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Tag: Economic policy

  • China’s economic growth accelerates but weak amid shutdowns

    China’s economic growth accelerates but weak amid shutdowns

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    BEIJING — China’s economic growth picked up in the latest quarter but still was among the weakest in decades as the ruling Communist Party tries to reverse a slump while enforcing anti-virus controls and a crackdown on debt in its vast real estate industry.

    The world’s second-largest economy grew by 3.9% over a year earlier in the three months ending in September, up from the previous quarter’s 0.4%, official data showed Monday.

    The announcement was planned for last week but postponed while the ruling Communist Party met to award President Xi Jinping a new term as leader.

    Xi, the most powerful leader in decades, wants a bigger party role in business and technology development. That has prompted warnings tighter control of entrepreneurs who generate jobs and wealth will depress growth that already was in long-term decline.

    The party gave Xi a free hand by installing a seven-member ruling Standing Committee made up of his allies. Supporters of free enterprise including Premier Li Keqiang, the party’s No. 2 until last week, were dropped from the leadership.

    The International Monetary Fund and private sector forecasters say the economy will expand by as little as 3% this year. That would be the second weakest since the 1980s after 2020, when growth plunged to 2.4% at the start of the coronavirus pandemic.

    Investors and the public watched the congress for initiatives to stimulate the economy or reduce the impact of “Zero COVID” controls that shut down cities and disrupt business, but none were announced.

    The latest slide in growth that began in mid-2021 hurts China’s trading partners by depressing demand for imported oil, food and consumer goods.

    The improvement is “mainly a result of more flexible” anti-virus controls that isolate individual buildings or neighborhoods instead of cities, said Iris Pang of ING in a report. But she said more lockdowns are “still a big uncertainty.”

    “This uncertainty means the effectiveness of pro-growth policy would be undermined,” Pang said.

    Growth slid after controls on debt that regulators worry is dangerously high caused a slump in real estate sales and construction, one of China’s biggest economic engines. Economic growth fell to 4% over a year earlier in the final quarter.

    Beijing has eased mortgage lending and local governments have taken over some unfinished projects to make sure buyers get apartments. But regulators are sticking to debt limits have forced small developers into bankruptcy and caused some bigger competitors to miss payments to bondholders.

    The ruling party is enforcing “Zero COVID” despite rising costs and public frustration after Shanghai and other industrial centers were temporarily shut down. That has boiled over into protests in some areas at a time when other countries are easing anti-virus controls.

    For the first nine months of 2022, growth was 3% over a year earlier, up from 2.5% in the first six months but barely half the ruling party’s official 5.5% target. Leaders have stopped talking about that goal but promised easier lending and other measures to boost growth.

    Growth is “highly uneven” and supported by government spending on building roads and other public works while consumer spending is weakening, said Larry Hu and Yuxiao Zhang of Macquarie in a report.

    In September, retail sales growth fell to 2.5% over a year earlier from the previous month’s 5.4%. Growth in factory output accelerated to 6.3% from 4.2%.

    Also Monday, trade data showed export growth declined to 5.7% compared with a year earlier in September from the previous month’s 7%. Imports crept up 0.3%.

    “Most of the economy lost momentum last month,” said Julian Evans-Pritchard of Capital Economics in a report. “The situation looks to have worsened in October.”

    Investment in infrastructure, mostly government money, rose 16% in September compared with the previous month’s 15%.

    Repeated shutdowns and uncertainty about business conditions have devastated entrepreneurs. Small retailers and restaurants have closed. Others say they are struggling to stay afloat.

    Beijing is using cautious, targeted stimulus instead of across-the-board spending, a strategy that will take longer to show results, economists say. Chinese leaders worry too much spending might push up politically sensitive housing costs or corporate debt.

    ———

    National Bureau of Statistics (in Chinese): www.stats.gov.cn

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  • China reaffirms Xi’s dominance, removes No. 2 Li Keqiang

    China reaffirms Xi’s dominance, removes No. 2 Li Keqiang

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    BEIJING — China’s ruling Communist Party reaffirmed President Xi Jinping’s continued dominance in running the nation Saturday, one day ahead of giving him a widely expected third five-year term as leader.

    A party congress effectively removed Premier Li Keqiang from senior leadership. Li, the nation’s No. 2 official, is a proponent of market-oriented reforms, which are in contrast to Xi’s moves to expand state control over the economy.

    The weeklong meeting, as it wrapped up Saturday, also wrote Xi’s major policy initiatives on the economy and the military into the party’s constitution, as well as his push to rebuild and strengthen the party’s position by declaring it absolutely central to China’s development and future.

    Analysts were watching for signs of any weakening of or challenge to Xi’s position, but none was apparent. The removal of Li, while not unexpected, signaled Xi’s continuing tight hold on power in the world’s second-largest economy.

    “The congress calls on all party members to acquire a deep understanding of the decisive significance of establishing comrade Xi Jinping’s core position on the party Central Committee and in the party as a whole and establishing the guiding role of Xi Jinping Thought,” said a resolution on the constitution approved at Saturday’s closing session.

    “Xi Jinping Thought” refers to his ideology, which was enshrined in the party charter at the previous congress in 2017.

    In brief closing remarks, Xi said the revision to the constitution “sets out clear requirements for upholding and strengthening the party’s overall leadership.”

    Li was among four of the seven members of the party’s all-powerful Politburo Standing Committee who were missing from its new 205-member Central Committee, which was formally elected at the closing session.

    That means they won’t be reappointed to the Standing Committee in a leadership shuffle that will be unveiled Sunday. Xi is widely expected to retain the top spot, getting a third term as general secretary.

    The three others who were dropped were Vice Premier Han Zheng, party advisory body head Wang Yang, and Li Zhanshu, a longtime Xi ally and the head of the largely ceremonial legislature.

    Li Keqiang will remain as premier for about six more months until a new slate of government ministers is named.

    If he had stayed on the Standing Committee, it would have indicated some possible pushback within the leadership against Xi, particularly on economic policy. Li had already been largely sidelined, though, as Xi has taken control of most aspects of government.

    The more than 2,300 delegates to the party congress — wearing blue surgical masks under China’s strict “zero-COVID” policy — met in the Great Hall of the People in central Beijing.

    Most media, including all foreign journalists, were not allowed into the first part of the meeting when the voting took place.

    Former Chinese President Hu Jintao, Xi’s predecessor as party leader, was helped off the stage a little more than two hours into the 3.5-hour meeting without explanation.

    Hu, 79, spoke briefly with Xi, whom he had been sitting next to in the front row, before walking off with an assistant holding him by the arm. Jiang Zemin, 96, who was president before Hu, did not appear at this congress.

    As speculation swirled in some Western media about the reason for Hu’s departure, China’s official Xinhua News Agency tweeted late Saturday that he was not feeling well and had been accompanied to a nearby room for a rest.

    Only 11 women were among the 205 people named to the Central Committee, or about 5% of the total. Members of minority groups made up 4%. Those percentages were roughly the same as in the last Central Committee.

    At least one committee member, Wang Junzheng, the Communist Party leader in Tibet, has been sanctioned by the U.S. for human rights abuses.

    Police were stationed along major roads, with bright-red-clad neighborhood watch workers at regular intervals in between, to keep an eye out for any potential disruptions.

    An individual caught authorities by surprise last week by unfurling banners from an overpass in Beijing that called for Xi’s removal and attacked his government’s tough pandemic restrictions.

    A report read by Xi at the opening session of the congress a week ago showed a determination to stay on the current path in the face of domestic and international challenges.

    Xi has emerged during his first decade in power as one of China’s most powerful leaders in modern times, rivaling Mao Zedong, who founded the communist state in 1949 and led the country for a quarter-century.

    A third five-year term as party leader would break an unofficial two-term limit that was instituted to try to prevent the excesses of Mao’s one-person rule, notably the tumultuous 1966-76 Cultural Revolution, under which Xi suffered as a youth.

    Xi has put loyalists in key positions and taken personal charge of policy working groups. In contrast, factions within the party discussed ideas internally under Hu and Jiang, his two immediate predecessors, said Ho-fung Hung, a professor of political economy at Johns Hopkins University.

    “Right now, you don’t really see a lot of internal party debates about these different policies and there is only one voice there,” he said.

    Xi has emphasized the central role of the Communist Party, expanding state control over society as well as the economy. In his remarks, he said the party, which marked its 100th anniversary last year, is still in its prime.

    “The Communist Party of China is once again embarking on a new journey on which it will face new tests,” he said.

    The congress concluded by playing the communist anthem, “The Internationale.”

    ———

    Associated Press writer Kanis Leung in Hong Kong contributed to this report.

    ———

    The title for Standing Committee member Han Zheng has been corrected to vice premier, not Shanghai party chief, his former position.

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  • An antitrust battle over GIFs could be a wake-up call for Silicon Valley | CNN Business

    An antitrust battle over GIFs could be a wake-up call for Silicon Valley | CNN Business

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    Washington
    CNN Business
     — 

    GIFs — those short, animated images that were a staple of internet memes and culture in the 1990s and 2000s — may be going out of fashion now as social media users have largely moved on to emojis and video.

    But a long-running legal battle over who can control access to them, culminating this week in a rare defeat for Meta (META), the parent of Facebook, could have major ramifications for Big Tech regulation. While the stakes of the case itself were relatively small, policy experts say the outcome is certain to embolden antitrust regulators around the globe and could chip away at the image of Big Tech as an invincible juggernaut.

    On Tuesday, UK regulators forced Meta to unwind its 2020 purchase of Giphy, one of the largest searchable internet libraries of GIFs.

    Meta had fought the breakup effort. But after an appeals tribunal this past summer largely upheld the government’s decision, Meta said this week it would sell Giphy in response to the final order from the UK requiring a spin-off.

    The concession marks a key moment in the global tug-of-war between governments and tech giants. It’s the first time any government — and one outside the United States at that — has successfully forced Meta to accept a breakup, albeit a partial one, since regulators worldwide began scrutinizing its economic dominance.

    “The Citadel may have been breached,” said Joel Mitnick, an antitrust attorney at the law firm Cadwalader, Wickersham & Taft.

    Meta, more than any other tech company, has drawn the attention of regulators for its acquisitions, which to critics have often looked like attempts to kill off potential competitive threats before they can flourish. In particular, they’ve pointed to its deal for Instagram in 2012 and WhatsApp in 2014, both of which were far pricier than the $400 million it reportedly paid for Giphy.

    Meta is currently defending against a US government antitrust suit seeking to force the company to spin off Instagram and WhatsApp, and another that would block a more recent proposed acquisition of a virtual reality startup known as Within Unlimited.

    The company said this week that it will continue to explore acquisitions despite the UK ruling. In issuing its decision, the UK’s competition regulator said Meta’s Giphy acquisition risked eliminating a competitor in digital advertising and cutting off third-party access to Giphy’s GIFs.

    GIFs aren’t a core part of Meta’s business; the company has sought to reposition itself instead as a leader in virtual reality technology. Even when Meta’s deal was first announced, it was widely regarded as a headscratcher and not an obvious threat to competition, according to Adam Kovacevich, CEO of the Chamber of Progress, an industry advocacy group funded partly by Meta.

    “Almost no one thought Meta was securing some kind of major coup with this deal,” Kovacevich tweeted, arguing that the case primarily served as a political exercise for UK regulators to demonstrate their post-Brexit relevance.

    Paul Gallant, an industry analyst at Cowen Inc., said that that only emphasizes how closely regulators are watching tech mergers now, and underscores how much of a wake-up call the UK ruling is.

    “Successfully blocking this deal will catch the eyes of the biggest tech companies in the world,” Gallant said. “The biggest tech companies have grown significantly through mergers and acquisitions, so this decision has the potential to complicate that strategy.”

    In many ways, the UK’s success in rolling back the Giphy merger reflects the cooperation and consensus that has emerged among antitrust agencies around the world, said William Kovacic, former chairman of the Federal Trade Commission and a law professor at George Washington University.

    The ruling will give non-UK regulators greater confidence that their own attempts to block tech industry consolidation may be achievable or, at the very least, not be viewed as radical, he added.

    “It gives you the ability to resist the argument that you are a rogue agency or a rogue jurisdiction,” Kovacic said. “It is more comforting to travel in a group than alone.”

    Emboldened regulators could seek to block more deals, or perhaps bring more cases alleging anticompetitive behavior. But just because the Giphy case could inspire more enforcement, that doesn’t necessarily mean they’ll be successful. That’s because, in major markets such as the United States, antitrust cases first must be proven in court before any penalties can be imposed. And US courts don’t typically take foreign antitrust rulings into account; their job is to interpret US law.

    In that respect, said Mitnick, US antitrust officials face a tougher challenge than their counterparts in Europe and in other places where regulators face lower procedural hurdles.

    A successful US breakup prosecution, Mitnick said, “remains a very high wall to scale.”

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  • Stocks end higher on Wall Street, notching weekly gains

    Stocks end higher on Wall Street, notching weekly gains

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    NEW YORK — Wall Street capped a volatile run for stocks with a broad rally Friday, contributing to sizable weekly gains for major indexes.

    The S&P 500 rose 2.4% and notched its biggest weekly gain since June. The Dow Jones Industrial Average rose 2.5% and the Nasdaq composite ended 2.3% higher.

    More than 90% of the stocks in the benchmark S&P 500 index rose. Technology stocks, retailers and health care companies powered a big share of the rally. Oracle rose 5%, Home Depot added 2.3% and Pfizer rose 4.8%.

    Social media companies fell broadly after Snapchat’s parent company issued a weak forecast and the Washington Post reported that Elon Musk plans to slash about three-quarters of the payroll at Twitter after he buys the company. Snap slumped 28.1% and Twitter shed 4.9%.

    Markets have been unsettled in recent days, as stocks lurched from sharp gains early in the week to losses later in the week. The market appeared headed for another sell-off early Friday, then reversed course amid fresh signals from the Federal Reserve that it may consider easing up on its aggressive pace of interest rate hikes as it tries to bring down inflation.

    “The hope is that they at least slow down,” Jay Hatfield, CEO of Infrastructure Capital Advisors.

    The Fed is expected to raise interest rates another three-quarters of a percentage point at its upcoming meeting in November. Markets have been unsettled partly because investors have been hoping that any sign of inflation easing or economic growth slowing could signal that the Fed will ease up on its rate increases, which have yet to show any signs of significantly impacting inflation.

    Mary Daly, president of the Federal Reserve Bank of San Francisco, said Friday that she’s thinking about the dangers of raising interest rates too high and doing too much damage to the economy.

    While the Fed likely isn’t yet ready to start dialing down the size of its rate hikes, she said, “I think the time is now to start talking about stepping down. The time is now to start planning for stepping down.”

    If the Fed does come out of its meeting next month with a fourth straight increase of 0.75 percentage points to its key overnight interest rate, as most investors expect, she said: “I would really recommend people don’t take that away as: It’s 75 forever.”

    A 0.75 point jump is triple the size of the Fed’s usual move, and the Fed risks creating a recession if it moves too high or too quickly.

    Daly’s comments helped push down investors’ expectations for how high the Fed will hike rates through the end of the year. Traders are now pricing in just a 45% chance that the Fed will hike rates by 0.75 percentage points next month and again by the same amount in December.

    Just a day ago, they were much more confident about that, pricing in a 75% probability. Instead, traders increasingly see the Fed dialing down to a more modest increase of 0.50 percentage points in December, according to CME Group.

    Daly was speaking at meeting of the University of California-Berkeley’s Fisher Center for Real Estate & Urban Economics’ Policy Advisory Board.

    Central banks around the world have mostly been raising interest rates to fight inflation and much of the focus has been on the Fed. It has raised its key interest rate to a range of 3% to 3.25%. A little more than six months ago, that rate was near zero.

    Even if the Fed does dial down the size of its increases soon, officials at the central bank have also been adamant that they plan to leave rates alone at that high level for a while to continue to slow the economy in hopes of forcing down high inflation.

    “The concern is still that bond yields are heading higher and the Fed is not signaling a pivot,” said Ross Mayfield, investment strategist at Baird. “Until there is a meaningful pivot driven by a drop in inflation, it’s a huge headwind to the market.”

    Treasury yields, which hit multiyear highs this week on expectations of more Fed rate hikes, eased Friday. The yield on the 10-year Treasury note, which affects mortgage rates, slipped to 4.22% from 4.24% late Thursday. The yield on the two-year Treasury, which tends to track investors’ expectations for Federal Reserve action on interest rates, fell to 4.49% from 4.61%.

    Stocks got a boost from the pullback in yields. The S&P 500 rose 86.97 points to 3,752.75. The index posted a 4.7% gain for the week.

    The Dow climbed 748.97 points to close at 31,082.56, and the Nasdaq added 244.87 points to 10,859.72.

    Small company stocks also gained ground. The Russell 2000 index rose 37.85 points, or 2.2%, to finish at 1,742.24.

    Investors have shifted their focus, for now, to the latest round of corporate earnings as they look for more clues about how hot inflation and rising interest rates are shaping the economy. Reports from airlines, banks, railroad operators and others have so far provided mixed financial results and forecasts.

    American Express fell 1.7% after setting aside hundreds of millions of dollars to cover potential losses as the economy continues to deteriorate. Railroad CSX rose 1.7% after reporting solid financial results.

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  • The Fed isn’t about to back down from its inflation fight | CNN Business

    The Fed isn’t about to back down from its inflation fight | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    London
    CNN Business
     — 

    Twelve days from now, the Federal Reserve will meet again, and expectations for the central bank’s next moves are firming up. The consensus among investors: Persistently hot inflation means the Fed will need to continue with its string of aggressive interest rate hikes, which is unprecedented in the modern era.

    What’s happening: Markets see a 99% probability that rates will rise by another three-quarters of a percentage point, reaching a range of 3.75% to 4%.

    A hike of that magnitude is now “a given,” Quincy Krosby, chief global strategist for LPL Financial, told clients on Wednesday. “Concern is now focused on December, and whether the Fed is prepared to transition to smaller rate hikes.”

    That’s up from a 60% probability one month ago. So what changed?

    Inflation, mainly. The US Consumer Price Index rose 8.2% in the year to September after rising 8.3% annually in August. While CPI peaked at 9.1% in June, that reading was still uncomfortably elevated and higher than economists had expected.

    The 6.6% annual uptick in shelter costs was of particular concern. It takes longer for housing expenses to come back down than some other categories, since renters tend to sign leases for 12-month periods. The monthly rise in core services costs (excluding energy) was the largest gain in three decades.

    The data underscored the need for the Federal Reserve to stay tough — while a strong jobs report for September will deliver confidence the central bank can do so without causing undue harm to the US economy.

    Fed officials have said as much. In an interview with Reuters on Friday, St. Louis Fed President James Bullard said inflation had become “pernicious,” which means that “frontloading” larger rate hikes is logical.

    The market impact: The S&P 500 kicked off the week with a 3.8% rally before dropping 0.7% on Wednesday. It’s still plodding along in a bear market, about 23% below its January peak. So long as the Fed signals its intention to keep the pressure on, boosting the odds of a US recession, volatility is expected to persist.

    Even relatively solid corporate earnings may not be sufficient to change the direction.

    “So far, the results are decent, but they’re being compared to consensus estimates that have been persistently lowered since early summer,” noted strategists at Charles Schwab.

    Tesla

    (TSLA)     posted a solid quarter of earnings and record revenue, but now says it will likely fall short of its target for a 50% growth in the number of cars it sells this year.

    Quick rewind: As recently as July, the company said it was still aiming for a target of 50% growth from the 936,000 cars it delivered in 2021.

    But with two quarters of disappointing deliveries caused by supply chain issues and Covid-related shutdowns in China, that goal has looked increasingly out of reach, my CNN Business colleague Chris Isidore reports.

    CEO Elon Musk said that the electric carmaker is not struggling with demand.

    “We expect to sell every car that we make, for as far in the future as we can see,” he said on a call with analysts on Wednesday.

    Instead, the company said it would “just” miss its target due to complications with delivery of cars from its factories to customers at the end of the year.

    Shares are down 5% in premarket trading on Thursday. They’ve dropped 37% year-to-date, compared to a 22.5% fall in the S&P 500.

    “This quarter was not roses and rainbows,” said Dan Ives, tech analyst for Wedbush Securities. “Competition is increasing. There are some logistical challenges.”

    America’s business leaders are becoming more pessimistic. The Conference Board recently reported a slide in its CEO confidence index, which it said had hit levels not seen “since the depths of the Great Recession.”

    Of the 136 CEOs who were surveyed, 98% said they were preparing for a US recession over the next 12 to 18 months — and 99% said they were bracing for a recession in Europe.

    Notably, the business community is not being quiet about its concerns.

    Amazon founder Jeff Bezos tweeted Tuesday that “the probabilities in this economy tell you to batten down the hatches.”

    He was responding to a clip of an interview with Goldman Sachs CEO David Solomon, who told CNBC that “it’s a time to be cautious.”

    “You have to expect that there’s more volatility on the horizon now,” Solomon said. “That doesn’t mean for sure that we have a really difficult economic scenario. But on the distribution of outcomes, there’s a good chance that we have a recession in the United States.”

    American Airlines

    (AAL)    , AT&T

    (T)    , Dow, Nucor

    (NUE)     and Quest Diagnostics

    (DGX)     report results before US markets open. CSX

    (CSX)    , Snap

    (SNAP)     and Whirlpool

    (WHR)     follow after the close.

    Also today:

    • Initial US jobless claims for last week post at 8:30 a.m. ET.
    • Existing home sales for September follow at 10 a.m. ET.

    Coming tomorrow: Earnings from American Express and Verizon.

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  • UK leader in peril after Treasury chief axes ‘Trussonomics’

    UK leader in peril after Treasury chief axes ‘Trussonomics’

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    LONDON — The U.K.’s new Treasury chief ripped up the government’s economic plan on Monday, dramatically reversing most of the tax cuts and spending plans that new Prime Minister Liz Truss announced less than a month ago. The move raises more questions about how long the beleaguered British leader can stay in office, though Truss insisted she has no plans to quit.

    Chancellor of the Exchequer Jeremy Hunt, said he was scrapping “almost all” of Truss’ tax cuts, along with her flagship energy policy and her promise — repeated just last week — that there will be no public spending cuts.

    While the reversal of policy calmed financial markets and helped restore the government’s economic credibility, it further undermined the prime minister’s rapidly crumbling authority and fueled calls for her to step down before her despairing Conservative Party forces her out.

    Truss declined to attend the House of Commons to answer a question on the economy from the leader of the opposition, sending House of Commons leader Penny Mordaunt in her place. Mordaunt denied a lawmaker’s suggestion that Truss was “cowering under her desk” to avoid scrutiny.

    “The prime minister is not under a desk,” Mordaunt said, words hardly likely to inspire confidence in the leader who only came to power last month.

    Truss’ spokesman said the prime minister and Hunt had jointly agreed on the economic changes. But Hunt told Conservative lawmakers that Truss “backed him to the hilt in making difficult decisions” — suggesting he has a free hand to make policy.

    With Truss sitting silently beside him, Hunt told lawmakers that he was canceling Truss’ plan to reduce the basic rate of income tax by 1 percentage point and most of her other libertarian economic policies. In a message aimed squarely at reassuring the financial markets, he said Britain was “a country that funds our promises and pays our debts.”

    “And when that is questioned, as it has been, this government will take the difficult decisions necessary to ensure there is trust and confidence in our national finances,” Hunt said.

    Hunt was appointed Friday after Truss fired his predecessor Kwasi Kwarteng, who spent less than six weeks in the Treasury job. Hunt is seeking to restore the Conservative government’s credibility for sound fiscal policy after Truss and Kwarteng rushed out a plan for tax cuts without detailing how they would pay for them.

    Truss and Kwarteng jointly came up with a Sept. 23 announcement of 45 billion pounds ($50 billion) in unfunded tax cuts that immediately spooked the financial markets. The cuts fueled investor concerns about unsustainable levels of government borrowing, which pushed up government borrowing costs, raised home mortgage costs and sent the pound plummeting to an all-time low against the dollar. The Bank of England was forced to intervene to protect pension funds, which were squeezed by volatility in the bond market.

    Over the weekend, Hunt has been dismantling that economic plan. The government had already ditched parts of its tax-cutting plan and announced it would make a medium-term fiscal statement on Oct. 31, weeks earlier than previously scheduled.

    On Monday, Hunt went further. He scaled back a cap on energy prices designed to help households pay their bills. It will now be reviewed in April rather than lasting two years — sweeping away one of Truss’ signature plans to help Britons facing a cost-of-living crisis as food, fuel and mortgage prices soar.

    Hunt told lawmakers that the measures he announced would save 32 billion pounds a year, but that spending cuts were also coming.

    “There remain, I’m afraid, many difficult decisions to be announced” in the fuller budget statement on Oct. 31, he said.

    Hunt also said he was setting up a new Economic Advisory Council of economists and investment bankers to help inform policy — a far cry from Truss’ bid to throw out economic “orthodoxy.”

    The pound rose more than 1% to above $1.13 in London after Hunt’s announcements. That pushed the U.K. currency back above where it was trading on Sept. 22, the day before Kwarteng announced the tax cuts.

    Yields on 10-year government bonds, an indicator of government borrowing costs, fell to 3.947% from 4.327% on Friday. It was 3.495% on Sept. 22. Bond yields tend to rise as the risk of a borrower defaulting increases.

    Paul Johnson, director of the Institute for Fiscal Studies think tank, said Monday’s announcements would not be enough “to undo the damage caused by the debacle of the last few weeks. But they are big, welcome, clear steps in the right direction.”

    The financial fiasco has turned Truss into a lame-duck prime minister. She took office just six weeks ago after winning a party election to replace Prime Minister Boris Johnson, who was forced out in July after ethics scandals ensnared his administration. Many Conservatives now believe their only hope is to replace Truss — but they are divided about who should take over.

    In a BBC interview, Truss conceded that she had made mistakes. But, she vowed, “I will lead the Conservatives into the next general election.”

    Few believe that possible. The Conservative Party still commands a large majority in Parliament, and — in theory — has two years until a national election must be held. Polls suggest holding an election now would be a wipeout for the Tories, with the Labour Party winning a big majority.

    Labour Party economics spokeswoman Rachel Reeves said Truss was “barely in office, and she is certainly not in power,” and claimed the Conservatives could not fix the problems they had caused.

    “The truth is an arsonist is still an arsonist, even if he runs back into the burning building with a bucket of water,” she said.

    Chris Beauchamp, chief market analyst at online trading firm IG, said the markets were reassured by the presence of Hunt, a former U.K. foreign secretary and health chief.

    “I think markets in some ways would rather things just stayed as they are for a while,” he said. “OK, the PM has found her authority quite truncated. But at least you’ve got the chancellor in place almost running the country.

    “I think they’re quite content with that slightly odd state of affairs, for the moment.”

    ———

    Jo Kearney contributed to this story.

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  • New UK Treasury chief to aims to calm markets with statement

    New UK Treasury chief to aims to calm markets with statement

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    LONDON — The new U.K. Treasury chief will announce details of his tax and spending plans Monday, two weeks ahead of schedule, in a bid to calm markets roiled by the government’s economic policies.

    Chancellor of the Exchequer Jeremy Hunt is expected to ditch more of the measures announced by the government of Prime Minister Liz Truss on Sept. 23.

    Truss drafted Hunt in on Friday after she fired his predecessor, Kwasi Kwarteng. Plans by Truss and Kwarteng for 45 billion pounds ($50 billion) in tax cuts — including an income tax reduction for the highest earners — without an accompanying assessment of how the government would pay for them sent the pound plunging to a record low against the U.S. dollar and the cost of government borrowing soaring.

    The Bank of England was forced to step in to buy government bonds to prevent the financial crisis from spreading to the wider economy.

    The government has since ditched parts of its tax-cutting plan and announced it would make a medium-term fiscal statement on Oct. 31. But the market remained jittery, and Hunt has decided he must make a statement to calm the waters even sooner.

    The Treasury said he would make a public statement, followed by a statement to the House of Commons, on Monday afternoon. Hunt spent the weekend in crisis talks with Truss, and also met Bank of England governor Andrew Bailey and the head of the government’s Debt Management Office.

    Hunt’s moves are aimed at restoring the government’s credibility for sound fiscal policy after Truss and Kwarteng rushed out a plan for tax cuts without detailing how they would pay for them.

    The unfunded tax cuts fueled investor concern about unsustainable levels of government borrowing, which pushed up government borrowing costs, raised home mortgage costs and sent the pound plummeting to an all-time low against the dollar. The Bank of England was forced to intervene to protect pension funds squeezed by volatility in the bond market.

    Hunt was under pressure to act before financial markets opened on Monday because the central bank’s support for the bond market ended Friday.

    The early response from investors was positive.

    The pound rose 0.5% to $1.1229 in early trading in London. The British currency is now trading for roughly the same price it was on Sept. 22, the day before Kwarteng announced the tax cuts.

    Yields on 10-year government bonds, an indicator of government borrowing costs, fell to 4.060% from 4.327% on Friday. It was 3.495% on Sept. 22. Bond yields tend to rise as the risk of a borrower defaulting increases and fall as that risk declines.

    But analysts warned the positive market news might only be a temporary reprieve.

    “Trussenomics may have been ripped up and fed to the shredder but the author of the big gamble remains in power, and has the final say on the direction of travel,’’ said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

    “Investors are craving more stability but, given the flip-flopping we’ve had so far in her super-short tenure, economic policy uncertainty remains and that’s likely to be the key driver in the bond markets and on foreign exchange desks,” she said.

    The financial fiasco has turned Truss into a lame-duck prime minister, and Conservative lawmakers are agonizing about whether to try to oust her. She took office just six weeks ago after winning a party election to replace Prime Minister Boris Johnson. He was forced out in July after serial ethics scandals ensnared his administration.

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  • Xi Jinping’s speech: yes to zero-Covid, no to market reforms? | CNN Business

    Xi Jinping’s speech: yes to zero-Covid, no to market reforms? | CNN Business

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    Hong Kong
    CNN Business
     — 

    Even though China’s economy is beset by problems ranging from a real estate crisis to youth unemployment, Xi Jinping did not offer any grand ideas to set the country back on track during his two-hour opening speech at the Communist Party Congress on Sunday.

    The Chinese leader is expected to secure an unprecedented third term in power at the week-long congress. Priorities presented at the political gathering of more than 2,000 party members will also set China’s trajectory for the next five years or even longer.

    In his speech Sunday, Xi struck a confident tone, highlighting China’s growing strength and rising influence under his first decade in power. He also repeatedly underscored the risks and challenges the country faces, including the Covid pandemic, Hong Kong and Taiwan — all of which he claimed China had come away from victorious.

    But experts are concerned that Xi offered no signs of moving away from the country’s rigid zero-Covid policy or its tight regulatory stance on various businesses, both of which have hampered growth in the world’s second-largest economy.

    “Yesterday’s speech confirms what many China watchers have long suspected — Xi has no intention of embracing market liberalization or relaxing China’s zero-Covid policies, at least not anytime soon,” said Craig Singleton, senior China fellow at the Foundation for Defense of Democracies, a DC-based think tank.

    “Instead, he intends to double down on policies geared towards security and self-reliance at the expense of China’s long-term economic growth.”

    China is the world’s last major economy still enforcing strict zero-Covid measures, which aim to stamp out chains of transmission through border restrictions, mass testing, extensive quarantines, and uncompromising snap lockdowns.

    And China’s economy is in bad shape. Growth has stalled, youth unemployment is at a record high, and the housing market is in shambles. Constant Covid lockdowns have not only wreaked havoc on the economy, but also sparked rising social discontent.

    Last week, two large banners were hung on an overpass of a major thoroughfare in Beijing, protesting against Xi’s Covid policy and authoritarian rule. It was a rare protest against the top leadership in the country, signaling the frustration and anger among the public.

    Many international organizations, including the IMF and World Bank, have recently downgraded China’s GDP growth forecasts for this year, citing zero-Covid as one of the major drags.

    Xi, however, praised the government’s adherence to zero-Covid, saying it has “achieved significant positive results.”

    Xi’s speech — a summary of the Communist Party’s work report, or action plan — was similarly short on concrete solutions to other challenges facing the economy in the near term.

    “We believe the ongoing Party Congress may not be an inflection point for major policy changes,” Goldman Sachs analysts said on Sunday, adding that they believe China may not loosen its Covid restrictions until at least the second quarter of 2023.

    On the property sector, Xi emphasized the need to provide affordable housing and dampen speculative demand — but there was no specific mention of the slump in real estate, which has mushroomed into a major crisis over the past few years, threatening both economic and social stability.

    “We maintain our view that a comprehensive solution to the beleaguered property sector might not be introduced until after March 2023, when the political reshuffle is fully completed,” said Nomura analysts on Monday.

    Nor did Xi mention record youth unemployment, which is mainly a result of his year-long crackdown on the tech industry set against the backdrop of punishing zero-Covid policies.

    In the full version of the official 20th Party Congress work report, which was published shortly after his speech, Xi emphasized the need to continue the party’s “anti-monopoly” crackdown and regulate “excessive incomes,” a sign that he will continue to get tough on big businesses and wealthy individuals.

    Beijing’s sweeping crackdown on the country’s private sector, under the banner of Xi’s “common prosperity” campaign, has pummeled several companies in sectors ranging from tech and finance to gaming and private education.

    The government has defended the campaign as necessary for “social fairness” and narrowing income gaps.

    In his speech, Xi also made clear that development was the “top priority” and stressed continued focus on “high-quality growth.”

    That may dispel some market concerns that the government no longer cared much about economic growth, UBS analysts said.

    However, to achieve Xi’s target of making China a “medium developed country” by 2035, the country’s annual real GDP growth needs to average around 4.7% a year from 2021 to 2035, the UBS analysts said. That could be “quite challenging,” they noted, adding they expect China’s potential growth to average between 4% to 4.5% a year this decade, and fall lower after 2030.

    Meantime, a comparison between this year’s speech and the last one delivered by Xi in 2017 at the 19th party congress revealed a potentially worrying trend.

    The frequency of words such as “security,” “people,” and “socialism” used in 2022 had increased compared to 2017, while that of “economy,” “market” and “reform” declined, Goldman analysts said.

    The change was also noticed by Nomura analysts, who said it could point to “a shift in the party’s mandate.”

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  • Asian shares mixed as markets eye China meeting

    Asian shares mixed as markets eye China meeting

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    TOKYO — Asian shares were mixed Monday as investors kept their eyes on the weeklong Communist Party congress in China.

    Benchmarks dropped in Tokyo, Sydney and Hong Kong, but they recovered in afternoon trading in Seoul and Shanghai. Mumbai gained. Oil prices and U.S. futures rose.

    The meeting in China, which opened Sunday, is expected to reappoint Xi Jinping as leader for the next five years, reaffirming his grip on power and stronger state control over the economy. Analyst expect no change to the “zero-COVID policy.”

    “Fresh updates from China’s Party Congress are being scrutinized, with the emphasis on technological advancement and national security seemingly brought up as high priorities for China’s longer-term direction. Further de-coupling f rom U.S. technology seems to be the story,” said Yeap Jun Rong, market strategist at IG in Singapore.

    Japan’s benchmark Nikkei 225 slipped 1.2% in afternoon trading to 26,775.79. Australia’s S&P/ASX 200 dipped 1.4% to 6,664.40. South Korea’s Kospi rebounded to gain 0.3% to 2,219.71. Hong Kong’s Hang Seng lost 0.2% to 16,561.97, while the Shanghai Composite rose 0.5% to 3,086.38. In Mumbai, the Sensex gained 0.5%.

    Clifford Bennett, Chief Economist at ACY Securities, noted the U.S. dollar will likely continue to rise as interest rates are pushed higher to counter inflation.

    “The outlook is grim. The economic horizon is dark,” he said of the American economy. “”The U.S. dollar will continue to strengthen for the moment, particularly against other Western currencies.”

    In currency trading, the euro cost 97.37 cents, up from 97.21 cents.

    The U.S. dollar rose to 148.74 Japanese yen from 148.63 yen. That’s a nearly 32-year low for the yen against the dollar.

    Japan’s industrial production for August showed moderate signs of improvement, the government said. Industrial production rose 3.4% from the previous month, and 5.8% from the previous year, according to Ministry of Economy, Trade and Industry data released Monday.

    Worries about inflation, though cooling in some parts of the economy around the world, remain overall. On Wall Street, stocks ended last week with a broad slide, wiping out earlier gains.

    A report showing U.S. consumers’ expectations for inflation was another signal the Federal Reserve may keep aggressively raising interest rates, although that strategy raises the risks of a recession.

    The S&P 500 fell 2.4% on Friday. The Dow Jones Industrial Average fell 1.3% and the Nasdaq composite ended 3.1% lower. Both indexes also turned lower after marching higher in early trading.

    The Russell 2000 gave up 2.7%

    The Fed has already raised its benchmark interest rate five times this year, with the last three increases by three-quarters of a percentage point. Wall Street expects another raise of three-quarters of a percentage point at its next meeting in November.

    Investors have also been focusing on the latest earnings reports.

    In energy trading, benchmark U.S. crude added 66 cents to $86.27 a barrel in electronic trading on the New York Mercantile Exchange. U.S. crude oil prices fell 3.9% on Friday. Brent crude, the international standard, added 78 cents to $92.41 a barrel.

    ———

    Yuri Kageyama is on Twitter https://twitter.com/yurikageyama

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  • UK leader Liz Truss goes from triumph to trouble in 6 weeks

    UK leader Liz Truss goes from triumph to trouble in 6 weeks

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    LONDON — When Liz Truss was running to lead Britain this summer, an ally predicted her first weeks in office would be turbulent.

    But few were prepared for the scale of the sound and fury -– least of all Truss herself. In just six weeks, the prime minister’s libertarian economic policies have triggered a financial crisis, emergency central bank intervention, multiple U-turns and the firing of her Treasury chief.

    Now Truss faces a mutiny inside the governing Conservative Party that leaves her leadership hanging by a thread.

    Conservative lawmaker Robert Halfon fumed on Sunday that the last few weeks had brought “one horror story after another.”

    “The government has looked like libertarian jihadists and treated the whole country as kind of laboratory mice on which to carry out ultra, ultra free-market experiments,” he told Sky News.

    It’s not as if the party wasn’t warned. During the summertime contest to lead the Conservatives, Truss called herself a disruptor who would challenge economic “orthodoxy.” She promised she would cut taxes and slash red tape, and would spur Britain’s sluggish economy to grow.

    Her rival, former Treasury chief Rishi Sunak, argued that immediate tax cuts would be reckless amid the economic shockwaves from the coronavirus pandemic and the war in Ukraine.

    The 172,000 Conservative Party members -– who are largely older and affluent — preferred Truss’ boosterish vision. She won 57% of members’ votes to become leader of the governing party on Sept. 5. The next day, she was appointed prime minister by Queen Elizabeth II in one of the monarch’s final acts before her death on Sept. 8.

    Truss’ first days in office were overshadowed by a period of national mourning for the queen. Then on Sept. 23, Treasury chief Kwasi Kwarteng announced the economic plan he and Truss had drawn up. It included 45 billion pounds ($50 billion) in tax cuts -– including an income tax reduction for the highest earners — without an accompanying assessment of how the government would pay for them.

    Truss was doing what she and allies said she would. Libertarian think-tank chief Mark Littlewood predicted during the summer there would be “fireworks” as the new prime minister pushed for economic reform at “absolutely breakneck speed.”

    Still, the scale of the announcement took financial markets, and political experts, by surprise.

    “Many of us, wrongly, expected her to pivot after she won the leadership contest in the way many presidents do after winning the primaries,” said Tim Bale, professor of politics at Queen Mary University of London. “But she didn’t do that. She actually meant what she said.”

    The pound plunged to a record low against the U.S. dollar and the cost of government borrowing soared. The Bank of England was forced to step in to buy government bonds and prevent the financial crisis from spreading to the wider economy. The central bank also warned that interest rates will have to rise even faster than expected to curb inflation that is running at around 10%, leaving millions of homeowners facing big increases in mortgage payments.

    Jill Rutter, a senior fellow at the Institute for Government think tank, said Truss and Kwarteng made a series of “unforced errors” with their economic package.

    “They shouldn’t have made their contempt for economic institutions quite so clear,” she said. “I think they could have listened to advice. And I think one of the things that they got very wrong was to announce one part of the package, the tax cuts … without the spending side of the equation.”

    As the negative reaction grew, Truss began to abandon bits of the package in a bid to reassure her party and the markets. The tax cut for top earners was ditched in the middle of the Conservative Party’s annual conference in early October as the party rebelled.

    It wasn’t enough. On Friday, Truss fired Kwarteng and replaced her longtime friend and ally with Jeremy Hunt, who served as health secretary and foreign secretary in the Conservative governments of David Cameron and Theresa May.

    At a brief, downbeat news conference, the prime minister acknowledged that “parts of our mini budget went further and faster than markets were expecting.” She reversed a planned cut in corporation tax, another pillar of her economic plan, to “reassure the markets of our fiscal discipline.”

    Truss is still prime minister in name, but power in government has shifted to Hunt, who has signaled he plans to rip up much of her remaining economic plan when he makes a medium-term budget statement on Oct. 31. He has said tax increases and public spending cuts will be needed to restore the government’s fiscal credibility.

    Still, Hunt insisted Sunday: “The prime minister’s in charge.”

    “She’s listened. She’s changed. She’s been willing to do that most difficult thing in politics, which is to change tack,” Hunt told the BBC.

    The Conservative Party still commands a large majority in Parliament, and -– in theory -– has two years until a national election must be held. Polls suggest an election would be a wipeout for the Tories, with the Labour Party winning a big majority.

    Conservative lawmakers are agonizing about whether to try to replace their leader for a second time this year. In July, the party forced out Prime Minister Boris Johnson, who led them to victory in 2019, when serial ethics scandals ensnared his administration.

    Now many of them have buyer’s remorse about his replacement. Under party rules, Truss is safe from a leadership challenge for a year, but some Conservative legislators believe she can be forced to resign if the party can agree on a successor. Defeated rival Sunak, House of Commons leader Penny Mordaunt and popular Defense Secretary Ben Wallace are among the names being mentioned as potential replacements. Johnson, who remains a lawmaker, still has supporters, too.

    Junior Treasury minister Andrew Griffith argued Sunday that Truss should be given a chance to try to restore order.

    “This is a time when we need stability,” he told Sky News. “People at home are just tearing their hair out at the level of uncertainty. What they want to see is a competent government getting on with (the) job.”

    ———

    Follow AP’s coverage of British politics at https://apnews.com/hub/united-kingdom

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  • China expected to grant Xi 5 more years, no major changes

    China expected to grant Xi 5 more years, no major changes

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    BEIJING — China on Sunday opens a twice-a-decade party conference at which leader Xi Jinping is expected to receive a third five-year term that breaks with recent precedent and establishes himself as arguably the most powerful Chinese politician since Mao Zedong.

    Xi is expected to issue a lengthy address at the opening session, but little change is foreseen in his formula of strict one-party rule, intolerance of criticism and a hard-line approach toward COVID-19 including quarantines and travel bans even as other countries have opened up.

    As with most Chinese political events, little information has been released beforehand and the congress’ outcome will only be announced after several days of closed-door sessions. How much has been decided in advance and how much is still to be hashed out in face-to-face meetings also remains unknown.

    At a two-hour news conference Saturday, the congress’ spokesperson Sun Yeli reaffirmed the government’s commitment to its “zero-COVID” policy despite the economic costs, and repeated its threat to use force to annex self-governing Taiwan.

    But Sun offered few details about what if any changes would be enacted to the party’s charter at the meeting, which is expected to last about a week. The congress is the 20th in the history of the century-old party, which boasts some 96 million members, over 2,000 of whom will attend the Beijing meetings.

    The changes will “incorporate the major theoretical views and strategic thinking” concluded in the five years since the last congress, said Sun, a deputy head of the Chinese Communist Party’s Propaganda Department who is not well known outside party circles.

    The amendment or amendments will “meet new requirements for advancing the party’s development and work in the face of new circumstances and new tasks,” Sun said.

    Xi has left little room for further political aggrandizement, having placed himself thoroughly in charge of domestic affairs, foreign policy, the military, the economy and most other key matters overseen by party working groups that he leads.

    The congress comes as China‘s economy is facing major headwinds amid a near-collapse in the real estate sector and the toll on retail and manufacturing imposed by COVID-19 restrictions that upped the regime’s already intense monitoring of the population and suppression of free speech.

    In his remarks, Sun said China would exert all efforts to bring Taiwan under its control peacefully. But he said China would not tolerate what he called a movement toward full independence backed by hard-liners on the island and their overseas backers— presumably the U.S., which is Taiwan’s main source of military and diplomatic support despite the lack of formal relations in deference to Beijing.

    Sun also offered no hope China would be backing away from “zero COVID,” which Xi and other leaders have made a political issue despite criticism by the World Health Organization and others that it is not a practical long-term solution given improvements in vaccines and therapies.

    Many expect the policy to be continued at least until March, which Xi is expected to be given his third term as president and other top Cabinet leaders are installed.

    While Xi faces no open opposition, his parting with the party’s former collegial leadership style to concentrate power in his own hands does rankle among the public and party officials, said political observer and dissident Yin Weihong, who has faced repeated police harassment for his opposition views.

    “There’s a sense that he’s taken a cake formally divided amongst several and decided he’ll just have it all to himself,” Yin said in a phone call from his home south of Shanghai.

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  • Asian stocks fall ahead of US inflation update

    Asian stocks fall ahead of US inflation update

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    BEIJING — European stocks and Wall Street futures gained Thursday while Asian markets fell ahead of U.S. inflation data that investors worry will reinforce Federal Reserve plans for more aggressive interest rate hikes.

    London and Frankfurt advanced. Shanghai, Tokyo and Hong Kong declined. Oil prices advanced.

    Wall Street’s benchmark S&P 500 ended lower Wednesday after inflation in producer prices edged down but still was near a multi-decade high.

    The more closely watched consumer price index was due out later Thursday.

    “A hawkish reaction to the data could add more pressure to stocks,” Anderson Alves of ActivTrades said in a report.

    The Fed and other central banks in Europe and Asia have raised rates by unusually big margins to cool inflation that is at multi-decade highs, but traders are afraid they might tip the global economy into recession.

    In early trading, the FTSE 100 in London gained 0.2% to 6,840.35. The DAX in Frankfurt rose 0.8% to 12,272.20 and the CAC 40 in Paris added 0.5% to 5,845.55.

    On Wall Street, futures for the benchmark S&P 500 index and the Dow Jones Industrial Average were up 0.5%.

    On Wednesday, the S&P 500 gave up 0.3% for its sixth daily decline and the Dow slide 0.1% after a report showed producer price inflation is very hot.

    Prices rose 8.5% in September, down from March’s peak of 11.7%. But prices gained 0.4% compared with August following two months of declines.

    Consumer inflation on Thursday and retail sales data Friday could give a clearer picture of where prices are hottest and how consumers are reacting.

    Minutes from the Fed’s last meeting, released Wednesday, underscored the central bank’s commitment to taming “unacceptably high” inflation.

    The S&P 500 is down 25% so far this year and close to a two-year low.

    In Asia, the Shanghai Composite Index lost 0.1% to 3,016.35 and the Nikkei 225 in Tokyo sank 0.6% to 26,237.42. Hong Kong’s Hang Seng tumbled 1.9% to 16,389.11, its lowest close in more than 11 years.

    The Kospi in Seoul fell 1.8% to 2,162.87 while Sydney’s S&P-ASX 200 gained less than 0.1% to 6,642.60.

    India’s Sensex lost 0.7% to 57,205.89. New Zealand’s benchmark lost 0.5% and Southeast Asian markets also declined.

    In energy markets, benchmark U.S. crude gained 19 cents to $87.64 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the price basis for international oil trading, added 31 cents to $92.67 per barrel in London.

    The dollar strengthened to 146.74 after hitting a 24-year high of 145.85 on Wednesday.

    The dollar’s exchange rate has been rising against other currencies due to the Fed’s rate hikes and recession fears. The yen’s weakness has prompted expectations Japan’s central bank might intervene for a second time to prop up the exchange rate following an intervention in September.

    The euro gained to 97.39 cents from 97.06 cents.

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  • The Fed only cares about inflation. That’s bad news for you | CNN Business

    The Fed only cares about inflation. That’s bad news for you | CNN Business

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    New York
    CNN Business
     — 

    Jerome Powell and other members of the Federal Reserve are obsessed with choking off inflation once and for all, even if the Fed’s series of aggressive rate hikes slow the economy to a crawl. That could be bad news for consumers, investors and Corporate America.

    What’s more, many market experts and economists note that the rate of inflation, while still uncomfortably high, is falling and should continue to decline – but there is a noted lag effect. Fed vice chair Lael Brainard admitted as much in a speech Monday, saying that “policy actions to date will have their full effect on activity in coming quarters.”

    Still, the Fed isn’t done raising rates. Investors are pricing in the strong probability of a fourth consecutive three-quarters of a percentage point hike at the Fed’s next meeting on November 2. And the chances of a fifth straight hike of that magnitude at the Fed’s December 14 meeting are also on the rise.

    It seems that Powell wants to atone for his mistake of repeatedly calling inflation “transitory” for much of last year. So the Fed is going to keep raising rates to prove that it is taking inflation seriously, even if that leads to a bigger pullback in stocks…and tipping the economy into a recession.

    Needless to say, that’s a problem. Especially since the Fed has two mandates: price stability and maximum employment. That means the jobs market might get hit due to the Fed’s laser-like focus on inflation.

    “My concern is that the Fed is tightening so quickly and so significantly without knowing what it means for the economy,” said Brian Levitt, global market strategist with Invesco.

    Keep in mind that the Fed’s series of rate hikes are unprecedented in the “modern” era of central banking, i.e. after Alan Greenspan became Fed chair in 1987 and the Fed became far more transparent.

    The Fed was far more opaque before Greenspan, and the market didn’t pick apart every speech, policy move and economic forecast the way Wall Street does now. Inflation in the 1970s and early 1980s was also a much different animal, due largely to an oil price shock that lasted years because of a supply shortage.

    The current inflation crisis stems from more temporary (we won’t say transitory) supply chain issues tied to the pandemic as well as the rapid reopening of the global economy following a brief recession.

    But the economy is now showing cracks. Long-term bond yields have surged, and mortgage rates have popped, cooling off the housing market. The stock market has deflated as well, wringing even more excess from the economy.

    “We’re more cautious because the Fed is tightening into a weakening economy,” said Keith Lerner, co-chief investment officer and chief market strategist with Truist Advisory Services. “These supersized hikes are the most aggressive in decades. But the Fed has scar tissue from inflation.”

    As painful this current bout of inflation is for Americans, it’s nothing compared to what people lived through in the early 1980s before then Fed chair Paul Volcker squashed inflation with a series of massive rate hikes.

    Unless pricing pressures pick up again, it appears the year-over-year increase for the consumer price index (CPI) peaked at 9% in June. That’s a big move from about 2.3% in February 2020 just before the pandemic shutdown. But 9% is still a far cry from the CPI high during the Volcker years of 14.6% in early 1980.

    And with consumer and wholesale prices already edging lower, some experts worry that the continued uber-hawkish stance by the Fed will do more harm than good for the economy.

    “The speed at which the Fed is increasing rates will certainly have some unintended consequences,” said Michael Weisz, president of Yieldstreet, an investment firm that specializes in so-called alternative assets such as real estate, private equity, venture capital and art.

    Weisz said the surge in interest rates could lead to a “consumer credit crunch being more pronounced,” in which loans beyond mortgages might become more expensive and harder to get.

    Rate hikes raise the costs for companies to pay down their debt, increasing the possibility of corporate bankruptcies and defaults on commercial loans. It may even potentially lead to stagflation…the double whopper of stagnant growth and continued inflation. In other words, prices may remain high and the job market will probably be worse.

    “The Fed runs a real risk of over-tightening, as the impacts of the restrictive policy may not flow through inflation and unemployment data until it’s too late,” Weisz added.

    As long as inflation remains the bigger issue for the economy, the Fed is going to focus more on getting prices under control. After all, the unemployment rate is at 3.5%, a half-century low.

    “The Fed has made it clear their number one priority right now is price stability,” said Dustin Thackeray, chief investment officer of Crewe Advisors. “Until the Fed sees sustained evidence their monetary policy is having a material impact on…the job market, they will maintain their persistent efforts in reining in inflationary pressures.”

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  • Stocks rise as investors await inflation, earnings updates

    Stocks rise as investors await inflation, earnings updates

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    NEW YORK — Stocks shook off an early stumble and rose broadly on Wall Street in afternoon trading Tuesday as investors wait for updates on inflation and corporate earnings this week.

    The S&P 500 rose 0.4% as of 1:44 p.m. Eastern, on pace to snap a four-day losing streak. The benchmark index fell as a much as 1.2% earlier after a dour forecast from the International Monetary Fund stoked recession fears.

    The Dow Jones Industrial Average rose 348 points, or 1.2%, to 29,551 and the Nasdaq was 0.1% higher.

    Health care companies and retailers made some of the strongest gains. Johnson & Johnson rose 2% and Walmart rose 3.2%.

    Technology stocks remained the weakest area of the market. Chipmakers continued slipping in the wake of the U.S. government’s decision to tighten export controls on semiconductors and chip manufacturing equipment to China. Qualcomm fell 3.3%.

    Markets in Europe and Asia slipped.

    Uber fell 8.2% and Lyft slumped 9.8% following a proposal by the U.S. government that could give contract workers at ride-hailing and other gig economy companies full status as employees.

    U.S. crude oil prices fell 1.9%.

    Bond yields were mixed. The yield on the 10-year Treasury, which influences mortgage rates, edged higher to 3.89% from 3.88% late Friday. The yield on the 2-year Treasury, which follows Federal Reserve action, held steady at 4.30%. Bond markets were closed on Monday for a holiday.

    Recession fears have been weighing heavily on markets as stubbornly hot inflation burns businesses and consumers. U.S. stocks are coming off of four straight losses. Economic growth has been slowing as consumers temper spending and the central banks globally raise interest rates.

    Wall Street is closely watching the Fed as it continues to aggressively raise its benchmark interest rate to make borrowing more expensive and slow economic growth. The goal is to cool inflation, but the strategy carries the risk of slowing the economy too much and pushing it into a recession.

    The International Monetary Fund on Tuesday cut its forecast for global economic growth in 2023 to 2.7%, down from the 2.9% it had estimated in July. The cut comes as Europe faces a particularly high risk of a recession with energy costs soaring amid Russia’s invasion of Ukraine.

    Investors have a busy week ahead of economic and corporate earnings reports that could provide a clearer picture of inflation’s impact, while also raising questions about whether the Fed should continue with its aggressive rate hikes.

    Investors still expect the Fed to raise its overnight rate by three-quarters of a percentage point next month. It would be the fourth such increase, which is triple the usual amount, and bring the rate up to a range of 3.75% to 4%. It started the year at virtually zero.

    The Fed will release minutes from its last meeting on Wednesday, possibly giving Wall Street more insight into its views on inflation and next steps. The government will also release its report on wholesale prices, which will help provide more details on how inflation is hitting businesses.

    The closely watched report on consumer prices will be released on Thursday and a report on retail sales is due Friday.

    The latest round of corporate earnings will ramp up this week with reports from PepsiCo, Delta Air Lines and Domino’s Pizza. Banks, including Citigroup and JPMorgan Chase, will also report results.

    ———

    Yuri Kageyama contributed to this report.

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  • The econ Nobel offers a timely warning about central banks’ power | CNN Business

    The econ Nobel offers a timely warning about central banks’ power | CNN Business

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    This story is part of CNN Business’ Nightcap newsletter. To get it in your inbox, sign up for free, here.


    New York
    CNN Business
     — 

    The Nobel in economics is sort of the step-cousin of the Nobel family.

    It came about nearly 70 years after its literature and sciences counterparts, in 1969, and is technically called the “Sveriges Riksbank Prize in Economic Sciences.” It is awarded by the Swedish central bank, in honor of the namesake renaissance man Alfred Nobel who established the prizes.

    Some scholars really dislike the economics prize, including one of Nobel’s own descendants, who dismissed it as a “PR coup by economists.”

    But hey, it still comes with a cash prize. And it’s also pretty useful in reminding the world that economics as an academic field is, frankly, a barely understood hodge-podge of studies that is constantly evolving and so variable it’s almost useless outside of academia. (And I mean that with the utmost respect to economists, who, not unlike journalists, knew what they were doing when they chose their life of suffering.)

    Here’s the thing: Ben Bernanke, the former Federal Reserve chairman who guided the US economy through the 2008 financial crisis and subsequent recession, was awarded the Nobel in economics along with two other economists, Douglas Diamond and Philip Dybvig. (Congrats to all the winners, with apologies to Doug and Phil, who will forever be referred to in headlines about the Nobel as “and two other economists.”)

    Bernanke, who previously taught at Princeton and earned his Ph.D from MIT, received the award for his research on the Great Depression. In short, his work demonstrates that banks’ failures are often a cause, not merely a consequence, of financial crises.

    That was groundbreaking when he published it in 1983. Today, it’s conventional wisdom.

    WHY IT MATTERS

    The timing is everything here. The Nobel committee has been known to play politics (see: that time Barack Obama was awarded the Nobel Peace Prize after being in office for just eight months). And right now, it is using its spotlight to call attention to the high-stakes gamble playing out at central banks around the world, most notably the Fed.

    The rapid run-up in interest rates, led by the US central bank, is causing markets around the world to go haywire. And it’s especially bad news for emerging economies.

    Monetary tightening — especially when it is aggressive and synchronized across major economies — could inflict worse damage globally than the 2008 financial crisis and the 2020 pandemic, a United Nations agency warned earlier this month. It called the Fed’s policy “imprudent gamble” with the lives of those less fortunate.

    LESSONS FROM HISTORY

    On Monday, Diamond, one of the three newly minted Nobel laureates, acknowledged that the rate moves around the world were causing market instability.

    But he believes the system is more resilient than it used to be because of hard lessons learned from the 2008 crash, my colleague Julia Horowitz reports.

    “Recent memories of that crisis and improvements in regulatory policies around the world have left the system much, much less vulnerable,” Diamond said.

    Let’s hope he’s right.

    Oh hey, speaking of the Fed inflicting pain: We’re about to see big job losses, according to Bank of America.

    Under the rate hikes imposed by Jay Powell & Co, the US economy could see job growth cut in half during the fourth quarter of this year. Early next year, the bank expects to see losses of about 175,000 jobs a month.

    The litigation between Elon Musk and Twitter is officially on hold. The two sides now have until October 28 to work out a deal or once again gear up for a courtroom battle.

    The big question now is all about the money.

    Here’s the deal: Not even the world’s richest person has this kind of cash just lying around. Musk’s wealth is tied up in Tesla stock, which he can’t easily offload for a whole bunch of reasons. He needs to borrow the money, which means he’s got to get banks to pony up.

    By most accounts, he’ll be able to make it happen. But the Twitter deal is a harder pitch to make now than it was back in April, when Musk said he’d lined up more than $46 billion in financing, including two debt commitment letters from Morgan Stanley and other unnamed financial institutions, my colleague Clare Duffy writes.

    Musk has spent the past several months trashing Twitter as he sought to renege on his offer. Meanwhile, tech stocks have been hammered, ad revenues are declining, and the global economy has inched closer to a recession, sapping investor appetite for risk.

    Musk’s legal team said last week the banks that had committed debt financing previously were “working cooperatively to fund the close.”

    Twitter is, understandably, skeptical, given the many curve balls Musk has thrown at them since he got involved with the company earlier this year. The company raised concerns last week that a representative for one of the banks testified that Musk had not yet sent a borrowing notice and “has not otherwise communicated to them that he intends to close the transaction, let alone on any particular timeline.”

    What’s Musk’s endgame?

    No one knows, perhaps least of all Musk. But many legal experts following the case say Musk understood he’d likely lose at trial and then be forced to buy Twitter anyway. He’d rather buy the entire company than be deposed by Twitter’s lawyers and do further damage to Twitter in a trial.

    And the banks may not be able to walk away even if they want to.

    “The only way they could get out of it is to claim a material adverse effect and that Twitter has changed so much since they agreed to the deal that they no longer want to finance the deal,” said George Geis, professor of strategy at the UCLA Anderson School of Management.

    Even if the banks succeeded there, Musk may not be off the hook. The judge in the case could rule that Musk was at fault for the financing falling through — not a far-fetched notion after all the trash-talking — and order him to sue Morgan Stanley to provide the funds or close the deal without it.

    Bottom line, it seems like Musk will end up owning Twitter one way or another. And given his only vague musings about what he’d actually do with it, there are a whole host of unknowns lurking in Twitter’s future.

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  • Asian shares extend losses as specter of recession looms

    Asian shares extend losses as specter of recession looms

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    BANGKOK — Asian shares slipped on Monday, with Chinese markets logging moderate losses after they reopened from a weeklong holiday.

    The declines followed yet another dismal end to the week on Wall Street as a strong U.S. jobs report added to worries the Federal Reserve might consider the higher-than-expected hiring data as proof the economy hasn’t slowed enough to get inflation under control. That might mean still more hefty rate hikes that could make a recession more likely.

    A U.S. consumer prices report on Thursday will be one of the biggest factors for markets this week. Investors also are awaiting the latest updates on how companies are dealing with higher prices and interest rate hikes.

    Markets were closed Monday in Tokyo, Taiwan and South Korea. The Hang Seng in Hong Kong fell 2.5% to 17,298.32 while the Shanghai Composite index shed 0.4% to 3,012.58. Bangkok’s SET lost 0.6% and India’s Sensex gave up 1.2%.

    The dollar rose to 145.44 Japanese yen from 145.34 late Friday, adding to pressure on Japan’s central bank to counter the yen’s prolonged slide by adjusting its policy of keeping its benchmark interest rate below zero to fend off deflation.

    Prices have been rising in Japan, pushed higher mainly by global inflation and surging costs for oil and gas, but the Bank of Japan has stuck to its ultra-loose monetary policy while the Fed has pressed ahead with sharp rate hikes. The higher expected returns have pushed the dollar higher against the yen.

    On Friday, the S&P 500 fell 2.8% to 3,639.66. It ended with a 1.5% gain for the week, its first weekly gain in four weeks. The Dow Jones Industrial Average skidded 2.1% to 29,296.79. The Nasdaq tumbled 3.8% to 10,652.40. The Russell 2000 index fell 2.9%, to 1,702.15.

    The government report showing employers hired more workers last month than economists expected might clear the way for the Fed to continue hiking interest rates aggressively, something that risks causing a recession if done too severely.

    Employers added 263,000 jobs last month. That’s a slowdown from the hiring pace of 315,000 in July, but it’s still more than the 250,000 that economists expected.

    Stocks have tumbled over 20% this year from record highs this year on worries about inflation, interest rates and the possibility of a recession.

    The major indexes managed to notch a gain for the week, thanks to a powerful but short-lived rally Monday and Tuesday after some investors squinted hard enough at some weaker-than-expected economic data to suggest the Fed may take it easier on rate hikes. But Friday’s jobs report may have dashed such hopes for a “pivot” by the Fed. It’s a pattern that has been repeated several times this year.

    By hiking interest rates, the Fed is hoping to starve inflation of the purchases needed to keep prices rising even further. The Fed has already seen some effects, with higher mortgage rates hurting the housing industry in particular. But if the rate hikes go too far, that could squeeze the economy into a recession. In the

    Crude oil, meanwhile, had its biggest weekly gain since March. Benchmark U.S. crude jumped 4.7% to settle at $92.64 per barrel Friday. Brent crude, the international standard, rose 3.7% to settle at $97.92.

    Oil prices have surged because big oil-producing countries have pledged to cut production in order to keep prices up. That should keep the pressure up on inflation, which is still near a four-decade high but hopefully moderating.

    On Monday, the U.S. benchmark fell 97 cents to $91.67 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude gave up $1.02 to $96.90 a barrel.

    Beyond higher interest rates, analysts say the next hammer to hit stocks could be a potential drop in corporate profits. Companies are contending with high inflation and interest rates eating into their earnings, while the economy slows.

    The euro was unchanged at 97.36 U.S. cents.

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  • How meltdown in a $1 trillion market brought the UK to the brink of a financial crisis | CNN Business

    How meltdown in a $1 trillion market brought the UK to the brink of a financial crisis | CNN Business

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    London
    CNN Business
     — 

    Pension funds are designed to be dull. Their singular goal — earning enough money to make payouts to retirees — favors cool heads over brash risk takers.

    But as markets in the United Kingdom went haywire last week, hundreds of British pension fund managers found themselves at the center of a crisis that forced the Bank of England to step in to restore stability and avert a broader financial meltdown.

    All it took was one big shock. Following finance minister Kwasi Kwarteng’s announcement on Friday, Sept. 23 of plans to ramp up borrowing to pay for tax cuts, investors dumped the pound and UK government bonds, sending yields on some of that debt soaring at the fastest rate on record.

    The scale of the tumult put enormous pressure on many pension funds by upending an investing strategy that involves the use of derivatives to hedge their bets.

    As the price of government bonds crashed, the funds were asked to pony up billions of pounds in collateral. In a scramble for cash, investment managers were forced to sell whatever they could — including, in some cases, more government bonds. That sent yields even higher, sparking another wave of collateral calls.

    “It started to feed itself,” said Ben Gold, head of investment at XPS Pensions Group, a UK pensions consultancy. “Everyone was looking to sell and there was no buyer.”

    The Bank of England went into crisis mode. After working through the night of Tuesday, Sept. 27, it stepped into the market the next day with a pledge to buy up to £65 billion ($73 billion) in bonds if needed. That stopped the bleeding and averted what the central bank later told lawmakers was its worst fear: a “self-reinforcing spiral” and “widespread financial instability.”

    In a letter to the head of the UK Parliament’s Treasury Committee this week, the Bank of England said that if it hadn’t interceded, a number of funds would have defaulted, amplifying the strain on the financial system. It said its intervention was essential to “restore core market functioning.”

    Pension funds are now racing to raise money to refill their coffers. Yet there are questions about whether they can find their footing before the Bank of England’s emergency bond-buying is due to end on Oct. 14. And for a wider range of investors, the near-miss is a wake-up call.

    For the first time in decades, interest rates are rising quickly around the world. In that climate, markets are prone to accidents.

    “What the previous two weeks have told you is there can be a lot more volatility in markets,” said Barry Kenneth, chief investment officer at the Pension Protection Fund, which manages pensions for employees of UK companies that become insolvent. “It’s easy to invest when everything’s going up. It’s a lot more difficult to invest when you’re trying to catch a falling knife, or you’ve got to readjust to a new environment.”

    The first signs of trouble appeared among fund managers who focus on so-called “liability-driven investment,” or LDI, for pensions. Gold said he started to receive messages from worried clients over the weekend of Sept. 24-25.

    LDI is built on a straightforward premise: Pensions need enough money to pay what they owe retirees well into the future. To plan for payouts in 30 or 50 years, they buy long-dated bonds, while purchasing derivatives to hedge these bets. In the process, they have to put up collateral. If bond yields rise sharply, they are asked to put up even more collateral in what’s known as a “margin call.” This obscure corner of the market has grown rapidly in recent years, reaching a valuation of more £1 trillion ($1.1 trillion), according to the Bank of England.

    When bond yields rise slowly over time, it’s not a problem for pensions deploying LDI strategies, and actually helps their finances. But if bond yields shoot up very quickly, it’s a recipe for trouble. According to the Bank of England, the move in bond yields before it intervened was “unprecedented.” The four-day move in 30-year UK government bonds was more than twice what was seen during the highest-stress period of the pandemic.

    “The sharpness and the viciousness of the move is what really caught people out,” Kenneth said.

    The margin calls came in — and kept coming. The Pension Protection Fund said it faced a £1.6 billion call for cash. It was able to pay without dumping assets, but others were caught off guard, and were forced into a fire sale of government bonds, corporate debt and stocks to raise money. Gold estimated that at least half of the 400 pension programs that XPS advises faced collateral calls, and that across the industry, funds are now looking to fill a hole of between £100 billion and £150 billion.

    “When you push such large moves through the financial system, it makes sense that something would break,” said Rohan Khanna, a strategist at UBS.

    When market dysfunction sparks a chain reaction, it’s not just scary for investors. The Bank of England made clear in its letter that the bond market rout “may have led to an excessive and sudden tightening of financing conditions for the real economy” as borrowing costs skyrocketed. For many businesses and mortgage holders, they already have.

    So far, the Bank of England has only bought £3.8 billion in bonds, far less than it could have purchased. Still, the effort has sent a strong signal. Yields on longer-term bonds have dropped sharply, giving pension funds time to recoup — though they’ve recently started to rise again.

    “What the Bank of England has done is bought time for some of my peers out there,” Kenneth said.

    Still, Kenneth is concerned that if the program ends next week as scheduled, the task won’t be complete given the complexity of many pension funds. Daniela Russell, head of UK rates strategy at HSBC, warned in a recent note to clients that there’s a risk of a “cliff-edge,” especially since the Bank of England is moving ahead with previous plans to start selling bonds it bought during the pandemic at the end of the month.

    “It might be hoped that the precedent of BoE intervention continues to provide a backstop beyond this date, but this may not be sufficient to prevent a renewed vigorous sell-off in long-dated gilts,” she wrote.

    As central banks jack up interest rates at the fastest clip in decades, investors are nervous about the implications for their portfolios and for the economy. They’re holding more cash, which makes it harder to execute trades and can exacerbate jarring price moves.

    That makes a surprise event more likely to cause massive disruption, and the specter of the next shocker looms. Will it be a rough batch of economic data? Trouble at a global bank? Another political misstep in the United Kingdom?

    Gold said the pension industry as a whole is better prepared now, though he concedes it would be “naive” to think there couldn’t be another bout of instability.

    “You would need to see yields rise more quickly than we saw this time,” he said, noting the larger buffers funds are now amassing. “It would require something of absolutely historic proportions for that not to be enough, but you never know.”

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  • Newsom to call special legislative session over gas prices

    Newsom to call special legislative session over gas prices

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    SACRAMENTO, Calif. — California Gov. Gavin Newsom said Friday he will call a special session of the state Legislature in December to pass a new tax on oil company profits to punish them for what he called “rank price gouging.”

    Gas prices soared across the nation this summer because of high inflation, Russia’s invasion of Ukraine and ongoing disruptions in the global supply chain.

    But while gas prices have recovered somewhat nationwide, they have continued to spike in California, hitting an average of $6.39 per gallon on Friday — $2.58 higher than the national average, according to AAA.

    California has the second-highest gas tax in the country and other environmental rules that increase the cost of fuel in the nation’s most populous state. Still, Newsom said there is “nothing to justify” a price difference of more than $2.50 per gallon between California’s gas and prices in other states.

    “It’s time to get serious. I’m sick of this,” Newsom said. “We’ve been too timid.”

    The oil industry has pointed to California’s environmental laws and regulations to explain why the state routinely has higher gas prices than the rest of the country. Kevin Slagle, vice president of the Western States Petroleum Association, said Newsom and state lawmakers should “take a hard look at decades of California energy policy” instead of proposing a new tax.

    “If this was anything other than a political stunt, the Governor wouldn’t wait two months and would call the special session now, before the election,” Slagle said. “This industry is ready right now to work on real solutions to energy costs and reliability — if that is what the Governor is truly interested in.”

    Several states chose to suspend their gas taxes this summer, including Maryland, New York and Georgia. Newsom and his fellow Democrats that control the state Legislature refused to do that, opting instead to send $9.5 billion in rebates to taxpayers — which began showing up in bank accounts this week.

    It’s unclear how the tax Newsom is proposing would work. Newsom said he is still working out the details with legislative leaders, but on Friday said he wants the money to be “returned to taxpayers,” possibly by using money from the tax to pay for more rebates.

    The state Legislature briefly considered a proposal earlier this year that would have imposed a “windfall profits tax” on oil companies’ gross receipts when the price of a gallon of gasoline was “abnormally high compared to the price of a barrel of oil.”

    That proposal would have required state regulators to determine the tax rate, making sure it recovered any oil companies’ profit margins that exceeded 30 cents per gallon. The money from the tax would then have been returned to taxpayers via rebates.

    Newsom did not comment on that proposal when it was introduced in March, and lawmakers quickly shelved it. It could, however, act as a blueprint for the new proposal being negotiated between Newsom and legislative leaders.

    The Legislature’s top two leaders — Senate President Pro Tempore Toni Atkins and Assembly Speaker Anthony Rendon — said in a joint statement that lawmakers “will continue to examine all other options to help consumers.”

    “A solution that takes excessive profits out of the hands of oil corporations and puts money back into the hands of consumers deserves strong consideration by the Legislature,” they said. “We look forward to examining the Governor’s detailed proposal when we receive it.”

    California Republicans — who do not control enough seats to influence policy decisions in the Legislature — have called the tax “foolhardy.”

    “Who here thinks that another tax is going to bring down your gas prices? Is going to bring down any costs in this state? It’s not going to happen,” Assembly Republican Leader James Gallagher told reporters on Wednesday.

    Last month, regulators at the California Energy Commission wrote a letter to five oil refiners — Chevron, Marathon Petroleum, PBF Energy, Phillips 66 and Valero — demanding an explanation for why gas prices jumped 84 cents over a 10-day period even as oil prices fell. The commission wrote that the oil industry had “not provided an adequate and transparent explanation for this price spike, which is causing real economic hardship to millions of Californians.”

    On Friday, Scott Folwarkow, Valero’s vice president for state government affairs, responded that “California is the most expensive operating environment in the country and a very hostile regulatory environment for refining.” He said that has caused refineries to close and tightened supply because California requires refineries to produce a specific fuel blend.

    He declined to provide details about the company’s operations based on the same anti-trust concerns. But he said the company makes appropriate arrangements to source supply when some refineries are down for maintenance.

    Newsom dismissed those arguments, saying that still doesn’t account for a $2.50 difference between California’s gas prices and those in the rest of the country.

    “These guys are playing us for fools. They have for decades,” Newsom said.

    The California Legislature usually meets between January and August, where they consider bills on a variety of topics. The governor has the power to call a special legislative session at any time by issuing a proclamation. When convened in a special session, lawmakers can only consider the issues mentioned in that proclamation.

    The last time a California governor called a special legislative session was in 2015, when then-Gov. Jerry Brown asked lawmakers to pass bills about health care and transportation.

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  • Opinion: The Fed doesn’t have a choice anymore. Get ready for a recession | CNN Business

    Opinion: The Fed doesn’t have a choice anymore. Get ready for a recession | CNN Business

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    Editor’s Note: Gad Levanon is the chief economist at the Burning Glass Institute. He’s the former head of The Conference Board’s Labor Market Institute. The opinions expressed in this commentary are his own.

    To many economists and analysts, the US economy has represented a paradox this year. On the one hand, GDP growth has slowed significantly, and some argue, even entered a recession. On the other hand, overall employment growth has been much stronger than normal.

    While GDP declined at an annualized rate of 1.1% in the first half of 2022, the US economy added 2.3 million jobs in the last six months, far more than in any other six-month period in the 20 years prior to the pandemic.

    This tight labor market – and the rapid wage growth it has spurred – is causing inflation to become more entrenched. The Consumer Price Index, which measures a basket of goods and services, was 8.3% year-over-year in August. That’s lower than the 40-year high of 9.1% in June, but still painfully high. To address it, the Federal Reserve is likely to drive the economy into a recession in 2023, crushing continued job growth.

    Why has employment growth remained so strong? First, the US economy is holding on better than many expected. The Atlanta Fed’s GDPNow estimate for real GDP growth in the third quarter of 2022 is 2.3%, suggesting that while the economy is now growing much more slowly than it did last year, we are still not in a recession. When the demand for goods and services strengthens, so does the demand for workers producing these goods and services.

    Second, despite the slowing of the economy and the growing fears of recession, layoffs are still historically low. Initial claims for unemployment insurance, an indicator highly correlated with layoffs, were 219,000 for the week ended October 1 – higher than the week prior, but still one of the lowest readings in recent decades. After years of increasingly traumatic labor shortages, many employers are reluctant to significantly reduce the number of workers even as their businesses are slowing. That’s because companies are worried that they will have trouble recruiting new workers when they start expanding again.

    Third, many industries are growing faster than normal because they are still recovering from the pandemic. Convention and trade show organizers, car rental companies, nursing homes and child day care services, among others, are all growing fast because they are still well below pre-pandemic employment levels.

    Fourth, just as some industries are growing because they are still catching up, others are experiencing high growth as they adjust to a new normal of higher demand. Demand for data processing and hosting services, semiconductor manufacturing, mental health services, testing laboratories, medical equipment and pharmaceutical manufacturing is higher than before the pandemic. And it’s likely that these represent structural changes to buying patterns that will keep demand high.

    Fifth, during the pandemic, corporate investments in software and R&D reached unprecedented levels, which drove a rapid increase in new STEM jobs. Because these workers are especially well paid, they have had plenty of disposable income to spend on goods and services, which has supported job growth throughout the economy.

    These factors are spurring positive momentum that will not disappear overnight. Employment growth is likely to slow down from its historically high rates, but it will still remain solid in the coming months. ManpowerGroup’s Employment Outlook Survey shows that the hiring intentions for the fourth quarter are still very high, despite dropping from the previous quarter.

    Next year, however, will look very different. Many of the industries that are still recovering from the pandemic will have reached pre-pandemic employment levels. With demand saturated, those industries may revert to slower hiring. But this alone is unlikely to push job growth into negative territory. What will do that is monetary policy.

    There are two ways to rein in the labor market: Either reduce demand for workers or increase the labor supply. But it’s hard to engineer a boost in labor supply. That takes the kind of legislative action needed to increase immigration, drive people into the labor force or grow investment in workforce training. This is likely to prove elusive in today’s polarized political environment.

    The only option that leaves the Fed is to engineer a recession by continuing to raise interest rates. Expect to see that happen in 2023.

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  • Global stocks mixed ahead of US employment update

    Global stocks mixed ahead of US employment update

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    BEIJING — Global stock markets were mixed Friday ahead of U.S. employment data investors hope will show the economy is weakening and persuade the Federal Reserve to ease off plans for more interest rate hikes.

    London and Frankfurt opened higher. Tokyo and Hong Kong declined. Oil prices rose.

    The future for Wall Street’s S&P 500 index was unchanged after the market benchmark fell Thursday following a private sector report that said U.S. employers hired slightly more workers than forecast in September. That gives ammunition to Fed officials who say more rate hikes are needed to cool the economy and rein in inflation that is at a four-decade high.

    U.S. government data due out Friday are expected to show fewer people were hired compared with previous months. Investors hope that will help persuade the Fed five rate hikes this year are working and it can scale down plans for more.

    “What the market seems to be crying out for is a Fed pivot,” said Robert Carnell of ING in a report. “For its part, the Fed is sticking to its ‘higher for longer’ mantra.”

    In early trading, the FTSE 100 in London gained 0.1% to 7,007.32 and the DAX in Frankfurt added 0.1% to 12,487.27. The CAC 40 in Paris advanced 0.1% to 5,943.54.

    On Wall Street, the future for the Dow Jones Industrial Average was up 0.1%.

    On Thursday, the S&P 500 lost 0.2%. The index is up 4.4% for the week following its best two-day rally in 2 1/2 years. The Dow slid 1.1%. The Nasdaq composite gave up 0.7%.

    In Asia, the Nikkei 225 in Tokyo sank 0.7% to 27,116.11 and Hong Kong’s Hang Seng tumbled 1.5% to 17,740.05.

    The Kospi in Seoul shed 0.2% to 2,232.84 while Sydney’s S&P ASX 200 lost 0.8% to 6,762.80.

    India’s Sensex lost less than 0.1% to 58,213.21. New Zealand and Southeast Asian markets declined.

    The Fed and central banks around the world are focused on extinguishing inflation that is running at multi-decade highs, but investors worry the unusually large and rapid pace of their rate hikes might tip the global economy into recession.

    Strong U.S. hiring is positive for job hunters but a sign of enduring economic strength, which might make the Fed think more rate hikes are needed.

    U.S. government data showed the number of applications for unemployment benefits hit a four-month high last week. That suggests the job market might be cooling.

    Forecasters expect the government to report the economy added 250,000 jobs last month, well below the past year’s monthly average of 487,000 but still a strong number despite inflation and two straight quarters of U.S. economic contraction.

    In energy markets, benchmark U.S. crude gained 56 cents to $89.01 per barrel in electronic trading on the New York Mercantile Exchange. The contract advanced 69 cents on Thursday to $88.45. Brent crude, the price basis for trading international oils, advanced 45 cents to $94.87 per barrel in London. It rose $1.05 the previous session to $94.42.

    The dollar declined to 144.84 yen from Thursday’s 145.07 yen. The euro gained to 98.06 cents from 97.94 cents.

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