quantitative tightening, should run smoothly in large part because banks still have far more cash than they need. Some point to more than $2 trillion per day financial firms park at the Fed via reverse repurchase agreements as evidence of this excess cash, which the Fed should be able to painlessly withdraw. Meanwhile, bank reserves are at $3.18 trillion, down about $1 trillion from a year ago. RATE CONTROL REGIME Reserve levels affect the Fed’s ability to conduct monetary policy. When reserves are in short supply competition for them can introduce high levels of volatility in market-based short-term rates, and push them far from levels targeted by the central bank. A shortage of reserves in September 2019 caused the Fed to intervene by borrowing and purchasing Treasury securities to add reserves back to the system to ensure its federal funds rate target stayed at desired levels, effectively ending its first effort at quantitative tightening. The Fed has expressed confidence it can draw down reserves in a way that will not affect its interest rate target. The paper suggests the way banks are managing liquidity, even in a time of ample liquidity, could challenge that view. And while the paper doesn’t say what it means for balance sheet policy, already some private sector forecasters are speculating the Fed may be forced to slow or halt its balance sheet contraction next year on a sooner-than-expected tightness of bank reserve levels. One reason to expect the Fed to more easily manage any sort of intermittent reserve shortage is the existence of its so-called Standing Repo Facility, which allows eligible banks to quickly convert Treasuries into short-term cash loans. Some want that tool expanded, arguing it would reduce the chance the Fed would need to intervene in the event of any sort of market turbulence. More

WASHINGTON (Reuters) – U.S. existing home sales tumbled for a record ninth straight month in October as the 30-year fixed mortgage rate hit a 20-year high and prices remained elevated, pushing homeownership out of the reach of many Americans.Despite the broad decline in sales reported by the National Association of Realtors on Friday, housing supply remained tight, with considerably fewer homes coming on the market than in the prior year. The housing market has been the sector hardest hit by aggressive Federal Reserve interest rate hikes that are aimed at quelling high inflation by dampening demand in the economy. “The combination of rising house prices and mortgage rates have sent housing affordability plummeting,” said Daniel Vielhaber, an economist at Nationwide in Columbus, Ohio. “The decline in affordability is by design to some extent. The Fed’s goal of slowing economic demand by raising interest rates starts with home sales.”Existing home sales dropped 5.9% to a seasonally adjusted annual rate of 4.43 million units last month. Outside the plunge during the initial phase of the COVID-19 pandemic in the spring of 2020, this was the lowest level since December 2011. Economists polled by Reuters had forecast home sales would tumble to a rate of 4.38 million units. House resales, which account for a big chunk of U.S. home sales, slumped 28.4% on a year-on-year basis in October. That was the largest drop since February 2008. Existing home sales https://graphics.reuters.com/USA-STOCKS/zdvxdonznvx/ehs.png The report followed on the heels of news on Thursday that single-family homebuilding and permits for future construction tumbled to the lowest levels since May 2020. Housing inventory also declined.The 30-year fixed mortgage rate breached 7% in October for the first time since 2002, according to data from mortgage finance agency Freddie Mac (OTC:FMCC). The rate averaged 6.61% in the latest week. The U.S. central bank’s rate-hiking cycle, the fastest since the 1980s, has raised the risks of a recession.A separate report from The Conference Board on Friday showed the leading indicator, a gauge of future U.S. economic activity, declined 0.8% in October after sliding 0.5% in September. The index has now dropped for eight straight months.”The trajectory for growth looks weak,” said Jeffrey Roach, chief economist at LPL Financial (NASDAQ:LPLA) in Charlotte, North Carolina. “A deteriorating housing market, nagging inflation and an aggressive Fed puts the economy on unsure footing for 2023.”Stocks on Wall Street rose. The dollar was steady against a basket of currencies. U.S. Treasury prices fell. Leading economic indicators https://graphics.reuters.com/USA-STOCKS/movaknlgjva/lei.png MULTIPLE OFFERSExisting home sales dropped sharply in all four regions. Sales also declined across all price points on a year-on-year basis. Even as demand weakens, housing supply remains tight, limiting the slowdown in house price inflation.The median existing house price increased 6.6% from a year earlier to $379,100 in October. That marked 128 straight months of year-over-year house price increases, the longest such streak on record. Though price growth has slowed from June’s peak, in line with normal trends, the NAR estimated that prices in October were considerably above their pre-pandemic level.The realtors group also reported multiple offers continued in some areas and 24% of homes sold last month were above the asking price, reflecting the still-tight inventory environment. On the other hand, homes unsold after more than 120 days saw prices reduced by an average of 15.8%.There were 1.22 million previously owned homes on the market, down 0.8% from both September and a year ago.New listings were about 10% to 20% lower in most areas compared to October 2021. Higher borrowing costs are discouraging homeowners, who would normally want to downsize or upgrade, from putting their houses on the market.At October’s sales pace, it would take 3.3 months to exhaust the current inventory of existing homes, up from 2.4 months a year ago. That rise was mostly due to fewer buyers being in the market. A four-to-seven-month supply is viewed as a healthy balance between supply and demand.Properties typically remained on the market for 21 days last month, up from 19 days in September. Sixty-four percent of homes sold in October 2022 were on the market for less than a month.First-time buyers accounted for 28% of purchases, down from 29% in September and a year ago. All-cash sales made up 26% of transactions, up from 24% a year ago.”Recent downward movement in mortgage rates might provide some reprieve in the coming months, but with home values appearing to hold strong, affordability challenges remain top of mind,” said Nicole Bachaud, senior economist at Zillow in Seattle. More

Today’s top storiesThe EU has put a last-minute deal on the table at the COP27 conference over a fund to support countries most vulnerable to climate change. Get the latest at our Climate Capital hub.Billionaire Masayoshi Son personally owes SoftBank close to $5bn because of growing losses on its technology bets. The founder of the Japanese conglomerate has also lost his stake in the group’s second Vision Fund.A fresh wave of employees have quit Twitter after owner Elon Musk’s insistence they should commit to an “extremely hardcore” working culture.For up-to-the-minute news updates, visit our live blogGood evening,“Awful for households, awful for businesses, awful for society as a whole, and awful, electorally, for the government.” That was FT columnist Stephen Bush’s verdict on the biggest drop in UK household income since the 1950s, as detailed by the Office for Budget Responsibility yesterday alongside chancellor Jeremy Hunt’s Autumn Statement.Think-tanks and others weighed in today with more criticism of Hunt’s package of £30bn in spending cuts and £25bn in tax rises, which he hopes will stabilise the economy after the spectacular crash-and-burn of his Tory predecessors just last month.The Institute for Fiscal Studies said Britain was entering a “new era” of higher taxation and public sector austerity because of its failure to create economic growth.IFS director Paul Johnson said it was “a grim place to be”, with “high borrowing, high debt, high tax and yet a lot of public services feeling under strain”. Or, as FT chief economics commentator Martin Wolf put it, Hunt offered no jam today and no jam tomorrow.The Resolution Foundation focused on the OBR forecasts showing that average wages would not regain 2008 levels until 2027. Such a prolonged stagnation has not been experienced in the UK since the 1820s, according to figures calculated by the FT.Although Hunt hit back at charges that he was targeting middle-earners, there were more signs today of the pressure on household finances as Nationwide, the UK’s largest building society, warned of an increase in bad loans.Political reaction from all sides was less than complimentary. The right criticised the tax rises, while others bemoaned the failure to mention Brexit — an “economic own goal” as the IFS’ Johnson put it — as a key source of the UK’s troubles. Mark Littlewood, director of the Institute of Economic Affairs, said the statement was a “recipe for managed decline”, rather than a plan for prosperity.While business groups welcomed the decision to provide relief on business rates, the Federation of Small Businesses said investment would be hit by Hunt’s tax raids, arguing that his plans were “high on stealth creation and low on wealth creation”. Experts warned that the new stealth taxes on capital gains and dividends risked holding back UK entrepreneurs and could prompt them to sell. There were harsh words too from the tech and science communities on the decision to scale back R&D tax credits.The chancellor can however take some comfort that there was no wildly adverse reaction from financial markets this time around and can take credit for restoring the country’s fiscal credibility, the FT editorial board said.Now that the UK government has steadied the economic ship, the FT editorial board added, “it must develop a serious and credible plan to get Britain’s economy growing again. If it fails to do so, it will jettison whatever slim hope it may retain of winning the next election and leave Britain facing years of painful austerity and stagnation.” Last word of today goes to the IFS’ Johnson: “We are . . . reaping the costs of a long-term failure to grow the economy, the effects of population ageing, and high levels of past borrowing. The truth is, we just got a lot poorer. We are in for a long, hard, unpleasant journey.”Essential links:Quick guide to the Autumn StatementWhat it means for your moneyAutumn Statement full coverageNeed to know: UK and Europe economyUK retail sales grew a better than expected 0.6 per cent in October but remain below pre-pandemic levels, with the longer-term trend still heading downwards.Read the story of how G20 leaders managed to cobble together support for a (qualified) condemnation of Russia’s war in Ukraine. French president Emmanuel Macron told the FT that China’s ability to pressure Russia was proving “extremely useful”.Russia’s economy shrank 4 per cent in the third quarter because of the effect of western sanctions, sending the country into recession. The country’s central bank expects a drop of 3 to 3.5 per cent for the year.Ireland, aka “Europe’s Silicon Valley”, has enjoyed many economic benefits from its decades-long focus on global IT, but the possible bursting of the tech bubble leaves the government needing to rebalance. Need to know: Global economyRepublicans are back in control of the US House of Representatives, albeit by a tiny margin, after the final midterm election results dribbled in.The newly-sworn in Iraqi government of Mohammed Shia al-Sudani is reeling from the “heist of the century” after $2.5bn was allegedly spirited away from tax authorities.Peru’s new finance minister — the country has had almost as many as the UK this year — admitted that the country’s rolling dysfunction was putting off investors. Chile, Colombia and now Brazil have followed Peru in electing new leftwing presidents. Listen to Latin America editor Michael Stott explain the changing nature of the region’s political map.The World Cup finally kicks off this weekend in Qatar. Is there an ethical case for watching what many believe is a highly unethical event? And how will fans cope without a beer? Whatever you decide, our experts have all bases covered, on and off the pitch.Here’s our film on the likely legacy of the tournament.

Video: Qatar’s World Cup legacy | FT Scoreboard

Need to know: businessUK ministers blocked the sale of Newport Wafer Fab, Britain’s biggest chipmaker, to Chinese-owned Nexperia. The acquisition was halted under new powers the government has to limit transactions involving strategic national assets.Britain also has a difficult decision to make on its space industry after uncertainty over continued participation in the EU’s Copernicus Earth observation programme, as well as the €95bn Horizon research fund. Our Big Read considers whether cultural and operational issues at digital bank Revolut could hinder its acceptance by UK and European regulators.The chemicals and agribusiness sector is one of the hardest hit by the disruption caused by the war in Ukraine. Read more in our special report: Chemicals and Manufacturing.Yuji Naka, a celebrated Japanese video game programmer and co-creator of Sonic the Hedgehog, has been arrested over an alleged insider dealing scam.Science round-upChina’s doctors warned they were not ready for a potential Covid “exit wave” as restrictions ease, with too much effort going into containment rather than building robust defences. Confusion reigns in Guangzhou where local officials are trying to interpret Beijing’s relaxation of rules while handling a record Covid outbreak.UK Covid infections have fallen to their lowest level in seven weeks.America’s space race with China intensified as Nasa successfully launched Artemis, the first mission to the moon in half a century. Artemis aims to be the launch pad for sending humans to Mars.A global decline in sperm counts is accelerating after levels fell by more than half between 1973 and 2018, according to new research.Simple invention has the power to change the world, says columnist Tim Harford. So why did we not hear more about Dr Dilip Mahalanabis’ rehydration treatment for cholera?Get the latest worldwide picture with our vaccine trackerSome good newsUniversity of Edinburgh scientists have discovered that parasites from the ancient disease leprosy have the potential to regenerate livers. Animation of a wireframe liver in a human body against a background of DNA molecules © Julien Tromeur on UnsplashSomething for the weekendThe FT Weekend interactive crossword will be published here on Saturday, but in the meantime why not have a go with today’s cryptic crossword. More

Reeling from a decade of almost no growth and the devastation wrought by the pandemic on education and poverty levels, Latin America has arguably never needed its main development bank more.Yet the first challenge awaiting the new president of the Inter-American Development Bank, who will be elected on Sunday by the lender’s 48 shareholder countries, will be to rebuild the organisation’s shattered morale following the dismissal of its previous leader.Trump-era nominee Mauricio Claver-Carone was fired by the Washington-based bank’s governors in September. This followed an investigation which concluded he maintained a sexual relationship with a subordinate and rewarded her with pay rises totalling more than 45 per cent in under a year. Claver-Carone and the woman both denied the relationship.Michael Shifter, senior fellow at the Inter-American Dialogue in Washington, noted that Latin America’s biggest development bank, which arranged funding of over $23bn last year, faced acute challenges. Food and energy insecurity risked aggravating already high levels of social discontent.“The new IDB head will need to have a solid grasp of these problems and a clear idea how to address them,” he said. “But what is arguably even more important is a deft political touch that will be vital in mobilising support to secure a much-needed capital increase and in restoring integrity and equanimity to lift a shaken staff.”Vying for the post are five candidates. Three come from the region’s largest economies, Brazil, Mexico and Argentina, while Chile and Trinidad and Tobago have also put forward nominees.

Mexico has nominated the outgoing deputy governor of its central bank, Gerardo Esquivel, a respected technocrat and former academic © WILL OLIVER/EPA-EFE/Shutterstock

The bank’s biggest shareholder is the US. Since Washington holds 30 per cent of the voting power, American support is generally considered essential. The next biggest shareholders are Brazil and Argentina with 11.35 per cent each.However, following the debacle over Claver-Carone — the first American to hold a post traditionally reserved for a Latin American — the US has been coy about its preferences. Officials have said that with no candidate of its own this time, Washington wants Latin America to unite behind a consensus choice.Instead, the region’s main countries are competing head-on with each other. There is no clear favourite and very few countries are openly stating preferences ahead of Sunday’s election.The two front-runners, according to those following the process, are Brazil’s Ilan Goldfajn and Chile’s Nicolás Eyzaguirre. A former head of Brazil’s central bank and respected economist, Goldfajn is currently on leave from his post as the IMF’s Western Hemisphere director to run for the IDB job.As well as the immediate human resources challenges, “this needs to be an evidence and data-oriented bank, looking at when projects are effective,” Goldfajn told the Financial Times. “You need to look at the numbers. I like data, I like to look at the evidence.”His top priorities are to use the bank’s firepower to address poverty, food insecurity, climate change and improve the region’s financial infrastructure.Goldfajn would be Brazil’s first IDB president but his home country may yet snatch defeat from the jaws of victory. Key members of leftist president-elect Luiz Inácio Lula da Silva’s team have complained that Goldfajn was nominated by the outgoing hard-right government of Jair Bolsonaro and have asked for the IDB election to be postponed to allow Lula to nominate his own candidate — a request rejected by other countries.Goldfajn is presenting himself as a technocratic, apolitical choice but a lack of support from his home government-to-be may hurt his chances. Hoping to come through the middle is Chile’s Eyzaguirre. A former finance minister who has also served as the IMF’s Western Hemisphere chief and worked at the Chilean central bank, he has the experience for the role and is more aligned politically with the region’s incoming leftwing governments.Like Goldfajn, Eyzaguirre stresses the need to improve morale at the bank and to improve the effectiveness of lending. “Chile is a country which has made huge progress in the last 40 years but which doesn’t use a lot of IDB resources,” he told the FT. “It’s an impartial trusted broker.” Eyzaguirre believes his experience of having held different ministerial positions in Chile is a good grounding for the negotiating and consensus-building needed at the IDB.Mexico nominated the outgoing deputy governor of its central bank, Gerardo Esquivel. Esquivel is a respected technocrat and former academic but lacks the international experience and profile of his Brazilian and Chilean rivals. He may be disadvantaged by his nomination late in the day and by his relative lack of managerial experience. Esquivel did not respond to requests to discuss his candidacy.Argentina’s Cecilia Todesca, international economic relations secretary at the foreign ministry, hopes to become the first woman to be IDB’s permanent president. Speaking to the Financial Times from Washington where she has been rallying support, Todesca said central to her plans is a programme to prioritise the “care economy”. 

Argentina’s foreign minister Santiago Cafiero, left, and International Affairs Secretary Cecilia Todesca attend a Mercosur trade bloc summit in Luque, Paraguay, in July. © AP

“Gender inequality is a big factor behind the lack of social development we see,” she said, “And the primary function of the bank is to assist in social development.” Todesca would direct IDB funds to help improve reliable child and elderly care, so women can “reinsert themselves back into the workforce,” and establish better conditions for domestic workers. “Argentina decided to put a woman forward, that’s valuable for the region,” she added.Also nominated is Trinidad and Tobago’s Gerard Johnson, a former head of the IDB’s Caribbean section who now works as a consultant to Jamaica’s government. The Caribbean has never had an IDB president but the region’s limited voting power makes this option unlikely. Efforts to reach Johnson were unsuccessful.To secure the job, a candidate needs to win more than 50 per cent of the voting power of the 48 member states and a majority of at least 15 of the Western Hemisphere member states. More