Category Archives: Business

Fed raise rates again, says will not relent in inflation fight

  • Fed raises policy rate to 2.25%-2.50% range
  • U.S. central bank flags weakening economic data
  • Fed’s Powell to speak at 2:30 p.m. EDT (1830 GMT)

WASHINGTON, July 27 (Reuters) – The Federal Reserve raised its benchmark overnight interest rate by three-quarters of a percentage point on Wednesday in an effort to cool the most intense breakout of inflation since the 1980s, and U.S. central bank chief Jerome Powell said another “unusually large” hike may be appropriate in September if price pressures have not sufficiently abated.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the rate-setting Federal Open Market Committee said as it lifted the policy rate to a range of between 2.25% and 2.50%.

The FOMC added that it remains “highly attentive” to inflation risks. Powell emphasized that point in a news conference after the release of the unanimous policy decision, saying it was “essential” to bring inflation lower.

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Fed officials are “acutely aware” of the hardship that inflation imposes on American households, particularly for those with limited means, Powell said, and they will not relent in their effort until presented with “compelling evidence” that inflation is coming down.

Inflation has surged this year to four-decade highs and, when measured by the Fed’s preferred gauge, is running at more than three times the central bank’s 2% target.

Reuters Graphics Reuters Graphics

“Restoring price stability is just something we got to do,” Powell said. “There isn’t an option to fail to do that.”

While jobs gains have remained “robust,” officials noted in the new policy statement that “recent indicators of spending and production have softened,” a nod to the fact that the aggressive rate hikes they have put in place since March are beginning to bite.

Still, Powell insisted the economy enjoys underlying strength.

“I do not think the U.S. is currently in a recession,” he said, citing an unemployment rate that is still near a half-century low and solid wage growth and job gains. “It doesn’t make sense that the U.S. would be in recession.”

But bringing inflation down to the Fed’s goal “is likely to involve a period of below-trend economic growth, and some softening of labor market conditions, but such outcomes are likely necessary to restore price stability and to set the stage for achieving maximum employment and stable prices over the longer run.”

DATA-DEPENDENT

Coming on top of a 75-basis-point hike last month and smaller moves in May and March, the Fed has raised its policy rate by a total of 225 basis points this year as it battles a 1980s-level breakout of inflation with 1980s-style monetary policy.

The policy rate is now at the level most Fed officials feel has a neutral economic impact, in effect marking the end of pandemic-era efforts to encourage household and business spending with cheap money. The rate also matches the high point of the central bank’s previous tightening cycle from late 2015 to late 2018, a level reached this time in the span of just four months.

The latest policy statement gave little explicit guidance about what steps the Fed may take next, a decision that will depend heavily on whether upcoming data shows inflation beginning to slow.

With the most recent data showing consumer prices rising at more than a 9% annual rate, investors expect the U.S. central bank to raise its policy rate by at least half a percentage point at its Sept. 20-21 meeting.

“While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data we get between now and then,” Powell said. “We will continue to make our decisions meeting by meeting, and communicate our thinking as clearly as possible.”

Futures markets tied to Fed policy expectations tilted somewhat back toward a more moderate increase for the next meeting as Powell spoke.

In the U.S. Treasury market, which plays a key role in the transmission of Fed policy decisions into the real economy, yields on the 2-year note most sensitive to policy expectations moved lower. The yield on the 10-year note was little changed.

Stocks on Wall Street added to broad gains in the session, with the S&P 500 index (.SPX) closing 2.6% higher, while the dollar (.DXY) weakened against a basket of major trading partners’ currencies.

“From here, it is possible that the Fed slows its tightening pace, reassured by the likely peaking of inflation and pullback in inflation expectations as oil prices have fallen,” Seema Shah, chief global strategist at Principal Global Investors, said in a note. “However, with the labor market still a picture of strength, wage growth still uncomfortably high and core inflation set to decline at a glacially slow pace, the Fed certainly cannot stop tightening, nor can it down shift gears too much.”

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Reporting by Howard Schneider and Ann Saphir; Editing by Dan Burns and Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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F.T.C. Sues to Block Meta Virtual Reality Deal as It Confronts Big Tech

WASHINGTON — The Federal Trade Commission on Wednesday filed for an injunction to block Meta, the company formerly known as Facebook, from buying a virtual reality company called Within, potentially limiting the company’s push into the so-called metaverse and signaling a shift in how the agency is approaching tech deals.

The antitrust lawsuit is the first to be filed under Lina Khan, the commission’s chair and a leading progressive critic of corporate concentration, against one of the tech giants. Ms. Khan has argued that regulators must stop violations of competition and consumer protection laws when it comes to the bleeding edge of technology, including virtual and augmented reality, and not just in areas where the companies have already become behemoths.

The F.T.C.’s request for an injunction puts Ms. Khan on a collision course with Mark Zuckerberg, Meta’s chief executive, who is also named as a defendant in the request. He has poured billions of dollars into building products for virtual and augmented reality, betting that the immersive world of the metaverse is the next technology frontier. The lawsuit could crimp those ambitions.

“Meta could have chosen to try to compete with Within on the merits,” the F.T.C. said in its lawsuit, which was filed in the United States District Court for the Northern District of California. “Instead, it chose to buy” a top company in what the government called a “vitally important” category.

In a statement, Meta said the F.T.C.’s case was “based on ideology and speculation, not evidence. The idea that this acquisition would lead to anticompetitive outcomes in a dynamic space with as much entry and growth as online and connected fitness is simply not credible.” The company added that the lawsuit was an attack on innovation, with the agency “sending a chilling message to anyone who wishes to innovate in V.R.”

Meta said it would acquire Within, which produces the highly popular fitness app called Supernatural, last year for an undisclosed sum. The company has promoted its virtual reality headsets for fitness and health purposes.

The lawsuit is part of a wave of actions against Meta and other large tech companies like Google, Apple and Amazon, which have increasingly faced scrutiny for their power and dominance. Under Ms. Khan’s predecessor, the F.T.C. filed a lawsuit against Facebook that argued the company shut down nascent competition through acquisitions. The Justice Department has also sued Google over whether the company abused a monopoly over online search.

More cases could be coming. The F.T.C. is investigating whether Amazon has violated antitrust laws, and the Justice Department has inquiries into Google’s dominance over advertising technology and into Apple’s App Store policies.

Mr. Zuckerberg has been pushing Meta away from its roots in social networking as the company’s apps, like Facebook and Instagram, face increasing competition and issues such as privacy and misinformation.

To support the push into the metaverse, Mr. Zuckerberg has reassigned employees and put a top lieutenant in charge of the efforts. He has also authorized lieutenants to pursue some of the most popular games in the V.R. space. In 2019, Facebook purchased Beat Games, makers of the hit title Beat Saber, one of the top V.R. games on the Oculus platform.

Meta is scheduled to report quarterly earnings later on Wednesday. The company has recently trimmed employee perks and reined in spending amid uncertain economic conditions.

The F.T.C.’s move could be viewed as an attempt to learn from history. The agency approved Facebook’s 2012 acquisition of Instagram, the photo-sharing app that has grown to more than one billion regular users. Instagram has helped Meta dominate the market on social photo sharing, though other start-ups have sprung up since.

John Newman, the deputy director of the F.T.C.’s Bureau of Competition, said the agency acted on the Within deal because Meta was “trying to buy its way to the top.” The company already owned a best-selling virtual reality fitness app, he said, but then chose to acquire Within’s Supernatural app “to buy market position.” He called the deal “an illegal acquisition, and we will pursue all appropriate relief.”

The F.T.C.’s vote to authorize the filing was split 3 to 2.

This is a developing news story and will be updated.

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Exclusive: Cassava Sciences faces U.S. criminal probe tied to Alzheimer’s drug, sources say

WASHINGTON, July 27 (Reuters) – The U.S. Justice Department has opened a criminal investigation into Cassava Sciences Inc (SAVA.O) involving whether the biotech company manipulated research results for its experimental Alzheimer’s drug, two people familiar with the inquiry said.

The Justice Department personnel conducting the investigation into Austin, Texas-based Cassava specialize in examining whether companies or individuals have misled or defrauded investors, government agencies or consumers, according to the sources, who spoke on condition of anonymity. The sources did not provide details of the focus of the probe and whether the department was looking into any specific individuals.

As in any Justice Department investigation, this one could lead to criminal charges or be closed without any charges being brought.

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In an emailed statement, Kate Watson Moss, a lawyer representing Cassava, neither confirmed nor denied the existence of the Justice Department criminal probe.

“To be clear: Cassava Sciences vehemently denies any and all allegations of wrongdoing,” Watson Moss said, adding that the company “has never been charged with a crime, and for good reason – Cassava Sciences has never engaged in criminal conduct.”

Watson Moss added that Cassava Sciences has received confidential requests for information from government agencies, but declined to identify those agencies. Watson Moss said that “Cassava Sciences has provided information in response to these requests in full satisfaction of its legal obligations.” Watson Moss added that no government agency has accused the company of wrongdoing.

A Justice Department spokesperson declined to comment.

The company already was facing scrutiny from the U.S. Securities and Exchange Commission and investors after two physicians from outside Cassava last year made allegations of data manipulation and misrepresentation involving research underpinning the company’s Alzheimer’s drug, called simufilam.

Cassava, a small company with about two dozen employees, in a statement last year called the allegations of data manipulation and misrepresentation “false and misleading.”

Cassava on its website describes simufilam as taking an “entirely new approach” to treating Alzheimer’s, the most common form of dementia and a progressive brain disorder that affects nearly 6 million Americans. The oral medication restores the normal shape and function of a key protein in the brain, the company said.

A PETITION TO THE FDA

The criminal investigation began, according to the sources, sometime after a petition was filed in August 2021 with the U.S. Food and Drug Administration by a lawyer on behalf of two physicians asking the agency to halt clinical trials of simufilam. The physicians are David Bredt, a neuroscientist formerly at Johnson & Johnson’s Janssen, and Geoffrey Pitt, a cardiologist who serves as director of Weill Cornell Medicine’s Cardiovascular Research Institute in New York.

The petition filed by Jordan Thomas, a New York-based lawyer representing both doctors, said Cassava’s published studies on clinical trials involving simufilam in various journals contained data misrepresentation and images of experiments that appeared to have been manipulated by photo-editing software. The FDA denied the petition and let the trials proceed.

Bredt and Pitt disclosed last November in an article published by The Wall Street Journal that they shorted Cassava’s stock, betting that the price would go down once investors learned of the manipulation they alleged. They later told The New Yorker magazine that they no longer have a short position in Cassava, a claim Reuters could not independently verify.

The short-selling represents “a major conflict of interest,” Watson Moss said in her statement to Reuters.

“Cassava Sciences is interested in helping those with Alzheimer’s disease, not an easy payday,” Watson Moss added.

STOCK DROP

Cassava’s stock fell precipitously following the petition filed with the FDA by Thomas, presenting an opportunity for Bredt and Pitt to profit on their bet against the company.

Thomas declined to comment on the matter.

The FDA in February said the so-called citizen petition filed by the two physicians urging it to launch an investigation into simufilam was not a proper avenue for such a request. Requests for the FDA to initiate an enforcement action, meanwhile, are “expressly excluded from the scope of the FDA’s citizen petition procedures,” the agency said, adding that it exercises its own discretion on such matters.

An FDA spokesperson declined to comment.

Cassava shares rose on Nasdaq from around $7 in January 2021 to above $135 in July 2021 on investor hopes that the company was on the verge of a breakthrough in treating Alzheimer’s. The stock plunged weeks later following word of the petition questioning Cassava’s research results.

The company’s shares closed at $21.72 on Tuesday.

Cassava has received more than $20 million from the U.S. National Institutes of Health to support developing simufilam.

The NIH told Reuters it does not discuss potential cases of research misconduct related to grants but that officials “take research misconduct very seriously. Research misconduct may distort NIH funding decisions, the overall integrity of the research we support and the public’s trust in science and resulting outcomes.”

Cassava also is facing the SEC investigation, the sources said. The Wall Street Journal last November first reported on the SEC probe, saying the agency was examining the claims made in the FDA petition. Reuters was unable to determine what specific claims, if any, drew the agency’s scrutiny.

An SEC spokesperson said the agency “does not comment on the existence or nonexistence of a possible investigation.”

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Reporting by Marisa Taylor in Washington and Mike Spector in New York; Editing by Will Dunham and Michele Gershberg

Our Standards: The Thomson Reuters Trust Principles.

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Boeing Profit Falls as Executives Point to Turnaround

The company said its second-quarter results showed it was making progress in stabilizing its operations after a series of production and regulatory problems have prevented it from delivering commercial aircraft on time and without quality issues.

“We do believe we’re in the middle of a momentum shift,” Chief Executive

David Calhoun

said in a call with analysts Wednesday.

Boeing shares were recently trading around even, having climbed more than 3% at one point.

Production of the 737 MAX has reached 31 planes a month, up from 16 a year ago, as it deals with supply-chain challenges such as engine shortages that are also affecting rival Airbus SE, which reports quarterly earnings later Wednesday. Boeing has said it stepped up 737 deliveries in June.

Executives said Wednesday Boeing appeared on the verge of receiving regulatory approval to resume deliveries of its wide-body 787 Dreamliner. A series of production issues has kept the plane maker from handing over that jet to customers for much of the last two years, leaving it with more than $25 billion of the aircraft in inventory.

A rebound in air travel has fueled airlines’ continued demand for new aircraft, which Mr. Calhoun said hasn’t slowed. “While we understand the sort of recession fears that are growing out there, so far it has not impacted the aviation industry or our customers,” Mr. Calhoun said.

Boeing is typically nearly tied for orders with rival Airbus entering the annual Farnborough Air Show, but this year it’s well behind. WSJ’s George Downs reports from the show on how Boeing is trying to catch up and what it will take to restore balance to the aviation duopoly. Illustration: Rami Abukalam

The company on Wednesday reported a profit of $160 million, or 32 cents a share, for the three months to June 30, down from $567 million, or $1, during the same period a year earlier.

The adjusted per-share loss of 37 cents, which excludes pension charges, fell short of the 13-cent loss consensus among analysts polled by FactSet. Sales in the quarter fell 2% to $16.7 billion, with analysts expecting $17.6 billion.

Results of Arlington, Va.-based Boeing’s defense business continued to be weighed down by around $400 million in charges during the quarter. This included $93 million on its Starliner space capsule in the quarter. Boeing successfully launched the Starliner in May, but it has incurred higher costs after earlier failed attempts to launch and dock with the International Space Station. It also took a $147 million charge on its MQ-25 refueling drone as costs rose to meet requirements set by the U.S. Navy.

Boeing faces a possible strike at three of its defense plants from Aug. 1 after workers rejected a new contract, which Mr. Calhoun said on CNBC could disrupt deliveries.

The company said it had positive operating cash flow in the second quarter. It reiterated the target of generating surplus cash for the full year.

Over the last couple of years, Boeing has dealt with production and regulatory problems that have impeded a recovery from two crises: a nearly two-year grounding of its 737 MAX after two fatal crashes in 2018 and 2019, and the pandemic’s hit to demand for new aircraft.

A year ago, Mr. Calhoun expressed optimism, telling analysts in July 2021: “We are turning a corner, and the recovery is gaining momentum.”

More recently, Mr. Calhoun has said this year would mark a turning point. “I can’t measure it week by week or month by month or even quarter by quarter, but I know the year is going to be substantially better,” he said at a June analyst event.

Airbus has been producing its A320 narrow-body family at a monthly rate of about 50, with a goal of reaching 75 by 2025. But Mr. Calhoun said Wednesday he couldn’t predict when Boeing would be in a position to increase its 737 MAX production rates, citing supply constraints as a barrier to ramping up.

“If I thought I had an engine supply, I’d do it today,” he said.

Boeing has had to slow production of its narrow-body aircraft this year due to supply bottlenecks, and getting stored MAX jets out of inventory has taken longer than the company anticipated. Scores of the planes have been in storage since the MAX grounding. Many of the MAX jets are bound for customers in China, which hasn’t allowed the aircraft to return to service in the country.

After previously saying it expected to deliver about 500 of 737 MAX jets by the end of the year, Boeing finance chief

Brian West

on Wednesday said the company now estimates it will deliver closer to 400 of the aircraft by the end of 2022. As of June 30, the company had handed over 181 of the aircraft to customers.

Write to Andrew Tangel at Andrew.Tangel@wsj.com and Doug Cameron at doug.cameron@wsj.com

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Pending home sales fell 20% in June as mortgage rates soared

A “Sale Pending” sign outside a house in Discovery Bay, California, on Thursday, March 31, 2022.

David Paul Morris | Bloomberg | Getty Images

Signed contracts to purchase existing homes dropped 20% in June compared with the same month a year ago, the National Association of Realtors said Wednesday.

That is the slowest pace since September 2011, with the exception of the first two months of the coronavirus pandemic lockdowns, when sales plunged briefly and then rebounded sharply.

On a monthly basis, pending home sales fell a wider-than-expected 8.6% in June. A Dow Jones survey of economists had predicted a 1% drop.

The steep declines coincided with a sharp jump in mortgage interest rates. The average on the 30-year fixed loan crossed over 6% in the middle of June, according to Mortgage News Daily. It started the year around 3%. Those high rates and inflation in the general economy are hitting buyer sentiment hard.

“Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date,” said Lawrence Yun, chief economist for NAR. “There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize.”

The drop in sales was widespread, with the South and West seeing the worst of it. In the Northeast, pending sales fell 6.7% compared with May and were down 17.6% from June 2021. Sales were off 3.8% for the month in the Midwest and down 13.4% annually.

In the South, sales declined 8.9% monthly and 19.2% from the previous year. The results were worst in the West as sales tumbled 15.9% monthly and 30.9% from June 2021.

Another report on sales of newly built homes in June, which are also counted by signed contracts, showed a similar drop, according to the U.S. Census. Builders are now offering more incentives to offload rising inventory, although prices are still higher than they were a year ago.

The NAR is now forecasting total sales for this year will be down 13%, but that they should start to rise in early 2023. But that upbeat forecast does depend on mortgage rate levels.

“Looking ahead, a slowdown in economic activity and pullback in business investments could lead to a moderation in the pace of mortgage rate gains, as investors shift allocations toward the safety of bonds,” said George Ratiu, senior economist at Realtor.com. “Combined with the increase in housing supply, we could see improved opportunities for homebuyers later in the year.”

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Stocks Rise Ahead of Fed Decision

U.S. stocks rose, boosted by a series of better-than-expected earnings reports, as investors awaited a critical interest-rate decision from the Federal Reserve. 

The S&P 500 climbed 0.9% Wednesday, rebounding a day after the broad benchmark index fell 1.2%. The Dow Jones Industrial Average advanced 0.4%, and the Nasdaq Composite jumped 1.6%.

Shares of megacap technology companies jumped after Microsoft and Google parent Alphabet reported earnings that were better than investors feared.

Microsoft,

despite suffering its slowest earnings growth in two years, gave an upbeat outlook for its full-year guidance, sending shares 4.3% higher.

Alphabet

shares advanced 3.7% after its results, which showed slowing sales growth, came in better than investors expected.

This week is a pivotal and busy week in financial markets, and traders around the world are awaiting an interest-rate decision from the Fed. The U.S. central bank is expected to lift its federal-funds rate by 0.75 percentage point, to a range between 2.25% and 2.5%, Wednesday afternoon.

Investors will be watching for any clues from central bankers on the size of further interest-rate increases this year—and whether officials expect to then turn around and begin cutting rates next year.

The U.S. stock market has performed well on days when the Fed has raised rates this year, Bespoke Investment Group noted Tuesday. Still, a 0.75-percentage-point increase Wednesday would mark the Fed’s second consecutive increase of that magnitude this year. The Fed hasn’t lifted rates that quickly since the 1980s.

“We want to hear what [Fed Chairman Jerome] Powell is thinking about the inflation outlook and what he is thinking about the growth outlook,” said

Seema Shah,

chief global strategist at Principal Global Investors. “But we have to be careful. We’ve learned in the last couple of months that we can’t read too much into any broad guidance.”

In the bond market, the yield on the benchmark 10-year U.S. Treasury note edged up to 2.792%, from 2.786% Tuesday. Yields rise when bond prices fall. The yield on the two-year note, meanwhile, rose to 3.063%, from 3.041% the day before.

Short-term yields have been elevated this year as investors have prepared for the Fed to keep aggressively raising interest rates, keeping the U.S. Treasury yield curve inverted. That signal is often seen as a key recession predictor.

Stocks are on track to close July with gains, though many investors don’t expect gains to be long-lasting. 

“It doesn’t mean that a recession isn’t going to happen within the next couple of quarters,” Ms. Shah said. “This is your ultimate bear-market rally.”

Investors have grown increasingly worried that the Fed could plunge the U.S. into a recession through tighter policy. Second-quarter gross-domestic product data on Thursday will provide insight into the economy’s recent performance.

Evidence is growing that the Federal Reserve has fallen well behind on inflation and needs to make up for lost time. WSJ’s Dion Rabouin explains how we got here and what the Fed is doing to catch up. Illustration: Ryan Trefes

Investors are also monitoring earnings results this week, the busiest of the earnings season, for clues about how companies are navigating decades-high inflation.

In earnings Wednesday,

Shopify

warned it expects higher inflation and rising rates to pressure consumers’ wallets, and noted that the strength of the U.S. dollar weighed on results. The company reported a loss in the second quarter, a day after The Wall Street Journal reported this week that the company is cutting 10% of its global workforce. Its stock added 3.2%.

Sherwin-Williams

‘ shares fell 12.1% after reported a decline in profit amid lower-than-expected sales, as the paint-and-coating manufacturer contended with high raw-material costs.

Boeing

reported a drop in sales and profit as it awaited regulatory approval to resume deliveries of its wide-body 787 Dreamliner. Still, its shares rose 2.7% after the company said it expects positive free cash flow for 2022.

Results from

Spotify Technology

and

Hilton Worldwide Holdings

offered investors some good news. Spotify shares climbed 12.5% after the music-streaming giant reported accelerated user growth and a rise in advertising revenue for the second quarter. Hilton Worldwide Holdings shares jumped 4.7% after the hotel chain raised its full-year earnings guidance.

Qualcomm

and

Facebook

parent Meta Platforms will report after Wednesday’s close.

Shares of growth and technology companies also rallied.

PayPal Holdings

jumped 8.2% after The Wall Street Journal reported that activist investor Elliott Management Corp. has a stake in the company. Meta climbed 2.6%, while

Peloton Interactive,

a pandemic-era darling, advanced 0.5%.

Traders worked on the floor of the New York Stock Exchange on Monday.



Photo:

Spencer Platt/Getty Images

Overseas, the Stoxx Europe 600 advanced 0.4%.

Credit Suisse

shares added 2.4% after the Swiss bank named a new chief executive and reported earnings that were worse than analysts expected. Shares of

Deutsche Bank

fell 2.7% after the bank, which reported a sharp rise in second-quarter profit, warned the months ahead will be challenging.

In energy markets, Brent crude, the international benchmark for oil prices, rose 1% to $100.45 a barrel.

In Asia, Hong Kong’s Hang Seng Index fell 1.1%, while China’s Shanghai Composite lost about 0.1%. Japan’s Nikkei 225 gained 0.2%.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com

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Facebook employees fear job losses and pay cuts

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Facebook has a message for employees, one delivered relentlessly by executives in recent weeks: It’s time to shape up.

In a memo earlier this month, the company’s top human resources officer advised team leaders to return to the “rigorous performance management” practices that Facebook used before the coronavirus pandemic, including giving critical feedback to struggling employees.

“If someone is still unable to meet expectations with that additional support, transitioning them out of Meta is the right thing to do,” wrote Lori Goler in a memo viewed by The Washington Post.

The missive, one of multiple recent such messages to the workforce at the social media giant, is part of a broader crackdown following years of laxer management practices, according to current and former employees who spoke on the condition of anonymity to discuss sensitive matters and internal message posts obtained by The Washington Post.

Facebook executives have issued a dizzying number of directives, outlining a new era of higher performance expectations and slowed hiring as the company emerges from the pandemic with a growing list of economic challenges.

“The atmosphere is intense,” said one of the employees. “People know budgets are being cut.”

Your boss might be reading your work messages. Here’s how to prevent that.

The blunt messaging from company leaders has created a wave of anxiety and resentment among Facebook’s workforce as many employees wonder how the company’s new priorities will affect their own careers, according to the current and former employees. Some are worried that they could lose their jobs or see their annual bonuses reduced. Others are concerned that an already rigorous corporate environment will grow even more competitive as employees jockey for fewer promotions, raises and coveted positions, the people said.

“Any company that wants to have a lasting impact must practice disciplined prioritization and work with a high level of intensity to reach goals,” Facebook spokesman Tracy Clayton said in a statement.

Once the symbol of Silicon Valley’s prosperity, Facebook has for years offered its employees state-of-the-art perks such as free food, generous family benefits and some of the highest salaries across the technology industry. The lucrative compensation, along with the allure of tackling interesting problems at a company transforming the way billions communicate, gave Facebook an edge to recruit and retain top-notch talent.

Now that mystique is cracking as Facebook grapples with both the macroeconomic challenges dragging down many tech companies and specific threats to its business. The company’s stock price has been slashed in half this year, following dismal earnings in March reflecting that its advertising business was harmed by Apple’s decision to impose a new privacy rule to block data collection for targeted advertising.

Meanwhile, growth at its flagship social network stalled for the first time last year as the company faces unprecedented competition for young users, creators and advertiser dollars from newer social media platforms, such as TikTok and Snapchat.

Big Tech is bracing for a possible recession, spooking other industries

The company last year changed its name to Meta, reflecting a big bet to stake its future on building out the so-called metaverse. The division, aiming to build immersive digital realms accessed by virtual-reality-powered devices, is, for now, a money-losing endeavor, according to company filings.

That means many Facebook managers and human resources representatives are being asked to shoulder a brand new responsibility: lead a 77,000-member workforce during a downturn.

“Morale, not just at Facebook but across big tech, has gone down significantly because it’s been a fairy tale story over the last decade,” said Dan Ives, an analyst at the financial services firm Wedbush Securities. Now, between the metaverse and specific business challenges, “it’s a darker chapter for the company that they need to navigate.”

There are signs that Facebook is making changes. The company recently reallocated people away from its Facebook News tab and newsletter platform Bulletin as those teams focus on luring creators to their social networks, according to the company. And at least one full-time employee has already been told his or her role is no longer necessary and they should look for another job within the company or leave, according to an employee familiar with the matter.

In leaked memo, Facebook tells managers low performers don’t belong

Facebook Chief Diversity Officer Maxine Williams said in an interview last week that the company hasn’t imposed an official hiring freeze but acknowledged some hiring targets for certain roles or departments are changing. She said team leaders are being asked to look at which open roles are truly necessary and which aren’t. Managers may also move employees from low-priority roles onto projects that are more important, Williams said.

“How we’re going about it is sort of reminding managers like you need to focus,” Williams said. “If we don’t focus well, we’ll be like spread everywhere, doing everything and doing nothing very well.”

Zuckerberg and other executives have also indicated in recent weeks that time is up for employees who don’t meet the company’s standards. Facebook’s head of engineering, Maher Saba, sent a memo to managers earlier this month encouraging them to identify their low performers and put them into an internal human resources system. “As a manager, you cannot allow someone to be net neutral or negative for Meta,” Saba said.

Many inside Facebook are worried the strong rhetoric from executives about the need to weed out the low-performers is just a cover to start making larger cuts — ones that may include workers performing adequately. That anxiety has been evident on Blind, a workplace app that gives users with a Facebook email unrestricted access to a private and anonymous message board.

The forum, usually a place where Facebook employees offer their unvarnished opinions about their workplace, has in recent weeks turned into a breeding ground for worker resentment, concern about the financial direction of the company and anxieties about a future with the company, according to messages viewed by The Washington Post.

Mixed messages on economy raises questions on recession risks

“It is sad [that] after many years in Meta things [are going down] this path, the culture is going to hell,” wrote one user. “Before you say it, I am leaving, just waiting for my Sept bonus pay as I did work hard to earn it.”

“Does anyone feel secure here?” posted another employee.

Williams and others inside Facebook have argued that executives’ focus on targeting of low performers reflects a desire to instill the rigorous culture of employee performance management that existed before the pandemic. In early 2020, Facebook suspended its biannual performance reviews and offered generous covid-19 leave policies so that employees felt free to juggle the demands of home with their jobs.

Some employees agree that the management culture at Facebook did — in some cases — become a little too soft during the pandemic.

Williams said that it likely depends on when the employee started working for Facebook, and how long they’ve been in the workforce. Those who worked for other companies likely have experienced this culture before.

Facebook forsakes friends and family to compete with TikTok

But Facebook workers also fear that the economic uncertainties and the company’s belt-tightening will make it more difficult to gain promotions, better pay or more lucrative bonuses , the people said.

In Silicon Valley, stock typically makes up a large portion of compensation, and a drop makes it harder for companies to attract and retain talent.

“I’m honestly just thinking about taking a break and live off savings or do something low key until this economic cycle passes,” wrote one user on Blind. “I don’t want to work under constant pressure.”

Another factor that is adding to the uncertainty is the company switch from a twice-a-year schedule for performance reviews. Clayton said in a statement the company adopted the new model, with a single review per year, to “better reflect the direction of the company with remote work in mind.” He added that employees “have always been held accountable to a goal-based culture of high performance.”

Typically, managers were advised to give out a wide range of ratings for their reports from that employee is only meeting some expectations of their job to that worker is redefining the expectations of their role, according to current and former employees.

Workers are picking up extra jobs just to pay for gas and food

Then managers — in coordination with the human resources department — made sure the ratings are “calibrated” across teams, with at least some employees receiving lower ratings, the people said.

While the rigidity of the process appeared fair on paper, in practice, it meant some good workers ended up getting lower ratings simply because their manager is pressured to fill the category, according to some of the employees. If Facebook wants to cut down the size of its workforce, it could make it harder to achieve higher ratings and easier to receive low ones.

“This feels like a shift in the internal culture. If I were still there, it would certainly make me feel more nervous than I ever did about reviews,” said Crystal Patterson, a former Facebook lobbyist. “The evaluation process is just naturally stressful. The bar is extremely high there.”

Elizabeth Dwoskin contributed reporting.

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Credit Suisse chairman denies plans to sell or raise capital after mammoth loss

Speculation has emerged in recent months that Credit Suisse may be considering a capital raise.

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Credit Suisse Chairman Axel Lehmann denied any intention to sell or merge the embattled Swiss lender after it reported a massive second-quarter loss.

The bank posted a net loss of 1.593 billion Swiss francs ($1.66 billion) on Wednesday and announced the immediate resignation of CEO Thomas Gottstein, who will be replaced by asset management CEO Ulrich Koerner.

Credit Suisse vowed to ramp up its efforts to overhaul the group’s structure in the wake of mounting losses and a string of scandals — most notably the Archegos hedge fund collapse — that have resulted in substantial litigation costs.

Speculation has emerged in recent months that Credit Suisse may be considering a capital raise and even a possible sale of the company, but Lehmann told CNBC’s Geoff Cutmore Wednesday that neither was in the cards.

“On capital, we reported, despite the loss today, a CET1 ratio of 13.5%. I am happy to see that number and we will guide the market also, in light of the uncertainty, that we are certainly going to defend our CET1 ratio until the end of the year, between 13 and 14%,” Lehmann said. CET 1, or common equity tier one capital, ratio is a measure of a bank’s solvency.

“So I think we are good on that one, and we will manage that very, very tightly.”

He also branded some of the speculation — such as the suggestion in a Swiss blog early last month that U.S. bank State Street could be readying a takeover bid for Credit Suisse — as “quite ridiculous.”

Asked if he had any plans to sell the company or merge with another bank, Lehmann said “that is a clear no.”

Credit Suisse has launched a strategic review as it looks to cut costs, redirect its wealth and asset management operations and overhaul its compliance and risk management functions. 

In Wednesday’s earnings report, the bank said it will provide further details on the progress of the review in the third quarter.

“We will be even more focused going forward on our wealth management franchise, multi-specialist asset manager and the very, very strong Swiss business,” Lehmann said.

“We will have a highly competitive banking business and we will align the markets business better to serve the needs of our wealth management and Swiss clients.”

He added that the board wishes to bring down its absolute cost base to less than 15.5 billion Swiss francs in the medium term.

However, Lehmann refused to be drawn on how many job losses this will entail, instead promising more detailed plans for the cost-cutting strategy in the third-quarter earnings.

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China’s property sales set for a worse plunge than in 2008, S&P says

Most apartments in China are sold before developers finish building them. Pictured here on June 18, 2022, are people selecting apartments at a development in Huai’an, Jiangsu province, near Shanghai.

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BEIJING — China’s property sales are set to plunge this year by more than they did during the 2008 financial crisis, according to new estimates from S&P Global Ratings.

National property sales will likely drop by about 30% this year — nearly two times worse than their prior forecast, the ratings agency said, citing a growing number of Chinese homebuyers suspending their mortgage payments.

Such a drop would be worse than in 2008 when sales fell by roughly 20%, Esther Liu, director at S&P Global Ratings, said in a phone interview Wednesday.

Since late June, unofficial tallies show a rapid increase in Chinese homebuyers refusing to pay their mortgages across a few hundred uncompleted projects — until developers finish construction on the apartments.

Most homes in China are sold before completion, generating an important source of cash flow for developers. The businesses have struggled to obtain financing in the last two years as Beijing cracked down on their high reliance on debt for growth.

Now, the mortgage strike is damaging market confidence, delaying a recovery of China’s real estate sector to next year rather than this year, Liu said.

If there is a sharp decline in home prices, this could threaten financial stability.

As property sales drop, more developers will likely fall into financial distress, she said, warning the drag could even spread to healthier developers “if the situation is not contained.”

There’s also the potential for social unrest if homebuyers don’t get the apartments they paid for, Liu said.

Limited spillover outside of real estate

Although the number of mortgage strikes increased rapidly within a few weeks, analysts generally don’t expect a systemic financial crisis.

In a separate note Tuesday, S&P estimated the suspended mortgage payments could affect 974 billion yuan ($144.04 billion) of such loans — 2.5% of Chinese mortgage loans, or 0.5% of total loans.

“If there is a sharp decline in home prices, this could threaten financial stability,” the report said. “The government views this as important enough to quickly roll out relief funds to address eroding confidence.”

Chinese policymakers have encouraged banks to support developers and emphasized the need to finish apartment construction. Authorities have generally expressed more support for real estate since mid-March, while maintaining a mantra of “houses are for living in, not speculation.”

“What worries us is the scale of those support is not big enough to save the situation, [which] now turns to [a] worse direction,” Liu said.

However, critically, Liu said her team doesn’t expect a sharp decline in house prices due to local government policy to support prices. Their projection is for a 6% to 7% decline in home prices this year, followed by stabilization.

And while S&P economists estimate about a quarter of China’s GDP is affected directly and indirectly by real estate, only part of that 25% is at a risk level, Liu said, noting the firm doesn’t have specific numbers on the impact of the mortgage strikes on GDP.

A bigger problem to unravel

China’s real estate sector has been intertwined with local governments and land use policy, making the industry’s problems difficult to resolve quickly.

In analysis published Tuesday, Xu Gao, director of the China Chief Economist Forum, pointed out the amount of residential floorspace completed annually has actually not grown on average since 2005, while the amount of land area sold has declined on average during that time.

The contraction stands in contrast with rapid growth in both land area sold and completed residences before 2005, when a new bidding process for land fully took effect, he said. The new bidding process tightened the supply of land and real estate, pushing up housing prices more than speculation did, Xu said.

Read more about China from CNBC Pro

Investors should only consider the best developers among high-yield China property debt, Goldman Sachs said in a report Tuesday. “We see relative value in their lower dollar priced longer duration bonds.”

But overall it’s a story of uncertainty in one of China’s largest sectors.

“To us, the continued stresses in the property sector coupled with the uncertainties related to COVID measures suggest a murkier outlook for China,” wrote credit strategist Kenneth Ho.

A possible scenario he laid out is one in which credit worries remain elevated but without real systemic concerns, creating a negative overhang for investor sentiment on high-yield credit markets.

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Google helps jittery stocks ahead of Fed

A man wearing a protective face mask, amid the coronavirus disease (COVID-19) pandemic, walks past a screen showing Shanghai Composite index, Nikkei index and Dow Jones Industrial Average outside a brokerage in Tokyo, Japan, February 14, 2022. REUTERS/Kim Kyung-Hoon

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  • Nasdaq futures up 1.5%, S&P 500 futures up 0.9%
  • Euro struggles as gas crisis crimps growth outlook
  • Aussie inflation surprises with downside miss; RBA bets ease

SINGAPORE, July 27 (Reuters) – Better-than-expected results at Microsoft and Google helped steady a nervous mood in stock markets on Wednesday, while bonds and the dollar were on edge ahead of a U.S. Federal Reserve meeting that is expected to deliver another big rate hike.

Nasdaq 100 futures bounced 1.5% and S&P 500 futures were up 0.9% in Asia after Microsoft (MSFT.O) forecast strong revenue growth and Google parent Alphabet (GOOGL.O) posted solid search engine ad sales. read more

Alphabet shares rose 5% after hours and Microsoft shares rose 4% to cut through some of the gloom cast by a profit warning at retailer Walmart (WMT.N) and soft U.S economic data.

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European futures rose 0.2% and FTSE futures rose 0.3%. Japan’s Nikkei (.N225) rose 0.4%.

Things were not as bright elsewhere. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.7%.

The world’s second-biggest chipmaker, SK Hynix (000660.KS), warned demand was likely to slow as customers cut spending, and shares fell 1.9%. read more

The euro struggled to recoup an overnight drop as a further cut in Russian gas flows loomed. The International Monetary Fund has cut global growth forecasts and in a few hours traders expect the Fed to raise interest rates sharply.

“They have laid out their plan to raise rates to restrictive levels,” said Khoon Goh, head of Asia research at ANZ Bank in Singapore. “They want to avoid a hard landing, obviously, but they just can’t take the chance of inflation staying elevated.”

The U.S. central bank is expected to announce a 75 basis point (bps) rate hike at 1800 GMT. Futures imply about a 15% chance of a 100 bps hike. The Treasury market is already anticipating that so many sharp near-term hikes will hurt longer-run growth.

Benchmark 10-year Treasury yields were steady at 2.8032% on Wednesday, below two-year yields at 3.0508%.

Australian bonds staged a relief rally on Wednesday, after consumer price data surprised on the downside for a change – even if only by a tiny margin – prompting investors to back out of bets on a 75 bps rate hike in Australia next week. read more

The Australian dollar fell marginally to $0.6935. Three-year bond futures rose 11 ticks.

EUROPE, CHINA WOBBLY

On top of worries about interest rates damaging economies, Europe faces an energy crisis and China is beset by restrictive COVID-19 policies and fresh setbacks for its ailing property market.

The euro had its worst session in a fortnight on Tuesday, sliding 1%, as Russia’s Gazprom said it would further cut westbound gas flow and energy prices zoomed higher – with German year-ahead prices rising to a record.

The common currency steadied at $1.0150 in Asia. The Japanese yen held at 136.96 per dollar.

China’s yuan was under pressure and property stocks fell as investors have been spooked that a widening boycott of mortgage repayments on unfinished apartments and crippling debts at many developers could ricochet into the banking industry.

The onshore CSI real estate index (.CSI000952) fell 2% and a Hong Kong index of mainland developers (.HSMPI) fell more than 5%, dragged down by large developer Country Garden (2007.HK) announcing a discounted share sale. read more

“China’s housing sector is in the midst of a depression and the recent mortgage boycott is a sign of the severity of the downturn,” said analysts at Societe Generale.

“The extent of this boycott, as it is now, is not unmanageable, but there is a risk of escalation.”

Oil prices held steady, with Brent crude futures at $104.58 a barrel and U.S. crude futures up 0.3% to $95.32 a barrel.

Gold was steady at $1,717 an ounce.

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Reporting by Tom Westbrook; Editing by Christopher Cushing and Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.

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