Economy

The higher expenditures will be mainly covered by hiking wealth and corporate taxes, with a special levy on oil and gas companies whose profits have soared during the energy crisis, broadcaster RTL said, citing government sources.Prime Minister Mark Rutte said early on Wednesday his government coalition had agreed in negotiations that ran well into the night on ways to combat record-high inflation.He declined to comment on details of the plan, which will be presented with the government’s 2023 budget on Sept. 20.Measures will mainly benefit people on lower incomes, RTL said, through a 10% increase of the minimum wage and higher income-related subsidies for health care and rent.The tax rate for incomes up to around 37,000 euros per year will be lowered, while cuts in energy and fuel taxes introduced this year have been extended into 2023. Inflation in the European Union member country reached 13.6% in August, the highest level since measurements based on a European standard for consumer prices were introduced in 1996.($1 = 1.0017 euros) More

Investing.com — Payrolls processor ADP presents its first report on private-sector hiring after a methodology makeover. Eurozone inflation hits a new record high as Russia turns off the gas taps on Nord Stream. Snap is reportedly planning big job cuts and HP and Best Buy earnings paint a bleak picture for consumer electronics. China’s manufacturing sector is still shrinking, and oil prices slump as stockpiles rise and reports of an imminent deal to restore Iranian exports circulate. Here’s what you need to know in financial markets on Wednesday, 31st August. 1. ADP payrolls are backThe ADP private payrolls survey is back, after a couple of months in which the payrolls processor worked to iron out some of the quirks in its methodology which had undermined its usefulness as an advance guide to the official labor market report.The market may not want to trade much on the first set of numbers under the new methodology but  the consensus forecast of a relatively modest 300,000 gain in nonfarm payrolls on Friday is already at risk of an upside surprise. The monthly Job Openings survey on Tuesday showed vacancies still abundant, while jobless claims numbers (due Thursday) have also stayed lower than many expected a month or two ago.Speeches from Federal Reserve presidents Loretta Mester, Lorie Logan and Raphael Bostic also punctuate the economic calendar.2. Eurozone inflation hits new record high as Russia turns off the tapsInflation in the Eurozone rose to a new record high of 9.1% in August, again overshooting expectations in a repeat of what has been a depressing pattern this year.The numbers add to pressure on the European Central Bank for a big rate hike at next week’s meeting. German central bank chief Joachim Nagel called in a speech for a “decisive” reaction from the ECB to stop inflation expectations de-anchoring. However, the bank’s dovish chief economist, Philip Lane, said on Tuesday that he favored a more gradual series of smaller steps.The euro was unable to hold above $1.000, falling 0.2% to 0.9990, pressured by Russia confirming its intention to stop gas supplies through the Nord Stream pipeline for three days of “maintenance”. Analysts fear a longer, politically-driven shutdown to intensify the economic squeeze on the continent as Russia struggles with its own problems on the battlefield in southern Ukraine.3. Stocks set to open mixed; Snap job cuts in focusU.S. stock markets are set to open mixed later, struggling to break a three-day losing streak driven by fears of higher interest rates.By 06:15 ET (10:15 GMT), Dow Jones futures were down 44 points, or 0.1%, while S&P 500 futures were up 0.2% and Nasdaq 100 futures were up 0.5%.Stocks likely to be in focus later include Snap (NYSE:SNAP), which is reported to be planning big job cuts, and HP (NYSE:HPQ), which is down over 6% premarket after giving a disappointing outlook for the PC sector. Weak spending on consumer electronics also hit Best Buy’s (NYSE:BBY) earnings, although its numbers were in line with forecasts. Crowdstrike (NASDAQ:CRWD) and Hewlett Packard Enterprise (NYSE:HPE) by contrast continued the relatively strong run of reports from the business software sector.JPMorgan (NYSE:JPM) may also get some attention after news that its German offices were raided in a wide-reaching probe into tax evasion by banks lasting years.Brown-Forman leads a thin slate of earnings.4. Chinese manufacturing still in contractionChina’s manufacturing sector spent another month in contraction in August, according to the official Purchasing Managers Index published overnight.The official PMI, which tracks the activities mainly of larger, state-owned enterprises, rose by more than expected but, at 49.4, was still below the key 50 line that signifies growth. The composite PMI, at 51.7, was consistent with moderate expansion, but came in lower than estimates due to a fall in the services PMI.The offshore yuan, which sank to a two-year low on Monday amid ongoing unease at the weakness caused by Covid lockdowns and the deleveraging of the real estate sector, strengthened by some 0.2%.5. Oil slumps on stock build, Iran reportsCrude oil prices fell sharply after reports said Washington and Tehran had reached an agreement to revive the UN-backed deal limiting its nuclear activities.By 06:30 ET, U.S. crude futures were down 3.3% at $88.62 a barrel, while Brent futures were down 3.2% at $94.75 a barrel.A deal between Iran and the West would lead to the lifting of sanctions on Iran and see the release of over 1 million barrels a day of supply into the world market.The Chinese PMI data and a surprise increase in U.S. crude stocks, measured by the American Petroleum Institute, added to the downward momentum. The U.S. government’s inventory data are due at 10:30 ET as usual. More

Whatever quarterly growth statistics are showing, there’s little sign yet of looming recession in U.S. employment.And if the Federal Reserve sees a tight U.S. labour market as both a window and a reason to aggressively tackle inflation, then this week’s readouts on hiring confirm the more hawkish interest rate horizon now being priced by markets.Stocks wobbled again after the numbers and two-year Treasury yields are hovering just under 3.5%, their highest since just before the banking crash of 2007/08. Inflation-adjusted two-year yields from the index-linked bond market are at their highest since the pandemic hit.But Tuesday’s surprisingly strong report on U.S. job vacancies was for the month of July, during a bout of summer optimism in U.S. markets around peak inflation. August readings on private sector jobs from ADP later on Wednesday and the national payrolls report on Friday will test how durable corporate hiring plans have been since. Consensus forecasts for both are strong, with the ADP expected to show job growth of 288,000 this month – more than twice the pace of July’s increase.Awaiting the report, there was no bounce in world stock markets or Wall St futures – with euro zone inflation showing few signs of peaking just as Russia started a 3-day gas outage through its Nordstream 1 pipeline amid doubts about when or even whether it will resume.Headline and core euro zone inflation exceeded expectations this month, with the former hitting 9.1% for the first time. Markets are now leaning toward 75 basis point interest rate hikes from both the Fed and the European Central Bank next month, with euro zone government borrowing rates climbing sharply to reflect that. Borrowing costs in Germany are likely to end August with their biggest monthly surge in over 30 years.While this has helped stabilised the euro against the dollar this week, the greenback remains pumped up against sterling, Japan’s yen and China’s yuan. The Bank of Japan shows no sign of joining the other G7 central banks in tightening as the economic recovery sputters. China’s central bank is trying to slow the pace of yuan losses as COVID-19 flare-ups and lockdowns pick up. The only positive development in the inflation picture is that crude oil prices are falling again – partly reflecting the recessionary storm clouds gathering.Key developments that should provide more direction to U.S. markets later on Wednesday:* U.S. August ADP private sector jobs* Chicago PMI for August * Dallas Fed chief Lorie Logan, Cleveland Fed chief Loretta Mester, Atlanta Fed chief Raphael Bostic all scheduled to speak * U.S. Corporate Earnings: Cooper Companies, Brown-Forman More

SACRAMENTO, Calif. (Reuters) – A record-breaking heat wave is expected to hit California on Wednesday, bringing temperatures of up to 115 degrees Fahrenheit (46°C) in the state’s inland valleys and 100 degrees along the coast over the Labor Day weekend, the National Weather Service (NWS) said.Excessive heat warnings were issued on Tuesday for much of the state, warning of the risk of heat-related illness for people exposed to prolonged outdoor heat, as well as stress to livestock.”It’s not uncommon to get some hot temperatures during the Labor Day period, but this is an extraordinary heat event,” said Eric Kurth, a meteorologist with the NWS’s Sacramento office.The heat wave comes on the heels of a bout of prolonged high temperatures just two weeks ago in a state that has been pummeled by extreme weather and ongoing drought.High temperatures, drought and severe storms are expected to increase globally as human-caused climate change progresses, scientists say. In Pakistan, massive flooding has killed more than 1,000 people, and parts of the southeastern United States have also been inundated in recent weeks.In California, the heat will gradually build throughout the week, hitting the southern part of the state first but then scorching the northern regions over the long holiday weekend, the NWS said. Temperatures could reach all-time highs in many parts of state, including the state capital of Sacramento, where the mercury could climb as high as 112 degrees on Monday and 113 degrees on Tuesday.The extreme heat is being caused by an area of high pressure that built up over the desert in the southwest, which will move through California over the next several days, Kurth said.Evenings, particularly in foothill areas, will likely bring little relief, he added.The heat is also expected to affect other parts of the west beginning Wednesday, including Washington State, Idaho, western Montana and Oregon, said Sarah Rogowski, a meteorologist and emergency response specialist with the National Weather Service’s regional office in Utah. A fire weather watch is in effect for the Northern California counties of Modoc and Siskiyou, which face a combination of extreme temperatures and high winds, she said. More

Investing.com — Germany’s central bank head called on the European Central Bank to act “decisively” to bring down inflation, adding to the pressure for a big interest rate hike at next week’s policy meeting. “Monetary policy must react decisively to preserve the credibility of its inflation target,” Joachim Nagel said in a speech on Wednesday, adding: “inflation rates will not come back to their target by themselves.” Nagel was speaking barely an hour after the publication of data showing inflation in the Eurozone hit a new record high of 9.1% in August, again overshooting analysts’ expectations in a repeat of what has become a worrying pattern for the ECB. The ECB’s governing council meets next week with all of its key interest rates at or above zero for the first time in eight years, having raised them by 50 basis points each at its last meeting in July. While it has indicated it intends to raise rates again in September, the bank’s top management hasn’t guided for a specific size of hike, and there are increasingly clear divisions between those – like Nagel – calling for the front-loading of rate hikes and others, such as the ECB’s Chief economist Philip Lane, who favor more gradual increases. Lane had said in a speech on Tuesday that he preferred a slower pace of hikes because of the extraordinarily high level of uncertainty about the economic outlook at the moment. He stressed the importance of not upsetting bond markets, which have a big influence in determining overall financing conditions in the economy. Nagel didn’t specify how big a hike he would argue for next week, but the Bundesbank is typically the most hawkish of the national central banks that are members of the Eurosystem. Newswires reported last week that some will press for a 75 bp hike in September. Nagel by contrast appeared more concerned about the effect of letting inflation run unchecked for too long.”The longer inflation stays high, the higher the risk that medium-term term inflation dynamics and inflation expectations, too, stick at a high level,” Nagel warned. Nagel had started his speech with an extended reference to the 1970s, attributing the popularity of Abba’s “Money, Money, Money”, Pink Floyd’s “Money” and Liza Minelli’s “Money Makes the World Go Round” to concerns about the inflation prevalent at the time. He acknowledged key differences with the 1970s, particularly in as much as the mandates of central banks to tackle inflation are more clearly defined and understood. He also noted that the automatic indexation of wages – especially in the public sector – has now all but vanished from Europe’s labor markets. However, Nagel argued, “certain parallels between the stagflation of that time and today do indeed exist.” He pointed to the fact that inflation had already been rising in both eras before the energy shocks that accentuated them. Fiscal policy, he added, had contributed to this, even though in today’s environment the big pandemic-era fiscal stimulus programs are now being wound down. More

German and UK government bonds were on track to close out one of their worst ever months, compounded by eurozone inflation data on Wednesday coming in higher than feared. The 10-year German Bund yield, seen as a proxy for borrowing costs across the eurozone, has climbed more than 0.7 percentage points in August to trade at 1.54 per cent — reflecting its biggest monthly surge since 1990. The two-year Bund yield, which closely tracks interest rate expectations, has posted its biggest jump in more than four decades — rising 0.04 percentage points on Wednesday to 1.19 per cent.In the UK, short-dated gilt yields have added more than 1.3 percentage points in August, their steepest ascent since 1994 — jumping 0.13 percentage points on Wednesday to 3.03 per cent. Bond yields rise as their prices fall.Those debt market moves came as figures on Wednesday showed that eurozone inflation hit a new record of 9.1 per cent in August, higher than July’s figure of 8.9 per cent. The flash estimate of consumer price growth published by Eurostat was higher than economists’ expectations of 9 per cent.Excluding food and energy costs, core eurozone inflation hit 5.5 per cent, higher than estimates of 5.1 per cent.Wednesday’s data were widely anticipated by investors searching for clues about how far and fast the European Central Bank will tighten monetary policy to curb price growth, which has been stoked by an escalating energy crisis. The ECB is due to make its next interest rate decision a week on Thursday.“The further increases in headline and core inflation in August, and likelihood that they will keep rising, will add to the pressure on the ECB to step up the pace of tightening. The balance of probabilities is shifting towards a 75bp hike next week,” wrote Jack Allen-Reynolds, senior European economist at Capital Economics, after the data release.The ECB raised borrowing costs in July for the first time in more than a decade by an unexpectedly large 0.5 percentage points to zero.The moves in German and UK bonds this month follow a much stronger July for both markets, reflecting a drastic repricing by investors of the extent to which the ECB and the Bank of England will hoist interest rates to battle inflation.At a closely watched economic symposium in Jackson Hole, Wyoming, last week, central bankers redoubled their commitment to tackling inflation, even in the face of stuttering economic growth. Hawkish rhetoric at the conference triggered three consecutive days of declines for global equities up to Tuesday’s close.Several European Central Bank governing committee members have since spoken about the need to continue tightening monetary policy. In a speech in Austria on Tuesday, Bundesbank president Joachim Nagel rejected calls to slow rate rises to protect economic growth.Some economists have warned that eurozone inflation will move above 10 per cent in the autumn and stay higher for longer owing to surging gas prices. Contracts linked to TTF, Europe’s wholesale gas price, were up 4 per cent on Wednesday at €278 a megawatt hour after reaching a high point of more than €340 a megawatt hour earlier this month.Russia on Wednesday halted gas flows to Europe via the critical Nord Stream 1 pipeline as Gazprom started three days of planned maintenance on the line.European equities extended their declines, with the regional Stoxx 600 slipping 0.7 per cent, while London’s FTSE 100 lost 1 per cent. Wall Street stock futures slipped lower, reversing earlier gains, with contracts tracking the broad S&P 500 falling 0.1 per cent. In Asia, Hong Kong’s Hang Seng closed the session flat and Japan’s Topix fell 0.3 per cent.The dollar added 0.2 per cent against a basket of six currencies. More

It takes about 21 ingredients to make a Totino’s pizza roll, the bite-size snack that soared in popularity during the pandemic as people sought easy-to-make meals.And on any given day since last winter, at least one of those ingredients, if not many, has either been difficult to find or insanely expensive.The shortages became so bad at one point that General Mills, which makes Totino’s, simply couldn’t produce enough.“We had lots of empty shelves,” said Jon Nudi, the company’s president of North America. “Every time we had something fixed, something else popped up.”General Mills is not used to empty shelves. The company sells $19 billion worth of food a year, everything from Chex and Cheerios cereals, Annie’s organic Cheddar bunnies and Betty Crocker cake mixes to pet food under the Blue Buffalo brand. With 26 factories in North America, it juggles 13,000 ingredients from around the world for its many products.So the company’s scientists, supply chain heads and procurement managers began meeting daily late last year. The solution? The company found 25 ways — recipes, if you will — to make the pizza rolls, each with a slightly different list of ingredients, swapping in cornstarches, for example, for tapioca starch that had become hard to find, or substituting one kind of potato starch for another.From left, Nia Bowdoin, Conner Thompson, and Taylor May working in the Ingredion kitchen in Bridgewater, N.J.Lanna Apisukh for The New York TimesThe pizza roll conundrum is a microcosm of an issue that’s affecting the food industry more broadly. Managing soaring prices for most of the ingredients in cookies, chips and pizza is one thing. But for many food executives, the bigger headache now is wondering each week which ingredients will — or won’t — show up at their factories.For a while last year, sugar and low-calorie sweeteners like erythritol, which is used in products like yogurt and cereal, were tough to pin down. Then palm oil, an odorless and tasteless oil that’s in about half the packaged goods in supermarkets, became hard to find. After Russia invaded Ukraine, global supplies of sunflower oil, produced by both countries, disappeared. And more recently, because of the avian flu that swept across the United States this spring, egg prices soared, leading to shortages.While food companies have long had to manage scarcity of one or two ingredients because, say, drought reduced crop yields in a part of the world, the recent rolling shortages have affected multiple ingredients for a variety of reasons. And it’s not just ingredients that are M.I.A. Some packaging, such as aluminum cans, has been hard for soda and beer manufacturers to find.Many executives say the culprit is a combination of increased extreme weather patterns around the world because of the changing climate, global transportation and labor problems, the war in Ukraine, high energy prices, and ever-shifting consumer patterns in a post-Covid environment that make the years of data they collected to try to predict trends basically useless.“All of these wrinkles are cascading through the entire food system, and I don’t think anyone is banking on it resolving itself in the next 12 or 18 months,” said Joe Colyn, a partner at JPG Resources, which works with food companies and their supply chains. “Right now, supply trumps price. It’s more important to get surety of supply, because you can’t afford to shut the factory down because you don’t have what you need.”One ingredient being tested is pea protein, which adds texture to food.Lanna Apisukh for The New York TimesAfter years of whittling down the number of their suppliers to get better prices and keep up with quality control, food companies are racing to find alternatives. Just-in-time inventory systems that worked just fine for years are being overhauled, with companies adding warehouses, silos and storage tanks to hold raw ingredients and finished products for longer periods. They’re trying to reduce transportation costs, either by looking for manufacturers nearby or removing water from goods like vegetable and fruit juices — used frequently in beverages — and transporting them as concentrates.And, like General Mills, they’re revamping recipes, or “reformulating” in industry parlance. It’s not as easy as it sounds. Swapping out one oil or emulsifier for another not only can change the product’s texture or shelf life but can affect nutrition and allergy labeling.Testing substitute ingredients has become a greater focus at Ingredion, which food companies also hire to work on new products. Lanna Apisukh for The New York TimesThe Food and Drug Administration, which ensures that nutritional labels and other information on food are accurate, has put in temporary guidance to allow manufacturers to make “minor formulation changes” because of supply disruptions or shortages without updating the ingredient list.The leeway doesn’t apply to a change that increases the safety risk because it contains a food allergen or gluten, or that replaces a key ingredient or one featured in the name or marketing. For example, a product that claims to be made with “real butter” cannot now be made with margarine, and raisin bread must contain raisins.Before the pandemic, Ingredion, a company that makes sweeteners, starches and other ingredients used by large food companies, often had its 500 scientists and 26 labs all over the country working on new products for companies. But in recent months, much more of their time has been spent figuring out what happens to the taste, texture and shelf life of a food when one or two ingredients are switched out.“The overall reformulation of a product is a very complicated equation,” said Beth Tormey, a vice president and general manager of systems and ingredient solutions at Ingredion. “It has to meet parameters of texture and taste so that consumers like it, but it also has to fit into the regulatory box and the nutrition box. It all sounds simple from a distance, but it’s not.”Take eggs. They are, explained Leaslie Carr, a senior director at Ingredion, a key source of protein for many products, but they are more than that. For baked goods, for instance, they provide moisture and volume, helping make cakes light and fluffy.“Salad dressings also use a lot of egg for body and texture,” Ms. Carr said. “So we’re trying to figure out how to use different emulsifiers to reduce the amount of egg used, maybe reduce the egg amount by half, to produce the dressings. That gives you some flexibility to continue to manufacture the product until the egg situation stabilizes.”Mr. Thompson cutting out pizza rolls. “The overall reformulation of a product is a very complicated equation,” an Ingredion executive said.Lanna Apisukh for The New York TimesGeneral Mills started to notice the supply chain disruptions late last year.The company’s plant in Wellston, Ohio, which had churned out Totino’s pizza and pizza rolls, working to meet the surge in sales that accompanied the pandemic, suddenly couldn’t get key ingredients.“First it was the starch that we use for the cheeses,” Mr. Nudi said. “Then certain packaging and oils were hard to find. A lot of the materials that we use for Totino’s were challenged from an ingredient standpoint.”By February, there weren’t enough Totino’s pizza and pizza rolls to keep grocery freezer sections full.By then, the company had started daily meetings across its research and development, procurement and supply chain departments to figure out how to revamp and substitute ingredients. For instance when starch became difficult to find, the company began substituting and combining different starches in order to figure out what worked to make the pizza rolls look and taste the same.Ms. May removing pizza rolls from an oven. For General Mills, the starch in cheeses in its Totino’s pizza rolls was an early scarcity. Lanna Apisukh for The New York TimesIn March, the company had filled freezer sections again, Mr. Nudi said.But the lessons being learned from the “new normal” in the supply chain are being felt across the entire company.Before the pandemic, the packaged food industry was a stable environment, with a consistent level of growth, Mr. Nudi said. That made having a secure, steady supply of ingredients easier.Now General Mills is lining up multiple suppliers for each ingredient and keeping more ingredients on hand.“Just-in-time deliveries don’t work anymore,” Mr. Nudi said. “We’re adding to inventory, holding more dry ingredients and fats and oils, even though that’s tough too right now. We need tanks to store those liquids, and those just aren’t readily available.” More

The Office for National Statistics has decided that a £400 discount from the UK government to help households with energy bills will not lower inflation this winter.In a ruling on Wednesday that will come as a blow to the Treasury, the move will see UK inflation jump in October to close to 13 per cent, according to economists, and then move higher in January when retail energy prices are forecast to rise again.Deutsche Bank has estimated that the decision will prevent a 2.7 percentage point reduction in the retail price index measure of inflation, which will cost the government £14bn this year in additional costs for index-linked government debt, according to Office for Budget Responsibility data.The decision was expected by most government officials because the rebate will be paid as a lump sum discount of the same amount to all households, but the classification choice was seen as a close call.Households will receive additional support for their incomes from a £37bn total programme that ministers have announced over the past year to help with energy bills, but none of this aid will show up in lower inflation statistics. Countries such as France, which has capped electricity bills with the government also paying tens of billions of euros to energy providers to cover losses, have lower inflation statistics. In recent days, more economists have been updating their inflation forecasts to reflect the 80 per cent increase in annual typical gas and electricity bills from £1,971 to £3,549 in October. Citigroup is expecting inflation to rise to 18.6 per cent in January and Goldman Sachs warned that inflation would exceed 20 per cent in January if wholesale gas prices stayed at the levels they rose to last week. The Bank of England’s latest forecast showed that consumer price index inflation would rise from its current 40-year high of 10.1 per cent in July to about 13 per cent in October, as the new £3,549 price cap came into force. If the ONS had decided to include the £400 energy bill support scheme in the CPI and RPI measures, it would have taken about 2 percentage points off that inflation statistic. ONS officials said they had looked at many possible classifications for the £400 per household energy price support. The ONS chose not to classify the money as a subsidy to energy companies, allowing gas and electricity suppliers to lower bills, because the money would not influence production decisions and was a flat rate amount rather than linked to household energy consumption. Classifying the payment as a subsidy would probably have counted in the inflation statistics although the ONS has not taken a definitive judgment because it chose to treat the payment as a current transfer paid by central government to the households sector.The ONS also looked at other potential definitions for the payments. It decided against classifying the money as social assistance because it was a universal payment and not targeted on particular vulnerable groups. Nor did the ONS see it as a social transfer in kind, such as a payment for residential care, or a capital transfer to households because it does not increase wealth, such as a debt cancellation, but was designed to support incomes. Those classifications would also probably not have shown up in the inflation statistics.Kate Barker, chair of the advisory panel on consumer prices, a body that helps the ONS think about inflation statistics, said “inflation effects will be less bad than the headlines will scream”, adding that “this looks as if it will be good news for pensioners, but energy is a big part of their spending”. More