Economy

(Reuters) – Snap Inc (NYSE:SNAP) said on Wednesday revenue growth in the third quarter is running at the slowest rate in the company’s history, as high inflation, rising interest rates and a deteriorating economy continues to ravage the advertising industry.As a result, the parent company of Snapchat said it will cut 20% of all staff, restructure its advertising sales unit and shut down projects including mobile games and novelties like a flying drone camera, in order to focus on improving sales and the number of Snapchat users. Snap had more than 5,600 employees at the end of last year.Investors have viewed Snap as an early indicator for trends affecting other social media platforms including Facebook (NASDAQ:META) owner Meta Platforms, Pinterest (NYSE:PINS) and Twitter (NYSE:TWTR), as the company is usually first to report quarterly earnings or provide business updates.Snap’s warning in May that it would miss its revenue targets due to worsening economic conditions sparked a selloff of social media stocks.Shares of Santa Monica, California-based Snap closed down 2.5% at $10 on Tuesday after The Verge first reported Snap’s plans for layoffs, and AdAge reported the departure of two top advertising executives.Revenue growth so far in the third quarter is up 8% over the previous year, which is “well below what we were expecting,” Chief Executive Evan Spiegel wrote in a memo to employees that was also released publicly on Wednesday. If that growth rate holds, it would be the slowest revenue growth Snap has had since becoming a public company in 2017 – a far cry from triple-digit growth rates it has recorded in previous quarters.Two of Snap’s top ad sales executives – Chief Business Officer Jeremi Gorman and Vice President of ad sales Peter Naylor – are leaving to join Netflix (NASDAQ:NFLX) and build the streaming service’s ad business.Gorman, a long-time advertising executive who previously worked at Amazon (NASDAQ:AMZN), was instrumental in building Snap’s ad business, said Jasmine Enberg, principal analyst at research firm Insider Intelligence.Gorman and Naylor’s departures come after Snap reported a disappointing second quarter and is facing more competition from TikTok, she said.”Snap is clearly going through a tough time,” Enberg said. ‘FACE THE CONSEQUENCES’Despite reducing spending in some areas, Snap must now “face the consequences of our lower revenue growth and adapt to the market environment,” CEO Spiegel wrote in the memo.Senior vice president of engineering Jerry Hunter will be promoted to chief operating officer and will be responsible for improving coordination between engineering, ad sales and product teams, Spiegel said. Snap and other social media platforms including Meta have all suffered from privacy updates that Apple (NASDAQ:AAPL) introduced on iPhones last year. These have made it difficult for digital ad sellers and advertisers to target ads to relevant audiences and measure their sales results. Closer collaboration between engineering and sales could potentially help Snap improve targeting and measurement of its ads.The restructuring of the ad sales division also includes three new president roles that will oversee the Americas, Europe, Middle East and Africa, and Asia-Pacific regions. Snap will also discontinue investment in its Pixy flying drone camera, just a few months after debuting in May. More

The world economy these days seems bent on serving up one apparent justification after another for regarding international trade with deep suspicion. On top of the US-China tensions, Covid lockdowns, snarled-up shipping and Russia’s full-scale invasion of Ukraine, the latest grist to the reshorers’ mill is the massive global energy shock and the threat of interruptions to cross-border supply. The disruption has triggered instincts to race towards energy self-sufficiency. One essentially irrelevant idea from Liz Truss, UK prime minister presumptive, involves dealing with Britain’s impending fuel crisis by flogging the ageing horse of the North Sea’s oil and gas deposits to increase output.It’s natural for governments to be involved in the politicised business of energy supply, given its economic indispensability and the scale of infrastructure needed. What is now called “friendshoring” and applied to goods like electric vehicles has long been at work creating alliances over fossil fuels. Jimmy Carter emphasised human rights during his presidency, but the 1980 Carter Doctrine threatened military force to protect “American interests” — that is, oil — involving unsavoury friendships in the Gulf.There’s a great deal of path dependence in energy supply. Given the financial and political cost of drilling wells, laying pipelines, creating nuclear power stations, building gas terminals, covering the countryside in wind turbines and so on, governments are reluctant to incur the costs of diversifying against as yet unrealised risks. Over the decades, a solid political consensus can easily grow around a particular model which works well until it suddenly doesn’t.Germany’s big bet on Russian gas supply dates back to the “Ostpolitik” era of detente with the Soviet Union in the 1970s. Back then the logic of engagement with Moscow, though still debatable, was clear. But it was a massive error to continue relying on Russian gas after the rapprochement between Moscow and western Europe had been reversed by Vladimir Putin in the 2000s, and particularly after his invasion of Crimea in 2014.Germany’s efforts since March in building liquefied natural gas terminals and looking for other sources of oil and gas have been impressive, as have its efforts to reduce demand, but it has decades of established practice to overthrow to relearn the lessons of the past. As a salient example, Berlin Brandenburg airport, newly opened after decades of delays, depends heavily for its kerosene jet fuel on the nearby Russian-owned Schwedt oil refinery. Authorities have been warningthat a complete German embargo on Russian oil will threaten the airport’s operations. By contrast Berlin’s former airport, Tegel, was more resilient even during the cold war: a diversification rule meant aeroplane fuel arrived by a variety of means including truck and train.But it’s also vital to note the dangers in attempting to eliminate the risk from unreliable foreign suppliers by trying to do everything at home. Churchill’s often-cited assertion about energy security back in 1913, that “safety and certainty in oil lie in variety [of suppliers] and variety alone”, might equally apply to types of energy and modes of supply as countries.In France during the decades after the second world war, a policy elite seeded with engineering expertise through the “Corps des Mines” educational cadre developed an energy supply consensus based on large-scale domestically-generated nuclear power, which fitted well with the prevailing economic doctrine of state-directed autonomy. It looked like a good bet, and produced decades of domestic supply and power exports. But over-dependence on a single source is always risky. In recent years under-investment in and mismanagement of nuclear facilities by the utility EDF has reduced output, forcing France to import power from neighbouring countries and leaving its economy vulnerable to the global energy shock.The reality is that governments have to manage rather than avoid international relationships in energy supply, including electricity generated from renewable domestic resources like wind and solar. It’s long been the case in Europe and the US that making the widespread adoption of solar power affordable depended on imports of equipment from low-cost producers in Asia. The Biden administration has got itself into a horrendous tangle over blocks on imports of solar equipment after US producers complained about unfair competition.The same is true of other renewables like wind power, particularly offshore wind, where Chinese companies have come in to provide equipment and run generating facilities in Europe. There are, of course, hazards involved in relying on Chinese suppliers and operators, including those with close links with the military. But given the interdependencies involved, the answer is to undertake a realistic assessment of risks and continue to widen the range of energy sources, not to embark on a widespread reshoring campaign.It’s pretty easy to see that Germany’s political and industrial establishment made historical mistakes in relying on single suppliers like Russia. It’s harder and more expensive to fix the problem by diversifying trading partners, sources and modes of supply rather than continuing to pick individual winners or trying to bring all energy generation [email protected]

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COLOMBO (Reuters) – Crisis-hit Sri Lanka has reached a preliminary agreement with the International Monetary Fund (IMF) for a bailout, four sources with direct knowledge of the plan have told Reuters.The debt-laden country has been seeking up to $3 billion from the global lender in a bid to escape its worst economic crisis since independence from Britain in 1948. Sri Lankans have faced acute shortages of fuel and other basic goods for months, leaving it in political turmoil and inflation which is now soaring at almost 65%.The sources, who declined to be named ahead of an official announcement planned for Thursday, did not say how much money Sri Lanka might get but optimism around the news sent the country’s bonds to their highest level in two months.The IMF said its team, that has been in the country for a week, had extended its stay by a day and that a news conference would be at the Sri Lankan central bank on Thursday.”The IMF Mission in Colombo has been extended by one day because discussions are still ongoing with the authorities,” the IMF said in statement.The government did not respond to requests for comment, although Sri Lanka’s new President Ranil Wickremesinghe had told its parliament during a budget presentation on Tuesday that talks with the IMF had reached the final stage.Staff-level IMF agreements, as they are known, need to get formal approval of its management and executive board before recipient nations get any funding.The IMF team held talks with government officials, including the treasury secretary, late into the night on Tuesday to address concerns on the political front, the sources said.Many of the more technical issues had been agreed to beforehand they added, although political analysts and investors expect the IMF will now also need to see signs that India, China and Japan that have lent to Sri Lanka remain supportive. Colombo’s main share index jumped 2.6% on news of the preliminary loan pact, continuing its best month since January last year.Government bonds, which are now in default, jumped as much 3.7 cents on the dollar too although most remain at just a third of their face value and have yields of around 50% on expectations that much of the money will have to be written off. Sri Lanka’s debt crisis https://fingfx.thomsonreuters.com/gfx/mkt/znvnewdjbpl/Pasted%20image%201661948557583.png CRISIS Sri Lanka was plunged into full-blown crisis last month when then-president Gotabaya Rajapaksa fled amid a popular uprising against its economic collapse.Rajapaksa was replaced by Prime Minister Wickremesinghe, who also heads the finance department and has held several rounds of talks with the IMF team.The country also needs to restructure nearly $30 billion of debt. Japan has offered to lead talks with the other main creditors including India and China.It will also need to strike a deal with international banks and asset managers that hold the majority of its $19 billion worth of sovereign bonds, that are now classed as in default.”I think there will be quite a few prior actions that will be necessary (before the IMF’s money is disbursed),” said Carlos de Sousa at Vontobel Asset Management, one of the funds that bought Sri Lankan bonds. He cited progress such as plans for an immediate VAT increase but cautioned that the IMF would also want to see greater independence given to Sri Lanka’s central bank, as well as progress on the India, China and Japan issue. “That will probably take a bit longer,” de Sousa added. “We are not there yet.”Sri Lanka’s debt had soared to unsustainable levels in the run up to the crisis. Years of populist tax cuts had depleted finances. The COVID-19 pandemic then hammered its tourism sector and slashed remittances from workers overseas.The damage was compounded further by a ban of fertilisers that hit the farming industry and then over the last year by soaring oil and food prices. Mark Bohlund, senior analyst at Redd Intelligence, said the agreement puts pressure on the main creditors to come up with financing assurances so the IMF can approve the program and funds can be disbursed.”I’m optimistic that the financing assurances can be found relatively quickly,” he said, noting Sri Lanka’s geopolitical importance for the creditors. Sri Lanka’s depleted reserves https://fingfx.thomsonreuters.com/gfx/mkt/mopanemymva/Pasted%20image%201661948160452.png More

Private payrolls grew by just 132,000 for the month, a deceleration from the 270,000 gain in July, ADP said in its monthly payroll report.
August’s numbers add to the inflation worries, as the firm reported annual pay up 7.6% for the month.

A hiring sign is seen in a cafe as the U.S. Labor Department released its July employment report, in Manhattan, New York City, August 5, 2022.
Andrew Kelly | Reuters

Companies sharply slowed the pace of hiring in August amid growing fears of an economic slowdown, according to payroll processing company ADP.
Private payrolls grew by just 132,000 for the month, a deceleration from the 270,000 gain in July, the firm said in its monthly payroll report.

The Dow Jones estimate for the ADP count was 300,000.
“Our data suggests a shift toward a more conservative pace of hiring, possibly as companies try to decipher the economy’s conflicting signals,” said ADP chief economist Nela Richardson. “We could be at an inflection point, from super-charged job gains to something more normal.”
August payroll numbers are notoriously volatile. ADP’s release also comes at an uncertain time for a U.S. economy which saw negative growth for the first half of 2022 amid the highest inflation the nation has seen since the early 1980s. The more closely watched nonfarm payrolls report from the Bureau of Labor Statistics comes out Friday and is expected to show an increase of 318,000.
The report had been on public hiatus through the latter part of the summer as the firm adjusted methodology and entered into a partnership with the Stanford Digital Economy Lab.
While much of the changes are technical in nature, ADP’s count differs in how it accounts for issues such as weather and natural disasters. The company also differs from the BLS in that ADP’s count includes any employees active in the company, while the BLS measures only those who have been paid that month.

In addition to the changes in the way the jobs total is counted, ADP now is providing wage information. August’s numbers add to the inflation worries, as the firm reported annual pay up 7.6% for the month.
From a sector standpoint, services-related industries accounted for most of the jobs, with 110,000 added positions. Leisure and hospitality grew by 96,000 while seeing pay increases of 12.1%. Trade, transportation and utilities contributed 54,000.
However, several sectors saw decreases. They included financial activities (-20,000), education and health services (-15,000) and professional and business services (-14,000).
On the goods-producing side, construction added 21,000 and natural resources and mining saw a 2,000 gain. Manufacturing was flat.
From a business size perspective, companies with 500 or more employees grew by 54,000. Medium-sized businesses added 53,000 while those with fewer than 50 employees saw a 25,000 gain.

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“My current view is that it will be necessary to move the fed funds rate up to somewhat above 4 percent by early next year and hold it there; I do not anticipate the Fed cutting the fed funds rate target next year,” Mester said in prepared remarks to a local chamber of commerce in Dayton, Ohio.The Fed currently targets its policy rate in the 2.25%-2.5% range. Mester also repeated previous comments that she will be basing her decision on whether to back a third straight 75-basis point interest rate hike next month primarily on the inflation outlook, rather than the closely watched monthly jobs report.The Cleveland Fed chief said that the Fed has to guard against “wishful thinking” and it was far too soon to conclude inflation has peaked. Bringing inflation back down to the Fed’s 2% target would take a lot of fortitude, Mester added.”This will be painful in the near term but so is high inflation,” Mester said. More

Europe’s bond market is on course for its worst month on record as investors have bet on big rate rises from the European Central Bank and Bank of England at a time of unprecedented inflation.The region’s market for high-grade government and corporate debt posted a fall of 5.3 per cent in the month to Tuesday, the biggest drop since the Bloomberg Pan-European Aggregate Total Return index began in 1999. The decline has been broad, with UK, German and French debt all hit by heavy selling in a reversal of July’s gains. The continent’s bond markets have been knocked as investors brace for more aggressive central bank rate rises in the face of surging food and fuel prices triggered by Russia’s war in Ukraine. The selling picked up speed on Wednesday after a fresh round of data showed the rate of consumer price growth in the euro area hit a record high of 9.1 per cent in August. The report underlined how high inflation is becoming embedded more broadly across the economy. The higher than expected inflation figure puts further pressure on the ECB to accelerate the pace of interest rate rises when policymakers next meet in September. The central bank in July raised its main interest rate for the first time in more than a decade but economists expect it will need to pursue further increases as it battles intense inflation. The BoE is engaged in a similar effort to quell surging inflation in Britain, which is running at the highest level in more than 40 years.“The one single factor that’s driven bond yields higher in August is the explosion of energy prices in Europe,” said Antoine Bouvet, senior rates strategist at ING. This month, investors ramped up their expectations of interest rate rises from the ECB and BoE as energy prices continued to spiral. Markets expect the ECB’s borrowing costs to hit 2 per cent by March from zero currently while the BoE is being priced to raise rates to 4.1 per cent in March from a current level of 1.75 per cent, according to Bloomberg data based on pricing in money markets. “Clearly the hawks have the momentum in their favour,” said Bouvet.Germany’s central bank president Joachim Nagel has said that soaring inflation will require “a strong interest rate hike in September”, leaving markets anticipating a big 0.75 percentage point rise.“It’s a whites of the eyes situation . . . even if inflation does pass its peak, the central banks are going to remain hawkish,” said Richard McGuire, head of rates strategy at Rabobank. The yield on Germany’s benchmark 10-year Bund has risen more than 0.7 percentage points to 1.54 per cent in August, its biggest monthly jump since 1990. The yield on the UK’s 10-year gilt has climbed from 1.8 per cent at the start of August, to 2.8 per cent on Wednesday. The prospect of steep borrowing costs has also triggered worries about a potential recession across Europe and the UK next year, with some expecting central banks to be forced to cut interest rates come spring.“Everything is aligned in the same direction and it all spells disaster for the consumer,” said McGuire.Additional reporting by Ian Johnston More

MADRID (Reuters) – After struggling a bit with the ticket machine at Madrid’s grand 19th century Atocha railway station, 26-year-old Jennifer Bernard Quintana and her sister became the happy owners of free travel passes valid from Thursday.With inflation near record highs of above 10% year-on-year, Spain’s Socialist-led government hopes to alleviate living expenses and encourage more people to take public transport by providing them with free monthly passes for all local and medium-range intercity routes. Long-haul trips and single tickets are excluded. “I think it’s a great initiative,” Jennifer, who works in social media, told Reuters.”I’d love this to be a permanent thing as it would help to make things in general less expensive and we’d have more mobility… this is a good way for the government to invest the money we pay in taxes.” Her mother Toni, 55, said the discount would help the family save more than 80 euros ($80) a month on her two daughters’ transport cards. “We need more initiatives like this,” she said. “We parents can’t pay anymore. We don’t have the same budget for doing the same things with our children as we did before.”Almost half a million people have already pre-ordered the free transportation cards, and state-owned railway operator Renfe expects the scheme, in force until year-end, to result in 75 million free railway journeys. “It’s very easy to apply and to use. Given the economic situation, for us this is a great help,” said 18-year-old student Anastasia Adamova.Germany has promoted a similar initiative, starting in June and ending in September, which was a huge success and reduced traffic jams in major cities.The Spanish scheme, which also includes discounts on other types of public transport, will cost 221 million euros. It is part of the latest aid package to mitigate price rises, approved in June, worth a total of 9.5 billion euros, including value-added tax reductions and Social Security exemptions.($1 = 0.9976 euros) (This story refiles to fix date) More

Eurozone inflation rose to a record 9.1 per cent in the year to August, intensifying fears that soaring prices are becoming embedded in the economy and bolstering calls for the European Central Bank to raise interest rates more aggressively next week.The flash estimate of consumer price growth published by Eurostat, the European Commission’s statistics bureau, on Wednesday was up from 8.9 per cent in July, which was itself the highest level in the 23-year history of the euro. It was also higher than the 9 per cent expected by economists polled by Reuters. The fallout from Russia’s invasion of Ukraine has sent wholesale gas and electricity prices surging to record levels in Europe in recent weeks and pushed up the cost of fertiliser and other agricultural commodities, such as wheat. The latest rise in food and energy prices is set to exacerbate a cost of living crisis that has hit households and businesses across the 19-country bloc. Germany’s central bank president Joachim Nagel responded to the news by saying high inflation was “becoming an enormous burden for more and more people”. He added: “We need a strong interest rate hike in September. And further interest rate hikes can be expected in the coming months.”Eurozone government bonds sold off, sending their yields higher after the data was released, reflecting growing expectations that the ECB will raise rates by 0.75 percentage points for the first time in its history on Thursday next week. The central bank, which targets inflation of 2 per cent, currently has a benchmark deposit rate of zero. Germany’s 10-year bond yield rose 7 basis points to 1.58 per cent after the inflation number was published, while Italy’s 10-year bond yield rose more than 10 basis points to 3.93 per cent. The euro fell back below the value of the US dollar to $0.9979, adding to inflationary pressure by raising the price of imports in the eurozone.The EU is preparing emergency measures to curb the price of electricity by separating it from the soaring cost of gas. News of the preparations has helped to bring wholesale energy prices down from their record highs in recent days.But a growing number of ECB rate-setters worry the inflationary shock caused by the disruption of the invasion of Ukraine has been accentuated by the reopening of European economies as coronavirus restrictions were ended earlier this year. The removal of stimulus measures to cushion the blow of higher prices are also expected to lead to more price pressures in the coming months. Economists expect inflation to accelerate further in September, when several of the German government’s measures expire, including a fuel duty rebate and a subsidised €9 monthly train ticket. “Before the end of the year, we expect headline inflation to hit 10 per cent,” said Jack Allen-Reynolds, an economist at Capital Economics. “With ECB policy rates a long way below appropriate levels, it is clear that the bank will raise interest rates by a larger-than-normal increment next week. A 75 basis point hike looks increasingly likely.”Further upward pressure on prices is likely, said Commerzbank economist Christoph Weil, “because many companies have not yet fully passed on their higher production costs to consumers”.Eurostat said energy price inflation decelerated slightly, but still rose 38.3 per cent in the year to August. Price rises of processed food, alcohol and tobacco accelerated to hit 10.5 per cent, their first double-digit increase.The closely tracked measure of core inflation, which excludes more volatile energy and food prices to give economists a clearer idea of underlying price pressures, rose 4.3 per cent in August, up from 4 per cent in July.There are also signs of inflationary pressures becoming more broad-based, after goods prices rose 5 per cent — up from 4.5 per cent in July — while services price increases accelerated slightly to 3.8 per cent. Compared with the previous month, overall prices were up 0.5 per cent.Several ECB governing council members have warned inflation risks becoming entrenched well above target if more consumers and businesses expect it to stay elevated, even if the eurozone slides into a recession this year as many economists are forecasting. Some rate-setters have called for the central bank to counter this risk with a “front-loading” of the expected path of rate rises by stepping up from an initial half percentage point rise in July to increase its deposit rate from zero to 0.75 per cent at their meeting next week. But others, including chief economist Philip Lane, have said a “steady pace” of rate rises would be less risky and allow for a future downward adjustment in inflation forecasts. More