Economy

WASHINGTON (Reuters) – Federal Reserve Chair Jerome Powell used his first four years as the world’s top central banker to reshape U.S. monetary policy around the idea that low inflation and low unemployment could coexist.It was a move intended to spread the gains of economic growth more widely and keep a focus on jobs during the rebound from the pandemic.But the assumptions on which it rested – a relatively frictionless global economy with a well-greased supply chain; a balanced U.S. labor market with just over one open job for each unemployed person – have been shattered by events that appear to have put the Fed’s two goals of full employment and moderate inflation back in opposition.Graphic: There and back again: Fed views of 2022 – https://graphics.reuters.com/USA-FED/SEPS/gdpzyexqmvw/chart.png Unemployment today at 3.6% is more akin to the 1950s and 1960s, with workers exercising leverage to negotiate higher wages and, given the pandemic, better working conditions. Inflation, however, is soaring at more than 8% annually, leaving Fed officials at a crossroads over how to tame it and facing the possibility that their “narrow path” back to the pre-pandemic world of low unemployment and low inflation may have all but closed.Fed officials are expected to raise interest rates for a third time this year on Wednesday, with a three-quarters-percentage point increase now seen as the likely outcome, with the possibility of signals for more large hikes as long as inflation keeps far overshooting their 2% target. [nL1N2Y02MC]In new projections, they will also provide their sense of what’s at risk, and what price the economy could pay through slowing growth and higher unemployment to get inflation back into line.A HEYDAY FOR JOBSArguably Powell’s approach did what was intended in the labor market. The employment rebound has been faster than many expected at the pandemic’s outset.Distributionally, it has also helped, consistent with the Fed’s view of maximum employment as something “broad and inclusive.” Wages have risen fastest for lower-paid occupations; more Blacks and Hispanics are employed than before the pandemic, while white employment in May remained 1.6 million below February 2020’s peak.Graphic: Minority employment surges – https://graphics.reuters.com/USA-FED/POWELL/akpezrdkbvr/chart.png Back in March, Fed officials saw inflation receding with no unemployment rate increase, but “we’re going to see some cracks” in that story in the new projections, predicted Nomura senior U.S. economist Robert Dent. The median projected unemployment rate may just rise a couple of tenths of a percentage point in coming years, as Fed officials hang onto their view of an economy that may still revert to pre-pandemic form.But “it is a tightrope…It would not be hard at all to see the economy tip into recession,” with joblessness rising to 5% or higher, he said. Some Fed officials have started opening the door to unemployment rates above 4%, the level policymakers roughly consider full employment.That’s likely to fall hardest on Black and Hispanic workers, whose unemployment rates typically rise faster in downturns.THE SAVINGS STOCKPILEOne unexpected outcome of the pandemic was a federal government response so strong that household incomes rose despite a recession. Some now argue the spending, in early 2021 in particular, left the economy with much more consumer demand than it can meet, adding to inflation.But it also offset what would have likely been rising poverty, hunger and homelessness. A lot of it, moreover, remains in household bank accounts. Data last week showed that through the end of March cash and checking deposits continued rising, to $4.4 trillion – more than triple the pre-pandemic level.Graphic: Households cash buffers spike – https://graphics.reuters.com/USA-FED/POWELL/gkvlgzrnapb/chart.png That also provided a buffer: In a recent Fed household survey respondents said they are in the best financial shape ever.But, to some degree, it may have to be spent down to fix inflation – and may make the Fed’s job harder as it gives people room to handle $5-a-gallon gas. The relationship between excess savings, its distribution across the economy, and people’s willingness to use the cash to cover higher prices is a key issue in the Fed’s inflation puzzle.LOW BANKRUPTCY RATESAnother pandemic shoe that never dropped: Bankruptcy rates fell as the Paycheck Protection Program and other initiatives kept firms alive.A recession or significant slowdown may well trigger the washout that never happened. According to data from Epiq, Chapter 11 commercial filings in May increased 34% from a year earlier, though overall commercial filings were down slightly.American Bankruptcy Institute Executive Director Amy Quackenboss in a statement said rising interest rates and higher prices had begun “compounding the economic challenges for financially distressed families and businesses.”A RECESSION WITH NO SAFETY NET?As a result of the unprecedented effort to keep businesses and families afloat, the federal debt exploded. While the low-inflation, low-interest-rate environment of the last quarter century or so triggered a broad rethinking about public debt, some of the dynamics that argued for aggressive spending are now moving the other way. When rates on government debt exceed the rate of economic growth, for example, elected officials may not be so willing to roll out an expansive safety net next time.Given how soon that may occur – in a recent Reuters poll 40% of economists said they expect a downturn within two years – the Fed may also be constrained. It can cut rates, which may by then be high enough to provide a substantial economic boost. But it will still be carrying a very large balance sheet, run up to nearly $9 trillion during the pandemic, with policymakers less likely to begin using that second tool to support the economy. More

SHANGHAI (Reuters) – A protest planned by hundreds of bank depositors in central China seeking access to their frozen funds has been thwarted because the authorities have turned their health code apps red, several depositors told Reuters.The depositors were planning to travel to the central province of Henan this week from across China to protest against an almost two-month block on accessing at least $178 million of deposits, which has left companies unable to pay workers and individuals unable to access savings.Rights groups have warned China could use its vast COVID surveillance infrastructure to stifle dissent. Without a green code on their smartphone app, citizens lose access to public transport and spaces such as restaurants and malls, as well as the right to travel across the country.”They are putting digital handcuffs on us,” said a depositor from Sichuan province surnamed Chen, who declined to use his full name for fear of government retribution.The Henan provincial government, the National Health Commission and the Ministry of Public Security did not respond to requests for comment.After recent COVID outbreaks, some regions in China have asked travellers to register their plans online.A man surnamed Liu, who lives in Hubei province, found that his health code turned red on the morning of June 12 after he registered the day before to travel to Henan. Liu had planned to travel to a protest planned for Monday in the Henan provincial capital Zhengzhou, where he had hoped to get his money back. The protest would have been the latest among numerous such demonstrations in Henan in recent months.More than 200 depositors were similarly blocked when their health codes turned red, according to members of a WeChat group.It could not be ascertained if the change in code was intended to block the protesters or for another reason, but three depositors told Reuters they knew people who had registered to travel to Henan, who were not connected to the frozen funds, whose codes did not turn red. Yu Zhou Xin Min Sheng Village Bank, Shangcai Huimin Country Bank and Zhecheng Huanghuai Community Bank froze deposits on April 18, with all three telling customers they were upgrading internal systems.Liu, who declined to give his full name for fear of government repercussions, said his child may not be able to go to school if his code does not soon revert to green.”I can’t do anything, I can’t go anywhere. You’re treated as though you’re a criminal. It infringes on my human rights,” said Liu. Wang Qiong, who lives in the central city of Wuhan, found her health code had turned red after she registered to travel to Henan on June 11.”The police had my identity details from the last time I went to protest in April,” said Wang, who said she has lost access to 2.3 million yuan ($341,550). Other depositors told Reuters they were able to arrive in Zhengzhou by train and car but their codes turned red as soon as they scanned city health codes.($1 = 6.7340 Chinese yuan renminbi) More

At Shiseido’s grand unveiling of its new plant in the southern port of Fukuoka last month, its chief executive Masahiko Uotani flaunted the branding power of its “Made in Japan” products for its consumers in Asia. Since 2019, the cosmetics giant has spent ¥145bn ($1bn) on the construction of three new plants in Japan, sparking debate over whether the yen’s drop to a 24-year-low against the dollar has triggered “reshoring”.The narrative is an alluring one. Prime Minister Fumio Kishida has positioned economic security at the heart of his economic agenda, pushing for the return of production from overseas with an explicit intention to reduce the country’s reliance on Chinese supply chains.Skincare products are certainly not vital to national security, but the economic impact of boosting domestic manufacturing is still significant. Shiseido has said it plans to create as many as 900 jobs at the Fukuoka plant. That could, in theory, drive a virtuous cycle of increased production, income and spending for the local economy. But unfortunately, Shiseido’s move does not signal the return of Japanese manufacturing — at least not in a meaningful way. Uotani’s decision was taken long before the recent bout of yen weakening, and Shiseido has not cut back on any of its global manufacturing capacity to boost production at home. Others are also unlikely to unwind the global production bases they have spent decades finessing to reduce their exposure to currency volatility. With a tight labour market, there are simply not enough workers in Japan even if companies wanted to bring back production.There could be a trickle of “reshoring” among Japanese companies, but that is likely to be limited to production of higher end products on a smaller scale. And analysts say the yen’s fall is unlikely to ignite the jump in export volume Japan’s economy experienced in the past when its currency was weak. This is because many businesses no longer manufacture high-volume commodity products at home.The weaker yen and the rising cost of imported goods pose an awkward dilemma for the Kishida administration ahead of elections for Japan’s upper house of parliament in July. Government and central bank officials have argued that the weaker yen remains broadly positive for Asia’s most advanced nation. But it will be mainly the big corporations with overseas operations and their network of suppliers that will reap the immediate benefits as profits earned overseas are boosted by the yen’s fall.Without a gradual increase in wages, the weaker yen will bring short-term pain for households and small and medium-sized businesses in the form of soaring costs of food, energy, materials and logistics. This explains the public uproar last week that forced Haruhiko Kuroda, Bank of Japan governor, to retract his claim that consumers had become more “tolerant” of price rises. In a recent poll conducted by Kyodo News, 64 per cent of those surveyed said they did not think highly of Kishida’s efforts to address rising prices, while 58 per cent responded that Kuroda, who plans to step down next year, was not suited for the role of BoJ governor. As was the case in recent elections in Australia and France, higher living costs will be a key issue in the upper house elections in Japan next month. For Kishida, his response to rising prices will also be a test case for his “new capitalism” programme, which is designed to address the exact challenges posed by the weaker yen.Since being appointed last year, the prime minister has argued that past forms of capitalism have not been “inclusive” enough, with their benefits not shared by the wider segment of the population. According to a draft of his economic agenda released earlier this month, Kishida places some of that blame on companies’s failure to invest in their employees. Government figures show that Japan spends only 0.1 per cent of its gross domestic product on corporate human resources, compared with 2.1 per cent in the US and 1.1 per cent in the UK. Japan had a decade of Abenomics defined by aggressive monetary easing, economic stimulus and government pressure on companies to invest more. But this failed to achieve faster growth in pay to boost consumption and drive a virtuous cycle of demand and inflation. If Kishida does not move fast, the biggest risk is that the momentum for wage growth could be lost if global inflation leads to a worldwide recession. [email protected] More

The civil case, which was heard earlier this year, relates to the purchase by Shell (LON:RDSa) and Eni of the offshore OPL 245 oilfield in Nigeria.Nigeria had alleged JP Morgan was “grossly negligent” in its decision to transfer funds paid by the energy majors into an escrow account to a company closely associated with the country’s former oil minister Dan Etete, as per instructions the bank received from authorised government officials.According to Nigeria, the transactions put JP Morgan in breach of its Quincecare duty, which obliges banks to disregard a customer’s instructions if following those instructions might actually facilitate a fraud against that customer.But a London High Court judge said no such breach took place in a ruling published on Tuesday. “This judgment reflects our commitment to acting with high professional standards in every country we operate in, and how we are prepared to robustly defend our actions and reputation when they are called into question,” a spokesman for the bank said in an emailed statement.The damages sought include cash sent to Etete’s company Malabu Oil and Gas, around $875 million paid in three instalments in 2011 and 2013, plus interest, taking the total to over $1.7 billion. Nigerian military ruler Sani Abacha had awarded the offshore oilfield licence, OPL 245, to a company Etete owned in 1998. Subsequent Nigerian administrations had challenged Etete’s rights to the field over many years until a deal to resolve the impasse via a sale to Shell and Eni was struck in 2011. More

Ashtead chief executive Brendan Horgan said he expected the equipment group to be able to take advantage of supply chain constraints for another 18 months as more companies have opted to rent machinery because of the lack of supply for sale.The FTSE 100 company hires out scaffolding, excavators and other equipment and has benefited from disruption in supply chains, which have made it harder for businesses to source such goods.Ashtead said on Tuesday that revenue was up by a fifth in the year to the end of April, at $8bn and profit before tax rose by 35 per cent to $1.7bn.The Covid-19 pandemic and lockdowns disrupted global trade, causing component shortages and logistical bottlenecks, which have hit the production of equipment across industries.Horgan said problems with supply chains and the delivery of goods were still big concerns for the world economy. “When it comes to the economy, the world is worried about three things: supply chain constraints, inflation and labour scarcity,” he said.He noted that there was an “ongoing shift from ownership to rental” which he said was set to “last for years”.

Limited equipment supply had increased the uptake rate of Ashtead’s goods among its customers based in the US, Canada and the UK.“Today, when you think about: can you get [equipment] when you need it, if you want to buy it? The answer is undoubtedly going to be no,” he said. However, Ashtead, which generates about 80 per cent of revenue from the US, is still exposed to concerns over the outlook for economic growth. Its share price, which leapt during the pandemic, has fallen by 40 per cent since the start of this year and was down 4 per cent on Tuesday.“Investors have macroeconomic concerns that North America is going to slow down and possibly go into recession,” said Andrew Nussey, analyst at Peel Hunt. “So it’s this concern that is outweighing Ashtead’s continuing strong delivery.”He said it would be easy to compare the current situation to the knock-on effects of the global financial crisis on the US rental market. But he thought Ashtead was in a strong position. “Look at how [it] has proved its model during the pandemic. It’s sentiment versus reality.”In the UK, Horgan said there were a number of longer-term projects and events which he expected would support demand for equipment. “We’ve got Glastonbury coming up, the Chelsea Flower Show, so there are signs of a return to normalcy,” he added.However, he expected labour constraints, more broadly, to remain an issue. “As a society, whether the US, Canada or the UK, we retire more skilled trade, from commercial drivers to plumbers, than we create every year. Therefore, we think there are real challenges there for the foreseeable future.” More

Investing.com — The Federal Reserve starts a two-day meeting with markets in disarray, scrambling to price in a 75-basis point hike in key interest rates. The dollar’s advance against the yen and euro stops after a rare admission of concern from Japan’s finance minister and more jawboning from an ECB hawk. U.S. PPI data for May could change that in the near term. Crypto remains under pressure in the wake of the Celsius Network collapse. OPEC releases its monthly oil market report. Oracle surprises to the upside with its quarterly earnings. Here’s what you need to know in financial markets on Tuesday, June 14.1. Markets in disarray as Fed meeting startsThe Federal Reserve kicks off a two-day policy meeting against an increasingly disorderly market backdrop.Market consensus has rapidly switched to expect a 75 basis point increase in the Fed Funds target rate on Wednesday in the wake of another painful overshoot in consumer inflation in May. Producer price inflation data for the month are due at 8:30 AM ET (1230) and look likely to cement such expectations, with a consensus forecast for another hefty 0.8% increase in prices from April.The benchmark 10-year Treasury yield rose by the most this year on Monday as investors scrambled to re-price rising interest rate risks. At 3.32%, it now trades roughly level with the 2-Year note, having briefly traded through that level on Monday. A sustained period of short-term rates trading above long-term ones has historically been a reasonably reliable predictor of recessions.2. Crypto still under pressure after Celsius collapseThe cryptocurrency space remains under pressure after one of the biggest multi-function players in the space, Celsius Network, suspended withdrawals amid a liquidity crisis on Monday.Bitcoin prices touched a new 18-month low of $20,859 in early trading in Europe, before recovering a little to trade at $22,307 by 6:05 AM ET. That’s still down 7.5% from late Monday in New York. Caution is still the order of the day, with market participants aware that MicroStrategy (NASDAQ:MSTR), a de facto leveraged Bitcoin fund, faces a margin call on a $205 million loan if the price falls below $21,000.On the brighter side, the world’s largest crypto exchange by volume, Binance, was able to resume withdrawals after temporarily suspending them on Monday. 3. Stocks set to open with dead-cat bounceU.S. stock markets are set to open with a dead-cat bounce later, after a start to the week that reeked of capitulation.By 6:10 AM ET, Dow futures were up 55 points, or 0.2%, while S&P 500 futures were up 0.3% and Nasdaq 100 futures were up 0.6%. The benchmark cash indices had lost between 2.8% and 4.7% on Monday.The small-business optimism index compiled by the NFIB earlier edged down to 93.1 from 93.2, an 18-month low but a smaller drop than seen in most recent months.Stocks likely to be in focus later include Oracle (NYSE:ORCL), whose quarterly update beat expectations late on Monday, and Apple (NASDAQ:AAPL), which is under fire from EU antitrust regulators again. Crypto proxies remain under the cosh, meanwhile: MicroStrategy was down 5.4% in premarket, Coinbase (NASDAQ:COIN) down 1.5%.4. Dollar advance pauses after Japanese, ECB commentsThe dollar paused its upward march against both the euro and the yen, after Japan’s Finance Minister gave a rare admission of concern about its weakness and the hawks at the European Central Bank revived the fight for a half-point rise in interest rates in July.Dutch central bank Governor Klaas Knot told the French daily Le Monde in an interview that the ECB should raise by more than the 25bp hike outlined in its guidance last week.At the time, the ECB had left the door open to more drastic action in September but committed to a “gradual” and “data-dependent” approach through the summer.5. Oil edges higher; OPEC monthly report, API dueCrude prices moved higher ahead of the Organization of Petroleum Exporting Countries’ monthly report on the oil market at 7:45 AM ET. Its forecast for demand out of China will be of particular note, given the renewed flare-ups of COVID-19 in Beijing and Shanghai that threaten to trigger a new wave of mobility restrictions.A Beijing government spokesman said earlier that the city needed to go “all out” to bring an outbreak tied to one particular bar under control.By 6:25 AM ET, U.S. crude futures were up 0.6% at $121.62 a barrel, while Brent crude was up 0.7% at $123.06 a barrel. More

LONDON (Reuters) – European Union financial services chief Mairead McGuinness on Tuesday urged the bloc’s lawmakers to agree on bank capital rules to keep the sector resilient as it emerges from the pandemic and markets fragment due to war in Ukraine.The EU is approving a law to implement capital requirements agreed at the global Basel Committee of banking regulators, but intends to deviate from some of the Basel norms for exposures to residential real estate and unrated companies.The European Central Bank, which regulates top euro zone lenders, has opposed the deviations, but McGuinness said they would be temporary to give banks time to increase capital levels, if need be, before they comply in full.”Some say the temporary deviations should not be in or be permanent, and whether we can find a compromise I am not so sure,” she told the European Parliament, which has joint say with EU states on the draft law.”We need to find a compromise to show the European banking system is strong and fit for the future. We are not shying away from implementation, but are giving our banks time to adjust and I think that is quite legitimate,” McGuinness said.She also urged parliament’s economic affairs committee to reach a deal with EU states before the end of June on her draft law to regulate crypto markets.The fall in crypto prices and problems at crypto companies like Celsius Network show the need for rules to protect consumers and keep markets stable, McGuinness said.The EU is also split over her proposal to ban payment for order flow, or wholesale market makers paying brokers for stock orders, a step the United States is also considering.A committee member urged McGuinness to go further and ban inducements across financial markets generally. “When I listen to stakeholders, many of them would say do not ban inducements and perhaps the issue is around visibility and transparency. I am certain the status quo is not the way we should proceed,” McGuinness said. More

Since 2018 and the end of its financial assistance programme, Greek economic developments and policy have been monitored under the euro zone’s so-called enhanced surveillance framework.”A difficult chapter for the country that began in 2010 will close and Greece will return to European normality,” Staikouras said after a meeting with German Finance Minister Christian Lindner in Athens.”It will stop being an exception in the euro zone,” he said. More