Economy

LONDON (Reuters) -Investors took advantage of a wipeout in U.S. tech stocks this week to snap up equities, even though this sector is one of the most vulnerable as major central banks keep hiking rates, Bank of America (NYSE:BAC) Global Research said on Friday.Equity funds recorded their largest weekly inflow since March in the week to Wednesday, at $22.9 billion. The largest share went into tech stocks, which saw inflows of $2.3 billion into tech equities, the biggest weekly inflow since March 2022.Tech stocks have all but wiped out their gains from the pandemic in 2020, which saw the sector hit a record high valuations and boast some of the world’s biggest companies.But high inflation, rising interest rates and post-COVID economic activity has taken a lot of the wind out of the markets, with overvalued tech stocks and government bonds paying the biggest price.The value of mega-cap tech companies has plunged a collective $4 trillion in 2022, according to BofA.As the Federal Reserve and other central banks jack up rates, U.S. Treasuries, for example, are on course for their worst annualised returns in nearly 250 years, BofA said.”243 rates hikes thus far in 2022 – that’s one rate hike every trading day, the bond market is now pivoting from inflation to recession,” the bank’s analysts said in a note.This week has seen steep drops in the market value of Facebook (NASDAQ:META) parent Meta Platforms Inc, which sank 25% after its most recent earnings. An index of New York-listed tech stocks is heading for a third monthly loss in October.Even though the outlook for bonds is dark, inflows into corporate bonds resumed for the first time in at least eight weeks, according to the report. Investment grade debt saw inflows of $0.8 billion, while high-yield funds registered inflows of $2.1 billion.But this renewed appetite for fixed income may not last, the bank said.”While bonds pivoting from inflation to recession is a positive, a ‘recession shock’ could send credit spreads to new highs and stocks to new lows in the first quarter of 2023,” BofA said.Indeed, BofA said its bull and bear indicator remains at “max bearish” for the sixth consecutive week.Emerging markets equity funds recorded their largest weekly inflow since April 2022 at $2.8 billion, in spite of a huge sell-off in China that sent mainland blue chips to their lowest in over two years and Hong Kong-listed shares to their weakest since early 2009.Highlighting the ongoing risk aversion, investors ploughed $28.4 billion into cash, while bonds overall saw their first inflow in ten weeks of $1.4 billion and gold posted outflows of $0.5 billion. More

The central bank officials spoke in Russian. The quotes below were translated into English by Reuters.NABIULLINA ON DECISION TO LEAVE KEY RATE UNCHANGED”The economy continues to adapt to ongoing changes. At the same time, new factors have emerged that can be classified as pro-inflationary in the medium term. Primarily, this is the increase in geopolitical tensions, the partial mobilisation, as well as a deterioration in the situation of the global economy. With this in mind, a decision to keep the rate unchanged today seems to be the most balanced.””This time we had a very broad consensus on the decision that the rate should be left unchanged. As for our further actions, we believe that monetary policy is now in the neutral zone and in doing so we have given a neutral signal. This means that the further trajectory of the key rate, the direction of our monetary policy will depend on future data on the economy, inflation, inflation expectations, and, depending on what factors carry the most weight, we may maintain, increase or decrease the rate.”NABIULLINA ON INFLATIONARY EFFECTS OF MOBILISATION”In the coming months, due to a decrease in consumer demand, its effects will be disinflationary, but then pro-inflationary effects may appear through changes in the structure of the labour market, a shortage of personnel in certain areas. It is still difficult to assess all the economic consequences of the shift in employment structure. They will manifest themselves gradually through the adjustment of wages and the increased flow of labour between industries and regions.”NABIULLINA ON EU PRICE CAP ON RUSSIAN OIL EXPORTS”Few people can imagine all the consequences, what they will be in aggregate. What is important for us? That, as these consequences can be very different, to remain conservative in the forecast for oil.””There were two rather contradictory factors. On the one hand, the actions of OPEC+. On the other, a possible decrease in demand for Russian energy resources, both as a result of a slowdown in global economic growth and as a result of various export restrictions. So it is important for us to remain conservative.”NABIULLINA ON FOREIGN BANKS IN RUSSIA”We treat them like Russian banks and all regulation and supervisory practices are exactly the same. But in fact, transactions with the assets of a number of them on the list requiring special permission. Until such criteria are established, work is underway on the decree. The whole set of factors will be considered. I don’t see any potential need for a bail out yet. We don’t see any cases that may required it in the short term, because the banking system as a whole is stable. And as for the ability to sell assets, the decree applies only to transactions with shares.”NABIULLINA ON BANKING SYSTEM PROFITABILITY”The profitability of the banking system is recovering, we expect this trend to continue in 2023. As for the policy on dividends, our recommendation to banks that took advantage of our regulatory easing this year was not to pay dividends. But if they do not take advantage of it, if they are profitable, they can pay dividends. We will additionally consider whether this recommendation should be kept for the future, it may not really be as expedient as it was this year”ZABOTKIN ON EFFECT OF MOBILISATION ON INFLATION”The inflation forecast for this year speaks for itself. It has shifted slightly upwards and this upward shift mainly reflects the transfer of tariff indexation from July next year to December … For the next year, our inflation forecast has not changed either. The baseline scenario is that the cumulative impact on the inflation trajectory of all that has taken place since July is approximately neutral.”ZABOTKIN ON CHANCES OF A RATE CUT IN DECEMBER”If we saw a significant chance of a rate cut in the next few meetings, we would have said so in the press release.” More

(Reuters) -Activist investor Elliott Management Corp has raised its stake in Swedish Match to over 10%, it said in a filing on Friday, increasing its clout over Philip Morris International (NYSE:PM)’s (PMI) $16 billion takeover bid for the Swedish company.The move comes a week before the Nov. 4 deadline when shareholders must decide whether to tender their shares in the company, which controls about half the world’s market for snus, a Scandinavian moist oral tobacco product. It is also the global industry leader for nicotine pouches.Under Swedish law, PMI needs 90% of shareholders to agree to the deal, aimed at getting a slice of the fast-growing smoke-free market, in order to get full control over the company.By increasing its stake to 10.5%, worth about 18.2 billion Swedish crowns ($1.66 billion) at Friday’s market prices, from 7.25% previously, Elliott could scupper the deal if it rejects the offer.Bloomberg reported in July, citing sources, that Elliott was planning to oppose the deal. That was before PMI sweetened the terms last week. Elliott has not commented on its intentions.”Our updated offer retains a 90% acceptance condition, which is critical to allow us to capture the full potential of the combination,” PMI said in an emailed comment. “This is our best and final price, and we hope to complete the transaction next month to achieve full ownership.”PMI also has the option to reduce the acceptance threshold and take a majority stake in order to prevent the bid from failing.Elliott and Swedish Match declined to comment.The investor has been building its stake since July. The shares have risen by more than 9% in that time.Speaking to Reuters earlier, following its Q3 results and before Elliott disclosed the higher stake, Swedish Match CEO Lars Dahlgren said that he believed the company could thrive by itself or together with Philip Morris. “I believe we have exciting prospects as a standalone company, but I see exciting opportunities with a potential combination,” he said.The deal has also faced opposition from other shareholders.Swedish Match shares were little changed on Friday, albeit outperforming a weak broader market.($1 = 10.9900 Swedish crowns) More

The core personal consumption expenditures price index in September increased 0.5% from the previous month and 5.1% from a year ago.
Including food and energy, PCE inflation rose 0.3% for the month and 6.2% on a yearly basis.
Personal spending rose 0.6%, more than expected amid the rise in prices.
Compensation costs increased 1.2% in the third quarter, in line with estimates.

Halloween candy is for sale at a Harris Teeter grocery store on October 17, 2022 in Washington, DC.
Drew Angerer | Getty Images

An economic gauge that the Federal Reserve follows closely showed that inflation stayed strong in September but mostly within expectations, the Bureau of Economic Analysis reported Friday.
The core personal consumption expenditures price index increased 0.5% from the previous month and accelerated 5.1% over the past 12 months, the report showed. The monthly gain was in line with Dow Jones estimates, while the annual increase was slightly below the 5.2% forecast.

Including food and energy, PCE inflation rose 0.3% for the month and 6.2% on a yearly basis, the same as in August.
The report comes as the Fed is prepared to enact its sixth interest rate increase of the year at its policy meeting next week. In an effort to combat inflation running at its fastest pace in nearly 40 years, the Fed has been raising rates, with increases totaling 3 percentage points thus far.
Markets widely expect the Fed to enact its fourth straight 0.75 percentage point increase at the meeting, but possibly slow down the pace of hikes after that.
The BEA also reported that personal income increased 0.4% in September, one-tenth of a percentage point above the estimate. Spending as gauged through personal consumption expenditures increased 0.6%, more than the 0.4% estimate.
However, when adjusted for inflation, spending rose just 0.3%. Disposable personal income, or what is left after taxes and other charges, rose 0.4% on the month but was flat on an inflation-adjusted basis.

A separate release Friday showed that employment costs rose 1.2% for the third quarter, in line with estimates, according to the Bureau of Labor Statistics. On an annual basis, the employment cost index increased 5%, slightly lower than the 5.1% pace in the second quarter.
Fed officials watch Friday’s data points closely for clues about where costs are headed, particularly with a tight labor market in which there are 1.7 jobs per every available worker, according to recent BLS data.
The Fed prefers the PCE price reading to the more widely followed consumer price index from the BLS. The BEA measure adjusts for consumer behavior, in particular substitution of less expensive goods, to determine cost-of-living increases rather than simple price moves.
Markets think the Fed might downshift the pace of its rate hikes ahead. Futures pricing Friday morning indicated a nearly 60% chance that the central bank will hike rates 0.5 percentage point in December.

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The Employment Cost Index, the broadest measure of labor costs, rose 1.2% last quarter after increasing 1.3% in the April-June period, the Labor Department said on Friday.Economists polled by Reuters had forecast the ECI rising 1.2%. Labor costs increased 5.0% on a year-on-year basis after advancing 5.1% in the second quarter.The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack and a predictor of core inflation, because it adjusts for composition and job-quality changes. It is being watched for confirmation that wage growth has peaked as economists try to gauge when the Federal Reserve will start slowing its aggressive interest rate hikes.The U.S. central bank has raised its benchmark overnight interest rate from near zero in March to the current range of 3.00% to 3.25%, the swiftest pace of policy tightening in a generation or more. Annual growth in average hourly earnings in the Labor Department’s monthly employment report is cooling. The Atlanta Fed’s wage tracker has also moderated in recent months. While the Fed’s “Beige Book” report last week showed “wage growth remained widespread,” in early October, it noted that “an easing was reported in several districts.”There were 10.1 million job openings on the last business day of August, with 1.7 open positions for every unemployed person.Wages and salaries increased 1.3% last quarter after rising 1.4% in the second quarter. They were up 5.1% year-on-year after rising 5.3% in the prior quarter. Private sector wages rose 1.2%, stepping down from a 1.6% jump in the second quarter. Private industry wages rose 5.2% year-on-year after increasing 5.7% in the second quarter. State and local government wages increased 2.1% after rising 0.7% in the second quarter. But inflation eroded the gains for employees. Inflation adjusted wages for all workers dropped 3.0% year-on-year. Benefits rose 1.0% last quarter after increasing 1.2% in the April-June quarter. They were up 4.9% year-on-year. More

FRANKFURT (Reuters) – European Central Bank policymakers stood firmly behind plans to keep raising interest rates even if that pushes the bloc into recession and stirs political resentment as fresh data pointed to higher than feared inflation.The ECB doubled its deposit rate to 1.5% on Thursday and promised more tightening in the months to come in a bid to prevent sky high price growth from getting entrenched, rebuffing a round of government criticism that it was exacerbating the downturn. Slight tweaks to the ECB’s message, like the admission a recession was possible or the omission of a reference to “several” rate hikes, had led some to think the bank may be getting cold feet. But policymakers on Friday appeared to be on message that rates will keep going up. “It will go even higher in December and the first months of next year,” ECB policymaker Peter Kazimir said on Friday.”We will cross the neutral rate — regardless of where anyone currently sees it — like a runaway train,” Kazimir, Slovakia’s central bank chief, said in unusually hawkish comments. “We need to get monetary policy into the so-called restrictive environment, at least for a certain period.”Estonia’s governor Madis Müller and Gediminas Simkus from Lithuania also made the case for more action even if Bank of France head Francois Villeroy de Galhau attempted to temper the message, saying that December’s increase will not necessarily have to be 75 basis points.More rate hikes are likely to irk the bloc’s political leaders, who fear that the ECB is inflicting pain on people already suffering from soaring energy prices. French President Emmanuel Macron and Italian Prime Minister Giorgia Meloni have both expressed frustration with the ECB in recent days, arguing that its fastest ever policy tightening could intensify the downturn. The flurry of ECB comments came just as fresh data pointed to inflation being even higher than feared.The bank’s own Survey of Professional Forecasters, a key input in policy deliberations showed inflation, now running at almost 10%, holding above the ECB’s 2% target indefinitely and only falling to 2.4% by 2024.Fresh inflation figures out of Germany, France and Italy on Friday all exceeded forecasts with only Spain coming in under expectations, suggesting price growth in the bloc as a whole likely accelerated, confounding expectations for a drop. Italian inflation soared to 12.8% in October, Germany hit 11.6% while French inflation was 7.1%, all well above forecasts.The string of data and ECB comments kept markets volatile on Friday.Investors now see ECB rates peaking at around 2.75%, above levels near 2.5% seen on Thursday after the ECB’s rate hike and language tweaks.But the peak was priced at over 3% just days ago, indicating that investors remain unsure just how high rates need to go to tame inflation. Yields on ten-year German government bonds, a benchmark for the bloc, jumped 13 basis points, erasing nearly all of Thursday’s fall. RECESSIONThe policymakers’ reinforcement of the rate hike message comes as a recession now looks almost certain, and will likely prompt a barrage of further criticism from European leaders. The ECB’s survey predicted economic growth would total just 0.1% next year and there would be three quarters of negative growth starting with the third quarter of 2022, producing a cumulative decline of 0.7%. But ECB chief Christine Lagarde pushed back on the criticism on Thursday, arguing that breaking inflation was the ECB’s chief mission and governments could help by providing targeted support for the most vulnerable.Highlighting the risk, major global companies including Amazon (NASDAQ:AMZN), Unilever (NYSE:UL) and Reckitt Beckiser this week gave the starkest warnings yet on the challenges facing European consumers this winter. “Fuel cost and the impacts of the Ukraine war are hitting the economies in Europe even harder than the U.S., and that’s showing up in consumer spend,” Brian Olsavsky, Amazon’s chief financial officer, told reporters. Unilever, maker of more than 400 brands including Persil detergent and Ben & Jerry’s ice cream, on Thursday also gave a dire assessment. “Consumer sentiment in Europe is at an all time low,” Chief Financial Officer Graeme Pitkethly told reporters, warning of fears of a “confluence of events” with energy prices and inflation rising and households’ savings waning. More

OTTAWA (Reuters) -Canada’s economy grew slightly more than expected in August and most likely stayed in positive territory through the summer, official data showed on Friday, a result that did not change expectations for another smaller rate hike.The economy grew by a surprise 0.1% in August, buoyed by strong agricultural and retail activity, with another 0.1% increase likely in September and third quarter annualized GPD seen up 1.6%, Statistics Canada data showed.Analysts polled by Reuters had forecast GDP would be flat in August. The flash estimate for annualized GDP, which may change when final tallies are released next month, is slightly above the Bank of Canada’s third quarter forecast of 1.5% growth.”The Canadian economy has been only crawling ahead recently,” Royce Mendes, head of macro strategy at Desjardins Group, said in a note. “The numbers shouldn’t change anything for monetary policymakers, who sounded more dovish than anticipated on Wednesday,” he added.The Bank of Canada increased its policy rate this week by 50 basis points to 3.75% and said it was nearing the peak of its tightening campaign, though it was not there yet. Money markets are betting on a 25-basis-point increase at its December decision. Inflation has eased off its peak, but remains far above the central bank’s 2% target. The bank warned that growth would stall in the fourth quarter, with its forecasts showing a slight recession was possible in the coming months.”While growth was fairly modest in Q3, it will probably need to slow further to help bring inflation back to target,” Andrew Grantham, senior economist at CIBC Capital Markets, said in a note.The August GDP data showed a rebound in services partially offset a decline in goods-producing industries. Retail trade rose 1.2%, bouncing back from July, on higher sales at the gas pump, at grocery stores and in sporting goods shops.The agriculture and forestry sector rose 3.9%, led by increased crop production as better growing conditions in Western Canada drove higher yields.That was offset by a contraction in manufacturing, with sector output falling to its lowest level since January. Construction also declined for a fifth straight month, though building activity remains well above pre-pandemic levels.The Canadian dollar was trading 0.3% lower at 1.3610 to the greenback, or 73.48 U.S. cents. More

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.6% last month, the Commerce Department said on Friday. Data for August was revised higher to show spending increasing 0.6% instead of 0.4% as previously reported. Economists polled by Reuters had forecast consumer spending gaining 0.4%. The data was included in Thursday’s advance third-quarter gross domestic product report, which showed economic growth rebounding after contracting in the first half of the year. Last quarter’s 2.6% annualized growth pace was largely driven by a sharp narrowing in the trade deficit. Growth in consumer spending slowed to a 1.4% rate from the April-June quarter’s 2.0% pace. Domestic demand last quarter was the softest in two years. The Fed has raised its benchmark overnight interest rate from near zero in March to the current range of 3.00% to 3.25%, the swiftest pace of policy tightening in a generation or more.Cooling demand has left some economists anticipating that the U.S. central bank could signal slower rate hikes at its policy meeting next Tuesday and Wednesday, though much would depend on inflation, which remains stubbornly high.The personal consumption expenditures (PCE) price index rose 0.3% last month after a similar gain in August. In the 12 months through September, the PCE price index increased 6.2%, matching August’s rise.Excluding the volatile food and energy components, the PCE price index climbed 0.5% after increasing by the same margin in August. The so-called core PCE price index advanced 5.1% on a year-on-year basis in September after increasing 4.9% in August.The Fed tracks the PCE price indexes for its 2% inflation target. Other inflation measures are running much higher. The consumer price index increased 8.2% year-on-year in September. More