Economy

LISBON (Reuters) -European policymakers should avoid taking rushed pro-cyclical measures in response to high inflation, which is expected to slow down over time and converge with European Central Bank targets, ECB Governing Council member Mario Centeno said on Thursday.Pro-cyclical policies tend to reinforce the existing conditions facing an economy be it economic growth or recession.”We should be worried and act – as consumers and policymakers – about the inflation numbers we’ve seen. But we also have to remember the need to think longer-term in these processes…and we should be guided by patience.””Pro-cyclical policies are all we should avoid”, he said, adding there is a need for greater coordination of national policies, but also at the European level.Governments usually increase spending and lower taxes during a recession, which many fear is looming now due to high inflation. But central banks are currently raising interest rates to combat high inflation, action that can magnify economic downturns.With euro zone inflation at record levels, policymakers are concerned that even long-term inflation expectations may move above the ECB’s 2% target.Still, Centeno said that “the forecast of all institutions, including the Bank of Portugal, is that inflation will decelerate and will gradually return – probably more gradually than we wanted – to levels consistent with the ECB’s objectives.”Official data published on Wednesday showed that inflation in the 19 countries sharing the euro currency accelerated to 9.1% in August year-on-year from 8.9% a month earlier.The ECB is expected to face a choice at its policy-setting meeting next week between a rate rise of around 50 and 75 basis points. The ECB raised rates by 50 basis points to zero percent in July. More

It adjusted its forecast for passenger car deliveries in the U.S. to predict a 7% drop this year, from a previous forecast of a 1% drop.In Europe, it said it expected deliveries to fall 4%, from a previous forecast of no change.In China, by contrast, where the recovery from pandemic-related lockdowns was progressing faster than expected, it forecast 9% growth compared with a previous forecast of 3%.Globally, the association continues to expect no change from last year’s deliveries, which totalled 71.4 million vehicles – still 9.2 million below the industry’s output in 2019 before the pandemic. More

HELSINKI (Reuters) -Finland on Thursday slashed value-added tax on electricity to 10% from 24% over the winter and said it would pay more subsidies to those struggling with rising bills and inflation, as Europe struggles with soaring electricity costs.The measures led the government to raise its 2023 fiscal spending forecast compared with one month ago, abandoning a goal of tightening public spending after the pandemic in order to ease inflation struggles.”We live in a war-time economy,” Prime Minister Sanna Marin told reporters, referring to the war in Ukraine and its negative implications for European economies.”We see already now that around Europe calls are intensifying for peace at any price because every household can feel this situation in their own pockets,” she said.A significant proportion of Finnish households use electricity to heat their houses during the cold Nordic winter months, and the government said it would seek to compensate rising prices by lowering the value-added tax on electricity to 10% from December to April.The cost of the measures, which include electricity bill-based deductions on income tax or a direct subsidy for low-income groups, will amount to roughly 800 million euros in next year’s budget.The government has proposed public spending of 80.5 billion euros ($80.6 billion) for 2023, up from 79.5 billion suggested by the finance ministry a month ago.The budget deficit for next year is now seen at 8.1 billion euros instead of the 6.3 billion planned originally.”The good economic growth we still had at hand in the beginning of the year now threatens to slow down significantly next year,” Finance Minister Annika Saarikko told a news conference.She added that the economic distress could become deeper than estimated and even result in a recession.($1 = 0.9985 euros) More

SANTIAGO (Reuters) – Chile is expected to raise its benchmark interest rate this month to 10.5% from 9.75%, a central bank poll of traders showed on Thursday, as the world’s top copper producer tries to rein in high inflation.The Andean country’s central bank raised its benchmark interest rate by 75 basis points at its July meeting. Traders also expect inflation to rise by 1% this month. More

According to government statistics agency IBGE, the economy expanded 1.2% in the three months to June, above the 0.9% growth expected by economists polled by Reuters.This was the fourth straight positive result by the indicator, placing economic activity 3% above the pre-pandemic level, and only below that achieved in the first quarter of 2014, said the IBGE.The second quarter performance was mainly pushed by the 1.3% rise in services, as the sector, which has reacted strongly after the blow suffered by the pandemic, accounts for 70% of the economy.At the same time, industry increased by 2.2% and agriculture expanded by 0.5%.Activity grew 3.2% from the second quarter of 2021, beating a 2.8% forecast.IBGE also revised first-quarter gross domestic product (GDP) performance to a 1.1% gain from a 1.0% rise that was previously reported. More

UK businesses expect faster output price growth for the year ahead in a sign that they are passing on rising costs to consumers, according to data on Thursday that support the case for further monetary policy tightening. A survey of chief financial officers of UK companies published by the Bank of England found that price pressures are becoming more entrenched in the economy as wage growth accelerates. The findings come amid an intensifying cost of living crisis, with double-digit inflation and soaring energy bills hitting household finances and sending consumer confidence to its lowest level in almost 50 years.The businesses polled expected output price growth in the year ahead to reach 6.5 per cent, up from 6.3 per cent the previous month and the highest level since records began in 2017.The survey, which was conducted between August 5 and 19, showed that in the year to August, average unit costs were estimated to have increased 9.8 per cent, also the highest on record.This was in part because of higher earning growth. The average wage was reported to have risen 6.4 per cent over the same period, up from 5.5 per cent in the year to July. Wage expectations for the next 12 months also rose to 5.5 per cent, up 0.4 per cent from July.The figures are closely watched by the BoE’s Monetary Policy Committee for signs of a “wage spiral”, when earnings start to rise in response to rising prices. They support the view that the MPC will raise interest rates for the seventh consecutive time at its next meeting on September 15. Markets have priced in a 70 per cent probability of a large 50 basis point increase from the current 1.75 per cent, with a 30 per cent chance of an even bigger increase. Wage growth was boosted by widespread labour shortages, according to the survey. Almost nine in 10 businesses reported that it was harder than normal to recruit new employees. As a result, business expectations of consumer price inflation for the year ahead rose to 8.4 per cent in August, up from 7.3 per cent the previous month.High-cost pressures and selling price expectations were confirmed, despite some recent easing, by the final reading of the S&P Global/Cips UK manufacturing purchasing managers’ index. The survey, also released on Thursday, showed that the UK manufacturing downturn deepened in August as demand from domestic and overseas markets fell sharply. The headline index fell to 47.3 in August, down from 52.1 in the previous month and the lowest since May 2020, when the country was in a pandemic-related lockdown. Rob Dobson, director at S&P Global Market Intelligence, said there were reports of clients postponing or cancelling agreements because of the increase in economic uncertainty caused by warnings of recession, rising prices and component shortages.James Brougham, senior economist at the manufacturers’ trade group Make UK, said immediate intervention was “necessary to mitigate the worst of the economic damage to the industry’s fabric”. More

Friday’s report is one of the last marquee releases Fed officials will have in hand before the mid-September policy meeting to help them decipher a complex economic and inflationary puzzle. Forecasts call for a healthy, yet more moderate 298,000 gain in August payrolls and for the unemployment rate to hold steady at 3.5%, matching the lowest in five decades. Solid wage growth is also expected amid a persistent mismatch between labor demand and supply.Such figures, in conjunction with a blowout July employment print, improving consumer sentiment figures and a surprise pickup in job openings, could be enough to push the Fed to raise borrowing costs by 75 basis points, extending the steepest interest-rate hikes in a generation to curb an inflation surge.“In the context of all those data, this report becomes very important,” said Anna Wong, chief US economist at Bloomberg Economics. It could “put a stamp of confirmation” on the trend the other data have been showing — that the economy is very resilient.Conversely, any indication of much softer employment growth combined with a bigger slowdown in the Labor Department’s average hourly earnings figures may help shift expectations toward a half-point rate hike. Still, Fed officials will need to see results of the consumer price index later this month to crystallize their views on the appropriate policy response.Fed Chair Jerome Powell said last week the central bank’s decision later this month “will depend on the totality of the incoming data and the evolving outlook.” One important component of the jobs report will be the pay metrics. Economists expect the report will show a 0.4% increase in average hourly earnings from a month earlier and a 5.3% rise from August 2021. The annual increase would represent a slight acceleration from the previous two months.A slowdown in wage growth could give Fed officials some comfort by suggesting a softening in inflationary pressures, though that is not always the case, said Claudia Sahm, founder of Stay-At-Home Macro (SAHM) Consulting and a former Fed economist.“Everything should be viewed through the lens of ‘what could this mean for inflation?’” said Sahm.Companies have been raising pay across industries and income brackets to attract and retain workers. That’s underpinning consumer spending as Americans weather rising prices for essentials like food and rents. It also makes the Fed’s challenge of slowing down the economy to stem price gains that much more difficult.New data from ADP Research Institute on Wednesday showed the median annual pay for those who stayed in their jobs rose 7.6% in August from a year earlier. Job switchers saw more than twice that. Still, US companies increased headcount at a relatively sluggish pace in August with ADP reporting a 132,000 gain that was the smallest since the start of last year.The employment report is where policy makers “probably place the highest signal value about where underlying momentum is,” said Michael Gapen, head of US economics at Bank of America Corp. And while Friday’s report could be instrumental in pushing policy makers toward another 75 basis point hike at the conclusion of their two-day meeting on Sept. 21, there’s another big report on the horizon that the central bank will consider: the closely-watched CPI.Inflation DataMinneapolis Fed President Neel Kashkari said in an interview with Bloomberg’s Odd Lots podcast that he will be watching the jobs report for signs of what is happening with wage growth but emphasized his focus on inflation data when thinking about the September rate move.“Ultimately, I’m very focused more than anything on the inflation data and the inflation expectation data,” Kashkari said in a Monday interview that aired on Thursday. “For me individually, I don’t think the labor market itself is going to be determinative of 50 versus 75.”That sentiment was echoed by Atlanta Fed chief Raphael Bostic. “Incoming data — if they clearly show that inflation has begun slowing — might give us reason to dial back from the hikes of 75 basis points,” Bostic said in an essay posted on his bank’s website Tuesday.©2022 Bloomberg L.P. More

Investing.com — One of China’s biggest cities goes into lockdown over a COVID-19 outbreak, dragging commodities and stocks down across the world. U.S. stocks are set for a fifth straight drop, ahead of the release of more data from the labor market and the ISM manufacturing survey. China’s private-sector manufacturers fell back into contraction last month. NVIDIA added to chipmakers’ litany of woes, and Broadcom reports earnings after the bell. Here’s what you need to know in financial markets on Thursday, September 1.1. China lockdown drags commodities, stocks lowerBeijing’s COVID Zero policy returned to haunt commodity markets again overnight, as the city of Chengdu – capital of Sichuan province and home to 21 million people – went into lockdown.The news hit base metals prices particularly hard, with copper, Nickel and Aluminum all falling over 2%, while Zinc Futures fell over 6%. Mining stocks such as BHP (LON:BHPB) and Rio Tinto (LON:RIO) also fell sharply in London.While Chengdu has nothing like the direct importance to world markets that Shanghai has, it’s nonetheless an important industrial center. Volvo Cars (ST:VOLCARb) said its plant there will shut down temporarily. Others are likely to follow.2. U.S. jobless claims, ISM survey The U.S. economic data flow continues thick and fast with Challenger’s August job cuts survey due at 07:30 ET, the release of weekly jobless claims at 08:30 ET, and finally the Institute of Supply Management’s purchasing managers index at 10:00 ET.The data will be released into a market whose hopes for a quick end to the monetary policy tightening cycle have taken a succession of blows in the last week, Cleveland Fed President Loretta Mester’s comments on Wednesday being the latest. Mester poured cold water specifically on the thought of a first rate cut coming before 2024.Challenger’s survey is likely to confirm an increase in the pace of lay-offs but recent jobless claims numbers – and the Labor Department’s JOLTS survey on Tuesday, have suggested that there are still plenty of other jobs around. Initial claims are expected to have ticked a little higher to 248,000.The ISM PMI may be more interesting, in what it says about progress in overcoming supply chain bottlenecks. ADP’s payrolls report on Wednesday confirmed that net hiring in manufacturing has come to a standstill, however.3. Stocks set to open lower, as hope for a Fed pivot fadesU.S. stock markets aren’t even trying their usual premarket bounce this morning, as the news from China deals another blow to sentiment about the economy without offering much in the way of lower inflation pressures to compensate.By 06:20 ET, Dow Jones futures were down 161 points, or 0.5%, while S&P 500 futures were down 0.7%, and Nasdaq 100 futures were down 1.1%. The main cash indices have fallen for four straight days, losing between 0.6% and 0.9% on Wednesday.Stocks likely to be in focus later include Bed Bath & Beyond (NASDAQ:BBBY), whose latest drastic cost-cutting measures did little to stop selling in the stock even in after-hours trading on Wednesday, and Walt Disney (NYSE:DIS), which the Wall Street Journal reported as planning a membership scheme akin to Amazon’s Prime service.Hormel Foods (NYSE:HRL) and Campbell Soup (NYSE:CPB) report earnings early, while Lululemon (NASDAQ:LULU) is up after the closing bell.4. NVIDIA warns of new hit to China sales; Broadcom earnings eyedSemiconductors are also likely to be in focus after NVIDIA (NASDAQ:NVDA) warned of another hit to revenue from U.S. restrictions on sales of its artificial intelligence chips to China.NVIDIA said it stands to lose $400 million in sales each quarter from a new requirement for it to get a license to export some of its products.The news comes in the middle of a rough week for chipmakers: Korean chipmakers reported their first quarterly drop in shipments three years earlier, while inventories of unsold chips are up 80% on the year.That all makes for an interesting backdrop to Broadcom’s (NASDAQ:AVGO) quarterly report after the bell5. Oil slumps on lockdown, Caixin PMI newsCrude oil prices also slumped to a two-week low on the bad news out of China, which wasn’t restricted to Chengdu. The Caixin manufacturing PMI, a gauge of private-sector manufacturing activity, fell back into contraction territory last month at a level of 49.5, worse than expected.That’s outweighing any short-lived support from a surprising 3.3 million barrel drop in U.S. crude stocks last week.By 06:30 ET, U.S. crude futures were down 2.3% at $87.52 a barrel, while Brent crude was down 2.4% at $93.39 a barrel. More