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Markets

European stocks climb as global markets look for rebound; Stoxx 600 up 1%

LONDON — European stocks advanced on Friday as global markets looked to regain some ground after a bruising week, with investors assessing the outlook for inflation and interest rates.

The pan-European Stoxx 600 added 1% in early trade, with banks climbing 1.9% to lead gains as all sectors and major bourses entered positive territory.

European markets fell on Thursday as investors remained concerned about slowing growth, interest rate hikes and red-hot April inflation data from the United States, which sparked concerns that a path of aggressive interest rate hiking lies ahead.

US Federal Reserve Chairman Jerome Powell said Thursday that he could not guarantee a so-called “soft landing” that tempers inflation without pushing the economy into recession.

Global stocks have endured a rollercoaster week but look set to regain some ground on Friday. Shares in Asia-Pacific advanced by mid-afternoon with Japan’s Nikkei 225 leading the way on a 2.6% climb.

Meanwhile, US stock futures were higher in early premarket trade as investors hope the S&P 500 can avoid sliding into bear market territory, with the index closing down more than 18% from its all-time high on Thursday, just 2% shy of an official bear market.

The tech-heavy Nasdaq is already in a bear market, closing Thursday down more than 29% from its all-time high, while the Dow Jones Industrial Average has failed for six consecutive trading sessions.

The Stoxx 600 in Europe began Friday’s session down 13% since the beginning of the year.

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Investors are also monitoring the geopolitical fallout from the war in Ukraine. Russia on Thursday threatened retaliation against Finland after Finnish leaders said the northern European nation must apply to join NATO “without delay.”

European leaders are also facing a race to secure alternative gas suppliers after Moscow announced sanctions on European subsidiaries of its majority state-owned corporation Gazprom. The move came after Ukraine’s state-owned grid operator suspended Russian flows into Europe through a key entry point.

On the data front, French inflation was confirmed at an annual 5.4% in April.

Euro area industrial production readings for March are due on Friday morning.

In terms of individual share price movement, British investment company Bridgepoint Group jumped more than 10% following its annual general meeting, while Finnish state-owned energy company Fortum climbed 9.9% in early trade.

Shares of Belgian pharmaceutical company UCB fell 13% after the US Food and Drug Administration said it cannot approve a key psoriasis drug.

Swedish industrial company Atlas Copco dropped 75% due to recalculation after a share split which came into effect on Friday, whereby one share was replaced by four new ordinary shares and one redemption share.

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Business

Senate confirms Powell for 2nd term as Fed fights inflation

WASHINGTON (AP) — The Senate on Thursday confirmed Jerome Powell for a second four-year term as Federal Reserve chair, giving bipartisan backing to Powell’s high-stakes efforts to curb the highest inflation in four decades.

The 80-19 vote reflected broad support in Congress for the Fed’s drive to combat surging prices through a series of sharp interest rate hikes that could extend well into next year. The Fed’s goal is to slow borrowing and spending enough to ease the inflation pressures.

Since February, when his first term expired, Powell had been leading the central bank in a temporary capacity.

He faces a difficult and risky task in trying to quell inflation without weakening the economy so much as to cause a recession. The job market remains robust and has strengthened to a point that Powell has said is “unsustainably hot” and contributing to an overheating economy.

Spiking prices across the economy have caused pain for millions of Americans whose wages aren’t keeping up with the cost of such necessities as food, gas and rent. And the prospect of steadily higher interest rates has unsettled the financial markets, with stock prices having tumbled for weeks.

In an interview with NPR’s “Marketplace” later Thursday, Powell acknowledged that the Fed’s ability to successfully slow the economy and reduce inflation without causing a recession — a so-called “soft landing” — depends on “factors that we don’t control,” such as Russia’s invasion of Ukraine and slowing growth in China.

That contrasts with previous, more-confident statements by Powell, including just last week when he said, “we have a good chance to have a soft or soft-ish landing.”

Powell’s support Thursday in the Senate was roughly in line with what he received four years ago, after he was first nominated as Chair by President Donald Trump. At that time, the Senate voted 84-13 to confirm him.

To some degree, Powell’s support in Congress reflects the blame that most Republicans assign to President Joe Biden’s $1.9 trillion COVID relief package — rather than to the Fed’s ultra-low rates — for causing high inflation. Many economists, including those who have served in previous Democratic administrations, agree that Biden’s legislation played a role in accelerating prices.

Powell’s confirmation comes as many economists have sharply criticized the Fed for waiting too long to respond to worsening inflation, making its task harder and riskier.

Prices first spiked a year ago, after Americans ramped up their spending once vaccines were administered and COVID restrictions began to decline. The surge in demand caught many businesses unprepared and short on supplies, causing prices for goods like cars, furniture and appliances to soar — if consumers could even find them. High inflation has since spread to most of the rest of the economy, including rents and such other services as hotel rooms, restaurant meals and medical care.

For months, Powell repeated his view that inflation was merely “transitory” and would soon ease as supply bottlenecks were resolved. The Fed continued buying Treasury and mortgage bonds until March, when prices had soared 8.5% compared with a year earlier. The bond purchases were intended to keep long-term loan rates down. It was only two months ago that the central bank raised its benchmark rate from near zero to a range of 0.25% to 0.5%.

“They could have started to wind down (bond purchases) earlier, started to tighten monetary policy sooner, especially once this strong data started to come in,” said Kristin Forbes, an economist at MIT’s Sloan School of Management and a former member of the Bank of England’s monetary policy committee.

Powell and other officials have since acknowledged that the Fed could have started dialing back its stimulus earlier. They suggest, though, that most economists outside the Fed also initially thought high inflation would prove short-lived.

“Hindsight says we should have moved earlier,” Powell acknowledged during a Senate hearing in early March.

The Fed’s view that inflation mostly reflected supply shocks that would soon fade “turned out to be wrong,” Powell conceded, “not maybe conceptually wrong, but it’s just taking so much longer for the supply side to heal than we thought.”

Christopher Waller, a member of the Fed’s board, said last week that the central bank was partly thrown off by reports last August and September suggesting that the job market was weakening. Slower hiring would have made it harder for workers to secure sizable pay raises and so would have helped keep inflation in check.

But those hiring reports, and the three that followed, were later revised higher by a total of about 1.5 million jobs, Waller said, underscoring the extraordinarily high demand for labor that has also sharply raised wages.

“If we knew then what we know now, I believe (Fed policymakers) would have accelerated tapering (of bond purchases) and raised rates sooner,” Waller said Friday. “But no one knew, and that’s the nature of making monetary policy in real time.”

The Senate has already confirmed three of Biden’s other picks for the Fed’s Board of Governors: Lael Brainardwho is now vice chair, and Lisa Cook and Philip Jefferson. All three will vote on the central bank’s interest rate decisions and financial regulatory policies.

Cook and Jefferson are both Black, meaning that the Fed’s board now has two Black members for the first time in its 108-year history. Cook, an economics and international relations professor at Michigan State, will be the first Black woman to serve on the board.

Biden has also nominated Michael Barr, a former Treasury Department official who helped draft the 2010 Dodd-Frank financial regulation law, to be the Fed’s top banking regulator and fill the last open spot on the seven-member board. Sen. Sherrod Brown, the Ohio Democrat who is chairman of the Senate Banking Committee, said Thursday that his committee would hold a hearing on Barr’s nomination next week.

In the past, politicians have often objected to higher interest rates out of fear that they would cause job losses. The chronically high inflation of the 1970s has been attributed, in part, to political pressure that led the Fed to forgo steep rate hikes under Presidents Lyndon Johnson and Richard Nixon.

Powell himself endured harsh criticism by Trump when the Fed raised rates in 2017 and 2018 after the unemployment rate had reached a half-century low of 3.5%. Powell reversed some of those hikes in 2019, after the economy had slowed in the aftermath of Trump’s tariffs on Chinese imports.

This week, Biden said that while he would respect the Fed’s independence, he supported his efforts to raise borrowing rates, which have already caused the costs of mortgages, auto loans and business borrowing to arise.

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Markets

Japan’s Nikkei 225 rises more than 2% as Asia markets rise

SINGAPORE — Shares in Asia-Pacific edged higher in Friday morning trade, continuing a rollercoaster week as investors assess the inflation and the global economic outlook.

The Nikkei 225 in Japan traded 2.34% higher, with shares of Japanese conglomerate SoftBank Group jumping more than 9% despite reporting Thursday a record loss at its Vision Fund investment unit. The Topix index climbed 1.61%.

In Hong Kong, the Hang Seng index jumped 1.49%. Mainland Chinese stocks also rose, with the Shanghai Composite up 0.43% while the Shenzhen Component gained 0.553%.

South Korea’s Kospi advanced 1.59% while the S&P/ASX 200 in Australia gained 1.44%.

MSCI’s broadest index of Asia-Pacific shares outside Japan traded 1.1% higher.

Concerns over inflation and the economic outlook have weighed on global investor sentiment in recent days, with riskier assets such as tech stocks and cryptocurrencies taking a hit.

JPMorgan Private Bank’s Alex Wolf told CNBC’s “Squawk Box Asia” on Friday that the firm is “fairly cautious” on Asia stocks at the moment.

“There’s really nowhere to hide,” said Wolf, head of investment strategy for Asia at the firm. He cited concerns such as broad growth risks creating “near-term uncertainties” for Asia, particularly the region’s emerging markets.

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US Federal Reserve chairman Jerome Powell said Thursday that getting inflation under control won’t be easy and warned he could not promise a so-called soft landing for the economy.

Overnight on Wall Street, the S&P 500 declined 0.13% to 3,930.08 — more than 18% lower than its all-time high. The Dow Jones Industrial Average shed 103.81 points, or 0.33%, to 31,730.30. The tech-heavy Nasdaq Composite advanced fractionally to 11,370.96.

Currencies and oil

The US dollar index, which tracks the greenback against a basket of its peers, was at 104.765 after a recent climb from below 104.3.

The Japanese yen traded at 129.21 per dollar, stronger as compared with levels above 130 seen against the greenback earlier this week. The Australian dollar was at $0.6883 as it continues to struggle for a bounce after slipping from above $0.70 earlier in the week.

Oil prices were higher in the morning of Asia trading hours, with international benchmark Brent crude futures up 1.52% to $109.08 per barrel. US crude futures climbed 1.36% to $107.57 per barrel.

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Business

Powell: ‘Soft’ economic landing may be out of Fed’s control

WASHINGTON (AP) — Federal Reserve Chair Jerome Powell, fresh off winning Senate confirmation for a second term earlier in the day, acknowledged for the first time Thursday that high inflation and economic weakness overseas could thwart his efforts to avoid causing a recession.

For weeks, Powell has portrayed the Fed’s drive to raise interest rates as consistent with a so-called “soft landing” for the economy. Under that scenario, the Fed would manage to tighten borrowing costs enough to cool the economy and curb inflation without going so far as to tip the economy into recession.

But in an interview on NPR’s “Marketplace,” Powell conceded. that balancing act — which many economists have said they doubt the Fed can achieve — could be undercut by economic slowdowns in Europe and China.

“The question whether we can execute a soft landing or not — it may actually depend on factors that we don’t control,” the Fed chair said. “There are huge events, geopolitical events going on around the world, that are going to play a very important role in the economy in the next year or so.”

Such comments reflect less confidence in avoiding a recession than Powell has previously conveyed. Just last week, he said at a news conference: “I think we have a good chance to have a soft or soft landing or outcome.”

On Thursday, he said that slowing inflation to the Fed’s 2% annual target — from its current 6.6%, according to the central bank’s preferred measure — “will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels.”

Europe’s economies are suffering from high inflation, exacerbated by Russia’s invasion of Ukraine and the resulting spike in natural gas and oil prices. Europe has been far more dependent on Russian energy supplies than the United States has been.

China’s strict COVID lockdown policies have shut down ports, hindering exports and slowing consumer spending in cities like Shanghai, where millions of Chinese have been largely restricted to their homes for weeks.

In his interview with NPR, Powell also seemed to suggest that the Fed would at least consider raising its benchmark rate by an extremely large three-quarters of a point if inflation failed to show signs of easing in the coming months. Last week, the stock market initially soared when Powell appeared to take a three-quarter-point rate hike off the table.

After repeating his comment from last week that half-point hikes were likely at each of the next two Fed meetings, in June and July, Powell added Thursday: “If things come in better than we expect, then we’re prepared to do less . If they come in worse than when we expect, then we’re prepared to do more.”

When asked if “do more” meant a three-quarter point hike, Powell said: “You’ve seen this committee adapt to the incoming data and the evolving outlook. And that’s what we’ll continue to do.”

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Business

Federal Reserve Chairman Jerome Powell confirmed by Senate for a second term

Federal Reserve Chairman Jerome Powell speaks at a news conference following a Federal Open Market Committee meeting on May 04, 2022 in Washington, DC. Powell announced the Federal Reserve is raising interest rates by a half-percentage point to combat record high inflation.

Win Mcnamee | Getty Images

As he and his colleagues engage in a bruising inflation battle, Federal Reserve Chairman Jerome Powell found out Thursday that he will be serving another term.

The Senate voted 80-19 to give Powell a second four-year run at the central bank’s helm. ending a long-delayed vote that has been stewing since President Joe Biden nominated the 69-year-old former investment banker back in November.

Delays had come as senators deliberated over other nominees Biden had made for the central bank. Sarah Bloom Raskin withdrew her name from her following controversy over her appointment from her, while Lisa Cook and Philip Jefferson were only recently confirmed as governors.

In choosing Powell, Biden picks a policymaker first put in the position by President Donald Trump, who proceeded to mock the chairman and his fellow policymakers as “boneheads” when they increased interest rates.

Powell then found himself in the middle of one of the nation’s serious crises when Covid-19 raged into a global pandemic in March 2020.

He orchestrated a series of maneuvers aimed at pulling the nation out of its steepest downturn in history, using a blend of lending and market-boosting programs combined with slashing interest rates to near-zero and instituting a bond-buying program that would explode the Fed’s holdings to $9 trillion.

More recently, Powell and the Fed have faced another crisis — the worst inflation arises since the early 1980s, with price increases running at more than 8% annually for the past two months. Powell has faced some criticism for moving too slowly to address the threat, though the Fed last week raised benchmark rates by half a percentage point, the most aggressive move in 22 years.

In a rare digression last week, Powell addressed the public directly and said the Fed is deeply committed to bringing prices down and will use all the tools at its disposal to do so.

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Categories
Economy

US inflation hit 8.3% last month but slows from 40-year high

WASHINGTON — Inflation slowed in April after seven months of relentless gains, a tentative sign that price increases may be peaking while still imposing a financial strain on American households.

Consumer prices jumped 8.3% last month from 12 months earlier, the Labor Department said Wednesday. That was below the 8.5% year-over-year surge in March, which was the highest rate since 1981. On a month-to-month basis, prices rose 0.3% from March to April, a still-elevated rate but the smallest increase in eight months.

Over the past year, grocery prices have shot up 10.8%, the largest such year-over-year increase since 1980. The cost of a gallon of gas fell 6.1% in April but is still up nearly 44% from a year ago.

And so far in May, prices at the gas pump have shot back up. Nationally, the average for a gallon of gas is at a record $4.40, according to AAA, though that figure isn’t adjusted for inflation. The high price of oil is the main factor. A barrel of US benchmark crude sold for around $100 a barrel Tuesday. Gas had fallen to about $4.10 a gallon in April, after reaching $4.32 in March.

Beyond the financial strain for households, inflation is posing a serious political problem for President Joe Biden and congressional Democrats in the midterm election season, with Republicans arguing that Biden’s $1.9 trillion financial support package last March overheated the economy by flooding it with stimulus checks, enhanced unemployment aid and child tax credit payments.

On Tuesday, Biden sought to take the initiative and declared inflation “the No. 1 problem facing families today” and “my top domestic priority.”

Biden blamed chronic supply chain snarls related to the swift economic rebound from the pandemic, as well as Russia’s invasion of Ukraine, for igniting inflation. He said his administration of him will help ease price increases by shrinking the government’s budget deficit and by fostering competition in industries, like meatpacking, that are dominated by a few industry giants.

Still, new disruptions overseas or other unforeseen problems could always send US inflation back up to new highs. If the European Union decides, for example, to cut off Russian oil, gas prices in the United States would likely accelerate. China’s COVID lockdowns are worsening supply problems and hurting growth in the world’s second-biggest economy.

Previous signs that US inflation might be peaking didn’t last. Price increases decelerated last August and September, suggesting at the time that higher inflation might be temporary, as many economists — and officials at the Federal Reserve — had suggested. But prices shot up again in October, prompting Fed Chair Jerome Powell to start shifting policy toward higher rates.

This time, though, several factors are pointing to an inflation peak. Natural gas prices, which soared in March after Russia’s invasion of Ukraine, fell on average in April. Automakers’ supply chains have unraveled a bit, and new car sales have risen.

The unexpected persistence of high inflation has caused the Fed to embark on what may become its fastest series of interest rate increases in 33 years. Last week, the Fed raised its benchmark short-term rate by a half-point, its steepest increase in two decades. And Powell signaled that more such sharp rate hikes are coming.

The Powell Fed is seeking to pull off the notoriously difficult — and risky — task of cooling the economy enough to slow inflation without causing a recession. Economists say such an outcome is possible but unlikely with inflation this high.

In the meantime, by some measures Americans’ wages are rising at the fastest pace in 20 years. Their higher pay enables more people to at least partly keep up with higher prices. But employers typically respond by charging customers more to cover their higher labor costs, which, in turn, heightens inflationary pressures.

Last Friday’s jobs report for April included data on hourly pay that suggested that wage gains were slowing, which, if it continues, could help ease inflation this year.

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