Economy

WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen said on Tuesday that she was wrong in the past about the path inflation would take, but said taming price hikes is President Joe Biden’s top priority and he supports the Federal Reserve’s actions to achieve that.Asked in a CNN interview whether she was wrong to downplay the threat that inflation posed in public statements over the past year, Yellen said: “I think I was wrong then about the path that inflation would take.””As I mentioned, there have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that I didn’t at the time fully understand,” Yellen said, adding that the shocks range from Russia’s invasion of Ukraine to recent COVID-19 lockdowns in China.”So really, the shocks to the economy have continued, but inflation is the number one concern for President Biden,” Yellen said.Biden “believes strongly and is supportive of the independence of the Fed to take the steps that are necessary” to reduce inflation, Yellen added.Biden met earlier on Tuesday with Fed Chair Jerome Powell and underscored that he “respects the independence of the Federal Reserve,” a White House official said.Yellen said the Biden administration was taking action to try to supplement the Fed’s effort by reducing the cost of prescription drugs and health care and by pushing proposals in Congress to boost the use of renewable energy.While she said a recent decline in core inflation data was encouraging, she noted that oil prices remained high and Europe was working on a plan to ban imports of Russian oil. “We can’t rule out further shocks,” Yellen said. More

SYDNEY (Reuters) – Australian home prices broke a 20-month winning streak in May as falls accelerated in Sydney and Melbourne amid rising interest rates and a cost-of-living crunch.Figures from property consultant CoreLogic out on Wednesday showed prices nationally slipped 0.1% in May, dragged down by a 0.3% drop in the major capital cities. While annual growth slowed, it was still solid at 14.1% reflecting the huge gains enjoyed over 2021.Values in Sydney dropped a steep 1.0% in May, while Melbourne fell 0.7%. Sydney prices are down 1.5% from their January peak but still up 23% on pre-pandemic levels.Most other cities fared better with Brisbane rising 0.8% in May, Adelaide 1.8% and Perth 0.6%.The regions continued to benefit from a shift to country living and greater space, and prices rose 0.5% in May to be 22.1% higher than a year ago.Weakness in the highly priced Sydney and Melbourne markets in part reflected the Reserve Bank of Australia’s (RBA) move to raise interest rates in early May, the first hike in 11 years.”Housing has been getting more unaffordable, households have become increasingly sensitive to higher interest rates as debt levels increased, savings have reduced and lending conditions have tightened,” said CoreLogic’s research director, Tim Lawless.”Now we are also seeing high inflation and a higher cost of debt flowing through to less housing demand.”Supply was turning buyers’ way with listings rising to above average levels in Sydney and Melbourne, while clearance rates at auctions have steadily declined.Demand had also come off the boil with home sales in Sydney down 33% in the three months to May from the same period a year earlier, while Melbourne was off 21%.A sustained drop in prices would be a drag on consumer wealth given the notional value of Australia’s 10.8 million homes is put at A$9.9 trillion ($7.11 trillion).($1 = 1.3924 Australian dollars) More

(Reuters) -Salesforce Inc raised its full-year adjusted profit forecast and said it did not see any material impact from the uncertain broader economic environment, sending the enterprise software firm’s shares up about 8% in extended trading.The company said on Tuesday there was strong demand for its software from companies looking to improve efficiencies and incorporate modern-day work-flows, including hybrid work, despite a four-decade high inflation and tapering consumer demand.Shares of the San-Francisco-based company rose 7.7% to $172.50, after plummeting about 37% this year as investors moved out of growth stocks on a series of bad news including high inflation in the United States and the Ukraine crisis.Shares of rivals Oracle Corp (NYSE:ORCL) and Microsoft Corp (NASDAQ:MSFT), which have also forecast an upbeat year, have fallen between 18% and 19% this year.”Macroeconomic or geopolitical headwinds may show up sooner or later, but Salesforce (NYSE:CRM) is well positioned to capitalize on enterprise spending on digital transformation, and the company has a fairly resilient model,” SMBC Nikko Securities analyst Steven Koenig said.Salesforce increased its adjusted profit estimate for the fiscal year ending January 2023 to $4.75 per share from its prior forecast of $4.63.The profit forecast raise is a big positive as it’s a key area of investor focus, especially in the current market environment, said William Blair & Company analyst Arjun Bhatia.However, foreign exchange headwinds forced the company to marginally lower its revenue forecast for the year to $31.7 billion to $31.8 billion, from its earlier forecast of $32 billion to $32.1 billion.Revenue in the first quarter ending April 30 rose 24% to $7.41 billion from a year earlier, above analysts’ average estimate of $7.38 billion, according to IBES data from Refinitiv.Net income fell to $28 million from $469 million. More

The blue-chip S&P 500 stock index ended the month of May with a marginal 0.01 per cent gain, following weeks of tumultuous trading as investors questioned the trajectory of US inflation, growth and Federal Reserve policy.Wall Street stocks have whipsawed in May due to economic data and corporate earnings that have thrown doubt over the health of the US economy. Grim forecasts from retailers Walmart and Target suggested that consumers may finally be feeling strain, while the country’s census bureau reported that new home sales fell by 17 per cent in April.The persistence of US inflation has investors pricing in multiple half-point interest rate raises by the Fed, which some fear may tip the economy into recession. Consumer prices, despite a small decline in April, remain at roughly 40-year highs. After US stocks briefly dipped into bear market territory 11 days ago — down 20 per cent from their recent peak — some investors saw a buying opportunity. “Conditions became oversold for the S&P 500,” said Kristina Hooper, chief global macro strategist at Invesco.“Sentiment is so negative, so much is priced in, so there is so much more potential for positive surprise. If the Fed falls short — even a little short — that is a positive surprise and inherently offers upside potential. One could argue that a recession is largely priced into stocks. And so a softer landing would be a positive surprise,” she said. The S&P remains down 13 per cent year-to-date, and fell 8.8 per cent in April. On Tuesday the index declined by 0.6 per cent. Signs of turmoil persist in tech stocks, one of the hottest parts of the market over the past two years. The Nasdaq Composite index ended May down 2.1 per cent. That’s a narrower decline than in April when the index fell 13 per cent, but it remains in bear market territory, down 23 per cent this year. In other corners of the market, government bonds dropped on Tuesday after hotter than expected eurozone inflation data and rising oil prices intensified questions about how far central banks would lift rates and how much that monetary tightening would curtail growth.In Europe, the yield on Germany’s 10-year Bund — a proxy for borrowing costs across the eurozone — rose 0.07 percentage points to 1.12 per cent, extending a bout of selling from the previous session after German inflation data also came in worse than expected. Italy’s equivalent yield increased 0.12 percentage points to 3.11 per cent. Yields on longer-dated bonds move with growth and inflation expectations. US bond prices similarly dropped, as the yield on the benchmark 10-year Treasury note climbed 0.12 percentage points to 2.86 per cent.Those moves came after data on Tuesday showed that eurozone consumer price growth reached 8.1 per cent in May, up from 7.4 per cent in April and higher than economists’ expectations of 7.7 per cent. More

WASHINGTON — The devastation in Ukraine brought on by Russia’s war has leaders around the world calling for seizing more than $300 billion of Russian central bank assets and handing the funds to Ukraine to help rebuild the country.But the movement, which has gained momentum in parts of Europe, has run into resistance in the United States. Top Biden administration officials warned that diverting those funds could be illegal and discourage other countries from relying on the United States as a haven for investment.The cost to rebuild Ukraine is expected to be significant. Its president, Volodymyr Zelensky, estimated this month that it could be $600 billion after months of artillery, missile and tank attacks — meaning that even if all of Russia’s central bank assets abroad were seized, they would cover only half the costs.In a joint statement last week, finance ministers from Estonia, Latvia, Lithuania and Slovakia urged the European Union to create a way to fund the rebuilding of cities and towns in Ukraine with frozen Russian central bank assets, so that Russia can be “held accountable for its actions and pay for the damage caused.”Confiscating the Russian assets was also a central topic at a gathering of top economic officials from the Group of 7 nations at a meeting this month, with the idea drawing public support from Germany and Canada.The United States, which has led a global effort to isolate Russia with stiff sanctions, has been far more cautious in this case. Internally, the Biden administration has been debating whether to join an effort to seize the assets, which include dollars and euros that Moscow deposited before its invasion of Ukraine. Only a fraction of the funds are kept in the United States; much of it was deposited in Europe, including at the Bank for International Settlements in Switzerland.Russia had hoped that keeping more than $600 billion in central bank reserves would help bolster its economy against sanctions. But it made the mistake of sending half those funds out of the country. By all accounts, Russian officials were stunned at the speed at which they were frozen — a very different reaction from the one it faced after annexing Crimea in 2014, when it took a year for weak sanctions to be imposed.Those funds have been frozen for the past three months, keeping the government of President Vladimir V. Putin from repatriating the money or spending it on the war. But seizing or actually taking ownership of them is another matter.At a news conference in Germany this month, Treasury Secretary Janet L. Yellen appeared to close the door on the United States’ ability to participate in any effort to seize and redistribute those assets. Ms. Yellen, a former central banker who initially had reservations about immobilizing the assets, said that while the concept was being studied, she believed that seizing the funds would violate U.S. law.Treasury Secretary Janet L. Yellen has cautioned against seizing Russian central bank assets to help pay for Ukraine’s reconstruction.Ina Fassbender/Agence France-Presse — Getty Images“I think it’s very natural that given the enormous destruction in Ukraine and huge rebuilding costs that they will face, that we will look to Russia to help pay at least a portion of the price that will be involved,” she said. “It’s not something that is legally permissible in the United States.”But within the Biden administration, one official said, there was reluctance “to have any daylight between us and the Europeans on sanctions.” So the United States is seeking to find some kind of common ground while analyzing whether a seizure of central bank funds might, for example, encourage other countries to put their central bank reserves in other currencies and keep it out of American hands.In addition to the legal obstacles, Ms. Yellen and others have argued that it could make nations reluctant to keep their reserves in dollars, for fear that in future conflicts the United States and its allies would confiscate the funds. Some national security officials in the Biden administration say they are concerned that if negotiations between Ukraine and Russia begin, there would be no way to offer significant sanctions relief to Moscow once the reserves have been drained from its overseas accounts.Treasury officials suggested before Ms. Yellen’s comments that the United States had not settled on a firm position about the fate of the assets. Several senior officials, speaking on the condition of anonymity to discuss internal debates in the Biden administration, suggested that no final decision had been made. One official said that while seizing the funds to pay for reconstruction would be satisfying and warranted, the precedent it would set — and its potential effect on the United States’ status as the world’s safest place to leave assets — was a deep concern.In explaining Ms. Yellen’s comments, a Treasury spokeswoman pointed to the International Emergency Economic Powers Act of 1977, which says that the United States can confiscate foreign property if the president determines that the country is under attack or “engaged in armed hostilities.”Legal scholars have expressed differing views about that reading of the law.Laurence H. Tribe, an emeritus law professor at Harvard University, pointed out that an amendment to International Emergency Economic Powers Act that passed after the Sept. 11, 2001, terrorist attacks gives the president broader discretion to determine if a foreign threat warrants confiscation of assets. President Biden could cite Russian cyberattacks against the United States to justify liquidating the central bank reserves, Mr. Tribe said, adding that the Treasury Department was misreading the law.“If Secretary Yellen believes this is illegal, I think she’s flatly wrong,” he said. “It may be that they are blending legal questions with their policy concerns.”Mr. Tribe pointed to recent cases of the United States confiscating and redistributing assets from Afghanistan, Iran and Venezuela as precedents that showed Russia’s assets did not deserve special safeguards.Russia-Ukraine War: Key DevelopmentsCard 1 of 4On the ground. More

WASHINGTON (Reuters) – U.S. President Joe Biden told Federal Reserve Chair Jerome Powell on Tuesday that he will give the central bank the space and independence to address inflation as it sees fit, according to a top aide.”The president underscored to Chair Powell in the meeting what he has underscored consistently, including today, that he respects the independence of the Federal Reserve,” said Biden’s top economic adviser, Brian Deese. More

Stocks have bounced sharply since mid-May’s lows and credit spreads have tightened back to levels seen ahead of the March liftoff of interest-rate hikes while the Bloomberg Dollar Spot Index has cooled from two-year highs reached earlier this month. Taken together, a Bloomberg measure of US financial conditions — a cross-asset measure of market health — has returned to levels seen before March’s hike. That potentially poses a problem for policy makers. Fed chief Jerome Powell has repeatedly said that financial conditions will compress as the central bank removes monetary support in a bid to combat the hottest inflation readings in four decades. Should price pressures build and growth remain robust while markets continue to rally, the Fed may need to tighten the reins even more, according to 22V Research founder Dennis DeBusschere.“The mechanism through which the Fed is impacting the real economy is through the financial conditions channel,” DeBusschere said on Bloomberg Television. “If the data doesn’t slow, financial conditions will need to tighten more.”The easing in conditions follows a week in which practically everything from speculative to blue-chip stocks rose as traders scaled back rate-hike expectations, fueling a drop in Treasury yields. The S&P 500 snapped its longest weekly losing streak in a decade en route to its biggest rally since 2020, while a basket of unprofitable tech shares ended a seven-week decline. To strategists at Morgan Stanley (NYSE:MS), last week’s jump in stocks is a little more than a hiccup amid a broader decline, especially with a Fed eager to cool demand. “The more equity prices rise, the more hawkish the Fed will be,” Morgan Stanley’s Michael Wilson wrote in a report Tuesday. “Investors may be underestimating the Fed’s willingness to shock markets if necessary to achieve its inflation goals.”©2022 Bloomberg L.P. More

Signs that China’s economy, the world’s second largest, may flirt with recession in the second quarter of this year are worrying for global growth. But they provide Beijing with an opportunity. It could use these sobering indications to reconsider not only aspects of its “zero-Covid” policy but also its treatment of foreign direct investors; what is good for them is good for China’s own economy.Foreign investors have poured hundreds of billions of US dollars into China’s economy since the mid-1980s, helping to foster a transformational economic boom that has lifted 850mn people out of poverty. Foreign companies have also transferred technology to Chinese counterparts, trained staff in crucial roles and assisted in opening overseas markets to Chinese-made goods.Some came spectacularly unstuck in the world’s biggest potential market. But many multinationals made handsome profits — and became the strongest pro-China political lobbyists back in their home countries. Now, surveys are showing rising disillusionment among foreign investors, many of whom plan to shift investment out of China.Such sentiments do not derive solely from China’s muscular zero-Covid policies, though cancelled flights, visa complications and lengthy quarantines have contributed to the frustrations of foreign executives. The deeper roots of disaffection lie in a sense that doing business in China has become harder as Beijing’s rivalry with the west intensifies. While the US screens some selected investments through the Committee on Foreign Investment in the US (Cfius), would-be investors in China must navigate a labyrinth. They must check the business they wish to start is not on either of two negative lists and then seek regulatory approval if it falls into one of a further 550-plus different categories. Once a foreign business is up and running, it may receive pressure to transfer technology to Chinese counterparts, sometimes as part of the “Made in China 2025” strategy, which envisages boosting the market share of domestic competitors over time. Under the Foreign Investment Law of 2020, a national security review may be required for a project that “affects or may affect national security”. Other recent laws have added to the complexity. The Data Security Law and Personal Information Protection Law, both passed last year, sharply restrict the handling of customer data and its transfer overseas.Add to that the current slump in growth amid strict Covid policies, and it is no surprise that some leading foreign investors are sounding gloomy. Michael Hart, president of the American Chamber of Commerce in China, has warned of a potentially “massive decline” in investment “two, three, four years from now”. Joerg Wuttke, president of the EU Chamber of Commerce in Beijing, has said unpredictability is prompting Europe’s business community to put investments in China “on hold”. Understandably, the welfare of foreign investors may not be uppermost in the minds of Beijing’s leaders. In April, retail sales were down 11.1 per cent year on year, industrial production fell by 3.2 per cent, unemployment rose, exports slowed significantly and credit extended by the banks also slid back.Shanghai’s limited reopening after two months of lockdown is a welcome signal that China may be easing its zero-Covid mantra, and there are signs activity may be ticking up in response. But Beijing should also take steps to demonstrate that foreign investors remain a valued part of the economy. Official statements to this end would set a positive tone. But a real focus on reducing red tape and ensuring equal treatment with local competitors would alleviate some of the gloom descending upon China’s foreign business community. More