Economy

US jobs growth maintained robust momentum in April, despite employers grappling with a historically tight labour market, underscoring the strength of the economy.US non-farm payrolls grew 428,000 in April, according to data released by the Bureau of Labor Statistics on Friday, matching the revised 428,000 increase in March. That kept the jobless rate steady at 3.6 per cent, just shy of the level it stood at in February 2020 before the pandemic began spreading across the US for the first time.While job creation has been exceedingly strong across the US economy over the past year, and the unemployment rate has fallen much more rapidly than expected by most policymakers, the hot labour market coupled with high inflation is raising concerns for the Biden administration and the Federal Reserve.Wages have shot higher as employers have been forced to compete for talent. Average hourly earnings in April climbed another 0.3 per cent, for an annual increase of 5.5 per cent.This week, the US central bank raised its main interest rate half a percentage point for the first time since 2000 — to a target range of between 0.75 per cent and 1 per cent — in an effort to more rapidly cool the economy and stamp out high prices.“Labour demand is very strong, and while labour force participation has increased somewhat, labour supply remains subdued,” said Fed chair Jay Powell during his post-meeting press conference. “Employers are having difficulties filling job openings, and wages are rising at the fastest pace in many years.”In April, the share of Americans either employed or looking for work, as measured by the labour force participation rate, registered little progress and remained below its pre-pandemic level. It ticked 0.2 percentage points lower to 62.2 per cent.

President Joe Biden will travel to Cincinnati, Ohio on Friday to tout the strength of the recovery under his watch, particularly in the manufacturing sector in a state that is disproportionately linked to America’s industrial base.The White House has noted 473,000 of the more than 6mn jobs created since Biden took office were in the manufacturing sector, which is now approaching pre-pandemic levels of employment.But job vacancy rates are at extremely high levels, and many employers are struggling to fill positions, causing hardship for small businesses in particular and contributing to higher wages and prices.A record 4.5mn US workers quit the labour force in March, while the number of job openings hit a high of 11.5mn, government data released earlier this week showed. Both figures were the highest since the US labour department began collecting the data in December 2000. More

The figure, which was also driven by rising leisure and education prices, was higher than the 1.0% rise expected in a Reuters poll of economists, but came in below the 1.9% increase seen in the previous month.According to the National Statistics Institute, 12-month inflation was 10.5%, far above the central bank’s target rate of 2% to 4%.The data comes a day after Chile’s central bank hiked the country’s interest rate by 125 basis points to 8.25% as it tries to rein in high consumer prices.That was the latest in a series of hikes by the bank since the middle of last year to curb inflation as the Andean copper producer’s economy has bounced back strongly from the impact of the coronavirus pandemic. More

The European Union’s executive on Wednesday proposed the toughest package of sanctions yet against Russia for its actions in Ukraine, but several countries’ worries about the impact of cutting off Russian oil imports stood in the way of agreement.By 1201 GMT, the rouble had lost 4.7% to trade at 73.45 versus the euro, falling sharply from its strongest point since February 2020 of 69.1250.The rouble was 3.8% weaker against the dollar at 69.52 , not too far from a more than two-year high of 65.3125 hit on Thursday.The rouble has rallied in the past few weeks thanks to mandatory conversion of foreign currency by export-focused companies. Also, there has been weak demand for dollars and euros amid waning imports and restrictions on cross-border transactions.”It looks like the rouble has found a new equilibrium point around 67, at least for the time being,” said Sberbank CIB analysts in a note. “However, we think the local currency may begin to strengthen again when we come out of the May holidays next week, with exporters gradually beginning to step up their offers of hard currency.” They said the rouble could strengthen to 60 against the greenback by the end of the month.SberCIB Investment Research’s Yuri Popov expects the rouble to trade at 75 to the dollar at year-end, improving his forecast from April of 85. Moves in the rouble are sharper than usual as market liquidity has been thinned by central bank restrictions designed to prop up financial stability after Russia sent tens of thousands of troops into Ukraine on Feb. 24.Meanwhile, trading activity is subdued as the markets are open for only three days this week in the middle of Russia’s long May holidays.Brent crude oil, a global benchmark for Russia’s main export, was up 1.7% at $112.8 a barrel.Russian stock indexes were down.The dollar-denominated RTS index was 3.7% lower at 1,078.1 points. The rouble-based MOEX Russian index was down 1% at 2,381.6 points.Promsvyazbank analysts said they expected equity markets to drop ahead of another long holiday weekend. More

The European Commission is proposing changes to its planned embargo on Russian oil in a bid to win over reluctant states, including Hungary, Slovakia and the Czech Republic.Speaking to reporters on the sidelines of an event in Florence, Borrell reiterated he had faith in reaching “a solution that is shared, as not all countries are in the same situation,” adding a deal had to be found quickly. The European Union’s executive proposed the oil embargo on Wednesday as part of a wider package of EU sanctions on Russia – the sixth since Moscow invaded Ukraine on Feb. 24 in what the Kremlin calls “a special military operation”. Asked about a possible embargo on gas imports, Borrell said “gas is not for tomorrow, (but) for the day after tomorrow,” indicating the EU needed to take one step at a time in its sanctions against Russia. Earlier on Friday he said the bloc needed to be “realistic” in its plans to become independent from Russian energy and that it needed to do so in an “orderly and prudent way.””Gas cannot be substituted with something else… if it’s not Russian gas it needs to be gas anyway,” he said. Europe, which sources about 40% of its gas imports from Russia, has been scrambling to diversify its energy supply mix as the conflict in Ukraine escalates.The top diplomat added there were several ways of hitting Russia’s oil exports and that action might not be just limited to a simple ban on buying the oil.”If insurance companies don’t provide the insurance for the transportation of Russian oil, it’s going to be a big problem for Russian oil exports – not only to the EU but to rest of world,” he said, without giving further details. More

According to Refinitiv Lipper, investors exited global bond funds worth $11.99 billion in their fifth weekly net selling in a row.Fanning inflationary fears, data last week showed strong U.S. consumer spending in March and a jump in labor costs in the first quarter, which raised concerns that the Fed would tighten policy more aggressively than planned earlier.After an expected 50 basis point policy rate hike on Wednesday, the Fed Chairperson Jerome Powell, ruled out raising rates by 75 basis point in a coming meeting, although he made clear that rate increases the Fed already has in mind were “not going to be pleasant”.U.S. and European bond funds suffered outflows of $5.58 billion and $6.24 billion respectively, while Asian funds had marginal selling worth a net $0.03 billion.Weekly net selling in global short- and medium-term bond funds jumped to over a four month’s peak of $6.9 billion but government bonds funds gained $6.18 billion in their biggest weekly inflow since at least June 2020.Meanwhile, weekly outflows from global equity funds eased to a four-week low of $1.79 billion.By sector, financials and tech witnessed net selling of $634 million and $483 million respectively, however, utilities and consumer staples received inflows of $497 million and $457 million respectively.Money market funds saw outflows of $10.79 billion after attracting purchases of $51.72 billion in the prior week.Commodities funds’ data showed precious metal funds faced outflows worth $402 million and energy funds posted net selling of $97 million in a seventh straight week of outflows.An analysis of 24,183 emerging market funds showed net selling in both equity and bond funds eased to a three week low of $565 million and $328 million respectively. More

It took a devastating combination of the pandemic, war in Ukraine and a central banking U-turn on inflation to do it. Since the turn of the year the rules of the game in markets have been dramatically upended. Gone are those notorious acronyms Fomo (fear of missing out), Tina (there is no alternative to higher risk equities and credit) and BTD (buy the dip). The ecstatic equity market response to what were initially seen as dovish signals in the US Federal Reserve’s tightening move this week quickly evaporated — a mere blip in what is now clearly a bear market. At least sanity appears to be returning to central bank policymaking.Having offered no convincing rationale for the continuation of their asset buying programmes long after the 2007-09 financial crisis, the central banks are now committed to raising rates and shrinking their balance sheets. That holds out the hope that after years of overblown asset prices and mispricing of risk, the information content of market prices will once again become meaningful. The biggest indication of a semblance of normality is the decline in the number of negative yielding bonds across the world, down to about 100 compared with 4,500 such securities last year in the Bloomberg Global Aggregate Negative Yielding Debt index. So the morally hazardous practice of paying people to borrow is on the way out, and the need to search for yield regardless of risk is becoming less intense. Benchmark 10-year US Treasuries are yielding close to 3 per cent, more than twice the level in late November. Since January, equity and bond prices have come down in tandem, so that a conventional 60/40 equity and bond portfolio has offered investors no diversification.The big question is whether this all marks the end of asymmetric monetary policy, whereby central banks have repeatedly put a safety net under collapsing markets while declining to curb irrational exuberance. In the short term the answer is yes, at least in the US. For as Bill Dudley, former head of the New York Federal Reserve, has remarked, the Fed wants a weaker stock market and higher bond yields. This tightens financial conditions, thereby reducing the need for policy activism.Yet before becoming too excited about the new thrust of a monetary policy that is being widely described as aggressive, it is important to note that the real policy interest rate remains negative. Core inflation, as measured by the Fed’s preferred personal consumption expenditures price index, stood at 5.2 per cent in March compared with the previous year, while the Federal Open Market Committee lifted the target range of the federal funds rate this week to just 0.75 per cent to 1 per cent. So while policy is being tightened it could scarcely be called tight.The risk of policy error is high because, as Fed chair Jay Powell admitted on Wednesday, a neutral monetary policy position which neither speeds up nor slows the economy was “not something we can identify with any precision”. The fear is that central banks may precipitate a recession at a time when global debt is at record peacetime levels. According to the Institute for International Finance, a trade body, global non-financial corporate debt rose from $81.9tn to a phenomenal $86.6tn between the third quarter of 2020 and the same quarter in 2021. This sum, equivalent to 97.9 per cent of gross domestic product, suggests a greater than usual corporate sensitivity to interest rate increases and a serious vulnerability. It may anyway take a recession to bring inflation back under control. And on Thursday the Bank of England warned that the UK economy will slide into recession this year while higher energy prices push inflation above 10 per cent. Members of the bank’s Monetary Policy Committee are clearly prepared to intensify the squeeze on household incomes in order to address worsening inflation. They voted to raise the main interest rate by a quarter point to 1 per cent, the highest level for more than a decade.The global economic picture is now darkening further in the wake of the pandemic because of China. Its zero-Covid policy and lockdowns are hurting demand, as have insolvencies in the property sector which is a disproportionately large chunk of the Chinese economy. This is bad news for, inter alia, continental European exporters who are also coping with the loss of the Russian market. The eurozone economy will be hard pressed to avoid stagflation.For the central banks, this recalls an old joke about a cab driver telling a lost tourist asking for directions: If I were you, I would not be starting from here. The Fed remains confident it can engineer a soft landing. That will require luck as well as judgment, which has not been much in evidence of late. There remains a real possibility of recession, which could breed panic in central banks and thus a return to asymmetric monetary policy and yet more quantitative easing.In truth, the central bankers are flying on a wing and a prayer. That is less than reassuring for people whose incomes are subject to a brutal contraction, even if it is superficially cheering for investors. [email protected] More

Are bikini waxes sticky during a recession? A chain of salons based in Texas, European Wax Center, is confident they are.Chief executive David Berg told investors this week that he based this optimism on “how quickly we rebounded coming out of Covid”, when customers soon “got back into their regular beauty care regimen”.Facing rising rates, soaring inflation and lower growth forecasts, many other executives were putting on a brave face during earnings calls this week.Companies that have spent years wanting to be considered as “tech”, for the racier multiples, now emphasise their dull reliability — staples rather than discretionary, value rather than growth. The message to investors: do not adjust your portfolios — we are safe. Airbnb’s Brian Chesky sees upside from the looming downturn. He reckons more people struggling with their rent and mortgages will turn to hosting paying guests. At the same time, he says, travellers will be more budget-conscious, trading down to Airbnb from hotels. “I think we’re a pretty resistant business,” he told investors this week.Garden products company ScottsMiracle-Gro noted that even when most home improvement categories fall in a recession, people keep buying paint and lawn care items. “I wouldn’t say we’re recession-proof,” said chief executive Jim Hagedorn, “but I do believe we’re recession-resistant.”Door-to-door protein shakes? “Based on the last 100 years of direct selling, it’s been very countercyclical,” said Herbalife chief John DeSimone. Alarm systems? “People tend to move less frequently, which means that they don’t tend to cancel their accounts,” said ADT chief financial officer Jeffrey Likosar. “In recessions, people tend to be more concerned about things like safety and security.”Dating websites? “We’ve seen increased engagement during times of anxiety and trouble,” said Match Group chief executive Sharmistha Dubey.Some companies will indeed perform well during a downturn, weathering the storm and picking up share from weaker competitors. Others will not. Founded as an Ohio hardware store back in 1868, the claimed resilience through business cycles of ScottsMiracle-Gro has weight. Climate change is a bigger threat to the lawn seed seller than a common or garden downturn.But other companies require more of a leap of faith. European Wax Center admits it has limited evidence for its recession resilience. Launched in 2004, the company was a much smaller business for the last severe recession in 2009. Airbnb does not even include that caveat. Chesky noted proudly that the company launched in August 2008 on the verge of the Great Recession. But it was minuscule back then. By January 2009 Chesky was celebrating weekly fees of less than $1,000. “This week so far we have done $734 in fees…” pic.twitter.com/wwgf0JvdZ2— Paul Graham (@paulg) September 2, 2020
Today Airbnb is turning over $7bn a year and has a $93bn market capitalisation. What Chesky has built is phenomenal, but its early weeks are not much of a guide to how it will weather a recession now. Credit to the rare boss who admits the uncertainty. “We have never been through truly a recession,” said Shake Shack chief executive Randy Garutti. The premium burger chain only started to grow seriously in 2008 and 2009. “Not going to make a claim on who we’re going to be in an unknown consumer spending environment.” His hope is that instead of customers trading up from McDonald’s, they might trade down from restaurants. Which is a thesis just as well founded but far less aggravating than most of the “recession-resistant” chuntering. More

Momentum is building for the European Central Bank to raise interest rates in July to fight soaring inflation, after dovish policymakers indicated they are ready to accept an end to almost eight years of negative borrowing costs.ECB chief economist Philip Lane and executive board member Fabio Panetta have signalled they are now more open to raising rates in the coming months, following calls from the governing council’s hawks to make the first rise in more than a decade sooner rather than later.The hawkish shift comes after eurozone inflation hit a record 7.5 per cent in April and brings the ECB closer in line with the Federal Reserve and the Bank of England, which both raised rates this week. However, the eurozone’s monetary policymakers still lag far behind their peers in the US and UK in the cycle of raising interest rates.The ECB has set borrowing costs below zero since June 2014, when it was still fighting Europe’s debt crisis. The deposit rate is now minus 0.5 per cent.On Friday the additional borrowing costs investors demand to hold Italian debt over that of Germany climbed above 2 percentage points for the first time since 2020, underscoring concerns that any ECB tightening of monetary policy will mainly effect riskier eurozone countries. The so-called “spread” between the two bond yields is a closely watched barometer of investor concerns about political and economic risks in the euro area. For many years, hawks have been greatly outnumbered by doves among rate-setters, but soaring inflation has changed the balance of power in recent months. Policymakers such as vice-president Luis de Guindos and executive board member Isabel Schnabel have said a series of rate rises could start by July. Many economists expect a 0.25 percentage point rise in the deposit rate to minus 0.25 per cent at the July meeting. Lane, seen as one of the rate-setting governing council’s more dovish members, said on Thursday: “It is clear that at some point we are going to be moving rates not just once, but over time in a sequence.” Asked if this could happen in July, he told an event at think-tank Bruegel that the timing of the ECB’s first rate rise “should not be seen as the most important issue”.“Once we do start moving . . . then the whole conversation will be: ‘OK, how much are you going to do and how quickly’,” he said, adding that “normalisation” would mean rates rising above zero, providing inflation remained on track to hit the central bank’s 2 per cent target.

The comments mark a further shift by Lane, who in February was still predicting most inflation would “fade away” within 12 to 18 months, playing down the urgency to shift policy. Panetta, the most dovish member of the ECB board, has continued to push back against the idea of raising rates at its meeting on July 21, telling La Stampa on Thursday that it should wait to see what second-quarter growth data showed later that month.However, he also said that given the rise in inflation expectations, the ECB could “gradually reduce the level of monetary accommodation.” He added: “Under current circumstances, negative rates and net asset purchases may no longer be necessary.”“This is probably the moment when doves cry and capitulate under too much pressure from the hawks,” said Carsten Brzeski, head of macro research at ING. “It’s fair to state that both Panetta’s and Lane’s attempts to prevent a rate hike in July were halfhearted, to say the least.”More centrist members of the ECB’s governing council, which includes eurozone national central bank chiefs as well as executive board members, have also shifted to supporting a July rate rise.Banque de France governor François Villeroy de Galhau said in a speech on Friday that he “wouldn’t preclude” a rate rise in the next few governing council meetings, adding: “Barring unforeseen new shocks, I would think it reasonable [for policy rates] to have entered positive territory by the end of this year.”Villeroy said the ECB needed to “carefully watch exchange rate developments” after the euro fell to a five-year low of $1.05 against the dollar, fuelling inflation by driving up import prices. “A euro that is too weak would go against our price stability objective,” he said.Katharina Utermöhl, an economist at Allianz, said: “Recent communication by several top officials suggests that the ECB in early May has pretty much already made up its mind regarding raising interest rates as soon as July.”Finland’s central bank boss Olli Rehn said on Thursday: “I think it would be justified to increase the deposit rate by 0.25 percentage points in July and to zero when autumn comes.” The ECB should press ahead with tightening policy despite the risk of eurozone recession next year, Rehn added.“There is no need to delay the normalisation of monetary policy,” Rehn told Helsingin Sanomat.Austria’s hawkish central bank chief Robert Holzmann on Thursday said the bank would “probably” raise rates at the June policy meeting. Russia’s invasion of Ukraine and China’s coronavirus lockdowns have raised fears that Europe’s economy could suffer an economic downturn this year. Some economists fear the ECB could tighten policy on the cusp of a recession. The last time the central bank raised rates in 2011 was just as the region’s debt crisis started. “Everything reminds me so much of 2011,” said Silvia Ardagna at Barclays.In early European trading on Friday, the gap between Italian and German bond yields reached the highest level since the depths of the coronavirus crisis in May 2020.Italy, which has a government debt load of more than 150 per cent of gross domestic product, has been a big beneficiary of the ECB’s bond-buying programmes and historically low interest rates.Additional reporting by Adam Samson in London More