Tag Archives: economic performance

Business

November Employment Report Shows U.S. Economy Added 263,000 Jobs

Leave a comment

The November payrolls gain compared with an upwardly revised 284,000 jobs in October, the Labor Department said Friday. Payrolls grew in leisure and hospitality, healthcare and government. Retailers and transportation-and-warehousing companies cut jobs in a sign of weak holiday hiring.

Average hourly earnings grew 5.1% in November from a year earlier, the department said. Wage growth has remained elevated but roughly stable after a sharp increase earlier in the year.

November job growth was roughly in line with the previous three months, when payrolls grew an average of 282,000 a month. Job growth continues to exceed the 2019 monthly average of 164,000, though gains have slowed from the first half of the year.

The job market has remained resilient this year, with employers still seeking to hire despite an uncertain economic outlook and elevated recession fears. Low unemployment and wage gains have helped fuel consumer spending, the economy’s main engine.

One big question is how long that strength can last as the Federal Reserve aggressively raises interest rates to tame inflation. Some companies in technology, entertainment and real estate are laying off workers, but demand for workers continues to outpace the number of unemployed people looking for work.

Economists are concerned that higher interest rates will trigger more widespread layoffs and a recession in the next year, as has typically occurred during prior episodes of rapid rate rises. They are closely monitoring the pace of hiring for early signs of shifts in labor-market momentum.

“An employer is going to start reducing hiring long before they start letting go of their existing workforce,” said Guy Berger, principal economist at LinkedIn. “That’s the first lever.” 

Rising unemployment could follow, he said, as job seekers have fewer available opportunities. Continuing claims, which reflect the number of people seeking ongoing unemployment benefits, are drifting upward in a sign of labor-market cooling, Mr. Berger said. 

On Wednesday, Federal Reserve Chair

Jerome Powell

indicated the central bank is on track to raise interest rates by a half-percentage point at its next meeting, scaling back from an unprecedented series of four 0.75-point rate rises. Fed officials are hoping higher rates will trigger less competition for workers and slower wage increases, taking some pressure off consumer prices. 

This week, CNN said it was laying off employees and DoorDash Inc. said it would trim its corporate staffing levels by about 1,250. AMC Networks Inc. said in a memo to employees that it plans to lay off about 20% of its U.S. workforce. 

Corporate layoff announcements generally have been concentrated in the technology industry and sectors of the economy sensitive to interest rates such as housing and finance. Other businesses are quickly scooping up laid-off workers as job openings remain well above prepandemic levels, even in sectors such as real estate.

LodeStar Software Solutions, a small software company that helps mortgage lenders accurately disclose fees to consumers, recently posted an opening for a customer-service role, said Jim Paolino, chief executive of the Conshohocken, Pa.-based company.

Mr. Paolino quickly received about 130 résumés for the job, which entails account management. He held screening calls with 10 applicants, eight of whom had lost their jobs at mortgage companies. 

“It’s actually a great time to hire right now,” he said. “There has been an influx of talent in our industry and to the market because a lot of larger companies have done pretty large-scale layoffs.”

Companies are still largely avoiding job cuts because demand for goods and services is solid. Personal spending increased 0.8% from the prior month, the Commerce Department said Thursday. 

Some firms also are hesitant to lay off employees because they found it so difficult to rehire as the economy recovered from the pandemic downturn.

The layoff announcements just keep coming. As interest rates continue to climb and earnings slump, WSJ’s Dion Rabouin explains why we can expect to see a bigger wave of layoffs in the near future. Illustration: Elizabeth Smelov

“Demand restarted, and they couldn’t hire fast enough,” said

Becky Frankiewicz,

president and chief commercial officer of staffing firm

ManpowerGroup.

“There’s still this aftershock of, ‘I want to hold on to the talent that I have.’”

Companies are still offering hiring bonuses to attract talent, but the rationale has shifted some from a year ago. Employers are expecting inflation to come down and bonuses give them more flexibility to dial back compensation than wage increases do, she said. 

“If you still have a talent shortage and you don’t want to lock in at higher wages across all your roles, what do you do? You do bonuses,” Ms. Frankiewicz said.

Wage growth has cooled in recent months but remains above the prepandemic pace.

Still, there are signs that spending could be reaching a limit, with some Americans dipping into savings or taking on credit-card debt to finance purchases. The personal-saving rate was 2.3% in October, its lowest level since 2.1% in July 2005.

David Blake, president of Iowa-based Blue-9 Pet Products, said sales have been roughly flat this year, a shift from previous years when the 10-person manufacturer and seller of dog-training accessories posted double-digit sales growth. 

Pet owners appear to be cutting back on some discretionary purchases as they face higher prices for staples like groceries, he said.

“Whether we’re in a recession or going to have a recession or not, the fact still remains that the inflation out there is having an impact on spending,” said Mr. Blake.

Write to Sarah Chaney Cambon at sarah.chaney@wsj.com

Due to slower sales, Mr. Blake held off on hiring new employees this year. He also doesn’t plan to add any next year.

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

Fed’s Waller says market has overreacted to consumer inflation data: ‘We’ve got a long, long way to go’

Leave a comment

Federal Reserve Gov. Christopher Waller said Sunday that financial markets seem to have overreacted to the softer-than-expected October consumer price inflation data last week.

“It was just one data point,” Waller said, in a conversation in Sydney, Australia, sponsored by UBS.

“The market seems to have gotten way out in front over this one CPI report. Everybody should just take a deep breath, calm down. We’ve got a ways to go ” Waller said.

Investors cheered the soft CPI print, released Thursday, driving stocks up to their best week since June. The S&P 500 index
SPX,
+0.92%
closed 5.9% higher for the week.

The data showed that the yearly rate of consumer inflation fell to 7.7% from 8.2%, marking the lowest level since January. Inflation had peaked at a nearly 41-year high of 9.1% in June.

Waller said it was good there was some evidence that inflation was coming down, but noted that there were other times over the past year where it looked like inflation was turning lower.

“We’re going to see a continued run of this kind of behavior and inflation slowly starting to come down, before we really start thinking about taking our foot off the brakes here,” Waller said.

“We’ve got a long, long way to go to get inflation down. Rates are going keep going up and they are going to stay high for awhile until we see this inflation get down closer to our target,” he added.

The Fed is focused on how high rates need to get to bring inflation down, and that will depend solely on inflation, he said.

Waller said “the worst thing” the Fed could do was stop raising rates only to have inflation explode.

The 7.7% inflation rate seen in October “is enormous,” he added.

The Fed signaled at its last meeting earlier this month that it might slow down the pace of its rate hikes in coming meetings.

The central bank has boosted rates by almost 400 basis points since March, including four straight 0.75-percentage-point hikes that had been almost unheard of prior to this year.

“We’re looking at moving in paces of potentially 50 [basis points] at the next meeting or the next meeting after that,” Waller said.

The Fed will hold its next meeting on Dec. 13-14, and then again on Jan. 31-Feb. 1.

At the same time, Powell said the Fed was likely to raise rates above the 4.5%-4.75% terminal rate that they had previously expected.

“The signal was ‘quit paying attention to the pace and start paying attention to where the endpoint is going to be,’” Waller said.

In the wake of the CPI report, investors who trade fed funds futures contracts see the Fed’s terminal rate at 5%-5.25% next spring and then quickly falling back to 4.25%-4.5% by November. That’s well below the levels prior to the CPI data.

Read original article here

World

China’s Exports Drop Sharply as Global Economy Slows

Leave a comment

SINGAPORE—China’s exports to the rest of the world shrank unexpectedly in October, a sign that global trade is in sharp retreat as consumers and businesses cut back spending in response to central banks’ aggressive moves to tame inflation.

The slide in exports from the world’s factory floor adds to the gloom surrounding the global economy as leaders from the Group of 20 advanced and developing countries prepare to gather in Indonesia next week.

A buoyant U.S. labor market is showing signs of cooling as the Federal Reserve jacks up interest rates to tame high inflation. Many economists expect a recession in the U.S. within the next 12 months.

Europe is bracing for a difficult winter after Russia decided to throttle energy supplies in response to sanctions over the war in Ukraine. The European Central Bank raised interest rates by three-quarters of a percentage point for the second time in a row last month, but signaled mounting concerns about economic growth, prompting speculation among investors that it may soon dial back the pace of rate increases.

For China, the world’s second-largest economy, the sharp pullback in demand for its goods abroad removes a key prop for growth at a time when its economy is pressured by the government’s zero-tolerance approach to Covid-19 and a severe real-estate slump.

“It’s almost like it doesn’t have a leg to stand on,” said Steve Cochrane, chief economist for Asia Pacific at Moody’s Analytics in Singapore.

Chinese health officials said Saturday that China would stick to its tough Covid-prevention strategy, dashing hopes that had built up in recent days for an easing of strict pandemic measures following a closely watched Communist Party congress last month.

With growth slowing in the U.S., Europe and China, economists are downbeat about the global economy’s prospects this year and next. The International Monetary Fund warned last month that “the worst is yet to come,” saying it expects global gross domestic product to expand 3.2% this year, before slowing to 2.7% in 2023.

The China export slowdown “is a worrying sign for global growth,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics in London.

Exports from China declined 0.3% last month compared with a year earlier, China’s General Administration of Customs said Monday, the weakest pace of growth since May 2020, when trade was hobbled by countries’ early efforts to contain a worsening global pandemic. That was well below the expectations of economists polled by The Wall Street Journal, who had expected exports to increase 4% year over year.

Monday’s data showed exports to the U.S. fell 13% on the year in October, the third month of decline, while sales to the European Union fell 9%.

The data showed big falls in exports of products including home appliances and medical supplies, and weakening growth in exports of mobile phones and automobiles.

Other bellwether exporters in Asia, such as South Korea and Taiwan, have also reported faltering overseas sales, pointing to a broad slowdown in trade as the global economy loses momentum.

South Korea’s trade ministry said Nov. 1 that exports fell 5.7% in October compared with a year earlier, led by sinking exports of memory chips, petrochemicals and computers.

The cost of shipping containers full of goods around the world has fallen in recent months, as consumers retrench following a splurge on gadgets and home improvements while stuck at home during the depths of the pandemic. Prices for moving goods from Asia to the U.S. West Coast last week were 87% lower than the same time last year, according to data from online freight marketplace Freightos. Ocean carriers are canceling dozens of sailings on the world’s busiest routes during what is normally peak season.

The data showed weakening growth in Chinese exports of mobile phones and automobiles.



Photo:

Cfoto/Zuma Press

The decline in Chinese exports in October followed several months of slowing growth. Exports in September rose at an annual 5.7% rate, down from the double-digit pace Chinese exports posted around the middle of the year.

China’s imports from the rest of the world dropped 0.7% in October from a year earlier, underscoring weak domestic spending in China’s economy.

That was also weaker than the flat import performance expected by economists, which meant China’s trade surplus widened in October to $85.15 billion, from $84.7 billion in September.

Zichun Huang, an economist at Capital Economics, said in a note to clients Monday that he expects Chinese exports to fall further in the months ahead as the global economy slides closer to recession.

Weakening exports aren’t the only headwind facing the world’s second-largest economy.

Lockdowns have hurt economic activity throughout the year, and the threat of further measures to snuff out even the tiniest Covid-19 outbreaks means consumers are reluctant to spend and businesses hesitant to invest, compounding the drag from a deflating property bubble.

Economists say China is poised to fall well short of officials’ earlier goal of expanding 5.5% this year, and will likely record its worst 12 months for growth—aside from the first year of the pandemic—in decades.

Xiao Xiao in Beijing contributed to this article.

Write to Jason Douglas at jason.douglas@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

U.S. Economy Grew 2.6% in Third Quarter, GDP Report Shows

Leave a comment

The U.S. economy grew in the third quarter but showed signs of a broad slowdown as consumer and business spending faltered under high inflation and rising interest rates.

Gross domestic product—a measure of goods and services produced across the nation—grew at a 2.6% annual rate in the third quarter after declining in the first half of the year, the Commerce Department said Thursday.

Trade contributed the most to the third quarter’s turnaround as the U.S. exported more oil and natural gas with the Ukraine war disrupting supplies in Europe. Consumer spending, the economy’s main engine, grew but at a slower pace than in the prior quarter.

Businesses slashed spending on buildings, however, and residential investment fell at a 26.4% annual rate, the department said.

Stocks were mixed after the GDP release and earnings announcements. Treasury yields fell.

Economic uncertainty is growing and many economists are worried about the possibility of a recession in the coming 12 months. They expect the Federal Reserve’s efforts to combat high inflation by raising interest rates will further weigh on the economy.

“The overall state of the economy is deteriorating and a lot of it is just the weight of elevated inflation and higher interest rates,” said Richard F. Moody, chief economist at

Regions Financial Corp.

“I don’t think that we’ve seen the full effects of higher rates work their way through the economy, so that’s why we have pretty low expectations for the next several quarters.”



Contributions (pct. pts):

Contributions (pct. pts):

Contributions (pct. pts):

Contributions (pct. pts):

Contributions (pct. pts):

The U.S. isn’t the only part of the world facing economic challenges. The European Central Bank on Thursday raised its key interest rate to 1.5% from 0.75% as it too attempts to tame inflation in a region teetering close to recession.

One of the sectors most sensitive to interest rates—housing—is showing signs of pain. Home sales posted their longest streak of declines in 15 years and the average rate on a 30-year fixed-rate mortgage eclipsed 7% Thursday for the first time in more than 20 years.

Economists don’t expect the third-quarter rise in exports to endure, given a stronger dollar and weakening global economy. Many point to final sales to private domestic purchasers, a measure of consumer and business spending that gauges underlying demand in the economy, as a sign of a broader economic slowdown. That inched up at a 0.1% annual rate in the third quarter after it rose 0.5% in the second quarter and increased 2.1% in the first quarter.

Some of the economic slowdown this year reflects a return to a more normal rate of growth after the economy last year expanded at an unusually fast pace of 5.7% as it rebounded from earlier pandemic disruptions.

The trajectory of the economy largely depends on how consumers fare in the coming months.

High inflation and rising interest rates haven’t done much to weaken the health of the American consumer, Bank of America Corp. Chief Executive

Brian Moynihan

said in an October earnings call. The company’s data show consumers continue to spend more. They also have more money in the bank than before the pandemic.

Consumers are benefiting from a tight labor market. Employers are holding on to the workers they have, with jobless claims remaining low last week. Many businesses are also ramping up pay as they struggle with staffing shortages.

“Wage growth is up, which is good for consumers, and that helps their balance sheet,” said

Mark Begor,

CEO of the credit-reporting company

Equifax Inc.

on an earnings call this month. “Obviously, inflation is a bad guy, and it is hurting lots of consumers. But even with inflation, consumers are still out there spending and traveling and doing all the things that they do in their lives.”

Still, consumers might be starting to crack. Many are tapping into pandemic savings and turning more to credit cards to finance spending, said

Kathy Bostjancic,

chief U.S. economist at Oxford Economics.

The consumer-sentiment index and the consumer-confidence index both try to measure the same thing: consumers’ feelings. WSJ explains why the Federal Reserve is keeping a close eye on consumer confidence in 2022. Illustration: Adele Morgan

But with higher interest rates, “there’s really a limit to how much consumers can rely on their credit cards,” she said.

Some companies—particularly in sectors that benefited from a consumer-goods binge earlier in the pandemic—are seeing a consumer pullback. Sales are down about 25% so far this year from the same period in 2021 at Altus Brands LLC, said Gary Lemanski, owner of the Grawn, Mich.-based company that manufactures and sells accessories for hunting, shooting and outdoor recreation.

Many of the factors that spurred a sales surge in 2020 and 2021—such as consumers’ extra cash from government stimulus, their time at home to go out in the woods and their lack of ability to spend money on services including travel—have since faded, he said.

Inflation is causing many consumers to cut back on discretionary purchases, which include products Altus sells, such as electronic ear muffs for hearing protection that can go for $200 to $250, Mr. Lemanski said.

“I talk with a lot of folks, and you just hear it over and over again: It’s tougher to make ends meet,” he said.

Many technology companies are feeling the effects of a slowing economy.

Facebook

parent Meta Platforms Inc. posted its second revenue decline in a row, as the social-media company wrestles with tough macroeconomic conditions that are weighing on advertiser spending.

Microsoft Corp.

said it expects a sharp decline in personal-computer sales and the dollar’s strength to continue to weigh on growth.

A series of interest-rate rises have rippled through the U.S. economy, and more are projected to be on the way. WSJ breaks down the numbers hitting Americans’ wallets this year and beyond. Photo: Elise Amendola/Associated Press

Inflation is denting some consumers’ appetite for big-ticket purchases. Most Americans say it is a bad time to buy a car or large household goods such as furniture, refrigerators or stoves, with a large share attributing their viewpoint to high prices, University of Michigan survey data show.

CarMax,

a used-car retailer, reported a profit drop of more than 50% in its most recent quarter as tough economic conditions weighed on consumers.

“This quarter reflects widespread pressure the used-car industry is facing,” said

William Nash,

the company’s chief executive, on an earnings call. Higher prices, climbing interest rates and low consumer confidence “all led to a marketwide decline in used-auto sales,” he said.

Write to Sarah Chaney Cambon at sarah.chaney@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

Mortgage bankers expect rates to drop to 5.4% in 2023. What will home prices do?

Leave a comment

NASHVILLE, Tenn. — High mortgage rates and recession fears are hurting home prices, so expect growth to be flat this year, one expert says.

“Our forecast is for home-price growth moderation to continue,” Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association, said Sunday during the organization’s annual conference in Nashville, Tenn.

Home prices have already begun moderating. According to Case-Shiller, home prices fell month-over-month from June to July for the first time in 20 years. The latest numbers, which will be for August, will be reported on Tuesday morning.

With a recession likely in the cards, on top of mortgage rates near or above 7%, “we’ve already seen a pretty dramatic pullback in housing demand,” Kan said.

Also see: Mortgage industry group predicts recession next year, expects mortgage rates to come back down from 7%

The 30-year fixed rate averaged 6.94% last week as compared to 3.85% a year ago. The MBA is also expecting rates to come down to 5.4% by the end of next year.

So expect national home-price growth to “flatten out” in 2023 and 2024, he said. This might be a “silver lining” for some, Kan added, as it brings home prices back to more “reasonable levels.”

A flattening of home-price growth should allow households to catch up, in terms of wages and savings, to afford homes that are presently too expensive.

But he also warned that some markets may actually see home prices drop. We’re already seeing home values fall in some markets, from pandemic boomtowns like Austin and Phoenix to well-known expensive ones the San Francisco Bay Area.

Still, even with price drops, don’t expect a surge of inventory as people sit on their ultra-low mortgage rates that they will likely not enjoy again in the near future.

According to June data from the Federal Housing Finance Agency, nearly a quarter of homeowners have mortgage rates of less than or equal to 3%. And the vast majority of owners — 93% — have rates less than 6%.

On top of that, supply is likely to be tight too.

Sellers are said to be “striking” and not selling their homes as they see others forced to cut list prices to woo buyers. Builders are also getting spooked, signaling intent to slow new construction.

Nonetheless, demand for housing should recover eventually, given that there are a lot of people who will soon be in need of a home that they own.

MBA’s Kan estimated that there are 50 million people in the 28-to-38 age demographic, of which some — or many — are likely to become potential homeowners in the future.

For those under 35, the homeownership rate is only 39%, Kan said, while that share increases for people aged 35 to 44, to 61%.

So as people age, “we’re fairly confident if we stick to these trends, you will see a very supportive demographic driver of housing demand for a good number of years,” Kan said.

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

Read original article here

World

Rishi Sunak Wins Vote to Become U.K.’s Next Prime Minister After Liz Truss Resigns

Leave a comment

LONDON—Former Chancellor

Rishi Sunak,

who warned that

Liz Truss

’ economic plans for Britain were a “fairy tale,” won the contest to succeed her as prime minister on Monday, taking over the world’s sixth-biggest economy at a time of deep financial and political turbulence.

Mr. Sunak will formally enter Downing Street after his only remaining rival for the job, former defense minister

Penny Mordaunt,

said on

Twitter

she would drop out of the contest. “Rishi has my full support,” she wrote.

Mr. Sunak’s rise to the top job in Britain marks a historic moment. The grandson of Indian immigrants to Britain, the 42-year-old will be the U.K.’s first person of color and the first Hindu to lead the country. But his success will be determined by how well he manages the growing challenges to Britain’s economy as high inflation and a looming recession create a sense of growing despair.

The former hedge-fund manager arrives with a mandate to bring calm to the ruling Conservative Party following a period of unparalleled chaos that will see the country run by three prime ministers in seven weeks—a first for the U.K. On Sunday night, his main rival for the job, the colorful but controversial former leader

Boris Johnson,

pulled out of the leadership race, citing the fact that he couldn’t unite the party.

Mr. Sunak takes over from Ms. Truss, who became the shortest-serving prime minister in British history after her flagship economic program to stimulate the economy with tax cuts during rising inflation was rejected by investors, causing the pound to sink to a record low and the Bank of England to intervene in bond markets to stabilize the price of U.K. government debt.

On Monday, financial markets reacted positively to Mr. Sunak’s victory. Yields on government debt fell as investors bet that Mr. Sunak, an experienced treasury official, will oversee cuts to public spending to shore up the nation’s finances.

The decision caps Mr. Sunak’s second attempt to secure his place as prime minister in months. He campaigned over the summer to become British leader but lost to Ms. Truss. During the campaign Mr. Sunak criticized Ms. Truss’s plan to borrow funds to immediately cut taxes. He said Britain’s high inflation, which is currently at 10.1%, needed to be tackled first before any taxes were cut.

“Liz’s plans are promising the Earth to everybody. I don’t think you can have your cake and eat it,” he said in August.

Mr. Sunak lost, but his arguments later won the day. Ms. Truss was forced to roll back her experiment to use unfunded tax cuts to spur economic growth.

While Mr. Sunak’s rise will placate markets for now, his government will face tough and unpopular decisions on spending. The U.K. Treasury is expected to outline plans on Oct. 31 to cut spending and potentially raise some taxes to fill an estimated 40 billion pounds, equivalent to $45 billion, deficit in the public finances. “The choice the party makes now will decide whether the next generation of British people will have more opportunities than the last,” Mr. Sunak said on Sunday.

Former Prime Minister Boris Johnson on Saturday, after flying back from a vacation in the Dominican Republic to canvass lawmakers.



Photo:

Gareth Fuller/Zuma Press

His fiscal caution is likely to ease pressure on the Bank of England to raise its key interest rate sharply from 2.25%. Market expectations for the peak in the BOE’s interest rate next year fell to 5% from 6% in the days after Ms. Truss’s economic plan was axed.

The broader outlook, however, is grim. Mr. Sunak will likely face a winter of discontent as inflation, fueled by rising energy costs from the war in Ukraine, increases faster than wages, and a recession takes hold that economists think could last a year. The early stages of his tenure are likely to be punctuated by worker strikes and questions about whether electricity blackouts will be needed as Russia restricts gas exports to Europe.

In contrast to most other rich countries, the U.K.’s economy has yet to return to its prepandemic size. The U.K. economy grew very slightly in the three months through June, leaving it 0.2% smaller than in the final quarter of 2019, the last before the Covid-19 virus began to spread.

“The heightened political and economic uncertainty has caused business activity to fall at a rate not seen since the global financial crisis in 2009 if pandemic lockdown months are excluded,” said

Chris Williamson,

chief business economist at S&P Global Market Intelligence.

Mr. Sunak also faces another potentially more intractable challenge: uniting a party that has been at war with itself for years. The Conservative Party is at a record low in the polls against the opposition Labour Party. A recent poll by Opinium has 23% of Britons voting for the Conservatives versus 50% for Labour. Pollsters think the scale of that deficit, combined with the fact that the Tories will seek a record fifth term in office at the next election in 2024, is potentially insurmountable.

Mr. Sunak, who isn’t a famed political operator, must find a way of bringing together lawmakers who have polar opposite views on the direction that the U.K. economy should take. In the wake of the U.K.’s departure from the European Union, conservative lawmakers are split between embracing low regulation, a smaller government, and free trade, or protectionism and more state intervention as an aging population puts more strain on public services.

Mr. Sunak has previously campaigned on both fiscal conservatism, tight immigration restrictions and support for tackling climate change. His foreign policy outlook is less well defined. While he has expressed support for helping Ukraine fight off Russia’s invasion, he may have to cut military spending to bring finances under control. Mr. Sunak is a euroskeptic—having supported the vote to leave the European Union in 2016—but is seen as more conciliatory toward Europe than either Ms. Truss or Mr. Johnson.

Mr. Sunak represents an unusual mix of both continuity and newness at the top of British politics. He grew up in Southern England to parents of Indian origin, his father was a doctor and his mother ran a pharmacy. Mr. Sunak attended Winchester—an elite private school that has produced several British prime ministers—before attending the University of Oxford, then finding a job at

Goldman Sachs.

He married Akshata Murty, the daughter of an Indian billionaire businessman. The pair met while Mr. Sunak was studying for an M.B.A. at Stanford. He co-founded a hedge fund called Theleme Partners.

As the wealthiest member of the House of Commons, Mr. Sunak could find himself in the uncomfortable position of explaining support for spending cuts that could make life harder for the working classes. Backers say he will argue that sound finances will allow Britain’s economy to improve competitiveness to create broader prosperity down the road.

In 2015, Mr. Sunak was elected to parliament in Yorkshire, a northern English and mostly white agricultural district. Mr. Sunak took his parliamentary oath to the monarch on the Hindu scripture, The Bhagavad Gita, and had to explain to many of his farming constituents that he didn’t eat beef. But he quickly proved popular and moved to a Yorkshire manor.

Mr. Sunak’s star rose quickly in the Conservative Party. He came out in favor of Brexit, which he argued could allow Britain to become more internationally competitive outside the EU. The move went against the prime minister at the time,

David Cameron,

but put him in good stead with Mr. Johnson, who identified Mr. Sunak as a rising star. In 2019, he was given a senior role at the Treasury and placed his wealth in a blind trust to avoid allegations of impropriety. A year later he was made chancellor of the exchequer.

It was during the 2020 Covid-19 pandemic that Mr. Sunak came to the nation’s attention as he set up a job-protection program in a matter of days. The decision to have the government pay a percentage of people’s wages while they were unable to work during lockdown was well-received.

The former financier proved a good foil to the larger-than-life Mr. Johnson. Unlike Mr. Johnson, Mr. Sunak brought attention to detail. People who have worked with him say that he assiduously reads briefing notes and cross examines civil servants. During the pandemic, he repeatedly questioned the need for lockdowns. Mr. Sunak also has a nerdy side. The Star Wars fan once surprised a group of school children by telling them he has a “coke problem.” He then went on a minute-long monologue about his favorite type of

Coca-Cola,

which is made from cane sugar in Mexico.

By last summer, however, Mr. Sunak and Mr. Johnson were at odds. Mr. Sunak had successfully lobbied for taxes to rise to help pay for Britain’s struggling nationalized healthcare system. But many in Tory ranks questioned the fact that the tax burden was at its highest level in 70 years. Mr. Johnson meanwhile became embroiled in a “partygate scandal” where he was fined by police for attending his own birthday party in Downing Street during a Covid-19 lockdown. Mr. Sunak was fined for attending too.

Mr. Sunak was caught up in a scandal of his own. His wife Ms. Murty this year had to change her tax arrangements after admitting she benefited from tax rules that allowed her to pay no U.K. tax on her worldwide income. She says she changed that status and now pays U.K. tax on that worldwide income. The debacle made some Tory lawmakers question whether Mr. Sunak was too wealthy to connect with the party’s blue-collar voters.

But as more scandals washed over Mr. Johnson, Mr. Sunak moved to oust him. Last July he announced his resignation, which triggered an avalanche of further resignations making Mr. Johnson’s position untenable. Within days a polished website “Ready4Rishi” was online.

Mr. Sunak’s apparent eagerness to turf out Mr. Johnson soon played against him. In the ensuing leadership contest, Mr. Sunak racked up the biggest support from lawmakers but failed to convince the Conservative Party’s 170,000 members.

This time around, after Ms. Truss quit, many key lawmakers were quick to announce their support for Mr. Sunak and prevent another vote among party members.

Write to Max Colchester at max.colchester@wsj.com and Paul Hannon at paul.hannon@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

Why stock-market investors fear ‘something else will break’ as Fed attacks inflation

Leave a comment

Some investors are on edge that the Federal Reserve may be overtightening monetary policy in its bid to tame hot inflation, as markets look ahead to a reading this coming week from the Fed’s preferred gauge of the cost of living in the U.S.  

“Fed officials have been scrambling to scare investors almost every day recently in speeches declaring that they will continue to raise the federal funds rate,” the central bank’s benchmark interest rate, “until inflation breaks,” said Yardeni Research in a note Friday. The note suggests they went “trick-or-treating” before Halloween as they’ve now entered their “blackout period” ending the day after the conclusion of their November 1-2 policy meeting.

“The mounting fear is that something else will break along the way, like the entire U.S. Treasury bond market,” Yardeni said.

Treasury yields have recently soared as the Fed lifts its benchmark interest rate, pressuring the stock market. On Friday, their rapid ascent paused, as investors digested reports suggesting the Fed may debate slightly slowing aggressive rate hikes late this year.

Stocks jumped sharply Friday while the market weighed what was seen as a potential start of a shift in Fed policy, even as the central bank appeared set to continue a path of large rate increases this year to curb soaring inflation. 

The stock market’s reaction to The Wall Street Journal’s report that the central bank appears set to raise the fed funds rate by three-quarters of a percentage point next month – and that Fed officials may debate whether to hike by a half percentage point  in December — seemed overly enthusiastic to Anthony Saglimbene, chief market strategist at Ameriprise Financial. 

“It’s wishful thinking” that the Fed is heading toward a pause in rate hikes, as they’ll probably leave future rate hikes “on the table,” he said in a phone interview. 

“I think they painted themselves into a corner when they left interest rates at zero all last year” while buying bonds under so-called quantitative easing, said Saglimbene. As long as high inflation remains sticky, the Fed will probably keep raising rates while recognizing those hikes operate with a lag — and could do “more damage than they want to” in trying to cool the economy.

“Something in the economy may break in the process,” he said. “That’s the risk that we find ourselves in.”

‘Debacle’

Higher interest rates mean it costs more for companies and consumers to borrow, slowing economic growth amid heightened fears the U.S. faces a potential recession next year, according to Saglimbene. Unemployment may rise as a result of the Fed’s aggressive rate hikes, he said, while “dislocations in currency and bond markets” could emerge.

U.S. investors have seen such financial-market cracks abroad.

The Bank of England recently made a surprise intervention in the U.K. bond market after yields on its government debt spiked and the British pound sank amid concerns over a tax cut plan that surfaced as Britain’s central bank was tightening monetary policy to curb high inflation. Prime minister Liz Truss stepped down in the wake of the chaos, just weeks after taking the top job, saying she would leave as soon as the Conservative party holds a contest to replace her. 

“The experiment’s over, if you will,” said JJ Kinahan, chief executive officer of IG Group North America, the parent of online brokerage tastyworks, in a phone interview. “So now we’re going to get a different leader,” he said. “Normally, you wouldn’t be happy about that, but since the day she came, her policies have been pretty poorly received.”

Meanwhile, the U.S. Treasury market is “fragile” and “vulnerable to shock,” strategists at Bank of America warned in a BofA Global Research report dated Oct. 20. They expressed concern that the Treasury market “may be one shock away from market functioning challenges,” pointing to deteriorated liquidity amid weak demand and “elevated investor risk aversion.” 

Read: ‘Fragile’ Treasury market is at risk of ‘large scale forced selling’ or surprise that leads to breakdown, BofA says

“The fear is that a debacle like the recent one in the U.K. bond market could happen in the U.S.,” Yardeni said, in its note Friday. 

“While anything seems possible these days, especially scary scenarios, we would like to point out that even as the Fed is withdrawing liquidity” by raising the fed funds rate and continuing quantitative tightening, the U.S. is a safe haven amid challenging times globally, the firm said.  In other words, the notion that “there is no alternative country” in which to invest other than the U.S., may provide liquidity to the domestic bond market, according to its note.


YARDENI RESEARCH NOTE DATED OCT. 21, 2022

“I just don’t think this economy works” if the yield on the 10-year Treasury
TMUBMUSD10Y,
4.228%
note starts to approach anywhere close to 5%, said Rhys Williams, chief strategist at Spouting Rock Asset Management, by phone.

Ten-year Treasury yields dipped slightly more than one basis point to 4.212% on Friday, after climbing Thursday to their highest rate since June 17, 2008 based on 3 p.m. Eastern time levels, according to Dow Jones Market Data.

Williams said he worries that rising financing rates in the housing and auto markets will pinch consumers, leading to slower sales in those markets.

Read: Why the housing market should brace for double-digit mortgage rates in 2023

“The market has more or less priced in a mild recession,” said Williams. If the Fed were to keep tightening, “without paying any attention to what’s going on in the real world” while being “maniacally focused on unemployment rates,” there’d be “a very big recession,” he said.

Investors are anticipating that the Fed’s path of unusually large rate hikes this year will eventually lead to a softer labor market, dampening demand in the economy under its effort to curb soaring inflation. But the labor market has so far remained strong, with an historically low unemployment rate of 3.5%.

George Catrambone, head of Americas trading at DWS Group, said in a phone interview that he’s “fairly worried” about the Fed potentially overtightening monetary policy, or raising rates too much too fast.

The central bank “has told us that they are data dependent,” he said, but expressed concerns it’s relying on data that’s “backward-looking by at least a month,” he said.

The unemployment rate, for example, is a lagging economic indicator. The shelter component of the consumer-price index, a measure of U.S. inflation, is “sticky, but also particularly lagging,” said Catrambone.

At the end of this upcoming week, investors will get a reading from the  personal-consumption-expenditures-price index, the Fed’s preferred inflation gauge, for September. The so-called PCE data will be released before the U.S. stock market opens on Oct. 28.

Meanwhile, corporate earnings results, which have started being reported for the third quarter, are also “backward-looking,” said Catrambone. And the U.S. dollar, which has soared as the Fed raises rates, is creating “headwinds” for U.S. companies with multinational businesses.

Read: Stock-market investors brace for busiest week of earnings season. Here’s how it stacks up so far.

“Because of the lag that the Fed is operating under, you’re not going to know until it’s too late that you’ve gone too far,” said Catrambone. “This is what happens when you’re moving with such speed but also such size,  he said, referencing the central bank’s string of large rate hikes in 2022.

“It’s a lot easier to tiptoe around when you’re raising rates at 25 basis points at a time,” said Catrambone.

‘Tightrope’

In the U.S., the Fed is on a “tightrope” as it risks over tightening monetary policy, according to IG’s Kinahan. “We haven’t seen the full effect of what the Fed has done,” he said.

While the labor market appears strong for now, the Fed is tightening into a slowing economy. For example, existing home sales have fallen as mortgage rates climb, while the Institute for Supply Management’s manufacturing survey, a barometer of American factories, fell to a 28-month low of 50.9% in September.

Also, trouble in financial markets may show up unexpectedly as a ripple effect of the Fed’s monetary tightening, warned Spouting Rock’s Williams. “Anytime the Fed raises rates this quickly, that’s when the water goes out and you find out who’s got the bathing suit” — or not, he said.

“You just don’t know who is overlevered,” he said, raising concern over the potential for illiquidity blowups. “You only know that when you get that margin call.” 

U.S. stocks ended sharply higher Friday, with the S&P 500
SPX,
+2.37%,
Dow Jones Industrial Average
DJIA,
+2.47%
and Nasdaq Composite each scoring their biggest weekly percentage gains since June, according to Dow Jones Market Data. 

Still, U.S. equities are in a bear market. 

“We’ve been advising our advisors and clients to remain cautious through the rest of this year,” leaning on quality assets while staying focused on the U.S. and considering defensive areas such as healthcare that can help mitigate risk, said Ameriprise’s Saglimbene. “I think volatility is going to be high.”

Read original article here

Business

‘We’re seeing buyers backing out’: This dramatic chart reveals U-turn in the housing market as sellers slash home prices

Leave a comment

Here’s a chart that speaks a thousand words about the state of the real-estate market right now.

The chart above, part of a new report by real-estate brokerage Redfin
RDFN,
-7.03%
on the property market, reveals how home sellers are adjusting to the new normal of 7% mortgage rates.

The chart says that 7.9% of homes for sale on the market each week had their prices slashed — and that’s a record high.

That’s compared to just 4% of homes having their prices reduced each week over the same period a year ago.

Redfin’s data goes back to 2015. The company averaged out the share of listings which saw a price cut over four weeks, to smoothen out any outliers.

Taylor Marr, deputy chief economist at Redfin, added that looking over a bigger time period, i.e. a month, the company’s data shows that a quarter of homes right now are dropping prices.

“We have never been this high,” Marr told MarketWatch in an interview.

Unlike buyers, who are much more sensitive to rising mortgage rates, “sellers are just slow to react to the changes in demand… they set prices based on where they think the market is [and] are often reluctant to set their prices too low,” Marr said.

So for sellers, prices are a little stickier, he added, and slower to come down.

But even if it took a while, it’s finally happening.

After all, mortgage rates are at multi-decade highs, with the 30-year trending steadily above 7% as of Friday afternoon, according to Mortgage News Daily. And that’s likely to go up even more, as the 10-year Treasury note
TMUBMUSD10Y,
4.023%,
is trending above 4%.

Meanwhile, Redfin said that the median home on the market was listed at over $367,000, up 7% over last year.

The monthly mortgage for that home at the current interest rate of 6.92%, according to Freddie Mac, is $2,559.

A year ago, when rates were at 3.05%, that monthly payment would’ve been just $1,698.

Two tips for home buyers struggling with high mortgage rates

Sellers are dropping their prices by 4 to 5% on average, Marr said.

“You would almost expect it to be a lot worse,” he added, given how quickly rates rose and eroded buying power.

But buyers and sellers are also using two different tactics to get some relief on mortgage rates, Marr said.

One, sellers are reaching out to buyers and offering concessions to buy mortgage rates down.

In other words, sellers are asking buyers to pay the full asking price, but proposing to use part of that as a concession to get buyers a lower interest rate on their mortgage.

“Which is essentially a price drop,” Marr said, “it’s the same thing … but it doesn’t necessarily show up in the data.” And it’s hard to get a sense of the magnitude of how this is playing out, he added.

How it works is as such, Marr explained: If a buyer is putting down $100,000 for a 20% downpayment on their home at a 6.5% interest rate, they can instead allocate 10% for the downpayment, and spend the rest of the $50,000 buying down the mortgage rate to 5%.

“5% isn’t very bad, and it might seem like a lot of money, but … chances are you’re going to be incentivized to refinance [in the future] and you’ll have to pay the closing cost on that loan to refinance, which could be upwards of 15 grand,” Marr added.

Buyers are also switching to adjustable-rate mortgages, which offer lower interest rates at the start of the term. ARMs are nearly 12% of overall mortgage applications, the Mortgage Bankers Association noted on Wednesday, which is high.

Where prices are falling

As to where prices are falling, a couple of places stood out to Redfin.

They said that home prices fell 3% year-over-year in Oakland, Calif., and 2% in San Francisco. New Orleans also saw a 2% drop.

“Even in Atlanta, or Orlando, we’re seeing buyers backing out,” Marr observed.

So with the backdrop of sellers finally dropping listing prices, if you’re a buyer right now, don’t be spooked by rising rates and stop looking, he advised.

“There have been opportunities when rates really came down and gave buyers the moment to jump back in and get some good deals on homes that did drop their prices,” he said.

Plus, “it doesn’t hurt to make a low ball offer,” Marr added. “Some sellers are desperate, and that can be a good strategy … we’ve heard from some of our own agents that some buyers are getting incredible deals right now.”

But if you need to rent for a year and wait for things to calm down, then do that, Marr said, and bulk up those savings for that dream home.

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

Read original article here

World

U.K. Prime Minister Liz Truss Fires Treasury Chief, U-Turns on Taxes

Leave a comment

LONDON—U.K. Prime Minister Liz Truss fired Treasury chief Kwasi Kwarteng and reversed crucial parts of her government’s tax cuts, after her plans to jolt the economy into growth unraveled in spectacular fashion following a backlash from financial markets and her party. 

Mr. Kwarteng, who three weeks ago presented the U.K.’s largest tax cuts since the 1970s, was asked to quit by Ms. Truss as markets balked at the scale of the borrowing required to fund the package and her lawmakers protested at the prospect of deep public-spending cuts. Mr. Kwarteng’s tenure as chancellor of the exchequer was the second shortest in recent British history. He was replaced by Jeremy Hunt, a party centrist and former foreign secretary.

Read original article here

Business

U.S. stocks struggling to make ‘crazy’ bounce-back rally stick as earnings season gets under way

Leave a comment

U.S. stocks saw early gains fizzle Friday, with the market turning south after attempting to build on a bounce in the previous session that marked what’s been called one of the craziest market days in history.

Stocks turned lower after a closely watched survey showed consumer inflation expectations were on the rise, while investors were also weighing a round of results from big Wall Street banks as earnings reporting season gets under way.

What’s happening
  • The Dow Jones Industrial Average
    DJIA,
    -0.80%
    fell 223 points, or 0.7%, to 29,815, after rising 390 points at its session high.
  • The S&P 500
    SPX,
    -1.67%
    was down 58 points, or 1.6%, at 3,612.
  • The Nasdaq Composite declined 227 points, or 2.1%, to 10,422.

On Thursday, the Dow erased a plunge of nearly 550 points to end 828 points higher, while the S&P 500 bounced back from a loss of more than 2% to end 2.6% higher, and the Nasdaq Composite jumped 2.2%.

The Dow’s 2.8% rise was the largest one-day gain since Nov. 9, 2020.

See: Why stocks scored a historic bounce after another hot inflation report

What’s driving markets

Gains early Friday gave way to losses after the University of Michigan’s consumer sentiment survey showed expectations for inflation over the next year rose to 5.1% from September’s one-year low of 4.7%, while expectations for inflation over the next 5 years ticked up to 2.9% from 2.7% last month.

“The uptick in inflation expectations probably is a response to the increase in gas prices in recent weeks, in which case it won’t continue,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note, observing that preliminary readings tend to see big revisions.

“Still, on the heels of the September inflation data this rebound — reversing the drop last month — does not look good, given how closely policy makers appear to track the measure,” Shepherdson said.

The survey’s gauge of consumer sentiment rose to 59.8 in October from 58.6. Economists were expecting a reading of 59, according to a Wall Street Journal poll.

Data Friday also showed U.S. retail sales were unchanged in September, coming in below forecasts for a 0.3% rise. Excluding autos, sales rose 0.3%.

Analysts cited a number of factors to explain the huge rise in stocks on Thursday, which came after equities initially tanked following a hotter-than-expected September consumer-price index reading.

Factors behind the bounce included technical and positioning considerations after a steep selloff that had seen the S&P 500 index tumble for six sessions in a row to end Wednesday at its lowest since November 2020.

“Among the most frequent explanations is that the most pessimistic of all possible scenarios were built into prices: a 75-point rate hike at the next two meetings,” said Alex Kuptsikevich, senior market analyst at FxPro, in a note. “After this, market participants turned their attention to substantial discounts to prices from their highs with a relatively healthy economy that continues to create jobs and raise wages,”

But caution still prevailed on Friday.

“Despite October’s notoriety as a ‘bear market killer’ and an auspicious intraday move, investors should maintain a certain degree of caution. A real change in trend requires a shift in fundamentals. And those changes are still not easy to identify,” Kuptsikevich said.

Rick Rieder, the chief investment officer for fixed income at BlackRock, told MarketWatch’s Christine Idzelis that Thursday’s gyrations marked one of the “craziest” days in market history, coming after data showing U.S. September inflation running at a hotter-than-expected pace.

“One of the largest intraday reversals in recent memory off a closely watched CPI print underscores the oversold condition and sentiment extreme in this market. The vulnerability wasn’t in the number, the vulnerability was in the positioning leading up to the number,” said Jeff deGraaf, founder of Renaissance Macro Research, in a Friday note.

BlackRock’s Rieder advised investors to consider parking their money in short-term bonds, a point recently echoed by hedge-fund legend Ray Dalio.

Shares of JPMorgan Chase & Co.
JPM,
+3.39%
were up 2.7% after the bank and Dow component beat Wall Street targets for earnings and revenue.

Analysts were also weighing results from Wells Fargo & Co.
WFC,
+3.52%
and Morgan Stanley
MS,
-4.25%,
and Citigroup Inc.
C,
+1.43%.

See: JPMorgan profit falls but beats estimates while Wells Fargo misses

Investors were also monitoring developments in the U.K., where Prime Minister Liz Truss fired Kwasi Kwarteng from his role as chancellor of the exchequer. Yields on U.K. government bonds spiked after Kwarteng presented a budget plan that included large tax cuts in late September, sparking a crisis that required the Bank of England to step in with an emergency buying program.

Read: Why Kwasi Kwarteng could not survive the battle with the Bank of England

U.K. bond yields initially dropped on Friday on indications many of the planned tax cuts would be reversed. But they later rose after Truss only reversed corporate tax cuts.

Also see: Larry Summers says U.K. debt market stress could be the ‘tremor’ signaling global economic ‘earthquake’

The Federal Reserve needs to continue raising interest rates but should be careful about the pace of these moves, Kansas City Fed President Esther George said on Friday.

Companies in focus
  • Wells Fargo
    WFC,
    +3.52%
    shares rose 3.8% after the bank posted stronger-than-expected revenue for the third quarter, offsetting a profit miss.
  • Shares of Morgan Stanley
    MS,
    -4.25%
    fell 4.5% after the investment bank missed Wall Street’s targets for earnings and revenue amid a drop in deal activity.
  • Citigroup
    C,
    +1.43%
    shares rose 1.9% after the bank topped Wall Street forecasts on earnings and revenue.
  • UnitedHealth Group Inc.
    UNH,
    +1.77%
    shares were up 1.6% after the Dow component and health insurer reported third-quarter profit and revenue that rose above expectations, and lifted its full-year outlook for a third-straight quarter.
  • Kroger Co.
    KR,
    -5.04%
    announced a $24.6 billion deal to buy Albertsons Cos. Inc.
    ACI,
    -7.39%.
    Under the terms of the merger agreement, Kroger will acquire all of the shares outstanding of Albertsons’ common and preferred stock for an estimated $34.10 per share. Kroger shares fell 4.9%, while Albertsons was off 7%. Shares of Albertsons jumped more than 11% Thursday on reports of a potential deal, while Kroger rose 2%.
  • Beyond Meat Inc.
    BYND,
    -6.02%
    shares fell 6.2% after the plant-based food company issued a revenue warning, announced a plan to cut about 200 workers and said it’s cutting other costs as it makes a strategic shift aimed at achieving positive cash flow operations.

Also see: Beyond Meat COO Douglas W. Ramsey is leaving the company after being suspended for allegedly biting a man’s nose

Read original article here