Unemployment rate steady at 3.7%; participation rate falls
Average hourly earnings rise 0.6%; up 5.1% year-on-year
WASHINGTON, Dec 2 (Reuters) – U.S. employers hired more workers than expected in November and increased wages, shrugging off mounting worries of a recession, but that will probably not stop the Federal Reserve from slowing the pace of its interest rate hikes starting this month.
Despite the strong job growth, some details of the Labor Department’s closely watched employment report on Friday were a bit weak, which economists said could be flagging upcoming labor market weakness. Household employment decreased for a second straight month. About 186,000 people left the labor force, keeping the unemployment rate unchanged at 3.7%.
Labor market tightness and strength keeps the Fed on its monetary policy tightening path at least through the first half of 2023, and could raise its policy rate to a higher level where it could stay for sometime. It also underscores the economy’s resilience heading into was is expected to be a tough year.
“November’s labor market report was clearly bad news for the Fed’s war on inflation,” said Jan Groen, chief U.S. macro strategist at TD Securities in New York. “The Fed has no other choice than to remain in tightening mode for the near future, with 50 basis points hikes in December and February.”
Nonfarm payrolls increased by 263,000 jobs last month. Data for October was revised higher to show payrolls rising 284,000 instead of 261,000 as previously reported. Monthly job growth of 100,000 is needed to keep pace with growth in the labor force.
Economists polled by Reuters had forecast payrolls increasing 200,000. Estimates ranged from 133,000 to 270,000. Employment growth has averaged 392,000 per month this year compared with 562,000 in 2021.
Hiring remains strong despite announcements of thousands of job cuts by technology companies, including Twitter, Amazon (AMZN.O) and Meta (META.O), the parent of Facebook.
Economists say these companies are right-sizing after over-hiring during the COVID-19 pandemic, noting that small firms remain desperate for workers.
There were 10.3 million job openings at the end of October, with 1.7 openings for every unemployed person, many of them in the leisure and hospitality as well as healthcare and social assistance industries.
The gains in employment last month were led by the leisure and hospitality sector, which added 88,000 jobs, most of them at restaurants and bars. Leisure and hospitality employment remains down 980,000 from its pre-pandemic level.
There were 45,000 jobs added in healthcare, while government payrolls increased 42,000. Construction employment increased by 20,000 jobs despite the housing market turmoil, while manufacturing added 14,000 jobs.
But retail trade employment fell by 30,000 jobs, with most of the losses in general merchandise stores. Transportation and warehousing payrolls decreased by 15,000 jobs. Temporary help jobs, a segment normally considered a harbinger of future hiring, decreased by 17,200.
“The labor market might encounter some bumps in the road next year, but it’s heading into 2023 cruising,” said Nick Bunker, head of economic research at the Indeed Hiring Lab.
Fed Chair Jerome Powell said on Wednesday the U.S. central bank could scale back the pace of its rate hikes “as soon as December.” The Fed has raised its policy rate by 375 basis points this year from near zero to a 3.75%-4.00% range in the fastest rate-hiking cycle since the 1980s.
Policymakers meet on Dec. 13 and 14. Attention now shifts to November’s consumer price data due on Dec. 13.
Stocks on Wall Street fell. The dollar rose against a basket of currencies. U.S. Treasury prices were lower.
WAGES ACCELERATE
With the labor market still tight, average hourly earnings increased 0.6% after advancing 0.5% in October. That raised the annual increase in wages to 5.1% from 4.9% in October. Wage growth peaked at 5.6% in March.
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The broad wage gains suggest that the moderation in inflation, evident in October data, will be gradual. Economists said this also raised concerns about a wage-price spiral that could keep service prices rising outside the shelter component. Fed officials have shied away from calling a price-wage spiral.
“The broad-based nature of the increase and its consistency with other data on wages makes us think that around 5% average hourly earnings growth is not an aberration,” said Andrew Hollenhorst, chief U.S. economist at Citigroup in New York.
Strong wage gains are helping to drive consumer spending, which surged in October, leading economists to believe that an anticipated recession next year would be short and shallow. But there are some signs of weakness emerging in the labor market.
Household employment decreased by 138,000 jobs, the second straight monthly decline. Though household employment tends to be volatile as it is drawn from a smaller sample compared to nonfarm payrolls, economists said the divergence between these two measures was important to watch.
“The household survey may be better in capturing turning points in the labor market than the payroll survey, since the payroll survey is unable to adequately capture activity in opening and closing firms while the household survey can,” said Sophia Koropeckyj, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.
Others, however, argued nonfarm payrolls were a better gauge and expected household employment to converge with payrolls.
The participation rate, or the proportion of working-age Americans who have a job or are looking for one, slipped to 62.1% from 62.2% in October. Some of the decrease in household employment and participation was likely because of illness, with 1.6 million people saying they were absent from work because they were sick, up 265,000 from October.
The participation rate for Americans 55 years and older fell, possibly reflecting retirements. The employment-to-population ratio dipped to 59.9% from 60.0% in October.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci
Our Standards: The Thomson Reuters Trust Principles.
Foxconn says it is working with staff to resolve disputes
Major iPhone factory rocked by protests over pay, conditions
Apple says it has team on the ground in Zhengzhou
TAIPEI/SHANGHAI, Nov 24 (Reuters) – Foxconn (2317.TW) said on Thursday a pay-related “technical error” occurred when hiring new recruits at a COVID-hit iPhone factory in China and apologised to workers after the company was rocked by fresh labour unrest.
Men smashed surveillance cameras and clashed with security personnel as hundreds of workers protested at the world’s biggest iPhone plant in Zhengzhou city on Wednesday, in rare scenes of open dissent in China sparked by claims of overdue pay and frustration over severe COVID-19 restrictions.
Workers said on videos circulated on social media that they had been informed that the Apple Inc (AAPL.O) supplier intended to delay bonus payments. Some workers also complained they were forced to share dormitories with colleagues who had tested positive for COVID.
“Our team has been looking into the matter and discovered a technical error occurred during the onboarding process,” Foxconn said in a statement, referring to the hiring of new workers.
“We apologize for an input error in the computer system and guarantee that the actual pay is the same as agreed and the official recruitment posters.” It did not elaborate on the error.
The apology was an about-face from a day earlier when Foxconn said it had fulfilled its payment contracts.
The unrest comes at a time when China is logging record numbers of COVID-19 infections and grappling with more and more lockdowns that have fuelled frustration among citizens across the country. But it has also exposed communication problems and a mistrust of Foxconn management among some staff.
The largest protests had died down and the company was communicating with employees engaged in smaller protests, a Foxconn source familiar with the matter told Reuters on Thursday.
The person said the company had reached “initial agreements” with employees to resolve the dispute and production at the plant was continuing.
Mounting worker discontent over COVID outbreaks, strict quarantine rules and shortages of food had seen many employees flee the enclosed factory campus since October after management implemented a so-called closed-loop system that isolated the plant from the wider world.
Many of new recruits had been hired to replace the workers who had fled – estimated by some former staff to number thousands.
The Taiwanese company said it would respect the wishes of new recruits who wanted to resign and leave the factory campus, and would offer them “care subsidies”. The Foxconn source said the subsidies amounted to 10,000 yuan ($1,400) per worker.
APPLE RISKS
Home to over 200,000 workers, Foxconn’s Zhengzhou plant has dormitories, restaurants, basketball courts and a football pitch across its sprawling roughly 1.4 million square metre facility.
The factory makes Apple devices including the iPhone 14 Pro and Pro Max, and accounts for 70% of iPhone shipments globally.
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Apple said it had staff at the factory and was “working closely with Foxconn to ensure their employees’ concerns are addressed”.
Several shareholder activists told Reuters the protests showed the risks Apple faces through its reliance on manufacturing in China.
“The extreme dependence of Apple on China, both as a (consumer) market and as its place of primary manufacturing, we see that a very risky situation,” said Christina O’Connell, a senior manager for SumOfUs, a nonprofit corporate accountability group.
Reuters reported last month that iPhone output at the Zhengzhou factory could slump by as much as 30% in November and that Foxconn aimed to resume full production there by the second half of the month.
The Foxconn source familiar with the matter said it was not immediately clear how much impact the worker protests might have on production for November and that it might take a few days to work that out, citing the large size of the factory.
A separate source has said the unrest had made it certain that they would not be able to resume full production by month-end.
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Apple has warned it expects lower shipments of premium iPhone 14 models than previously anticipated.
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($1 = 7.1353 Chinese yuan)
Reporting by Yimou Lee in Taipei and Brenda Goh in Shanghai; Additional reporting by Ross Kerber in Boston, Beijing Newsroom and Yew Lun Tian; Editing by Anne Marie Roantree, Stephen Coates and Edwina Gibbs
Our Standards: The Thomson Reuters Trust Principles.
Death toll from 5.6-magnitude earthquake expect to rise
Dozens remain trapped in the rubble – officials
President
CIANJUR, Indonesia, Nov 22 (Reuters) – Children killed when their schools collapsed accounted for many of the 162 dead in an earthquake that devastated a town on Indonesia’s main island of Java, an official said on Tuesday, as rescuers raced to reach people trapped in rubble.
Hundreds of people were injured in the Monday quake and officials warned the death toll was likely to rise.
The shallow 5.6-magnitude quake struck in mountains in Indonesia’s most populous province of West Java, causing significant damage to the town of Cianjur and burying at least one village under a landslide.
Landslides and rough terrain were hampering rescue efforts, said Henri Alfiandi, head of National Search and Rescue Agency (Basarnas).
“The challenge is the affected area is spread out … On top of that, the roads in these villages are damaged,” Alfiandi told a news conference, adding that more than 13,000 people had been evacuated.
“Most of the casualties are children, because at 1 p.m. they were still at school,” he said, referring to the time the quake hit.
Many of the fatalities resulted from people trapped under collapsed buildings, officials said.
President Joko Widodo flew in to Cianjur on Tuesday to encourage rescuers.
“My instruction is to prioritise evacuating victims that are still trapped under rubble,” said the president, who is known as Jokowi.
He offered his condolences to the victims and pledged emergency government support. Reconstruction should include earthquake-prone housing to protect against future disasters, he said.
Survivors gathered overnight in a Cianjur hospital parking lot. Some of the injured were treated in tents, others were hooked up to intravenous drips on the pavement as medical workers stitched up patients under torch light.
“Everything collapsed beneath me and I was crushed beneath this child,” Cucu, a 48-year-old resident, told Reuters.
“Two of my kids survived, I dug them up … Two others I brought here, and one is still missing,” she said through tears.
[1/10] Indonesia rescue members evacuate people from the site of a landslide caused by the earthquake in Cugenang, Cianjur, West Java province, Indonesia, November 22, 2022. REUTERS/Ajeng Dinar Ulfiana
Footage from Kompas TV showed people holding cardboard signs asking for food and shelter, with emergency supplies seemingly yet to reach them.
Hundreds of police officers were deployed to help the rescue effort, Dedi Prasetyo, national police spokesperson told the Antara state news agency.
“Today’s main task order for personnel is to focus on evacuating victims,” he said.
‘SWEPT AWAY’
West Java Governor Ridwan Kamil said at least 162 people were killed, many of them children, while the toll from the national disaster agency (BNPB) stood at 103, with 31 missing.
Authorities were operating “under the assumption that the number of injured and death will rise”, the governor said, with at least one village buried by landslides triggered by the quake.
Cianjur police chief told Metro TV that 20 people had been evacuated from the district of Cugenang, most of whom had died, with residents reporting missing family members.
The area was hit by a landslide triggered by the quake that had blocked access to the area.
“At least six of my relatives are still unaccounted for, three adults and three children,” said Zainuddin, a resident of Cugenang.
“If it was just an earthquake only the houses would collapse, but this is worse because of the landslide. In this residential area there were eight houses, all of the which were buried and swept away.”
Rescue efforts were complicated by electricity outages in some areas, and more than 100 aftershocks.
Straddling the so-called “Ring of Fire”, a highly seismically active zone where different plates on the earth’s crust meet, Indonesia has a history of devastating earthquakes.
In 2004, a 9.1 magnitude quake off Sumatra island in northern Indonesia triggered a tsunami that struck 14 countries, killing 226,000 people.
Reporting by Tommy Adriansyah and Ajeng Dinar Ulfina in Cianjur; and Gayatri Suroyo, Ananda Teresia, Fransiska Nangoy and Bernadette Christina Munthe in Jakarta; Writing by Kate Lamb; Editing by Ed Davies and Stephen Coates
Our Standards: The Thomson Reuters Trust Principles.
FTX founder sought to raise $7 billion from investors including Sequoia, Apollo, TPG, three sources say
FTX also turned to Nomura and Saudi wealth fund – sources
FTX and trading affiliate Alameda, nominally independent, both listed same assets on their books – investor presentations
Records seen by Reuters show FTX diverted large share of fee income to Alameda, posted big loss earlier this year
Nov 16 (Reuters) – As customers withdrew billions of dollars from crypto exchange FTX one frantic Sunday this month, founder Sam Bankman-Fried worked the phones in a futile bid to raise $7 billion in emergency funds.
Hunkered in his Bahamas apartment, Bankman-Fried toiled through the night, calling some of the world’s biggest investors, including Sequoia Capital, Apollo Global Management Inc (APO.N) and TPG Inc (TPG.O), according to three people with knowledge of the matter.
Sequoia was among investors that lined up only months before to pump money into Bankman-Fried’s empire. But not now. Sequoia was shocked at the amount of money Bankman-Fried needed to save FTX, according to the sources, while Apollo first asked for more information, only to later decline. Both firms and TPG declined to comment for this article.
In the end, the calls came to naught and FTX filed for bankruptcy on Nov. 11, leaving an estimated 1 million customers and other investors facing total losses in the billions of dollars. The collapse reverberated across the crypto world and sent bitcoin and other digital assets plummeting.
Some details of what happened at FTX have already emerged: Reuters reported Bankman-Fried secretly used $10 billion in customer funds to prop up his trading business, for instance, and that at least $1 billion of those deposits had vanished.
Now, a review of dozens of company documents and interviews with current and former executives and investors provide the most comprehensive picture so far of how Bankman-Fried, the 30-year-old son of Stanford University professors, became one of the richest men in the world in just a couple of years, then came crashing down.
The documents, reported here for the first time, include financial statements, business updates, company messages and letters to investors. They, along with the interviews, reveal that:
— In presentations to investors, some of the same assets appeared simultaneously on the balance sheets of FTX and of Bankman-Fried’s trading firm, Alameda Research – despite claims by FTX that Alameda operated independently.
— One of Bankman-Fried’s close aides tweaked FTX’s accounting software. This enabled Bankman-Fried to hide the transfer of customer money from FTX to Alameda. A screenshot of FTX’s book-keeping system showed that even after the massive customer withdrawals, some $10 billion in deposits remained, plus a surplus of $1.5 billion. This led employees to believe wrongly that FTX was on a solid financial footing.
— FTX made about $400 million in “software royalty” payments to Alameda over the years. Alameda used the funds to buy FTX’s digital coin FTT, reducing supply of the coin and supporting its price.
— In the second quarter of this year, FTX posted a $161 million loss. Bankman-Fried, meanwhile, had spent some $2 billion on acquisitions.
— As Bankman-Fried tried to rescue FTX in its frantic final days, he sought emergency investments from financial behemoths in Saudi Arabia and Japan – and was joined at his Bahamas headquarters by his law professor father.
Bankman-Fried told Reuters in an email that due to a “confusing internal account,” Alameda’s leverage was substantially higher than he believed it was. He added that FTX processed roughly $6 billion of client withdrawals.
He said FTX and Alameda together made a profit of roughly $1.5 billion in 2021, which was more than all of the expenses put together of both organizations since their founding. “I was unfortunately unable to communicate much of what was going on to the broader company in real time because much of what I posted in Slack appeared on Twitter soon after,” he added.
FTX did not respond to questions for this article.
The U.S. Department of Justice, Securities and Exchange Commission and Commodity Futures Trading Commission are now all investigating FTX, including how it handled customer funds, Reuters has reported. The collapse has shaken investor confidence in cryptocurrencies and led to calls from lawmakers and others for greater regulation of the industry. The CFTC and DOJ declined to comment for this article. The SEC did not respond.
A LIFE IN THE BAHAMAS
Born in 1992, Bankman-Fried grew up around Stanford University’s Palo Alto-area campus, where both his parents taught at the law school. He landed at the Massachusetts Institute of Technology, where he studied math and physics and embraced the idea of effective altruism, a movement that encourages people to prioritize donations to charities.
After graduating from MIT in 2014, he took a job on Wall Street with a quantitative trading firm. Bankman-Fried founded Alameda Research three years later, billing it as “a crypto quant trading firm.”
Rejected initially by venture investors, he cobbled together loans and assembled a team of young traders and programmers, many of them sleeping and working in a small walkup apartment in the San Francisco area, according to a profile that later appeared on the website of FTX investor Sequoia.
Alameda found early trading success by arbitraging cryptocurrency prices on international markets, with half of profits going to charity, according to the same profile. By 2019, the company handled $55 million for clients, an Alameda company booklet said. Reuters could not independently confirm these details.
The booklet flagged the risks of crypto trading, particularly how sudden sales of tokens could trigger a “domino effect” that would lead to a “cascading set of liquidity failures.” It noted that “nothing fundamental” backed bitcoin’s value.
Using profits from Alameda, Bankman-Fried launched FTX in 2019. His aim was to build an “FTX Superapp” that combined cryptocurrency trading, betting markets, stock trading, banking, and peer-to-peer and business payments, according to an FTX marketing document from earlier this year.
The company’s growth over the next two years was only surpassed by his vision.
FTX’s revenues grew from $10 million in 2019 to $1 billion in 2021. From almost nothing in 2019, FTX handled about 10% of global crypto trading this year, a September document shows. It spent roughly $2 billion buying companies, the document shows.
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In an undated document, titled ‘FTX Roadmap 2022,’ the company laid out its goals for the next five to 10 years. It hoped to be “the largest global financial exchange,” with $30 billion in annual revenue, more than what U.S. retail brokerage giant Fidelity Investments earned in revenues last year.
In October 2021, Bankman-Fried, then 29 years old, landed on the cover of Forbes, which pegged his net worth at $26.5 billion – the 25th richest person in America. FTX said on its website that “FTX, its affiliates, and its employees have donated over $10m to help save lives, prevent suffering, and ensure a brighter future.”
Bankman-Fried’s personal finances suggest he lived frugally for a billionaire. A financial statement reviewed by Reuters shows that for 2021, he drew an annual salary of $200,000, declared $1 million in real estate assets, and spent $50,000 on personal expenses.
But in the Bahamas, his lifestyle was more luxurious than his finances showed. At one point, he lived in a penthouse overlooking the Caribbean, valued at almost $40 million, according to two people who worked with FTX.
Bankman-Fried told Reuters he lived in a house with nine other colleagues. For his employees, he said FTX provided free meals and an “in-house Uber-like” service around the island.
“ULTIMATE SOURCE OF TRUTH”
This year began with FTX seemingly everywhere.
Its logo was emblazoned on a major sports arena in Miami and on Major League Baseball umpire uniforms. Sports stars and celebrities including Tom Brady, Gisele Bundchen and Steph Curry became partners in promoting the company. None of them commented for this article. Bankman-Fried became a regular presence in Washington, donating tens of millions of dollars to politicians and lobbying lawmakers on crypto markets.
FTX was also planning partnerships with some of the world’s largest companies. An FTX document from June 2022, which has not been previously reported, shows a list of FTX’s “select partners” for business-to-business (B2B) services. Prospective partners included retail giant Walmart Inc (WMT.N), social media titan Meta Platforms Inc (META.O), payment-system provider Stripe, and financial website Yahoo! Finance, according to the document.
A Yahoo spokesperson said, “While we were in very early stages of a prospective partnership with FTX, nothing was close to completion when the events of last week occurred.”
A person with knowledge of the matter said Stripe has no contract with FTX to enable Stripe users to accept crypto payments. Walmart didn’t respond to a request for comment about a proposed partnership with FTX for employee investing. Meta too didn’t comment about discussions to make FTX a digital-wallet provider for Instagram users.
Investors loved Bankman-Fried’s ambition. FTX had already received more than $2 billion from backers including Sequoia, SoftBank Group Corp (9984.T), BlackRock Inc (BLK.N) and Temasek. In January, FTX raised a further $400 million, valuing the business at $32 billion.
FTX expected to take its international and U.S. businesses public, an investor due-diligence document from this June said. The document is reported here for the first time.
At the peak of his powers, Bankman-Fried urged the crypto industry to help governments shape laws to supervise it, saying FTX’s goal was to become “one of the most regulated exchanges in the world.” “FTX has the cleanest brand in crypto,” it proclaimed earlier this year.
Behind his rapid growth, there was a secret Bankman-Fried kept from most other employees: he had dipped into customer funds to pay for some of his projects, according to company documents and people briefed on FTX’s finances. Doing so was explicitly barred in the exchange’s terms of use, which affirmed user deposits “shall at all times remain with you.”
FTX generated 2 cents in fees for every $100 traded, documents seen by Reuters show, reaping hundreds of millions of dollars in revenue by 2021. Nonetheless, FTX barely broke even during its first two years, 2019 and 2020. It generated around $450 million in profit in 2021, when crypto markets boomed, but it slumped to a $161 million loss in the second quarter of this year, according to financial records, which are reported here for the first time.
Some of the $10 billion in removed customers’ money went to cover losses that Alameda sustained earlier this year on a series of bailouts, including in failed crypto lender Voyager Digital, according to the three FTX sources briefed on the company’s finances.
FTX also financed acquisitions such as the purchase in May of a $640 million stake in trading platform Robinhood Markets Inc (HOOD.O). Robinhood didn’t respond to a request for comment.
Bankman-Fried told Reuters he did not believe that Alameda had substantial losses, including on Voyager, without providing further details.
Around $1 billion of the $10 billion sum is not accounted for among Alameda’s assets, Reuters reported on Friday. Reuters has not been able to trace these missing funds.
According to the three FTX sources, only Bankman-Fried’s innermost circle of associates knew about his use of client deposits: his co-founder and chief technology officer, Gary Wang; the head of engineering, Nishad Singh; and Caroline Ellison, chief executive of Alameda. Wang and Singh both worked with Bankman-Fried at Alameda previously.
Wang, Singh and Ellison did not return requests for comment.
To conceal the transfers of customer funds to Alameda, Wang, a former Google software developer, built a backdoor in FTX’s book-keeping software, the people said.
Bankman-Fried often told employees tasked with monitoring the company’s financials that the book-keeping system was “the ultimate source of truth” about the company’s accounts, two of the people said. But the backdoor, known only to his most trusted lieutenants, allowed Alameda to withdraw crypto deposits without triggering internal red flags, they said.
FTX also had a vulnerability: its bespoke cryptocurrency.
Shortly after its launch, FTX introduced its own digital token, called FTT, described on its website as the exchange’s “backbone.” Staff could opt to receive pay and bonuses in the token, and many of them accumulated fortunes in FTT as its value exploded in 2021, according to the three current and former executives. One executive invested all their savings in FTT, worth millions of dollars, the executive said, “because of loyalty to Sam.”
According to a June 2022 due diligence document Bankman-Fried sent to a potential investor and the company’s financial records, FTX paid $400 million to an Alameda subsidiary since 2019 as “software royalty” payments for development work. The subsidiary used the funds to buy FTT and remove the digital tokens from supply, so supporting the price.
FTX disclosed on its website that it was using part of its trading fees to buy FTT. It did not reveal the arrangement with Alameda.
Over the years, Alameda accumulated a huge holding of FTT, valued at around $6 billion before last week, according to a balance sheet later sent to investors. It used the FTT reserves to secure corporate loans, people familiar with its finances said. This meant that Bankman-Fried’s business empire was dependent on the token.
That little-known holding became Bankman-Fried’s undoing.
PRESSURE BUILDS
On Nov. 2, news outlet CoinDesk reported a leaked balance sheet disclosing Alameda’s reliance on FTT. The head of the world’s largest crypto exchange – Bankman-Fried’s chief rival – pounced on that report. Binance CEO Changpeng Zhao, citing “recent revelations,” said Binance would sell its entire FTT holding due to “risk management.”
Bankman-Fried retorted on Twitter that Zhao was spreading “false rumors.” In a since-deleted tweet, he wrote: “FTX has enough to cover all client holdings. We don’t invest client assets.”
Nonetheless, FTT came under intense selling pressure, forcing Alameda to buy more of the tokens in an attempt to stabilize the price, a person with knowledge of the trades said. Customers panicked and rushed to withdraw deposits from FTX, with over $100 million flowing out of the firm each hour that Sunday, company documents reviewed by Reuters show.
In his email to Reuters, Bankman-Fried said, “To my knowledge, Alameda did not buy very much FTT during the crash to stabilize it.”
Staff initially remained calm. The finance team could still see ample assets on the book-keeping portal as of last week. About $10 billion in client deposits remained, with a $1.5 billion surplus to cover any further withdrawals, according to a screenshot of the database seen by Reuters.
In reality, those funds were gone.
Several hours after Zhao’s Sunday tweet, Bankman-Fried has told Reuters, he gathered his lieutenants Wang and Singh at his apartment to decide on a plan. It was a “rough weekend,” he messaged staff on Slack that evening, but “we’re chugging along.”
The following day, he summoned several other senior managers to his home to join Wang and Singh. He broke the news to them: FTX was almost out of money.
This account of the scramble that ensued is based on interviews with three current and former FTX executives briefed by top staff and documents that Reuters reviewed.
Bankman-Fried showed the executives spreadsheets that revealed there was a $10 billion hole in FTX’s finances – because customer deposits had been transferred to Alameda and mostly spent on other assets. The executives were shocked. One of them told Bankman-Fried the spreadsheet presentation contradicted what FTX told regulators about its use of client funds.
To make up the shortfall, they calculated that Alameda could sell around $3 billion of the assets within hours, mainly money held in company trading accounts on other crypto exchanges. The rest would take days or weeks to offload because it was hard to trade those assets. And FTX urgently needed a further $7 billion in cash to survive.
So began Bankman-Fried’s search for a savior.
While money continued to drain away from FTX, the three sources told Reuters, he and his aides worked through the night, contacting about a dozen potential investors.
He turned to the crypto community, too, ringing up the organization behind Tether, the world’s largest stablecoin, and asking for a loan. His father, Joseph Bankman, a Stanford Law professor, also arrived to advise his son. Bankman did not respond to a request for comment. In return for any funding, Bankman-Fried pledged to investors most of Alameda’s assets, including its holding of FTT, along with his own 75% stake in FTX. But no one came through with an offer.
One of the investors who turned down Bankman-Fried said his numbers were “very amateurish,” without elaborating. Another red flag was that the spreadsheets showed ties between FTX and Alameda, the investor said.
Around 3 a.m., Bankman-Fried resorted to Zhao, his archrival at Binance. Zhao, widely known by the initials CZ, came to the phone. A few hours later, Zhao sent over a non-binding letter of intent to acquire FTX.com, which Bankman-Fried signed. The pair tweeted a joint announcement later that morning.
For most FTX employees, this was the first they heard about the company’s dire situation. “Just complete disbelief and feelings of betrayal,” Zane Tackett, FTX’s head of institutional sales, wrote on Twitter the day after. He declined to comment.
Tackett and some others resigned. “I can’t do it any more,” another FTX team member texted colleagues.
To worsen the pain, the price of the FTT token crashed 80% within three hours of the news, shrinking Alameda’s assets further and wiping out many employees’ net worth. The executive with millions of dollars in FTT said watching it collapse “was like seeing my world diminishing.”
Bankman-Fried pleaded for employees’ forgiveness on Slack, saying he “fucked up” but that the Binance deal allowed them to “fight another day.” Less than 30 hours later, Binance pulled out, citing its due diligence. Sequoia then wrote off its $150 million investment in FTX.
Scrambling to find a savior, Bankman-Fried expanded his search around the world. “I’ll keep fighting,” he messaged staff.
He sought to persuade officials at major financial institutions such as Saudi Arabia’s Public Investment Fund and Japanese investment bank Nomura Holdings Inc (8604.T) to invest, according to a message he sent on Thursday to advisors, along with two other people familiar with the talks. Those appeals are reported here for the first time. PIF and Nomura did not comment.
Bankman-Fried also tried to get a group of crypto firms to each pitch in $1 billion. But a balance sheet FTX sent to investors, showing only $900 million in liquid assets, spooked them, according to two people familiar with the matter.
By Friday, when FTX filed for bankruptcy in the United States, “we were all doomed,” an executive said.
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Reporting by Angus Berwick and Anirban Sen in NEW YORK, Elizabeth Howcroft in LONDON and Lawrence Delevingne in BOSTON; additional reporting by Tom Wilson in LONDON, Greg Roumeliotis in NEW YORK and Hannah Lang in WASHINGTON; editing by Paritosh Bansal and Janet McBride
Our Standards: The Thomson Reuters Trust Principles.
Elizabeth Howcroft
Thomson Reuters
Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds and the money driving “Web3”.
SAN FRANCISCO, Nov 15 (Reuters) – In 2018, Elon Musk was working through the night and sleeping at Tesla Inc’s (TSLA.O) factories in California and Nevada as the company struggled to ramp up production of the Model 3.
On Monday, Musk said he had worked through the night at Twitter’s San Francisco headquarters and would keep “working & sleeping here” until the social media platform – which he recently acquired for $44 billion – was fixed.
A self-described “nanomanager,” Musk’s penchant for working long hours in moments of crisis has been a well-known part of his brand. But the billionaire’s deep dive into Twitter, after a protracted buyout that he tried to scrap, has some Tesla investors worried about his capacity to focus on his role as CEO of the world’s most valuable carmaker.
“Tesla investors are going to be frustrated,” said Gene Munster, managing partner at venture capital firm Loup Ventures. “He’s probably going to spend more time on Twitter than any Tesla investor feels comfortable about.”
Musk, who is expected to testify in court on Wednesday about whether a $56 billion pay package at Tesla is justified, did not respond to a Reuters email seeking comment.
He tweeted on Monday “I have Tesla covered too,” saying he planned to work at the electric vehicle maker for part of this week. Tesla has an office in Palo Alto, California, and a factory in Fremont, California.
Tesla’s shares have dropped by 50% since early April, when he disclosed he had taken a stake in Twitter. Sales of Musk’s own Tesla shares – totaling $20 billion since he disclosed his Twitter stake – have added to the pressure.
Tesla faces a growing list of challenges from demand concerns in China to a regulatory probe of the claims it makes about the abilities of its “Autopilot” driver assistance technology in the United States.
So far this month, Musk’s tweets about his efforts to reboot Twitter have accounted for more than two-thirds of his postings on the platform he acquired in October, according to a Reuters tally.
Tesla accounted for just 3% of his tweets from Nov. 1 to Nov. 15, down from an average of almost 16% over the previous eight months.
Reuters Graphics
Munster said he expects Twitter to consume Musk’s attention for the next six to 12 months, adding that Tesla was a more developed company than in earlier days and less immediately reliant on Musk.
In recent days, Musk has said his workload has increased significantly after his Twitter buy.
“I have too much work on my plate,” he said by video link to a business conference in Indonesia on Monday, saying he was working “from morning till night seven days a week.”
“Once Twitter is set on the right path, I think it is a much easier thing to manage than SpaceX or Tesla,” Musk said earlier this month at the Baron investment conference, referring to the aerospace company which he also runs.
Tesla investor Ross Gerber, a strong supporter of Musk, said on Tuesday that Tesla needed to find a deputy for its multitasking CEO. “I think he’s finally reached a point where he’s really challenging himself. I think they need to find the right person. And quite frankly, they just don’t have that person.”
‘MINIMAL TIME’
The Tesla board has expressed concerns about Musk’s commitment to SpaceX and several smaller companies. Tesla board chair Robyn Denholm said in a 2018 email that the “minimal time” Musk was spending at Tesla was “becoming more and more problematic,” according to court documents related to his pay trial. A Tesla shareholder says the board failed in approving a $56 billion pay package for him without demanding his full-time attention.
Another board member, Ira Ehrenpreis, noted at trial that Musk was paid for results, not time spent, a view echoed by Musk in a 2021 deposition. At Tesla’s annual meeting in August, Musk responded to a question about “key-man risk” by acknowledging his colleagues, saying “We do have a very talented team here. So I think Tesla would continue to do very well even if I was kidnapped by aliens or went back to my home planet maybe.”
Musk has proven his doubters wrong before and some early investors say they expect him to be up for the Twitter challenge. “When you get an entrepreneur that does all that he’s done, we should just be kissing his feet. The guy is awesome,” billionaire investor Tim Draper told Reuters.
But others have lost patience.
“Musk has managed to do what the bears have unsuccessfully tried for years – crush Tesla’s stock,” Wedbush analyst Daniel Ives, a long-time Tesla bull, said in a note last week.
Ives called Twitter an “albatross,” a “distraction” and a “money pit” for Musk. “The Twitter circus show is slowly starting to impact the pristine EV brand of Tesla,” he said.
Reporting by Hyunjoo Jin in San Francisco and Akash Sriram in Bengaluru
Additional reporting by Aditya Soni and Yurvaj Malik in Bengaluru
Editing by Kevin Krolicki, Ben Klayman, Peter Henderson and Matthew Lewis
Our Standards: The Thomson Reuters Trust Principles.
SYDNEY/LONDON, Nov 14 (Reuters) – Share markets continued last week’s rally in more modest fashion on Monday after a top U.S. central banker warned investors against getting carried away over one inflation number, while Chinese stocks gained on aid for the country’s property sector.
A modest miss on U.S. inflation was enough to see two-year Treasury yields dive 33 basis points for the week and the dollar lose almost 4% – the fourth biggest weekly decline since the era of free-floating exchange rates began over 50 years ago.
However, the resulting easing in U.S. financial conditions was not entirely welcomed by the Federal Reserve, with Governor Christopher Waller saying on Sunday it would take a string of soft reports for the bank to take its foot off the brakes.
Waller added the markets were well ahead of themselves on just one inflation print, though he did concede the Fed could now start thinking about hiking at a slower pace.
Futures are wagering heavily on a half-point rate rise to 4.25-4.5% in December, and then a couple of quarter-point moves to a peak in the 4.75-5.0% range.
Two-year yields edged down to 4.39%, after diving as deep as 4.29% on Friday.
“The CPI downside surprise aligns with a broad range of indicators pointing to a downshift in global inflation that should encourage a moderation in the pace of monetary policy tightening at the Fed and elsewhere,” said Bruce Kasman, head of economic research at JPMorgan.
“This positive message needs be tempered by the recognition that downshift in inflation will be too little for central banks to declare mission-accomplished, and more tightening is likely on the way.”
The benchmark European STOXX index rose 0.37% (.STOXX), and MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) added 0.73%, after jumping 7.7% last week.
U.S. markets looked set to open lower, with S&P E-mini futures down 0.26% .
EYES ON CHINA
Dealers were also waiting to see if Chinese stocks could extend their big rally amid reports regulators have asked financial institutions to extend more support to stressed property developers. read more
China’s real estate index (.CSI000952) jumped 3.5% in response. Blue chips (.CSI300) rose 1%, helped by a slew of changes to China’s COVID curbs, even as the country reported more cases over the weekend. read more
“It’s hard to see how the case news is anything but negative from an economic standpoint, but it’s the symbolism of the movement, however small, in the zero COVID strategy that markets are happily latching onto,” said Ray Attrill, head of FX strategy at NAB.
The support for China’s property sector, which consumes a vast amount of metals, boosted copper towards a five-month high. Three-month copper on the London Metal Exchange (LME) rose 0.3% at $8,519 a tonne by 0725 GMT.
U.S. President Joe Biden will meet Chinese leader Xi Jinping in person on Monday for the first time since taking office, with U.S. concerns over Taiwan, Russia’s war in Ukraine and North Korea’s nuclear ambitions on top of his agenda.
The news on COVID rules had stoked a short-covering bounce in the yuan, which added to broad pressure on the dollar as yields dived. The yuan was set 1.4% firmer on Monday – the largest such move since 2005.
The dollar index moved down a fraction on Monday at 106.69 , still well short of last week’s 111.280 top.
The euro eased a touch to $1.0308 , after climbing 3.9% last week, while the dollar firmed to 139.56 yen following last week’s 5.4% drubbing.
The dollar lost almost as much to the Swiss franc , steered in part by warnings from the Swiss National Bank that it would use rates and currency purchases to tame inflation.
Sterling eased back to $1.1755 ahead of the British Chancellor’s Autumn Statement on Thursday, where he is expected to set out tax rises and spending cuts.
Crypto currencies remained under pressure as at least $1 billion of customer funds were reported to have vanished from collapsed crypto exchange FTX.
Bitcoin recovered 2.9% at $16,785 , having shed almost 22% last week.
Oil prices pared earlier gains and fell on Monday, after hopes of a boost in China demand were offset by the firmer U.S. dollar. Brent crude futures were down 32 cents, or 0.3%, to $95.67 a barrel by 0725 GMT after settling up 1.1% on Friday
Reporting by Wayne Cole and Lawrence White; Editing by Shri Navaratnam, Kenneth Maxwell, William Maclean
Our Standards: The Thomson Reuters Trust Principles.
FTX founder Bankman-Fried secretly moved $10 billion in funds to trading firm Alameda – sources
Bankman-Fried showed spreadsheets to colleagues that revealed shift in funds to Alameda – sources
Spreadsheets indicated between $1 billion and $2 billion in client money is unaccounted for – sources
Executives set up book-keeping “back door” that thwarted red flags – sources
Whereabouts of missing funds is unknown – sources
New York, Nov 11 (Reuters) – At least $1 billion of customer funds have vanished from collapsed crypto exchange FTX, according to two people familiar with the matter.
The exchange’s founder Sam Bankman-Fried secretly transferred $10 billion of customer funds from FTX to Bankman-Fried’s trading company Alameda Research, the people told Reuters.
A large portion of that total has since disappeared, they said. One source put the missing amount at about $1.7 billion. The other said the gap was between $1 billion and $2 billion.
While it is known that FTX moved customer funds to Alameda, the missing funds are reported here for the first time.
The financial hole was revealed in records that Bankman-Fried shared with other senior executives last Sunday, according to the two sources. The records provided an up-to-date account of the situation at the time, they said. Both sources held senior FTX positions until this week and said they were briefed on the company’s finances by top staff.
Bahamas-based FTX filed for bankruptcy on Friday after a rush of customer withdrawals earlier this week. A rescue deal with rival exchange Binance fell through, precipitating crypto’s highest-profile collapse in recent years.
In text messages to Reuters, Bankman-Fried said he “disagreed with the characterization” of the $10 billion transfer.
“We didn’t secretly transfer,” he said. “We had confusing internal labeling and misread it,” he added, without elaborating.
Asked about the missing funds, Bankman-Fried responded: “???”
FTX and Alameda did not respond to requests for comment.
In a tweet on Friday, Bankman-Fried said he was “piecing together” what had happened at FTX. “I was shocked to see things unravel the way they did earlier this week,” he wrote. “I will, soon, write up a more complete post on the play by play.”
At the heart of FTX’s problems were losses at Alameda that most FTX executives did not know about, Reuters has previously reported.
Customer withdrawals had surged last Sunday after Changpeng Zhao, CEO of giant crypto exchange Binance, said Binance would sell its entire stake in FTX’s digital token, worth at least $580 million, “due to recent revelations.” Four days before, news outlet CoinDesk reported that much of Alameda’s $14.6 billion in assets were held in the token.
That Sunday, Bankman-Fried held a meeting with several executives in the Bahamas capital Nassau to calculate how much outside funding he needed to cover FTX’s shortfall, the two people with knowledge of FTX’s finances said.
Bankman-Fried confirmed to Reuters that the meeting took place.
Bankman-Fried showed several spreadsheets to the heads of the company’s regulatory and legal teams that revealed FTX had moved around $10 billion in client funds from FTX to Alameda, the two people said. The spreadsheets displayed how much money FTX loaned to Alameda and what it was used for, they said.
The documents showed that between $1 billion and $2 billion of these funds were not accounted for among Alameda’s assets, the sources said. The spreadsheets did not indicate where this money was moved, and the sources said they don’t know what became of it.
In a subsequent examination, FTX legal and finance teams also learned that Bankman-Fried implemented what the two people described as a “backdoor” in FTX’s book-keeping system, which was built using bespoke software.
They said the “backdoor” allowed Bankman-Fried to execute commands that could alter the company’s financial records without alerting other people, including external auditors. This set-up meant that the movement of the $10 billion in funds to Alameda did not trigger internal compliance or accounting red flags at FTX, they said.
In his text message to Reuters, Bankman-Fried denied implementing a “backdoor”.
The U.S. Securities and Exchange Commission is investigating FTX.com’s handling of customer funds, as well its crypto-lending activities, a source with knowledge of the inquiry told Reuters on Wednesday. The Department of Justice and the Commodity Futures Trading Commission are also investigating, the source said.
FTX’s bankruptcy marked a stunning reversal for Bankman-Fried. The 30-year-old had set up FTX in 2019 and led it to become one of the largest crypto exchanges, accumulating a personal fortune estimated at nearly $17 billion. FTX was valued in January at $32 billion, with investors including SoftBank and BlackRock.
The crisis has sent reverberations through the crypto world, with the price of major coins plummeting. And FTX’s collapse is drawing comparisons to earlier major business meltdowns.
On Friday, FTX said it had turned over control of the company to John J. Ray III, the restructuring specialist who handled the liquidation of Enron Corp – one of the largest bankruptcies in history.
Reporting by Angus Berwick; editing by Paritosh Bansal and Janet McBride
Our Standards: The Thomson Reuters Trust Principles.
Nov 10 (Reuters) – (This story contains language some readers may find offensive in paragraph 2)
On Tuesday morning, Sam Bankman-Fried, owner of cryptocurrency exchange FTX, caught his employees off-guard with a somber message.
“I’m sorry,” he told them. “I fucked up.”
The reason for the mea culpa: His announcement half an hour earlier that FTX’s arch-rival, Binance, planned to mount a shock takeover of its main trading platform to save it from a “liquidity crunch.” Binance founder Changpeng “CZ” Zhao, whom the billionaire had accused of sabotage, would now be his White Knight.
The seeds of FTX’s downfall were sown months earlier, stemming from mistakes Bankman-Fried made after he stepped in to save other crypto firms as the crypto market collapsed amid rising interest rates, according to interviews with several people close to Bankman-Fried and communications from both companies that have not been previously reported.
Some of those deals involving Bankman-Fried’s trading firm, Alameda Research, led to a series of losses that eventually became his undoing, according to three people familiar with the company’s operations.
The interviews and messages also shine new light on the bitter rivalry between the two billionaires, who in recent months competed for market share and publicly accused each other of seeking to hurt the one another’s businesses. It culminated on Wednesday, with Binance pulling out of its deal and throwing FTX’s future into uncertainty.
Stuck without a buyer, Bankman-Fried was now searching for alternative backers, two people close to him said. After Binance pulled out, he told FTX staff in a message that Binance had not previously told them of any reservations about the deal and he was “exploring all options.”
Neither Binance nor FTX responded to requests for comment. Bankman-Fried told Reuters on Tuesday that “I’ll probably be too swamped” to do interviews. He didn’t respond to further messages.
Binance earlier said it decided to pull out of the deal as a result of its due diligence on FTX and news reports about U.S. investigations into the company.
Zhao’s unveiling of the planned takeover capped a stunning reversal for Bankman-Fried. The 30-year-old had set up Bahamas-based FTX in 2019 and led it to become one of the largest exchanges, accumulating a near $17 billion fortune.
News of the liquidity crunch at FTX – valued in January at $32 billion with investors including SoftBank and BlackRock – sent reverberations through the crypto world.
The price of major coins plummeted, with bitcoin slumping to its lowest in almost two years, heaping further pain on a sector whose value has fallen about two-thirds this year as central banks tightened credit.
By ditching the deal, Binance had also avoided the regulatory scrutiny that would likely have accompanied the takeover, which Zhao had flagged as a likelihood in a memo to employees that he posted on Twitter.
Financial regulators around the world have issued warnings about Binance for operating without a license or violating money laundering laws. The U.S. Justice Department is investigating Binance for possible money laundering and criminal sanctions violations. Reuters reported last month that Binance had helped Iranian firms trade $8 billion since 2018 despite U.S. sanctions, part of a series of articles this year by the news agency on the exchange’s financial crime compliance.
RELATIONSHIP SOURS
Zhao and Bankman-Fried’s relationship began in 2019. Six months after FTX’s launch, Zhao bought 20% of the exchange for about $100 million, a person with direct knowledge of the deal said. At the time, Binance said the investment was “aimed to grow the crypto economy together.”
Within 18 months, however, their relationship had soured.
FTX had grown rapidly and Zhao now viewed it as a genuine competitor with global aspirations, former Binance employees said.
When FTX in May 2021 applied for a license in Gibraltar for a subsidiary, it had to submit information about its major shareholders, but Binance stonewalled FTX’s requests for help, according to messages and emails between the exchanges seen by Reuters.
Between May and July, FTX lawyers and advisors wrote to Binance at least 20 times for details on Zhao’s sources of wealth, banking relationships, and ownership of Binance, the messages show.
In June 2021, however, an FTX lawyer told Binance’s chief financial officer that Binance wasn’t “engaging with us properly” and they risked “severely disrupting an important project for us.” A Binance legal officer responded to FTX to say she was trying to get a response from Zhao’s personal assistant, but the requested information was “too general” and they may not provide everything.
By July of that year, Bankman-Fried had tired of waiting. He bought back Zhao’s stake in FTX for about $2 billion, the person with direct knowledge of the deal said. Two months later, with Binance no longer involved, Gibraltar’s regulator granted FTX a license.
That sum was paid to Binance, in part, in FTX’s own coin, FTT, Zhao said last Sunday – a holding he would later order Binance to sell, precipitating the crisis at FTX.
Reuters Graphics
“TRYING TO GO AFTER US”
This May and June, Bankman-Fried’s trading firm, Alameda Research, suffered a series of losses from deals, according to three people familiar with its operations. These included a $500-million loan agreement with failed crypto lender Voyager Digital, two of the people said. Voyager filed for bankruptcy protection the following month, with FTX’s U.S. arm paying $1.4 billion for its assets in a September auction. Reuters could not determine the full extent of losses Alameda suffered.
Seeking to prop up Alameda, which held almost $15 billion in assets, Bankman-Fried transferred at least $4 billion in FTX funds, secured by assets including FTT and shares in trading platform Robinhood Markets Inc, the people said. Alameda had disclosed a 7.6% share in Robinhood that May.
A portion of these FTX funds were customer deposits, two of the people said, though Reuters could not determine their value.
Bankman-Fried did not tell other FTX executives about the move to prop up Alameda, the people said, adding he was afraid that it could leak.
On Nov. 2, however, a report by news outlet CoinDesk detailed a leaked balance sheet that allegedly showed that much of Alameda’s $14.6 billion in assets were held in FTT. Alameda CEO Caroline Ellison tweeted that the balance sheet was merely for a “subset of our corporate entities,” with over $10 billion of assets not reflected. Ellison did not return requests for comment.
That failed to douse growing speculation over what Alameda’s financial health might mean for FTX.
Then Zhao said Binance would sell its entire share in the token, FTT, worth at least $580 million, “due to recent revelations that have come to light.” The token’s price collapsed 80% over the next two days and a torrent of outflows from the exchange gathered pace, blockchain data show.
WITHDRAWAL SURGE
In his message to staff this week, Bankman-Fried said the firm saw a “giant withdrawal surge” as users rushed to withdraw $6 billion in crypto tokens from FTX in just 72 hours. Daily withdrawals normally totaled tens of millions of dollars, Bankman-Fried told his employees.
After Zhao’s tweet that Binance would sell its FTT holding, Bankman-Fried projected confidence that FTX would weather its rival’s attacks. He told staff on Slack that withdrawals were “not shockingly, way up,” but they were able to process the requests.
“We’re chugging along,” he wrote. “Obviously, Binance is trying to go after us. So be it.”
But by Monday the situation became dire. Unable to quickly find a backer, or sell other illiquid assets short-notice, Bankman-Fried contacted Zhao, according to a person familiar with the call. Zhao later confirmed that Bankman-Fried had called him.
Bankman-Fried signed a non-binding letter of intent for Binance to buy FTX’s non-U.S. assets. This valued FTX at several billion dollars, two people familiar with the letter said – enough for the exchange to cover all withdrawal requests but a fraction of its January valuation.
Zhao announced the potential deal several hours later, with Bankman-Fried tweeting “a huge thank you to CZ.”
“Let’s live to fight another day,” Bankman-Fried told staff on Slack.
His employees were shocked. Even executives had been in the dark about the Alameda shortfall and takeover plan until Bankman-Fried informed them that morning, two people working with him said. Both people said they had been unaware that the withdrawal situation was so serious.
Then came Binance’s announcement on Wednesday scrapping the takeover. “The issues are beyond our control or ability to help,” Binance said. Zhao tweeted “Sad day. Tried,” with a crying emoji.
Reporting by Angus Berwick in New York and Tom Wilson in London; additional reporting by Hannah Lang in Washington and Elizabeth Howcroft in London; Editing by Paritosh Bansal and Chris Sanders
Our Standards: The Thomson Reuters Trust Principles.
WASHINGTON, Nov 10 (Reuters) – Republicans were edging closer to securing a majority in the U.S. House of Representatives early on Thursday, while control of the Senate hung in the balance, two days after Democrats staved off a Republican “red wave” in midterm elections.
Republicans had captured at least 210 House seats, Edison Research projected, eight short of the 218 needed to wrest the House away from Democrats and effectively halt President Joe Biden’s legislative agenda.
While Republicans remain favored, there were 33 House contests yet to be decided – including 21 of the 53 most competitive races, based on a Reuters analysis of the leading nonpartisan forecasters – likely ensuring the final outcome will not be determined for some time.
(Live election results from around the country are here.)
The fate of the Senate was far less certain. Either party could seize control by sweeping too-close-to-call races in Nevada and Arizona, where officials are methodically tallying thousands of uncounted ballots.
A split would mean the Senate majority would come down to a runoff election in Georgia for the second time in two years. Democratic incumbent Raphael Warnock and Republican challenger Herschel Walker both failed to reach 50% on Tuesday, forcing them into a one-on-one battle on Dec. 6.
Even a slim House majority would allow Republicans to shape the rest of Biden’s term, blocking priorities such as abortion rights and launching investigations into his administration and family.
Biden acknowledged that reality on Wednesday, saying he was prepared to work with Republicans. A White House official said Biden spoke by phone with Republican House leader Kevin McCarthy, who announced earlier in the day his intention to run for speaker of the House if Republicans control the chamber.
“The American people have made clear, I think, that they expect Republicans to be prepared to work with me as well,” Biden said at a White House news conference.
If McCarthy is the next House speaker, he may find it challenging to hold together his fractious caucus, with a hard-right wing that has little interest in compromise.
Republicans are expected to demand spending cuts in exchange for raising the nation’s borrowing limit next year, a showdown that could spook financial markets.
Control of the Senate, meanwhile, would give Republicans the power to block Biden’s nominees for judicial and administrative posts.
MIXED RESULTS
The party in power historically suffers heavy casualties in a president’s first midterm election, and Biden has struggled with low approval ratings. But Democrats were able to avoid the sweeping defeat that Republicans had anticipated.
Tuesday’s results suggested voters were punishing Biden for the steepest inflation in 40 years, while also lashing out against Republican efforts to ban abortion and cast doubt on the nation’s vote-counting process.
Biden had framed the election as a test of U.S. democracy at a time when hundreds of Republican candidates embraced Trump’s false claims that the 2020 presidential election was stolen.
A number of election deniers won on Tuesday, but many who sought positions to oversee elections at the state level were defeated.
“It was a good day, I think, for democracy,” Biden said.
Trump, who took an active role in recruiting Republican candidates, had mixed results.
He notched a victory in Ohio, where “Hillbilly Elegy” author J.D. Vance won a Senate seat to keep it in Republican hands. But several other Trump-backed candidates suffered defeats, such as retired celebrity surgeon Mehmet Oz, who lost a crucial Senate race in Pennsylvania to Democrat John Fetterman.
Meanwhile, Republican Florida Governor Ron DeSantis, who could challenge Trump in 2024, won re-election by nearly 20 percentage points, adding to his growing national profile.
Reporting by Joseph Ax, Andy Sullivan, Makini Brice, Susan Heavey, Richard Cowan, Steve Holland, Jeff Mason and Doina Chiacu in Washington, Gabriella Borter in Birmingham, Michigan, Nathan Layne in Alpharetta, Georgia, Tim Reid in Phoenix and Ned Parker in Reno, Nevada; Writing by Joseph Ax; Editing by Tom Hogue
Our Standards: The Thomson Reuters Trust Principles.
Nov 8 (Reuters) – Wall Street ended higher on Tuesday during voting in midterm elections that will determine control of the U.S. Congress, with investors betting on a political stalemate that could prevent major policy changes.
It was the third straight day of gains on the U.S. stock market, leaving the Dow Jones Industrial Average (.DJI) down less than 10% year-to-date.
Helping the blue-chip Dow, shares of drugmaker Amgen Inc (AMGN.O) rallied almost 6% to a record high after the company reported positive data related to its cholesterol drug and obesity treatment.
All 435 House of Representative seats and some 35 seats in the Senate are on the ballot, with experts saying there may be days of waiting before it is clear who won certain races. Nonpartisan forecasts and opinion polls suggested a strong chance of Republicans winning a House majority and a tight race for Senate control.
“On balance, financial markets like gridlock. To the extent that change will be slow and evolving, a divided government of course provides that backdrop,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis.
A surprise victory for Democrats, however, could raise concerns about tech-sector regulation as well as budget spending that could add to already-high inflation, according to market strategists.
Investors are also awaiting a key inflation reading due on Thursday, which is expected to show easing in consumer prices and provide further clues on whether the U.S. Federal Reserve could soften its campaign of aggressive interest rate hikes.
Traders are divided about whether the Fed will raise rates by 50 basis points or 75 basis points at the central bank’s meeting in December, according to CME Fedwatch tool.
Cryptocurrency-related stocks including Coinbase Global (COIN.O) and Microstrategy (MSTR.O) tumbled after Crypto giant Binance signed a nonbinding agreement to buy rival FTX’s non-U.S. unit to help cover a “liquidity crunch” at the cryptocurrency exchange.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., November 7, 2022. REUTERS/Brendan McDermid
“Some investors will shoot first and ask questions later, but the good thing is crypto is kind of isolated. They are on their own, they really are not part of the equity market,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
Every S&P 500 stock’s performance in 2022
The S&P 500 (.SPX) is up about 7% from its October closing low, but it remains down about 20% in 2022 due to worries that the Fed’s aggressive rate hikes could cripple the U.S. economy.
The S&P 500 climbed 0.56% to end the session at 3,828.13 points.
The Nasdaq gained 0.49% to 10,616.20 points, while the Dow Jones Industrial Average rose 1.02% to 33,160.83 points.
Of the 11 S&P 500 sector indexes, 10 rose, led by materials (.SPLRCM), up 1.72%, followed by a 0.92% gain in information technology (.SPLRCT).
Take-Two Interactive Software Inc (TTWO.O) slumped almost 14% after the videogame publisher lowered its annual sales outlook, while ride-hailing firm Lyft Inc (LYFT.O) tumbled 23% after forecasting current-quarter revenue below Wall Street estimates.
Advancing issues outnumbered falling ones within the S&P 500 (.AD.SPX) by a 2.5-to-one ratio.
The S&P 500 posted 21 new highs and 9 new lows; the Nasdaq recorded 97 new highs and 258 new lows.
Volume on U.S. exchanges was relatively light, with 11.7 billion shares traded, compared with an average of 11.8 billion shares over the previous 20 sessions.
Reporting by Noel Randewich in Oakland, Calif., and David Carnevali in New York
Additional reporting by Amruta Khandekar, Sruthi Shankar, Devik Jain and Shubham Batra in Bengaluru
Editing by Maju Samuel and Matthew Lewis
Our Standards: The Thomson Reuters Trust Principles.
