Economy

Target said it had observed a deterioration in consumer demand ahead of the busy holiday season, triggering a 15 per cent drop in its share price and a sell-off among rival retailers.The company reported third-quarter results “well below our expectations”, chief executive Brian Cornell said, and issued a weak outlook for the current period as inflation and rising borrowing costs forced consumers to rein in spending and hunt for bargains.“Spending patterns changed dramatically” at the end of the third quarter, chief growth officer Christina Hennington told analysts on an earnings call on Wednesday, slowing as consumers have limited funds for discretionary purchases such as clothing and housewares, and even some household essentials.Customers “are feeling increasing levels of stress, driven by persistently high inflation, rapidly rising interest rates and an elevated sense of uncertainty about their economic prospects,” Cornell said during the call. “Many consumers this year have relied on borrowing or dipping into their savings to manage their weekly budgets,” he continued, but “those options are starting to run out” for some, making them more price sensitive and hesitant to buy full-price items.The warning extends a string of disappointments for Target, which has cut its profit outlook several times this year. The company has struggled with excess inventory, necessitating discounts to clear it off the shelves that have weighed on margins.It has also prompted a rapid reassessment of the outlook for the US consumer in a matter of days, with investors scrutinising data on Wednesday showing US retail sales in October had their biggest monthly jump since January, and results on Tuesday from Walmart, the world’s biggest retailer.Walmart reported better than expected third-quarter results and lifted its earnings guidance for the year, but chief financial officer David Rainey told analysts “the consumer is stressed”.Minneapolis-based Target lowered its guidance for the fourth quarter, predicting a sales decline in the single-digit range, “based on softening sales and profit trends that emerged late in the third quarter and persisted into November”.The “rapidly evolving consumer environment” would lead it to act “more conservatively” for the rest of 2022. Target also said on Wednesday that it would implement a cost-cutting plan of $2bn to $3bn over the next three years.“We’re facing an even higher degree of uncertainty than a quarter ago,” chief financial officer Michael Fiddelke said.Target shares dropped as much as 16.7 per cent in morning trading in New York to a one-month low. That triggered a sell-off among other retailers, with Macy’s, Best Buy and Costco down 7.9 per cent, 7.3 per cent and 0.6 per cent, respectively. Walmart was up 0.4 per cent, while off-price retailer TJX jumped 3.3 per cent after lifting its full-year outlook on Wednesday. The combination of bargain-hunting consumers and the need for Target to offer discounts to clear excess inventory could mean continued pressure on its profit margins in the near-term. “We see our guests holding out for and expecting promotions more than ever,” Hennington said.Target said it now expected a “wide range” for its operating margin rate in the current quarter “centred around” 3 per cent. In March, the company said it expected an operating margin rate of 8 per cent or higher for financial 2022, but it has failed to reach that mark in any of its past three quarters.Target’s profits fell more than 52 per cent from a year ago to $712mn in the third quarter, while revenue rose 2.4 per cent to $26.5bn. Analysts had expected net income of $971mn on revenue of almost $26bn.

Data on Wednesday showed US retail sales jumped 1.3 per cent in October, the biggest monthly advance since January. Adjusted for inflation, sales volumes rose a more “modest” 0.8 per cent, only the second monthly gain in the past six months, according to EY Parthenon chief economist Gregory Daco.A resilient US consumer, though, could complicate the Federal Reserve’s efforts to bring inflation under control, meaning it may have to delay any potential near-term plans to slow the pace of interest rate increases.“We expect inflation-adjusted consumer spending to remain flat in 2023, following a 2.6 per cent advance in 2022. Interest rate-sensitive goods as well as leisure and accommodation services will likely lead the slowdown,” Daco said.Additional reporting by Peter Wells More

“Given the high degree of uncertainty of the inflation and economic outlook, the specific level that interest rates may have to reach to be consistent with this objective is uncertain, as it is entirely data-dependent and may change over time,” De Cos told a financial event in Madrid.The ECB has increased rates at its fastest pace on record, hiking them by a combined 200 basis points to 1.5% in just three months. Despite the rapid pace, markets still expect the bank to hike rates further to tame sharp, broad-based inflation.De Cos added that the inflation spike was proving highly persistent, had also broadened and was causing a rapid loss of purchasing power and deteriorating consumer confidence in the euro area. “Both households and businesses are facing a highly uncertain environment due to the consequences of the war in Ukraine and, in particular, the energy crisis,” De Cos said.The Bank of Spain Governor also said that the balance sheet reduction in the euro area should be “very gradual and predictable”.”It is also essential that balance sheet reductions leave room for action against fragmentation if it reappears, whether either through flexibility in PEPP reinvestments or through activation of the TPI, should this prove justified and necessary,” the central banker said. More

BRUSSELS (Reuters) – High inflation and aggressive central bank rate hikes have created challenging conditions for government bond markets, but the ease of doing trade has held up relatively well, officials told a European bond conference on Wednesday. Anthony Linehan, who is deputy director of funding and debt management at Ireland’s National Treasury Management Agency, said the debt agency was sensitive to which parts of the bond market might need support.”But we need to be conscious that the vast majority of trades have gone well,” he told the Association for Financial Markets in Europe’s (AFME) conference in Brussels.”In a year of huge adjustment, it’s not been a bad year for bonds,” he added.Linehan also said that flexibility was needed but that Ireland’s debt agency had not had big complaints from investors about market liquidity.Some euro zone countries have eased rules for the banks that manage the trading of their government debt to help them cope with some of the most challenging market conditions in years, officials told Reuters recently.Rodérick Joniaux, European government bonds product manager at bond trading platform Tradeweb, noted trading volumes had risen in recent months, but added that higher interest rates had not changed the way clients were trading.Ireland’s Linehan said bonds were becoming more attractive again, while Maria Cannata, chairwoman at online trading platform MTS said the bond selloff meant yields had now reached more “normal” levels and that there would be more bonds circulating in the market. Years of bond-buying stimulus from the European Central Bank and other major central banks had kept government bond yields at ultra-low levels and suppressed volatility.This year’s surge in bonds yields against a backdrop of high inflation and rising interest rates has pushed Germany’s benchmark 10-year Bund yield to 2.06% versus -0.18% at the end of last year, set for their largest annual rise since at least the 1950s, according to Refinitiv data.Speaking on the same panel about bond market liquidity, Zoeb Sachee, head of euro linear rates trading at Citi, said the main cause of heightened volatility in bond markets was uncertainty around where central bank terminal rates would end up.”On a positive note, as we get closer to a peak in rates, bond yields are more attractive and you will see a return of investors from a broad base. Until then, we remain in choppy times,” he said. More

The People’s Bank of China said it will maintain reasonable growth in money supply and social financing, also attach great importance to the potential possibility of future inflation, in its quarterly policy implementation report.It will also guide commercial banks to provide financial support to promote stable and healthy development of the real estate market, it added. More

The ECB has raised rates by a combined 200 basis points since July, its fastest pace of tightening on record, and market pricing suggests it is just over halfway done, with the next move in the form of a 50- or 75-basis-point hike coming in December.”The need to continue with restrictive policy is … evident, although reasons to follow a less aggressive approach are gaining ground,” Visco, who sits on the ECB’s governing council, said in a speech in Rome.He warned against the risk of policymakers being set on a pre-determined path and said future monetary policy decisions must be based on data and evidence.Long term inflation expectations in the euro zone are “anchored,” he added.Turning to Italy, he called on Giorgia Meloni’s new government to show “prudence and responsibility” with public finances, while pursuing reforms to raise the country’s growth potential.Visco said it was “certainly not advisable” for Rome to rely on inflation to rein in a public debt which stood at 150.3% of national output at the end of last year. The Treasury is targeting the debt ratio at 145.7% this year and 144.6% in 2023. More

NUSA DUA, Indonesia (Reuters) – U.S. Treasury Secretary Janet Yellen met China’s central bank Governor Yi Gang on Wednesday for talks on issues ranging from high energy and commodity prices to the macroeconomic outlook in both countries, the U.S. Treasury department said. The meeting, which lasted two hours, “had a frank, constructive, and positive tone”, said a U.S. Treasury official. “In the context of global challenges, Secretary Yellen and Governor Yi also discussed G20 issues.” The meeting took place on the sidelines of the G20 summit in Bali, which has been overshadowed by news that a rocket fell on NATO member Poland, killing two people and raising concerns that the Ukraine conflict could spill over its borders. Leaders of G7 and European nations at the summit met over the situation.Yellen also held her first meeting with Italy’s new economy and finance minister Giancarlo Giorgetti, telling the latter that both countries had a shared interest in supporting Ukraine’s finances and ending Russia’s invasion of its neighbour.”It remains the single best thing we can do to help the global economy. Both of our countries are committed to holding Russia accountable for its horrific actions – and we must support brave Ukrainians as they defend their homeland and rebuild,” Yellen said.In the meeting with Yi Gang, first reported by Reuters, Yellen and Treasury officials had said they would seek more clarity on China’s plans to ease its COVID-19 lockdown that have curtailed its growth and restricted its supply chains and how Beijing will deal with problems in its massive property sector.Yellen’s first in-person conversation with a top Chinese economic official follows U.S. President Joe Biden’s three-hour meeting on Monday with Chinese leader Xi Jinping.While there were blunt discussions over Taiwan and North Korea, human rights and trade policies, the two leaders both stressed the need to get U.S.-China ties back on track, with Biden saying he wanted to “manage this competition responsibly.”Yellen said on Monday that she hoped the meeting would lead to increased economic engagement between the two superpowers.TARIFF IRRITANTSAmong lingering tensions between Washington and Beijing were tariffs imposed by former President Donald Trump on hundreds of billions of dollars’ worth of Chinese imports annually.Yellen had argued earlier this year that eliminating tariffs on “non-strategic” consumer goods would cut costs for businesses and consumers amid high inflation, but Biden refrained from taking action to ease the duties after China’s furious military reaction to a visit to Taiwan by U.S. House of Representatives Speaker Nancy Pelosi in August.U.S. Trade Representative Katherine Tai is now conducting a statutory four-year review of whether to keep the tariffs in place. More

NUSA DUA, Indonesia (Reuters) -President Joe Biden’s meeting with Chinese President Xi Jinping was a “very constructive” signal that may ease trade tensions between the world’s two largest economies, International Monetary Fund Managing Director Kristalina Georgieva said on Wednesday.The leaders of top economies issued a “strong call” for an end to Russia’s war in Ukraine, in part because the conflict is the single biggest factor slowing global growth, Georgieva told Reuters as a contentious G20 summit ended. But the Biden-Xi meeting sent “a very significant message to the world that international cooperation is important for all of us,” Georgieva said.She noted that the IMF has warned that growth would suffer if the world fragments into geopolitical blocs led by the United States and Western allies on one side and China and other state-driven economies on the other, with competing technology and other standards. This would reduce global GDP output by $1.4 trillion to $3.5 trillion, the Fund estimates.”Just imagine what the world can do with this kind of money,” Georgieva said.U.S. tariffs imposed by former president Donald Trump in 2018 on hundreds of billions of dollars’ worth of Chinese goods have largely been borne by American consumers and companies. In October 2019, the IMF blamed the U.S.-China trade war for cutting global growth to the slowest pace for a decade. “And at a time of high inflation, this is least desirable, Georgieva said of tariffs. “Also, China recognizes that there has to be a reliance on mutual cooperation because we see the Chinese economy being in a very tough spot.”Defining debtThe G20 leaders expressed concern about a deteriorating debt situation in some middle income countries, a statement that was “a recognition that more needs to be done,” Georgieva said, adding that defining these steps was difficult.The IMF has called for more predictability in the restructuring process, for countries who seek help under the G20’s common debt restructuring framework to allowed to suspend servicing of their debts, and to include vulnerable middle-income countries like Sri Lanka Georgieva said she was pleased to see language in the G20 leaders’ joint declaration calling for central banks to calibrate the pace of their interest rate hikes to avoid spillovers to other countries. This was because inflation had shot up in many emerging market economies due to the dollar’s massive strength.Asked whether she saw evidence of U.S. inflation subsiding given recent data showing decreased price pressures, she said that was “possible,” but more data was needed to establish a trend.Still, indicators are showing a “gloomier” path for the world economy, “meaning it is slowing down and at that point, the Fed can reassess” as demand cools, she said. More

ROME (Reuters) – Italy’s new prime minister Giorgia Meloni needs urgently to rein in a bloated pension system which absorbs most social spending and looks increasingly unsustainable in the face of surging inflation. Rome already has the highest pension bill in the 38-nation Organisation for Economic Cooperation and Development, and says outlays will climb by 58 billion euros ($60.35 billion), or 19.5%, by 2025 as rising prices boost index-linked payouts.With one of the world’s oldest populations and low birth and employment rates, Italy has too few workers to support a growing army of pensioners, many of whom left work when the system allowed much earlier retirement than it does now.The grim outlook for state finances is compounded by chronically sluggish economic growth and a public debt which stood at 150% of national output at the end of last year, the second-highest in the European Union after Greece.And pensions remain generous: in 2020 pensioners’ average income was 90% that of employees’, Treasury data shows.”Italy has to increase the retirement age to reduce the number of pensioners in proportion to the labour force,” said Lorenzo Codogno, head of LC Macro Advisors and former chief economist at Italy’s Treasury.”We need to free up resources to reduce the tax burden and increase investment in infrastructure, the climate transition and digitalisation to grow the economy.”ITALY NOT ALONEWhile Italy’s dismal demographics and growth make its situation particularly acute, it is far from the only European country where creaking pensions systems are an economic concern and a political hot potato.French President Emmanuel Macron’s government is trying to push through a deeply unpopular reform that could raise the retirement age from a current 62 to 65.In Britain, successive prime ministers have guaranteed the “triple lock” system by which state pensions rise every year by whatever is higher – inflation, average earnings or 2.5%.Italy ranked 32 out of 44 countries surveyed in this year’s Mercer/CFA Institute global pension index. While it performed quite well on the adequacy of current pensions, it came second-bottom in terms of the sustainability of the system. Against this backdrop, Meloni faces a year-end deadline to present what will be the ninth change to Italy’s pensions since 1992.If she does nothing, a steep hike in the statutory retirement age to 67 will automatically kick in from January under a return to a system introduced in 2012 at the height of a debt crisis, but suspended seven years later. At present, under rules put in place for just one year by Meloni’s predecessor Mario Draghi, people are granted a state pension at 64 provided they have worked for 38 years.Some economists say returning to the 2012 “Fornero law,” named after former labour minister Elsa Fornero, would be best for Italy’s economy and public finances.Meloni’s rightist coalition has other ideas. Eyeing the votes of millions of elderly Italians, it won the Sept. 25 election promising, among other things, to hike pensions and avoid going back to the Fornero system.Time is running out, and Economy Minister Giancarlo Giorgetti, the man who must square the circle, is in an awkward spot.He pledges prudent, debt-cutting fiscal policies even as his party, Matteo Salvini’s League, battles for pensioners’ rights and against any increase in the retirement age.KICKING THE CANSalvini is now pushing to allow people to retire next year after 41 years of work regardless of age.Codogno said this would be “far too generous”, arguing instead for a flexible system allowing people to retire below Fornero’s statutory age of 67 if they accept corresponding cuts in their pensions.Draghi, who chose a temporary fix rather than tackling the issue head on, was also criticised for bailing out the near-bankrupt journalists’ pension fund, known for its generous payouts, by merging it with state pension agency INPS at a cost to taxpayers of a billion euros over 10 years.With the deadline looming, Meloni may follow Draghi’s lead by opting for a stop-gap solution. One idea mooted in the coalition is to offer a pension next year to people with 41 years of work provided they are 61 or 62 years old – ahead of yet another promised reform in 2023.A big problem is that Italy’s state pension bill of 16.1% of gross domestic product in 2021 leaves little money for other things. Rome spends less than the EU average on health, education, innovation and job creation schemes. Meloni’s plan to cut income support for the unemployed – even as Germany prepares a “citizens’ money” basic income scheme that significantly raises welfare payments – would tilt the budget even more towards the elderly. Roberto Perotti, economics professor at Milan’s Bocconi University, said Italy needs “a cultural change to gradually wean itself off the idea that the state should provide for the pensions even of the well-off.”It’s not inevitable to spend all this money on pensions,” he said. “Those who can afford it should take care of their own retirement, leaving the state to take care of the poor.”($1 = 0.9610 euros) More