BERLIN, Jan 30 (Reuters) – The German economy unexpectedly shrank in the fourth quarter, data showed on Monday, a sign that Europe’s largest economy may be entering a much-predicted recession, though likely a shallower one than originally feared.
Gross domestic product decreased 0.2% quarter on quarter in adjusted terms, the federal statistics office said. A Reuters poll of analysts had forecast the economy would stagnate.
In the previous quarter, the German economy grew by an upwardly revised 0.5% versus the previous three months.
A recession – commonly defined as two successive quarters of contraction – has become more likely, as many experts predict the economy will shrink in the first quarter of 2023 as well.
“The winter months are turning out to be difficult – although not quite as difficult as originally expected,” said VP Bank chief economist Thomas Gitzel.
“The severe crash of the German economy remains absent, but a slight recession is still on the cards.”
German Economy Minister Robert Habeck said last week in the government’s annual economic report that the economic crisis triggered by the Russian invasion of Ukraine was now manageable, though high energy prices and interest rate rises mean the government remains cautious.
The government has said the economic situation should improve from spring onwards, and last week revised up its GDP forecast for 2023 — predicting growth of 0.2%, up from an autumn forecast of a 0.4% decline.
As far as the European Central Bank goes, interest rate expectations are unlikely to be affected by Monday’s GDP figures as inflationary pressures remain high, said Helaba bank economist Ralf Umlauf.
The ECB has all but committed to raising its key rate by half a percentage point this week to 2.5% to curb inflation.
Monday’s figures showed falling private consumption was the primary reason for the decrease in fourth-quarter GDP.
“Consumers are not immune to an erosion of their purchasing power due to record high inflation,” said Commerzbank chief economist Joerg Kraemer.
Inflation, driven mainly by high energy prices, eased for a second month in a row in December, with EU-harmonized consumer prices rising 9.6% on the year.
However, analysts polled by Reuters predict annual EU-harmonized inflation will enter the double digits again in January with a slight rise, to 10.0%. The office will publish the preliminary inflation rate for January on Tuesday.
Reporting by Miranda Murray and Rene Wagner, editing by Rachel More and Christina Fincher
Our Standards: The Thomson Reuters Trust Principles.
BENGALURU, Jan 20 (Reuters) – The U.S. Federal Reserve will end its tightening cycle after a 25-basis-point hike at each of its next two policy meetings and then likely hold interest rates steady for at least the rest of the year, according to most economists in a Reuters poll.
Fed officials broadly agree the U.S. central bank should slow the pace of tightening to assess the impact of the rate hikes. The Fed raised its benchmark overnight interest rate by 425 basis points last year, with the bulk of the tightening coming in 75- and 50-basis-point moves.
As inflation continues to decline, more than 80% of forecasters in the latest Reuters poll, 68 of 83, predicted the Fed would downshift to a 25-basis-point hike at its Jan. 31-Feb 1 meeting. If realized, that would take the policy rate – the federal funds rate – to the 4.50%-4.75% range.
The remaining 15 see a 50-basis-point hike coming in two weeks, but only one of those was from a U.S. primary dealer bank that deals directly with the Fed.
The fed funds rate was expected to peak at 4.75%-5.00% in March, according to 61 of 90 economists. That matched interest rate futures pricing, but was 25 basis points lower than the median point for 2023 in the “dot plot” projections issued by Fed policymakers at the end of the Dec. 13-14 meeting.
“U.S. inflation shows price pressures are easing, yet in an environment of a strong jobs market, the Federal Reserve will be wary of calling the top in interest rates,” noted James Knightley, chief international economist at ING.
The expected terminal rate would be more than double the peak of the last tightening cycle and the highest since mid-2007, just before the global financial crisis. There was no clear consensus on where the Fed’s policy rate would be at the end of 2023, but around two-thirds of respondents had a forecast for 4.75%-5.00% or higher.
The interest rate view in the survey was slightly behind the Fed’s recent projections, but the poll medians for growth, inflation and unemployment were largely in line.
Inflation was predicted to drop further, but remain above the Fed’s 2% target for years to come, leaving a relatively slim chance of rate cuts anytime soon.
In response to an additional question, more than 60% of respondents, 55 of 89, said the Fed was more likely to hold rates steady for at least the rest of the year than cut. That view lined up with the survey’s median projection for the first cut to come in early 2024.
However, a significant minority, 34, said rate cuts this year were more likely than not, with 16 citing a plunge in inflation as the biggest reason. Twelve said a deeper economic downturn and four said a sharp rise in unemployment.
“The Fed has prioritized inflation over employment, therefore only a sharp decline in core inflation can convince the FOMC (Federal Open Market Committee) to cut rates this year,” said Philip Marey, senior U.S. strategist at Rabobank.
“While the peak in inflation is behind us, the underlying trend remains persistent … we do not think inflation will be close to 2% before the end of the year.”
Reuters Poll- U.S. Federal Reserve outlook
In the meantime, the Fed is more likely to help push the economy into a recession than not. The poll showed a nearly 60% probability of a U.S. recession within two years.
While that was down from the previous poll, several contributors had not assigned recession probabilities to their forecasts as a slump was now their base case, albeit a short and shallow one as predicted in several previous Reuters surveys.
The world’s biggest economy was expected to grow at a mere 0.5% this year before rebounding to 1.3% growth in 2024, still below its long-term average of around 2%.
With mass layoffs underway, especially in financial and technology companies, the unemployment rate was expected to rise to average 4.3% next year, from the current 3.5%, and then climb again to 4.8% next year.
While still historically low compared to previous recessions, the forecasts were about 1 percentage point higher than a year ago.
(For other stories from the Reuters global economic poll:)
Reporting by Prerana Bhat; Polling by Milounee Purohit; Editing by Ross Finley and Paul Simao
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63% worried about ECB’s ability to protect purchasing power
FRANKFURT, Jan 18 (Reuters) – (This Jan. 17 story has been corrected to restore the dropped words in paragraph 11)
European Central Bank staff are losing confidence in the institution’s leadership following the ECB’s failure to control inflation and a pay award that lagged the leap in prices, according to a survey by trade union IPSO.
The responses underline that even central banks, whose primary responsibility is fighting inflation, are not immune to staff dissatisfaction with the sharply rising cost of living.
The survey was organised in the context of a dispute between IPSO, which holds six out of nine seats on the ECB’s staff committee, and the central bank’s board over pay and remote-working arrangements.
An ECB spokesperson did not comment directly on IPSO’s findings when asked but pointed to a separate staff survey, run by the ECB itself last year, showing that 83% of nearly 3,000 respondents were proud to work for the ECB and 72% would recommend it.
Results of IPSO’s survey, which largely focused on pay and remote-working arrangements but also included questions about trust in the board, were sent to ECB staff on Tuesday in an email, seen by Reuters.
They showed two-thirds of roughly 1,600 respondents said their trust in Lagarde and the rest of the six-member ECB board had been damaged by recent developments such as high inflation and a pay increase that did not match the rise in prices.
Asked how much trust they had in Lagarde and the board when it comes to leading and managing the ECB, the central bank for the 20 countries that use the euro, just under half of respondents said “moderate” (34.3%) or “high” (14.6%).
But over 40% of respondents said they had “low” (28.6%) or “no” (12%) trust, while 10.5% could not say.
“This is a serious concern for our institution, as no one can correctly lead an organisation without the trust of its workforce,” the union said in its email.
INFLATION SURGE, PAY BATTLES
The survey was the first by IPSO to ask about trust in top management since Christine Lagarde took over as ECB President in late 2019.
A similar IPSO survey of ECB staff, taken just before her predecessor Mario Draghi stepped down, showed 54.5% of 735 respondents rated his presidency “very good” or “outstanding”, with support for his policy measures even higher.
Then, however, inflation in the euro zone had been low for a decade. Its recent surge to multi-decade highs in countries around the world has seen a revival in battles over pay between workers and the companies and institutions that employ them.
And a majority of respondents in the October 2019 survey also complained about a lack of transparency in recruitment and perceived favouritism under Draghi.
The most recent Bank of England staff survey, also conducted in 2019, showed 64% of respondents had “trust and confidence in the Bank’s leadership”.
A 2022 U.S. government survey of employees at departments and federal agencies found that 61% of respondents had “a high level of respect” for their organisation’s senior leaders – roughly stable compared to the previous two years.
The ECB spokesperson also pointed to internal surveys in 2020-21 that found roughly 80% of respondents were satisfied with health-and-safety measures taken by the ECB in response to the coronavirus pandemic.
The latest IPSO survey showed 63% of staff who responded were worried about the ECB’s ability to protect their purchasing power after being handed a pay increase of just 4% last year – or roughly half the rise in consumer prices.
The ECB has been criticised by politicians, bankers and academics for initially underestimating a surge in the cost of living and then making up for it with large and painful increases in borrowing costs.
Lagarde, who is not an economist and had not been a central banker before joining the ECB, colourfully defended her board at an event with staff last month.
“If it wasn’t for them I’d be a sad, lonely cowgirl lost somewhere in the Pampa of monetary policy,” Lagarde said, according to a recording of the Dec. 19 town hall seen by Reuters.
She and fellow board members have long worried about the risk of a potential “wage-price spiral”, where higher salaries feed into prices, which they argue would make it harder for the ECB to bring inflation back down to its 2% target.
But IPSO said that concern is misplaced and workers should not be made to bear the brunt of the current bout in inflation.
“The ECB might be preaching lower real wages, but this is not our stance as your staff union,” it wrote in its message to ECB employees.
Editing by Catherine Evans
Our Standards: The Thomson Reuters Trust Principles.
Jan 17 (Reuters) – Bitcoin is on the charge in 2023, dragging the crypto market off the floor and electrifying bonk, a new meme coin.
The No.1 cryptocurrency has clocked a 26% gain in January, leaping 22% in the past week alone, breaking back above the $20,000 level and putting in on course for its best month since October 2021 – just before the Big Crypto Crash.
Ether has also risen, by 29% this year, helping drive the value of the overall global cryptocurrency market above $1 trillion, according to CoinGecko.
“After a rough year last year for cryptos, we are seeing a form of mean reversion,” said Jake Gordon, analyst at Bespoke Investment Group, referring to the theory of asset prices returning to long-term averages.
Researchers said investor bets on a rosier macroeconomic picture were driving a jump in riskier assets across the board.
Few crypto tokens have benefited more than bonk, which was launched at the end of December on the Solana blockchain and had rocketed 5,000% by early January. It has since fallen back, though remains up 910% since the start of the year.
It is the latest entrant to the hyper-volatile world of meme coins, cryptocurrencies inspired by online memes and jokes, and is modeled after the same grinning Shiba Inu dog as dogecoin – which itself was catapulted to fame by Elon Musk tweets.
Bonk’s a puppy, though.
Even at its peak it was worth just $0.000004873759 with a market capitalization of about $205 million.
Other meme tokens are also up, with dogecoin and Shiba Inu up 19% and 27% respectively in 2023.
But buyers beware.
“Investors need to be especially cautious when it comes to coins like doge, Shiba Inu and bonk,” said Les Borsai, co-founder of digital assets services firm Wave Financial.
“They fall just as hard as they surge.”
Nonetheless, some market players pointed to the relative cheapness of these tokens – doge is worth about eight cents – as a reason why speculators were willing to place bets on them.
“Meme coins belong to crypto, it’s part of the culture,” said Martin Leinweber, digital assets product specialist at MarketVector Indexes. “It just takes a few lines of codes to create a meme token and if you have a community for it, people love that.”
RUMORS OF SOL’S DEATH EXAGGERATED
Bonk is a meme coin with a mission. It was created, in part, to support the Solana blockchain, which has seen an exodus of funds and users since crypto exchange FTX filed for bankruptcy in November, and its native Solana token drop over 37%.
The Solana token has now indeed jumped as bonk has gained traction: it’s up 131% in 2023, the biggest gainer among major cryptocurrencies.
“Rumors of Solana’s death seem to have been greatly exaggerated,” said Tom Dunleavy, senior research analyst at data firm Messari. “Despite the recent price appreciation seemingly being driven by speculation, the underlying ecosystem remains quite strong.”
Reuters Graphics
TOO EARLY TO CALL A CRYPTO REVERSAL
Some researchers chalked the crypto gains up to optimism that inflation had peaked, reducing the need for tighter central bank policy.
“Bitcoin and crypto tend to front-run everything, which is why we’ve seen notable relative strength in this asset class of late,” said Wave Financial’s Borsai.
There’s certainly been an increase in activity.
The dollar value of bitcoin trading volumes on major exchanges over a 7-day period jumped to $151 million, the highest in nearly two months, according to data from Blockchain.com.
Total bitcoin flows – representing all uses including trading and payments – have increased by 13,130 bitcoin on average in the last 7 days, the largest rise in 64 days, Chainalysis data showed.
However, market watchers warned against celebrating too soon, noting trading volumes remained low and the macroeconomic environment uncertain.
“It’s too early to declare a definitive reversal for the crypto market despite the recent strength we’ve seen of late,” said Aaron Kaplan, co-founder of Prometheum, a digital asset securities trading platform.
“If interest rate increases are below what the market expects, then risk assets will benefit and crypto prices will likely continue the uptrend, but there’s just too much uncertainty right now.”
Reporting by Medha Singh and Lisa Mattackal in Bengaluru; Editing by Pravin Char
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
BEIJING/HONG KONG, Jan 17 (Reuters) – China’s population fell last year for the first time in six decades, a historic turn that is expected to mark the start of a long period of decline in its citizen numbers with profound implications for its economy and the world.
The drop, the worst since 1961, the last year of China’s Great Famine, also lends weight to predictions that India will become the world’s most populous nation this year.
China’s population declined by roughly 850,000 to 1.41175 billion at the end of 2022, the country’s National Bureau of Statistics said.
Long-term, U.N. experts see China’s population shrinking by 109 million by 2050, more than triple the decline of their previous forecast in 2019.
That’s caused domestic demographers to lament that China will get old before it gets rich, slowing the economy as revenues drop and government debt increases due to soaring health and welfare costs.
“China’s demographic and economic outlook is much bleaker than expected. China will have to adjust its social, economic, defense and foreign policies,” said demographer Yi Fuxian.
He added that the country’s shrinking labour force and downturn in manufacturing heft would further exacerbate high prices and high inflation in the United States and Europe.
Kang Yi, head of the national statistics bureau, told reporters that people should not worry about the decline in population as “overall labour supply still exceeds demand”.
China’s birth rate last year was just 6.77 births per 1,000 people, down from a rate of 7.52 births in 2021 and marking the lowest birth rate on record.
The number of Chinese women of childbearing age, which the government defines as 25 to 35, fell by about 4 million, Kang said.
The death rate, the highest since 1974 during the Cultural Revolution, was 7.37 deaths per 1,000 people, which compares with rate of 7.18 deaths in 2021.
ONE-CHILD POLICY IMPACT
Much of the demographic downturn is the result of China’s one-child policy imposed between 1980 and 2015 as well as sky-high education costs that have put many Chinese off having more than one child or even having any at all.
The data was the top trending topic on Chinese social media after the figures were released on Tuesday. One hashtag,”#Is it really important to have offspring?” had hundreds of millions of hits.
“The fundamental reason why women do not want to have children lies not in themselves, but in the failure of society and men to take up the responsibility of raising children. For women who give birth this leads to a serious decline in their quality of life and spiritual life,” posted one netizen with the username Joyful Ned.
China’s stringent zero-COVID policies that were in place for three years have caused further damage to the country’s demographic outlook, population experts have said.
Local governments have since 2021 rolled out measures to encourage people to have more babies, including tax deductions, longer maternity leave and housing subsidies. President Xi Jinping also said in October the government would enact further supportive policies.
The measures so far, however, have done little to arrest the long-term trend.
Online searches for baby strollers on China’s Baidu search engine dropped 17% in 2022 and are down 41% since 2018, while searches for baby bottles are down more than a third since 2018. In contrast, searches for elderly care homes surged eight-fold last year.
The reverse is playing out in India, where Google Trends shows a 15% year-on-year increase in searches for baby bottles in 2022, while searches for cribs rose almost five-fold.
Reuters Graphics
Reporting by Albee Zhang in Beijing and Farah Master in Hong Kong; Additional reporting by Kevin Yao and Ella Cao in Beijing; Editing by Edwina Gibbs
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DAVOS, Switzerland, Jan 16 (Reuters) – The prospect of imminent global recession cast a long shadow over Davos on Monday as participants gathering for the opening of the World Economic Forum’s annual meeting counted the likely cost for their economies and businesses.
Two-thirds of private and public sector chief economists surveyed by the WEF expect a global recession this year, with some 18% considering it “extremely likely” – more than twice as many as in the previous survey conducted in September 2022.
“The current high inflation, low growth, high debt and high fragmentation environment reduces incentives for the investments needed to get back to growth and raise living standards for the world’s most vulnerable,” WEF Managing Director Saadia Zahidi said in a statement accompanying the survey results.
The WEF’s survey was based on 22 responses from a group of senior economists drawn from international agencies including the International Monetary Fund, investment banks, multinationals and reinsurance groups.
Meanwhile, a survey of CEO attitudes by PwC released in Davos on Monday was the gloomiest since the “Big Four” auditor launched the poll a decade ago, marking a significant shift from optimistic outlooks in 2021 and 2022.
The World Bank last week slashed its 2023 growth forecasts to levels close to recession for many countries as the impact of central bank rate hikes intensifies, Russia’s war in Ukraine continues, and the world’s major economic engines sputter.
Definitions of what constitutes recession differ around the world but generally include the prospect of shrinking economies, possibly with high inflation in a “stagflation” scenario.
On inflation, the WEF survey saw large regional variations: the proportion expecting high inflation in 2023 ranged from just 5% for China to 57% for Europe, where the impact of last year’s rise in energy prices has spread to the wider economy.
A majority of the economists see further monetary policy tightening in Europe and the United States (59% and 55%, respectively), with policy-makers caught between the risks of tightening too much or too little.
“It is clear that there is a massive drop in demand, inventories are not clearing up, the orders are not coming through,” Yuvraj Narayan, deputy chief executive and chief financial officer of Dubai-based global logistics company DP World told Reuters.
“There are far too many constraints imposed. It is no longer a free-flowing global economy and unless they find the right solutions it will only get worse,” he said, adding the group expects freight rates to drop by between 15% and 20% in 2023.
AVOIDING LAY-OFFS
Few sectors expect to be totally immune.
Matthew Prince, chief executive of cloud services company Cloudflare Inc (NET.N), said internet activity was pointing to an economic slowdown.
“Since New Year’s, when I catch up with other tech company CEOs, they’re like, ‘have you noticed the sky is falling?'” he told Reuters.
PwC’s survey found confidence among companies in their growth prospects dropped the most since the 2007-08 global financial crisis, although a majority of CEOs had no plans to cut the size of their workforce in the next 12 months or to slash remuneration as they try to retain talent.
“They’re trying to do cost reduction without human capital changes and large layoffs,” said PwC global chairman Bob Moritz.
Jenni Hibbert, a partner at Heidrick & Struggles in London, said activity was normalising and the executive search firm was seeing “a little less flow” after two years of strong growth.
“We are hearing the same mixed picture from most of our clients. People expect a market that’s going to be more challenged,” Hibbert told Reuters.
AID CUTS
Nowhere is the real-world impact of recession more tangible than in efforts to tackle global poverty.
Peter Sands, executive director of the Global Fund to fight AIDS, Tuberculosis and Malaria, said overseas development aid was being cut in budgets as donors started to feel the pinch, while recession would hit local health provision hard.
A common concern among many Davos participants was the sheer level of uncertainty for the year ahead – from the duration and intensity of the Ukraine war through to the next moves of top central banks looking to lower inflation with deep rate hikes.
The chief financial officer of one U.S. publicly traded company told Reuters he was preparing widely-varying scenarios for 2023 in light of economic uncertainty – in large part related to how interest rates will trend this year.
While there were few silver linings on the horizon, some noted that an all-out recession could give pause to the policy-tightening plans of the U.S. Federal Reserve and other major central banks that is making borrowing increasingly dear.
“I want the outlook to become a little weaker so that the Fed rates start going down and that whole sucking-out of liquidity by global central banks eases,” Sumant Sinha, chairman and CEO of Indian clean energy group ReNew Power, told Reuters.
“That will benefit not just India but globally,” he said, adding the current round of rate hikes was making it dearer for clean energy companies to fund their capital-intensive projects.
Reporting by Mark John, Maha El Dahan, Jeffrey Daskins, Leela de Kretser, Divya Chowdhury and Paritosh Bansal; Editing by Alexander Smith
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WASHINGTON, Jan 12 (Reuters) – U.S consumer prices fell for the first time in more than 2-1/2 years in December amid declining prices for gasoline and motor vehicles, offering hope that inflation was now on a sustained downward trend, though the labor market remains tight.
Americans also got more relief at the supermarket last month, with the report from the Labor Department on Thursday showing food prices posting their smallest monthly increase since March 2021. But rents remained very high and utilities were more expensive.
Cooling inflation could allow the Federal Reserve to further scale back the pace of its interest rate increases next month. The U.S. central bank is engaged in its fastest rate hiking cycle since the 1980s.
“The mountain peak of inflation is behind us but the question is how steep the downhill is,” said Sung Won Sohn, finance and economics professor at Loyola Marymount University in Los Angeles. “To be sure, the efforts by the Fed have begun to bear fruit, even though it will be a while before the promised land of a 2% inflation rate is here.”
The consumer price index dipped 0.1% last month, the first decline since May 2020, when the economy was reeling from the first wave of COVID-19 cases. The CPI rose 0.1% in November.
Economists polled by Reuters had forecast the CPI unchanged. It was third straight month that the CPI came in below expectations and raised buying power for consumers as well as hopes the economy could avoid a dreaded recession this year.
“The current trajectory could deliver a softer landing, stronger jobs market and a less aggressive stance from the Fed but only time will tell,” said James Bentley, director at Financial Markets Online.
Gasoline prices tumbled 9.4% after dropping 2.0% in November. But the cost of natural gas increased 3.0%, while electricity rose 1.0%.
Food prices climbed 0.3%, the smallest gain in nearly two years, after rising 0.5% in the prior month. The cost of food consumed at home increased 0.2%, also the least since March 2021. Fruit and vegetable prices fell as did those for dairy products, but meat, poultry and fish cost more. Egg prices surged 11.1% because of avian flu.
In the 12 months through December, the CPI increased 6.5%. That was the smallest rise since October 2021 and followed a 7.1% advance in November. The annual CPI peaked at 9.1% in June, which was the biggest increase since November 1981. Inflation remains well above the Fed’s 2% target.
President Joe Biden welcomed the disinflationary trend, saying it was “giving families some real breathing room,” and “proof that my plan is working.”
Price pressures are subsiding as higher borrowing costs cool demand, and supply chains ease.
The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25%-4.50% range, the highest since late 2007. In December, it projected at least an additional 75 basis points of hikes in borrowing costs by the end of 2023.
Excluding the volatile food and energy components, the CPI climbed 0.3% last month after rising 0.2% in November. In the 12 months through December, the so-called core CPI increased 5.7%. That was the smallest gain since December 2021 and followed a 6.0% advance in November.
Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury prices rose.
Reuters Graphics
GOODS DEFLATION
Prices for used cars and trucks fell 2.5%, recording their sixth straight monthly decline. New motor vehicles slipped 0.1%, falling for the first time since January 2021.
Core goods prices slipped 0.3%, declining for a third straight month. Apparel prices rose despite retailers offering discounts to clear excess inventory. While goods deflation is becoming entrenched, services, the largest component of the CPI basket, accelerated 0.6% after gaining 0.3% in November.
Core services, which exclude energy, rose 0.5% last month after increasing 0.4% in November.
They are being driven by sticky rents. Owners’ equivalent rent, a measure of the amount homeowners would pay to rent or would earn from renting their property, jumped 0.8% after rising 0.7% in November. Independent measures, however, suggest rental inflation is cooling.
The rent measures in the CPI tend to lag the independent gauges. Healthcare costs gained 0.1% after two straight monthly declines. Stripping out rental shelter, services inflation shot up 0.4% after being unchanged in November.
The moderation in inflation will be welcomed by Fed officials, though they will probably want to see more compelling evidence of abating prices pressures before pausing rate hikes.
Labor costs account for about two-thirds of the CPI. The labor market remains tight, with the unemployment rate back at a five-decade low of 3.5% in December, and 1.7 jobs for every unemployed person in November.
A separate report from the Labor Department showed initial claims for state unemployment benefits fell 1,000 to a seasonally adjusted 205,000 for the week ended Jan. 7.
Economists had forecast 215,000 claims for the latest week. Claims have remained low despite high-profile layoffs in the technology industry as well as job cuts in interest rate-sensitive sectors like finance and housing.
Economists say companies are for now reluctant to send workers home after difficulties finding labor during the pandemic. The number of people receiving benefits after an initial week of aid, a proxy for hiring, dropped 63,000 to 1.634 million in the week ending Dec. 31, the claims data showed
The government reported last week the economy created 223,000 jobs in December, more than double the 100,000 that the Fed wants to see to be confident inflation is cooling.
“Until labor supply and demand show better harmony, the Fed will worry higher inflation is just around the corner,” said Will Compernolle, a senior economist at FHN Financial in New York.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci
Our Standards: The Thomson Reuters Trust Principles.
Mass redundancies, spending review beckons for Wall Street giant
Cuts to all major divisions expected, globally
Restructuring in Asian wealth unit kicks off Wednesday’s layoffs
NEW YORK/LONDON/HONG KONG, Jan 12 (Reuters) – Goldman Sachs (GS.N) began laying off staff on Wednesday in a sweeping cost-cutting drive, with around a third of those affected coming from the investment banking and global markets division, a source familiar with the matter said.
The long-expected jobs cull at the Wall Street titan is expected to represent the biggest contraction in headcount since the financial crisis. It is likely to affect most of the bank’s major divisions, with its investment banking arm facing the deepest cuts, a source told Reuters this month.
Just over 3,000 employees will be let go, the source, who could not be named, said on Monday. A separate source confirmed on Wednesday that cuts had started.
“We know this is a difficult time for people leaving the firm,” a Goldman Sachs statement on Wednesday said.
“We’re grateful for all our people’s contributions, and we’re providing support to ease their transitions. Our focus now is to appropriately size the firm for the opportunities ahead of us in a challenging macroeconomic environment.”
The cuts are part of broader reductions across the banking industry as a possible global recession looms. At least 5,000 people are in the process of being cut from various banks. In addition to the 3,000 from Goldman, Morgan Stanley (MS.N) has cut about 2% of its workforce, or 1,600 people, a source said last month while HSBC (HSBA.L) is shedding at least 200, sources previously said.
Last year was challenging across groups including credit, equities, and investment banking broadly, said Paul Sorbera, president of Wall Street recruitment firm Alliance Consulting. “Many didn’t make budgets.”
“It’s just part of Wall Street,” Sorbera said. “We’re used to seeing layoffs.”
The latest cuts will reduce about 6% of Goldman’s headcount, which stood at 49,100 at the end of the third quarter.
[1/3] A trader works at the Goldman Sachs stall on the floor of the New York Stock Exchange, April 16, 2012. REUTERS/Brendan McDermid/File Photo
The firm’s headcount had added more than 10,000 jobs since the coronavirus pandemic as markets boomed.
The reductions come as U.S. banking giants are forecast to report lower profits this week. Goldman Sachs is expected to report a net profit of $2.16 billion in the fourth-quarter, according to a mean forecast by analysts on Refinitiv Eikon, down 45% from $3.94 billion net profit in the same period a year earlier.
Shares of Goldman Sachs have partially recovered from a 10% fall last year. The stock closed up 1.99% on Wednesday, up around 6% year-to-date.
LAYOFFS AROUND GLOBE
Goldman’s layoffs began in Asia on Wednesday, where Goldman completed cutting back its private wealth management business and let go of 16 private banking staff across its Hong Kong, Singapore and China offices, a source with knowledge of the matter said.
About eight staff were also laid off in Goldman’s research department in Hong Kong, the source added, with layoffs ongoing in the investment banking and other divisions.
At Goldman’s central London hub, rainfall lessened the prospect of staff huddles. Several security personnel actively patrolled the building’s entrance, but few people were entering or leaving the property. A glimpse into the bank’s recreational area just beyond its lobby showed a handful of staffers in deep conversation but few signs of drama. Wine bars and eateries local to the office were also short of post-lunch trade, in stark contrast to large-scale layoffs of the past when unlucky staffers would typically gather to console one another and plan their next career moves.
In New York, employees were seen streaming into headquarters during the morning rush.
Goldman’s redundancy plans will be followed by a broader spending review of corporate travel and expenses, the Financial Times reported on Wednesday, as the U.S. bank counts the costs of a massive slowdown in corporate dealmaking and a slump in capital markets activity since the war in Ukraine.
The company is also cutting its annual bonus payments this year to reflect depressed market conditions, with payouts expected to fall about 40%.
Reporting by Sinead Cruise and Iain Withers in London, Selena Li in Hong Kong, Scott Murdoch in Sydney and Saeed Azhar in New York; Editing by Josie Kao and Christopher Cushing
Our Standards: The Thomson Reuters Trust Principles.
SINGAPORE, Dec 12 (Reuters) – The dollar climbed on Monday after data on Friday showed U.S. producer prices had risen more than expected last month, pointing to persistent inflationary pressures and a chance the Federal Reserve would keep interest rates higher for longer.
The dollar rose 0.35% against the Japanese yen to 137.05. Against a basket of currencies, the U.S. dollar index eked out a 0.12% gain at 105.18.
The euro was last 0.2% lower at $1.0509.
Sterling fell 0.31% to $1.2229 in Asia trade on Monday, while the Aussie edged 0.34% lower to $0.6773.
The kiwi similarly slipped 0.34% to $0.6393.
The U.S. producer price index for final demand in November was up 0.3% from the previous month and 7.4% from a year earlier, data released on Friday showed, a slight upside surprise from forecasts of a 0.2% and 7.2% increase, respectively.
“There were a little bit of concerns about how inflation would be persistently high and would encourage the Fed to keep policy at a restrictive level for even longer than previously expected,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).
Traders were also kept on edge in the run up to key risk events this week, including U.S. inflation data and a slew of major central bank meetings.
The Federal Reserve once again takes centre stage, and is widely expected to raise interest rates by 50 basis points, though focus will be on the central bank’s updated economic projections and Fed Chair Jerome Powell’s press conference.
“If he does talk more about the risks to the economy … I think that will probably be considered dovish by markets and, of course, markets love dovish comments and how the FOMC will pay more attention to downside risks to the economy,” said CBA’s Kong.
The Bank of England and the European Central Bank (ECB) will also meet this week, and each is likewise expected to deliver a 50 bp rate hike.
“ECB officials have been telling us that they care more about the underlying inflation, which has remained elevated,” said Kong of the upcoming ECB meeting.
“If they do hike by 50 bps … they might follow up with some pretty hawkish comments in Lagarde’s post meeting conference.”
Ahead of the FOMC meeting, November’s U.S. inflation figures are due on Tuesday, with economists expecting core annual inflation of 6.1%.
“The market reaction to U.S. inflation surprises has been asymmetric so far in 2022, with downside surprises having a larger effect than upside ones,” said analysts at Barclays.
“The inflation print will likely be the bigger driver of the two, (given) the Fed’s guidance toward smaller hikes,” they added, referring to influences on the U.S. dollar.
The offshore yuan eased slightly to 6.9798 per dollar, further pressured by worries over a potential spike in COVID cases as China eases its stringent COVID-19 restrictions.
Reporting by Rae Wee; Editing by Lincoln Feast and Bradley Perrett
Our Standards: The Thomson Reuters Trust Principles.
BEIJING, Dec 9 (Reuters) – China’s factory-gate prices showed an annual fall for a second month in November while consumer inflation slowed, indicating weak activity and soft demand in an economy that has been held back by tough pandemic controls.
Analysts said they expected the government to keep interest rates low and take measures to boost confidence.
The producer price index (PPI) was down 1.3% on a year earlier, unchanged from an annual contraction seen in October, according to National Bureau of Statistics (NBS) data issued on Friday. That was slower than a 1.4% fall tipped in a Reuters poll.
The November consumer price index (CPI) rose at its slowest pace in eight months, climbing 1.6% from a year earlier, which was less than the 2.1% annual rise seen in October but in line with a Reuters poll.
“These data suggest the economic momentum (continues) to weaken,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
A high-level political meeting on Tuesday, a gathering of the ruling Communist Party’s Politburo, emphasised that in 2023 the government would focus on stabilising growth, promoting domestic demand and opening up to the outside world.
Zhang said that, although the government had eased pandemic controls over the past week, it would take further measures to spur the economy.
“The Politburo meeting … identified weak confidence as a major problem for the economy,” he said. “I expect the government will do more to boost market and household confidence. The fast pace of reopening indicates the government’s sense of urgency.”
Growth in the world’s second-largest economy has sagged this year, largely impacted by the uncompromising COVID-19 curbs as global demand has also wavered.
The producer price deflation and milder consumer price inflation of November accompanied record COVID-19 infections and related curbs that disrupted production and curbed mobility.
Although markets have cheered the shift in pandemic policy, economists say it will likely depress growth over the next few months as infections surge, bringing an economic rebound only later in 2023.
Reuters Graphics
Producer deflation was led by the steel industry, in which prices were down 18.7%.
Part of the explanation for slower growth in consumer prices was in food markets.
Food prices were up 3.7% on a year earlier, whereas the rise seen in October was 7.0%. Within the food category, pork was a factor behind moderating inflation: it was 34.4% pricier in November than in the same month last year, but in October the annual rise had been 51.8%.
Underlying core annual inflation, which excludes volatile food and energy prices, was just 0.6% in November, unchanged from October
“The overall inflation pressure remains benign in China, and we expect the CPI inflation will be around 1.6% for 2023, down from 2.0% in 2022. Given this, the monetary policy will remain accommodative over the coming year,” said Hao Zhou, chief economist at Guotai Junan Group.
China’s central bank has kept its benchmark one-year loan prime rate at 3.65% since August. It expects consumer inflation to remain moderate next year.
Reporting by Liangping Gao and Liz Lee; Editing by Edmund Klamann and Bradley Perrett
Our Standards: The Thomson Reuters Trust Principles.