Economy

Chinese regulators led by vice-premier Liu He are concerned that the government is underestimating the economic impact of its crackdown on the property sector and Covid-19 lockdowns in Shanghai and other cities, according to officials and policy advisers.But other senior officials have opposed efforts by Liu, President Xi Jinping’s longtime financial and economic adviser, to ease the pressure on the real estate sector, six Beijing-based government officials and policy advisers told the Financial Times.The policy disagreements within the Chinese government highlight the difficult choices it faces as it tries to shore up growth in the world’s second-largest economy while also pursuing a tough zero-Covid strategy and taming heavily indebted property developers.China’s gross domestic product was up 4.8 per cent year on year in the first quarter, but a 3.5 per cent fall in retail sales in March suggested anti-Covid controls were slowing an economy already suffering from real estate market woes. On Tuesday, state media reported that Xi called for accelerated investment in a wide range of critical infrastructure sectors but did not specify an amount or timeframe for the effort.Liu, who heads a powerful committee that co-ordinates policy between the central bank and China’s banking, securities and other regulators, has supported recent moves by many regional governments to ease restrictions on property purchases.But according to the officials and policy advisers, two other vice-premiers — Han Zheng and Hu Chunhua — have sided with the housing ministry in wanting to maintain the pressure on developers by tightly regulating how they can use project revenues.

Chinese vice premier Liu is concerned that the government is underestimating the economic impact of its crackdown on the property sector © Saul Loeb/AFP/Getty Images

Liu’s Financial Stability and Development Committee wants to give debt-laden developers more freedom to deploy revenues from buyers who pre-pay for their homes. Over the past year, local governments have ringfenced sales revenues so they are only used to complete the relevant project.“It is already common for lenders, be they banks or bond investors, to give repayment extensions to developers,” said a government adviser who shared Liu’s concerns. “Continued weakening of the industry may cause bad debts to spike and the entire financial sector to go under.”An executive at Sunac, a large developer based in the port city of Tianjin, said real estate firms should be allowed to use sale proceeds from new projects to pay off debts owed on older projects to help avoid defaults.“If we have collected Rmb1bn ($153mn) in revenue that would be spent over three years on one project, why can’t we earmark Rmb100mn of that for use elsewhere and [repay it] later on,” said the executive, who asked not to be named.Han and Hu’s supporters argued that fears about the impact on China’s largely state-owned banking sector were overblown. “Not every bank will go under,” one of the people said. “We can always have healthy banks bail out troubled ones.”While Liu has long been regarded as China’s most powerful economic and financial official, Han is the highest-ranking of the three vice premiers. Han sits on the Chinese Communist party’s most powerful body, the politburo standing committee, and is considered a leading candidate to replace Li Keqiang as premier next year.Liu has also urged local governments in areas affected by Covid lockdowns to protect supply chains and help companies resume operations.

The port city of Tianjin. A property executive said companies should be allowed to use sale proceeds from new projects to pay off debts owed by older projects © Zhang Peng/LightRocket/Getty Images

But confronted with China’s worst economic conditions and outlook since at least the beginning of the pandemic, financial policymakers have responded over recent weeks with only modest easing measures.Their reticence stems in part from fears that stronger stimulus measures would have only limited effectiveness, especially in regions brought to a standstill by Covid containment lockdowns.Liu and Yi Gang, governor of the People’s Bank of China and a highly respected technocrat who was appointed central bank chief at Liu’s insistence, are also wary of broad-based rate cuts. They fear these could undermine progress over the past five years at stabilising China’s overall debt-to-GDP ratio. Liu and Yi also share growing concerns that with US interest rates now higher than China’s for the first time in years, rate cuts could weaken the renminbi and spark destabilising capital flight.“Current economic policy may not be [aggressive] enough,” said an influential Beijing academic, who asked not to be named because he didn’t have university approval to speak with the media. “But since the US began raising rates, the renminbi has begun to depreciate. If we [cut rates] renminbi depreciation could get out of control.” Almost every expression of policy support from the PBoC and central government’s state council over recent weeks has been qualified by caveats that they would not resort to “flood-like stimulus” and remained determined to “keep macro debt levels generally stable”.On Tuesday, such central bank comments halted a sharp sell-off sparked by fears that harsh lockdown measures in Shanghai might be extended to Beijing.

The comments by the PBoC reiterated pledges to use “prudent” monetary policy to support small and medium-sized enterprises, which have borne the brunt of the lockdowns, while also promising to boost banks’ lending capacity.But similar assurances by Liu in mid-March, as the benchmark CSI 300 index was poised to fall to a two-year low, had only a temporary effect. The rally quickly faded when the PBoC announced only a 25 basis-point cut in banks’ reserve requirement ratios, potentially releasing just about Rmb500bn in new lending into China’s Rmb114tn-a-year economy. “Liu and Yi are afraid of reinflating bubbles,” said one person who has worked closely with Yi. “They want to provide liquidity to those who need it, but think they can do that [through bank reserve requirement cuts and targeted lending guidelines] rather than using broad measures.”“Opening up the flood gates is great for other parts of the country that are not affected by lockdowns but for those that are, it’s not going to make much difference.”Additional reporting by Emma Zhou in Beijing

Video: Evergrande: the end of China’s property boom More

SEOUL (Reuters) -South Koreans expect inflation to average around 3.1% over the next 12 months, led by rising global energy prices, the highest they have anticipated in nine years, according to a Bank of Korea survey of consumers released on Wednesday.The same survey found consumers braced for higher borrowing costs ahead, cementing market views that the central bank would further raise interest rates over coming months, having already hiked four times since August.”The survey index partly reflects a lagging effect from recent price rises but this finding will surely influence policy makers at the central bank,” said Moon Hong-cheol, economist at DB Financial Investment.The central bank’s survey in March found median inflation expectation for the coming year at 2.9%. The April 2022 reading was the highest since April 2013, when inflation expectations hit 3.1%.The International Monetary Fund (IMF) last week raised its forecast for South Korea’s 2022 annual inflation to 4.0% from 3.1% previously.The consumer sentiment index from the survey of 2,500 households, conducted between April 12 and 19, rose to a 3-month high of 103.8 from 103.2 in March. The index stood above the 100-point threshold for a 14th consecutive month. More

The RBNZ had requested for feedback on the merits and design features of DSRs on residential mortgage lending from banks, the industry and the public in November, as it deals with a red-hot housing market.The central bank said first-home buyers are likely to be least impacted by a debt-to-income (DTI) restriction, a type of DSR which imposes a cap on how much debt a borrower owes as a multiple of income. It added that test interest rates of banks have begun to rise in-line with market rates, and a slowdown in high-DTI lending is expected in the next few months.The RBNZ also said it does not see an urgent need to impose an interim test rate floor, used by banks to test the ability of borrowers to continue repaying their loans if interest rates rise to a certain level, at this stage. It, however, added it was monitoring the situation closely and does not rule out the option if there was a resurgence of risky lending in the housing market. More

(Reuters) -Federal Reserve Governor Lael Brainard won confirmation in the U.S. Senate on Tuesday to be the U.S. central bank’s next vice chair, a week ahead of a key Fed meeting where policymakers are expected to ramp up their battle against inflation with a big interest-rate hike and the start of a balance sheet reduction.The vote was 52-43 as several Republicans joined Democrats to meet the 51-vote minimum for confirmation, the first of U.S. President Joe Biden’s four Fed nominees to clear that hurdle. But Republicans blocked progress for a second Fed nominee, Michigan State University’s Lisa Cook, who would be the first Black woman to serve on the Fed’s Board since the central bank’s founding in 1913. Two Democrats and Senate tie-breaker Vice President Kamala Harris reported testing positive for COVID-19 on Tuesday.That left Biden’s party without the requisite numbers on Tuesday to overcome unified Republican opposition to Cook in the evenly divided Senate. OTHER FED NOMINEESBiden’s two other Fed nominees do have bipartisan support: Fed Chair Jerome Powell, renominated to his current position, and Davidson College dean of faculty Philip Jefferson, nominated to a vacant seat on the Board. But on Tuesday lawmakers failed to agree on a date to hold those confirmation votes. Banking Committee Chair Sherrod Brown said they would circle back to a vote on Cook once the quarantining Democrats return. After Tuesday’s 47-51 vote on Cook, Senate Leader Chuck Schumer entered a motion to reconsider Cook’s nomination that will make a future confirmation attempt possible. For now, the partisan deadlock will not impact Fed action. Powell remains in charge of Fed monetary policy and the central bank, and with Brainard as his deputy, is expected to lead the U.S. central bank in lifting interest rates to at least 2.5% by the end of this year, up from a range of 0.25% to 0.5% now. But even after the newcomers join, the Fed is unlikely to change course. At their confirmation hearings earlier this year, both Jefferson and Cook noted the economic harms of too-high inflation.Since then, inflation has soared further and the Fed has taken a more aggressive posture. Biden plans to fill the last of the Fed Board’s seven seats by nominating former Treasury official Michael Barr to be the Fed’s vice chair of supervision.Barr’s paperwork is expected to be submitted this week and the White House hopes to have him confirmed by the end of May, a source familiar said earlier this week.Sarah Bloom Raskin, Biden’s initial choice for that job, withdrew her name from consideration last month after Republicans on the Senate banking committee blocked a vote on her appointment and a key Senate Democrat signaled he would not support her. More

WASHINGTON (Reuters) -U.S. and British trade officials will meet again in Boston in June to continue their dialogue on strengthening trade ties, the two countries said in a joint statement on Tuesday, after two days of talks in Aberdeen, Scotland.U.S. Trade Representative Katherine Tai and British Trade Secretary Anne-Marie Trevelyan agreed to work in coming weeks on an “ambitious roadmap” on digitizing U.S.-UK trade, supporting small- and medium-sized businesses, building resilience in critical supply chains, and addressing the global trade impacts of Russia’s invasion of Ukraine, the statement said.The roadmap will also look at promoting environmental protection and the transition to net zero, supporting high labor and environmental standards, and promoting innovation, it said.Tai and Trevelyan met with stakeholders from the U.S. and UK business communities, trade unions and civil society, during the talks in Aberdeen. Those came after similar talks in Baltimore last month.They pledged to stand with Ukraine in the face of Russian President Vladimir Putin’s “unprovoked, premeditated attack” and said they were ready to increase the economic pressure on Russia, the statement said.Russia describes its action as a “special military operation.””Ministers agreed that their officials would remain closely coordinated, and they will encourage other international partners, including the (Group of Seven advanced economies) and other (World Trade Organization) members, to take action in support of Ukraine’s economic recovery,” the statement said.The date of the June meeting in Boston was not disclosed.Given the lack of progress on a broad U.S.-UK trade agreement, Britain is working with about 20 U.S. states to secure individual trade deals as soon as next month, trade policy minister Penny Mordaunt told parliament last week.Britain and the United States entered into formal negotiations about a bilateral trade deal under the former Trump administration, but the government of President Joe Biden shelved those talks to focus more on specific challenges such as labor rights, supply chains and the low-carbon transition. More

CAPE CANAVERAL, Fla. (Reuters) – Elon Musk’s rocket company SpaceX was due to launch the next long-duration astronaut crew to the International Space Station (ISS) for NASA early on Wednesday, including a medical doctor turned spacewalker and a geologist specializing in Martian landslides.The SpaceX launch vehicle, consisting of a two-stage Falcon 9 rocket topped with a Crew Dragon capsule dubbed Freedom, was set for liftoff with its four-member crew at 3:52 a.m. EDT (0752 GMT) from NASA’s Kennedy Space Center in Cape Canaveral, Florida.If all goes according to plan, the three U.S. astronauts and their European Space Agency (ESA) crewmate from Italy will reach the space station about 17 hours later to begin a six-month science mission orbiting some 250 miles (420 km) above Earth.During a pre-launch briefing on Tuesday, NASA officials said forecasts called for a 90% chance of favorable weather conditions for an on-time lift-off.”Flying safely with crew means that you’ve got to do it one step at a time,” Kathryn Lueders, associate NASA administrator for space operations, told reporters. “We’re hoping that you’ll get to see a really, really beautiful step, and we’ll get our crew safely to orbit.”The latest mission, designated Crew 4, would mark the fourth full-fledged ISS crew NASA has sent to orbit aboard a SpaceX vehicle since the private rocket venture founded by Musk, also owner of electric carmaker Tesla (NASDAQ:TSLA) Inc, began flying U.S. space agency astronauts in 2020. In all, SpaceX has launched six previous human spaceflights over the past two years.Assigned as Crew 4 commander is Dr. Kjell Lindgren, 49, a board-certified emergency medicine physician and one-time flight surgeon making his second trip to the ISS, where he logged 141 days in orbit in 2015. During that expedition, he performed two spacewalks and participated in more than 100 science projects, including the “Veggie” lettuce experiment that marked the first time a U.S. crew member ate a crop grown in orbit.The designated pilot for mission is rookie astronaut Bob Hines, 47, a U.S Air Force fighter pilot, test pilot and aviation instructor who has accumulated more than 3,500 hours of flight time in 50 types of aircraft and has flown 76 combat missions.Another crew member making her debut spaceflight as mission specialist is Jessica Watkins, 33, a geologist who earned her doctorate studying the processes behind large landslides on Mars and Earth and went on to join the science team for the Mars rover Curiosity at NASA’s Jet Propulsion Laboratory (NYSE:LH).The Crew 4 flight will make Watkins the first African American woman to join a long-duration mission aboard the International Space Station. She follows in the footsteps of only seven other Black astronauts to have boarded ISS since its inception more than two decades ago.Rounding out Crew 4 is Samantha Cristoforetti, 45, an ESA astronaut and Italian Air Force jet pilot making her second flight to the space station and slated to assume command of ISS operations during the team’s six-month stint, becoming Europe’s first woman placed in that role.Cristoforetti and Watkins previously served together as aquanauts in the Aquarius underwater habitat of the NASA Extreme Environment Mission Operations (NEEMO) mission in 2019. The Crew 4 team will be welcomed aboard by seven existing ISS occupants, the four Crew 3 members they will be replacing – three American astronauts and a German ESA crewmate due to end their mission in early May – and three Russian cosmonauts.The launch comes less than two days after a separate four-man team organized by Houston-based company Axiom Space returned from a two-week mission as the ISS’s first all-private astronaut crew, splashing down on Monday in a different SpaceX capsule.It also follows a flurry of recent astro-tourism flights. Last July, two commercial space operators, Blue Origin and Virgin Galactic Holding Inc, launched back-to-back suborbital flights with their respective billionaire founders, Jeff Bezos and Richard Branson, riding along. More

The central bank begins a two-day meeting on Wednesday and is poised to maintain its negative interest rate and asset purchase programs, according to 89% of economists surveyed by Bloomberg. About 10% of those polled expect a shift in forward guidance toward a tightening direction.BOJ Governor Haruhiko Kuroda is in an awkward position given that his commitment to an easing stance has helped fuel the yen’s rapid weakening, adding to households and firms’ woes by exacerbating soaring energy prices. At the same time, any tightening would cool an economy that’s yet to return to its pre-Covid level and hurt Kuroda’s credibility given inflation remains well short of the stable 2% he is seeking. The BOJ’s communications task will be further complicated by the release of its quarterly outlook. The report will probably show forecast inflation revised up toward 2%, mainly due to the sharp rise in fuel prices, people familiar with the matter told Bloomberg earlier this month. The bank will need to make clear the updated outlook doesn’t mean it is approaching its price stability target and that cost-push inflation is putting the economy at risk of a slowdown, the people said. Any figure beyond 1.2% would mean the BOJ is forecasting the fastest inflation in three decades, outside years when there were tax increases.The new projections and policy statement are likely to be released in the early afternoon Thursday, followed by Kuroda’s press briefing at 3:30 p.m.   What Bloomberg Economics Says…“The Bank of Japan is likely to keep policy unchanged, pushing back against market pressures that have tested its resolve to keep yields in its target band and its stomach for a weaker yen.”– Yuki Masujima, economistTo read the full report, click hereWhat to look for ©2022 Bloomberg L.P. More

This year’s decline in stock prices follows a historical pattern: “When unemployment is ultra low, the uppity times are behind us,” a bank research chief said.The U.S. unemployment rate is 3.6 percent — only a hair above its level just before the pandemic, which was a 50-year low. Corporate profits rocketed by 35 percent in 2021, and profit margins were at their widest since 1950. Yet stocks have been hammered lately: Two key stock indexes, the S&P 500 and the Nasdaq 100, have been deep in negative terrain since the start of the year.What may seem a contradiction is actually a historical pattern: Hot labor markets and hot stock markets often don’t mix well.In fact, times of low unemployment are correlated with somewhat subdued stock returns, while valuations trend higher on average during periods of high unemployment. Analysts explain this phenomenon as a plain function of the unemployment rate’s status as a “lagging indicator” — letting people know how the economy was faring in the immediate past — while the stock market itself constantly serves as a “leading indicator,” coldly, if somewhat imperfectly, projecting an evolving consensus about the fate of companies as time goes on.“When unemployment is ultra low, the uppity times are behind us, and when it’s super high, there are good times ahead,” said Padhraic Garvey, a head of research at ING, a global bank.Stocks outperform on average when unemployment is high.Average annual returns in the S&P 500 index from 1948 to 2022, by the concurrent rate of unemployment

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Average annual returns
Note: The S&P 500 index was formally introduced in 1957. The performance of companies prior to 1957 that joined the index later are included in this analysis.Sources: Ben Koeppel, BXK Capital; Ben Carlson, Ritholtz Wealth By The New York TimesIn 2007, for instance, unemployment sank as low as 4.4 percent, but the annual return for the S&P 500 index was only 5.5 percent. Stocks plunged during the financial crisis the next year — and then, in 2009, as unemployment ripped higher to 10 percent, the index gained 26.5 percent. (Breaks in the pattern occur, since various tailwinds for big business, such as the tech boom of the 1990s, can briefly overpower historical trends.)When recoveries peak, investor exuberance can lead to excessive risk taking by businesses, which plants the seeds of the next downturn — just as workers are benefiting from being in high demand, with their higher wages cutting into corporate cash piles built up during good times, putting pressure on near-term profits. Financial investors also have to contend with the Federal Reserve’s response to the cycle — if there’s inflation, as there is now, a strong labor market may give it room to raise interest rates. A weak one can pressure it to cut rates. Action in either direction affects stock valuations.The State of Jobs in the United StatesJob openings and the number of workers voluntarily leaving their positions in the United States remained near record levels in March.March Jobs Report: U.S. employers added 431,000 jobs and the unemployment rate fell to 3.6 percent ​​in the third month of 2022.Job Market and Stocks: This year’s decline in stock prices follows a historical pattern: Hot labor markets and stocks often don’t mix well.New Career Paths: For some, the Covid-19 crisis presented an opportunity to change course. Here is how these six people pivoted professionally.Return to the Office: Many companies are loosening Covid safety rules, leaving people to navigate social distancing on their own. Some workers are concerned.This year, in addition to those forces, the war in Ukraine has slowed global growth and added to the pandemic’s strain on global supply chains, increasing the cost of raw materials.Senior executives at Morgan Stanley wrote in a recent note that their “strategists see higher wages amid the tightening labor market and related labor shortages posing a risk to 2022 corporate profit margins,” adding a reminder that “what matters for markets isn’t always the same as what matters for the aggregate economy.”Wage growth, milder in recent history, has spiked quickly.Median wage growth for hourly workers from the prior year, three-month average

Note: Gaps in the data are due to methodology changes in the Current Population Survey that prevent year-over-year comparisons.Source: Federal Reserve Bank of AtlantaBy The New York TimesEven though large companies achieved record profit margins last year, earnings estimates for many firms are declining compared with expectations set earlier this year. Recent “wage inflation,” as many frame it, is seen by countless stock traders as adding one burden too many — rapid enough to worry not only executives but also some prominent liberal economists who typically shrug off complaints about labor expenses as overplayed.Federal Reserve data shows that median annual pay increases are within the range — 3 to 7 percent — that prevailed from the 1980s until the 2007-9 recession. But a variety of leaders in business and in government, including the Fed chair, Jerome H. Powell, and Treasury Secretary Janet L. Yellen, have become more wary of their brisk pace.Corporate profits hit new highs last year.After-tax profits for U.S. corporations, seasonally adjusted

Notes: Profits are in current dollars, not adjusted for inflation, minus capital consumption adjustment or inventory valuation adjustment (IVA). Sources: U.S. Bureau of Economic Analysis; Federal Reserve Bank of St. LouisBy The New York TimesIn the nonfinancial “real” economy, intense competition for workers that leads to greater choice and compensation is positive “because we’re making more money, we have more money to spend, we can absorb inflation better because we’ve gotten raises,” said Liz Young, head of investment strategy at SoFi, a San Francisco-based financial services company. At the same time, she acknowledged, “The other thing with a tight labor market is that when wages increase somebody has to pay for that.”Through most of the swift recovery from the pandemic-induced recession, money managers made a simple bet on the strengthening labor market as a signal that more people earning more disposable income would lead to even more spending on goods and services sold by the companies they trade, enhancing their future earnings.Now, the calculus on Wall Street isn’t so simple.In the coming months, many financial analysts say they’ll pay less attention to data on job creation and focus instead on growth in average hourly earnings — cheering for them to flatten or at least moderate, so that labor costs can ebb.Stocks have tumbled so far in 2022.S&P 500 daily close through April 26

Source: S&P Dow Jones Indices LLCBy The New York TimesAfter three years of outsized returns, the down year in markets is compounding the sour mood among the nation’s broadly defined middle class, whose wage gains have generally not kept up with inflation, and whose retirement savings and net worth (outside of home equity) are partly tied to such indexes. The University of Michigan consumer sentiment index has been hovering near lows not reached since the slow jobs recovery after the 2008 financial crisis.Ultimately, this cranky disconnect between strong jobs data and the national mood may stem from an initial lag between relative winners and losers in this robust-but-rocky recovery: The economic benefits of tightening an already-tight labor market are, in the short run, relatively concentrated — accruing to those with lower starting wages and less formal education, and to demographic cohorts like Black Americans, who are often “last hired, first fired” during business cycles. In the meantime, the downsides of even temporary high inflation are diffuse — spread broadly across the population, though frequently damaging the finances of lower-income groups the most.It remains true that the increased demand for labor has helped millions of workers come out ahead. After adjusting for inflation, wages have fallen for middle- and high-income groups but risen for the bottom third of earners on average: The wages of the typically lower-paid employees of the leisure and hospitality industry — the broad sector focused on travel, dining, entertainment, recreation and tourism — have risen nearly 15 percent over the past year, far outpacing inflation.A substantial bloc of economists are contending that wages are receiving too much blame for inflation. A recent analysis across 110 industries by the Economic Policy Institute, a progressive think tank based in Washington, concluded that wage growth wasn’t correlated with the surge in costs that suppliers dealt with last year, suggesting that much of inflation could still be stemming from other forces, like supply chain imbalances.Many analysts believe that if unemployment stays low enough for long enough, the fruits of a hot labor market will widen — creating a virtuous cycle in which employers increase pay for various rungs of workers, while economizing their business models to become more efficient, increasing capacity, productivity and the health of corporate balance sheets.That hope is under threat, as the Federal Reserve proceeds with a plan to increase borrowing costs by quickly raising interest rates to rein in some lending, consumer spending, business investment and demand for labor.Despite various challenges, the most optimistic market participants predict that employers, workers and consumers can experience a so-called “soft landing” this year, in which the Fed increases borrowing costs, helping inflation and wage growth moderate without a painful slowdown that kills off the recovery: Morgan Stanley strategists, for instance, expect real wages to turn positive overall by midyear, outpacing price increases, as inflation eases and pay rates maintain some strength. That could be a boon for stocks as well.“It’s possible that over the next few quarters the labor market continues to be tight despite the Fed hiking,” said Andrew Flowers, a labor economist at Appcast, a tech firm that helps companies target recruitment ads. He still sees an “overwhelming appetite” for hiring.Although especially low unemployment isn’t typically a bullish sign for stocks, some recent years have bucked the trend. In 2019, when the S&P 500 returned roughly 30 percent, unemployment by year’s end had fallen to 3.6 percent, in line with present levels.In such an uncertain environment, forecasts for how stocks will fare by the end of the year are varying widely among top Wall Street firms. By several technical measures, the market’s trajectory is currently near “make or break” levels.Public companies have “become massively efficient, so from an operating performance basis, they’ve been able to take on these extra costs,” said Brian Belski, the chief investment strategist at BMO Capital Markets. The outlook from Mr. Belski’s bank is among the most confident, with a call that the S&P 500 index will finish 2022 at 5,300 — 27 percent above Tuesday’s close, and far above most estimates.“At the end of the day, I think for the economy it’s good that we are seeing these sort of wages,” he said. “Don’t ever bet against the U.S. consumer, ever.” More