Economy

Jimmy sat on the dusty floor of his Guangdong mill chasing down the money he was still owed. His workers had been paid off, the machinery sold and even the office furniture removed after he shut the factory’s doors in October for the last time.“The decline in orders and the constant lockdowns were all reasons why I wanted to close the factory,” he told the Financial Times. “But most of all, it felt like there was no hope. There was no sign of a rebound.”Factory managers in southern China are reporting a fall in orders in October of as much as 50 per cent on the back of full inventories in the US and Europe, deepening the gloomy outlook for the world’s second-largest economy. October is normally a particularly busy period for manufacturing and the sharp decline in activity has left blue-collar workers struggling to find jobs. The setback presents Beijing’s state planners, who are already struggling with a spiralling property crisis, sporadic lockdowns and weak consumer sentiment, with yet another complication. Last month, China reported that third-quarter gross domestic product grew at just 3.9 per cent year on year, below a 5.5 per cent annual target.“It’s supposed to be a busy time but in the last two months it was the worst . . . nobody dares to buy anything, nobody dares buy a sofa, nobody [in Europe] has money left,” said Christian Gassner, whose factories make furniture in Guangdong.“Everybody is crying about the same thing. Orders are dropping 30 to 50 per cent in certain industries. Many people are closing their factories.” Alan Scanlan, an executive in Hong Kong who works in sourcing out of southern China, said the slowdown was the inevitable result of the end of the ecommerce boom after buyers overstocked for 2022.Nike, for example, reported in September that its North American inventories were up 65 per cent at the end of the third quarter, compared with the year before. Last month, China’s manufacturing purchasing managers’ index dropped to 49.2, from 50.1 in September, a greater than expected decline, according to the National Bureau of Statistics. On Monday, official data showed exports shrank 0.3 per cent; they had been expected to increase 4.5 per cent. Economists pinned the decline on a drop in orders as well as haphazard lockdowns under China’s zero-Covid policy.“We are in a scenario where Chinese domestic demand is affected by lockdowns, plus externally we’re seeing this weaker demand from Europe and the US, which is driven by high interest rates globally,” said Gary Ng, an economist at Natixis in Hong Kong. “That can be quite problematic when we talk about south China . . . these provinces are important for China’s economy.” An official in the city of Dongguan, a manufacturing hub in Guangdong, said local governments were struggling to maintain subsidies to help factories, as they also had to pay for Covid testing.“What are we supposed to do? Let the factories and local economy go dead and waste all income from citizens on the endless PCR tests?” asked the official, who wished to remain anonymous. Gassner said some industries were affected more than others, with electronics and renewable energy manufacturers cocooned from the carnage. But the downturn has still rippled through the jobs market, according to factory managers who said it was easy to hire workers at short notice.“When orders dropped, we were forced to cut costs and one of the biggest expenditures is in paying workers,” said Danny Lau, honorary chair of the Hong Kong Small and Medium Enterprises Association, who runs an aluminium factory in Dongguan. “We had more than 200 workers early last year, but only about 100 this year . . . That was mainly because of a lack of orders.”

Chen, who only provided his surname, works for a Guangdong-based business that supplies global supermarkets. As his hours dried up, his income fell to Rmb50,000 ($6,900) this year from Rmb80,000 the year before. “I used to buy bubble tea at full price without blinking an eye,” said Chen, 24. “Now I only go to those cafés providing [discount] vouchers.” He estimated that orders at his company had dropped as much as 40 per cent since April, compared with a year earlier. “Clients are losing confidence. They don’t dare to go all in on China anymore,” said Chen. US-China tensions have also accelerated the shift out of China of manufacturing, which had already been moving to south-east Asia owing to rising wages on the mainland.“There is no more luck being in China . . . [since Americans] no longer desire Made in China goods, it is best for us to clear up our mainland China operations,” said Suki So, executive director of Hong Kong-based Everstar Merchandise, who is planning to close her Guangdong factory.So is moving the rest of her factories to south-east Asia, where she produces Christmas lights. “Demand for non-essential goods such as furniture has [dropped] as Americans get poorer . . . We had to rent warehouses [this year] to store the finished goods,” she said. More

BENGALURU (Reuters) – Malaysia’s economy grew in double digits for the first time in over a year in the third quarter, boosted by strong domestic consumption and robust exports, according to a Reuters poll, but the outlook ahead was clouded by risks of a global slowdown.In September, Malaysia posted a trade surplus of $6.7 billion, the largest in over two decades as exports saw strong double-digit growth of 30.1%, led by higher shipments of electronics, oil and gas products amid high prices.The Nov. 1-8 poll of 22 economists predicted the economy expanded 11.7% in the July-September quarter compared with the same period a year earlier. In the previous quarter, the economic grew 8.9%.”A low statistical base from the third quarter of 2021, when the economy was in lockdown, will contribute towards an elevated year-on-year GDP growth reading for Q3 2022,” said Shivaan Tandon, emerging Asia economist at Capital Economics.”The reopening of international borders should help to ease labour shortages in certain sectors and also drive a continued recovery in the tourism sector. However, the boost is likely to be offset by drags from elsewhere, with tighter monetary policy, slower employment and wage growth alongside weaker external demand.”In its latest budget estimates the Malaysian government upgraded growth forecasts for this year to 6.5%-7.0% from 5.3%-6.3% but expected growth for 2023 to slow to 4.0%-5.0%. Trade and economic activity was also likely to be affected by China’s strict COVID-19 containment measures and a slowdown in global growth.A separate Reuters poll showed Malaysia’s growth would average 7.2% this year and then fall to 4.2% in 2023.Malaysia’s ringgit has underperformed this year, affecting inflation, despite the central bank steadily hiking interest rates to “preemptively” manage price pressures, albeit in increments of 25 basis points, amid a strengthening U.S. dollar.”The currency is likely to remain under downward pressure until U.S. bond yields peak and market participants remain risk averse amid elevated levels of global economic uncertainty,” added Tandon. More

SINGAPORE/SYDNEY (Reuters) -Volatility has exploded in an obscure but important corner of Australia’s $113-billion-a-day interest-rate derivatives market, with disruption flowing across fixed income products.Dealers say the typically stable market for swapping fixed and floating rate payments has turned wild due to a combination of policy changes, speculation and skewed flows.Banks and corporations use the market to manage interest rate risks and traders depend on it as reference for pricing other assets.All have been affected by the dramatic surge in the cost of swaps relative to bonds and liquidity has rapidly dried up.”Getting large trades done in the wholesale market now is much more difficult than even three-to-six months ago,” said Mark Elworthy, head of Australia and New Zealand fixed income trading at Bank of America (NYSE:BAC) Securities in Sydney.”Trades that would normally take a few minutes could sometime take days to execute.”That’s also caught the attention of policymakers, though it’s unclear what tools authorities could use, if any, to restore a functioning market.To make a swap, market participants turn to a dealer or bank to facilitate the deal. For a premium, participants can turn fixed incomes or liabilities into floating exposures, or vice versa.Nobody is certain of the exact trigger, but the usually reliable relationship between that premium and government bond yields broke down during October and early November.The gap between the two rates shot to its widest in a decade for the two main tenors and the “bond-swap spread” has moved at its fastest pace in years.The benchmark bond yield-to-swaps spreads at three-year and 10-year tenors flung to decade highs last week, with the three-year topping 65 basis points and the 10-year flirting with 80 bps, before sharply recoiling.That has meant higher hedging costs for banks and corporations and mark-to-market losses for portfolios that hold debt priced relative to the bond-swap spread.Non-government bonds make up a fifth of the widely tracked Bloomberg Australia composite index and are likely marked against swaps, Elworthy said.DRAINED Part of the issue is a lack of bond market supply. Australia’s central bank holds about a third of sovereign debt, thanks to its massive bond buying monetary stimulus during the pandemic.That scarcity has now made bonds relatively more expensive, which means lower yields.Meanwhile, swaps rates have moved the other way as dealers seek to limit their own exposure to rate risk, heightened as markets have been caught off-guard by shifts in the Reserve Bank of Australia’s tone and outlook as it hikes interest rates.Most theories traders offer on what has driven the disruption relate to money flows, particularly from Australia’s big four banks, but also from hedge funds who have been wrong-footed by the moves.Andrew Lilley, chief interest rates strategist at Sydney-based investment bank Barrenjoey, says the winding down of a central bank liquidity facility this year is also a factor.The so-called Committed Liquidity Facility allowed banks to swap less liquid assets for cash with the RBA.Its withdrawal means institutions are instead now scrambling for high-grade assets, chiefly fixed-rate semi-government debt, as liquid capital for prudential purposes.Those new bond holdings then need to be hedged, which Lilley says has pushed up demand to swap fixed income streams by 50% more than usual, which in turn blows out the bonds-swaps gap.Last week, the RBA’s head of domestic markets, Jonathan Kearns, noted the swaps market dysfunction.”I think we have to be always very attentive,” he told a forum in Sydney.DISORDERLYOther factors include a relative dearth of foreign debt issued in Australian dollars, which would ordinarily generate receiving demand when issuers swap their liabilities to their home currencies.Hedge funds also appear to have stepped in to try and take advantage of the market dysfunction, but have been blindsided as well, market players said.”People who had tried to play the widening, maybe they got stopped out, which led to that disorderly widening,” said ANZ senior rates strategist Jack Chambers. The global backdrop has also been unhelpful, with September’s meltdown in British government debt sending companies “panicking to hedge,” according to Robert Hong, head of fixed income credit in Asia at financial services firm StoneX.To be sure, there are no major signs of spillover to bank funding costs or wider financial markets. Nor are other swap markets globally seeing similar pressures.But the speed of price moves has created concern about skewed supply and demand flows.”We usually think of interest-rate derivatives markets as having highly elastic supply,” Lilley said. “But now it’s behaving a little bit more like a commodities market. As we’re getting small changes in demand, we’re getting extremely large changes in price.” More

The electric carmaker made the announcement on the same day it reported losing $670 million in the third quarter.Lucid Group, an electric car company that has struggled to ramp up manufacturing, said on Tuesday that it had reached agreements to raise up to $1.5 billion, shoring up its financial position as it works to streamline and expand its production operations.The company said in a regulatory filing that it planned to sell up to $600 million in new shares through Bank of America, Barclay’s Capital and Citi. It also said it reached an agreement to sell up to $915 million in stock to the sovereign wealth fund of Saudi Arabia, which already owns a majority of Lucid’s stock.Shares of Lucid were down about 12 percent in after-hours trading on Tuesday following the disclosure of its plans in the securities filing. The company’s stock was trading at just under $12, down from more than $50 last November.Separately on Tuesday, Lucid said that it had lost $670 million in the third quarter, compared with a loss of $524 million in the same period a year earlier. The company said it had significantly increased production in the third quarter.Revenue rose significantly to $195.5 million, from $97.3 million in the second quarter and just $232,000 in the third quarter of 2021. It delivered 1,398 cars to customers in the third quarter, more than twice as many as in the second quarter.The fledgling company, based in Newark, Calif., said it produced 2,282 electric cars in the three months that ended in September, more than three times as many as it made in the previous three months. “We’ve made great strides in ramping up our production,” Lucid’s chief executive, Peter Rawlinson, said in an interview. “We are gradually improving things and there’s a real belief we are on the right track here.”He added that the automaker was on track to hit its revised target of making 6,000 to 7,000 cars this year.The company said it had taken reservations for 34,000 cars from individuals. Its only model, the Air sedan, has won accolades from car magazines and websites. The car can travel up to 520 miles on a full charge, more than any other electric vehicle on the market. The company said it would begin taking reservations for a second model, the Gravity sport-utility vehicle, early next year.But Lucid still faces a number of challenges, including increasing production and turning a profit. With the exception of Tesla, most recent automotive start-ups have struggled to mass produce their promising designs and create self-sustaining businesses. Lucid had $3.85 billion in cash and cash equivalents at the end of September.Saudi Arabia’s government has agreed to buy up to 100,000 cars from Lucid and the company is planning to build a manufacturing facility in that country. It currently makes cars at a factory in Arizona.This year investors have lost much of their enthusiasm for start-up carmakers, making it harder and more expensive for them to raise financing. Rivian, another electric car company, reports its third-quarter earnings on Wednesday. Rivian’s shares soared to as high as $180 after its initial public offering late last year, but have since fallen sharply. On Tuesday Rivian’s stock closed at under $32 a share. More

WASHINGTON (Reuters) – U.S. Commerce Secretary Gina Raimondo pledged continued strong support for Ukraine during a meeting with the country’s economy minister, including efforts by the U.S. government and private sector to help rebuild Ukraine’s civilian infrastructure, the Commerce Department said on Tuesday.Ukrainian Economy Minister Yulia Svyrydenko briefed Raimondo at their meeting in Washington on Russia’s recent attacks on Ukraine’s energy infrastructure and Ukraine’s efforts to promote economic recovery, Commerce said in a statement.The two also discussed a U.S.-Ukraine infrastructure task force being formed by the Department of Commerce, Department of Transportation and Ukrainian Ministry of Infrastructure, the department said.Svyrydenko, who also serves as deputy prime minister, will meet with U.S. Trade Representative Katherine Tai on Wednesday, the Ukrainian Embassy in Washington said.Her visit to Washington comes during congressional elections that could see President Joe Biden’s Democrats lose control of Congress, with some Republicans already speaking out against continued U.S. support for Ukraine.Republicans would have the power to block aid to Ukraine if they win back control of Congress, but they are more likely to slow or pare the flow of defense and economic assistance than stop it, analysts said.Brian Gardner, chief Washington policy strategist for Stifel investment bank, said there was a risk of the bipartisan consensus’ backing U.S. support for Ukraine eroding if the U.S. economy weakened or slipped into recession in 2023.”At that point, if public opinion on Ukraine starts to shift materially, I think the prospects for U.S. support for Ukraine follow and deteriorate,” he said. More

(Reuters) -National Australia Bank (NAB) on Wednesday warned that rising interest rates could impact credit demand in the current fiscal year, with further declines in property prices threatening its financial position.The country’s second-largest lender also warned that economic uncertainty created by rising interest rates owing to soaring inflation could challenge some customers, however, said it expects strong employment conditions and substantial home and business savings helping it weather the impact.NAB forecasts a steep decline in business and housing lending volumes in fiscal 2023 in Australia, with business credit growth seen decelerating to 3.6% from 14.7% in fiscal 2022.It also joined smaller rivals Westpac Banking (NYSE:WBK) Corp and Australia and New Zealand Banking Group in warning of higher costs from wages as a result of high inflation in fiscal 2023.Shares of the Melbourne-based bank fell up to 2.7% to their lowest level since Oct. 18.NAB, the country’s biggest business lender, recorded strong growth in its business and home lending during the year ended September, with windfall benefit from rising interest rates boosting its cash earnings to A$7.10 billion ($4.62 billion).That compares with A$6.56 billion reported a year earlier and analysts’ estimate of A$7.08 billion, according to Refinitiv Eikon.”This outcome reflects continued execution of our strategy including targeted volume growth and a disciplined approach to managing costs while investing for growth,” Chief Executive Officer Ross McEwan said.The bank’s stressed loans, interest payments on which were delayed for over 90 days, fell to 0.66% in fiscal 2022 – lowest level since fiscal 2015 – from 0.94% in 2021.Net interest margin, a key metric of profitability, rose 1 basis point to 1.65% on an adjusted basis. It declared a final dividend of 78 Australian cents per share, bringing the total dividend to 151 cents apiece, a 19% jump from a year ago.($1 = 1.5380 Australian dollars) More

Pay growth is accelerating across six leading eurozone economies including Germany and France, according to a new wage tracker based on real-time data from online job postings.The median wage cited in adverts was 5.2 per cent higher at the end of October than a year earlier — up from annual growth of 4.2 per cent in June and more than three times the average of 1.5 per cent for 2019, the first year analysed by the tracker, a collaboration between the Central Bank of Ireland (CBI) and job search website Indeed. Reamonn Lydon, a CBI economist, and Pawel Adrjan, economist at Indeed, pointed to “extraordinarily high” wage growth in Germany, where posted wages in October were 7.1 per cent higher than a year earlier. Wage growth in France was 4.7 per cent over the same period.As workers seek to offset soaring food and energy costs, the European Central Bank is on the lookout for signs of bigger pay rises that could prolong high inflation. Eurozone inflation hit a record 10.7 per cent last month and the central bank fears that a 1970s-style “wage-price spiral” will develop if workers and companies come to expect double-digit inflation.Wage growth has been more modest in the eurozone than in the US and UK, where unemployment rates are lower and post-pandemic labour shortages more acute. But the ECB expects growth in average wages to pick up from 4 per cent in 2022 to 4.8 per cent in 2023, reflecting tight labour markets, rising minimum wages in some countries and compensation for rising costs exacerbated by Russia’s war in Ukraine.Fabio Panetta, one of the most dovish ECB board members, said last week that wage pressures were so far contained but that the central bank, which has raised interest rates by a record 200 basis points over its last three meetings, needed to be “extremely vigilant”.Paul Hollingsworth, chief European economist at BNP Paribas, said that while there was little evidence yet of a wage-price spiral, “we can’t say that the risk has passed” and hawks at the ECB would be alert to any signs of high inflation starting to drive wage- and price-setting. He added that a trend of rising industrial action suggested there had been “a shift in bargaining power towards workers”.

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The tracker is more timely than the latest Eurostat data, which showed second-quarter hourly labour costs rose 4.0 per cent in the eurozone compared with the year-ago period. It is less comprehensive, as the proportion of adverts that cite pay varies between countries. But because the tracker reflects new hiring it is able to capture turning points in the labour market more swiftly than the ECB’s measure of negotiated wages — which covers collective bargaining agreements that take months to thrash out.France and Germany have raised the minimum wage several times over the past year and offered employers tax breaks for one-off payments to help staff cope with rising living costs. Unions have also been increasingly assertive on pay, with industrial action shutting down oil refineries in France last month and Germany’s IG Metall beginning warning strikes as it seeks an 8 per cent wage rise for almost 4mn workers.

The new tracker points to wage growth of 4 per cent in Ireland and Italy, 3.9 per cent in Spain and 3.8 per cent in the Netherlands — although all have similar inflation rates to Germany’s, implying a bigger drop in living standards. Growth in posted wages in the UK, where vacancy rates are higher, has been above 6 per cent since June. Lydon said the data showed the biggest acceleration in pay had been this summer, but that pressures were broadening across countries and sectors and appeared increasingly driven by inflation rather than labour shortages. Although growth in posted wages was highest in areas such as food preparation and driving, where employers have struggled to recruit, it was now above 3 per cent in more than 60 per cent of occupational categories.But the researchers also said there were early signs of wage growth plateauing or starting to slow as the economic outlook worsens in some eurozone countries.Lydon said this slowdown was more visible in higher-paid sectors such as IT and finance, where employers were making a long-term investment when they hired and might be more sensitive to economic uncertainty, and in human resources. More

NEW YORK (Reuters) -Investors are expecting Republican gains in U.S. midterm elections, a result that will likely scale back Democratic spending and regulation but set up a bruising fight over raising the U.S. debt ceiling next year. Republicans are favored to win control of the House of Representatives and possibly the Senate, polls and betting markets show, though there are still hours left to vote in many districts. With Democratic President Joe Biden in the White House, that result would lead to a split government, an outcome that has been accompanied by positive long-term stock market performance in the past.While macroeconomic concerns and Federal Reserve monetary policy have been the market’s key movers this year, Capitol Hill politics could exert its own influence on asset prices. A Republican win would cut down on fiscal spending that could exacerbate already-high inflation and lead the Fed to raise interest rates even higher than expected, analysts at Morgan Stanley (NYSE:MS) wrote earlier this week, potentially buoying the stock market’s most recent rebound while supporting Treasury prices and helping curb the burgeoning dollar.”I think the markets are rallying at the prospect of gridlock,” said Jack Ablin, chief investment officer at Cresset Capital in Chicago. “Fiscal spending has created a challenge for central banks worldwide. The prospect of no legislation is a bullish inflation signal.”Historically, stocks have tended to do better under a split government when a Democrat is in the White House, with investors attributing some of that performance to political gridlock that prevents either side from making major policy changes.Average annual S&P 500 returns have been 14% in a split Congress and 13% in a Republican-held Congress under a Democratic president, according to data since 1932 analyzed by RBC Capital Markets. That compares with 10% when Democrats controlled the presidency and Congress.”If we get a split Congress, we might have to adjust our portfolios to be less defensive than we are today,” said Brooks Ritchey, Co-CIO at K2 Advisors. The S&P 500, which finished up 0.6% on Tuesday, has risen about 5% over the last month. The index is down about 20% for the year.Over the longer term, however, a split government could lead to heightened tensions over raising the federal debt ceiling in 2023, setting up the kind of protracted battle that led Standard & Poor’s to downgrade the U.S. credit rating for the first time in 2011, sending financial markets reeling. “If the Republicans really gain some power here, in the House and Senate, they can make (raising the federal debt ceiling) a really difficult process,” said Tim Ghriskey, senior portfolio strategist Ingalls & Snyder in New York. With U.S. equity options market positioned for relative calm, a surprisingly strong showing by the Democrats could throw the markets for a loop.Options positioning on Monday implied a decline of 1.5% in the S&P 500 on the day after the vote should Democrats pull off a stronger-than-expected showing, according to Tom Borgen-Davis, head of equity research at options market making firm Optiver.PERFECT TRACK RECORD Many strategists are also quick to cite the stock market’s perfect post-midterms track record: The S&P 500 has posted a gain in each 12-month period after the midterm vote for 19 straight occasions since World War Two, according to Deutsche Bank (ETR:DBKGn).Still, some investors cautioned against expecting a repeat this time around, when there is little clarity on how quickly the Fed will be able to tame inflation or end its market-bruising monetary tightening.One important potential catalyst comes Thursday in the form of the U.S. consumer price report, a data point that has spurred sharp market moves throughout 2022.”Next year’s earnings estimates are still too high, Fed policy is still tight and tightening, inflation is still too high,” said James Athey, investment director at Abrdn. “This is all bad news for equities.” More