Fed’s Brainard Says Rate-Rise Pace Can Slow Soon Fed Vice Chair Lael Brainard said previous rate increases, together with anticipated ones, will slow the economy in ways that can’t be observed yet.
Fed Vice Chair Lael Brainard signaled the central bank is likely to increase rates by 0.5 percentage point at its Dec. 13-14 gathering, following four consecutive increases of 0.75 percentage point.
“It probably will be appropriate soon to move to a slower pace of increases,” Ms. Brainard said during a moderated discussion hosted by Bloomberg News on Monday. (…)
“We have additional work to do,” she said. “By moving forward at a pace that’s more deliberate, we’ll be able to assess more data and be better able to adjust the path of rates to bring inflation down.” (…)
Data released last week showing a slowdown in overall inflation was reassuring, she said, in part because it suggested a long-anticipated decline in the prices of durable goods such as cars and furniture was finally materializing. (…)
Ms. Brainard said she saw evidence that wage growth was moderating, which would play an important role in slowing the rate of inflation for the economy’s service sector.
A rapid rise in housing costs over the past two years is also contributing to elevated inflation readings. Despite some evidence that rents and other housing costs have come off the boil, Ms. Brainard said she expected elevated rental costs to keep inflation readings elevated well into 2023 because of how statistical agencies measure inflation for housing costs.
BlackRock:
Goods inflation is easing as it needed to, but the labor constraints driving wage growth and core inflation persist. So the Fed is still on a path to create a recession via policy overtightening. Stocks aren’t pricing that in, so we stay underweight. (…)
We expect declining goods inflation to continue. But high core inflation also reflects constraints on labor supply that are driving up wages, seen in services inflation. We don’t expect this to improve much because many workers retired during the pandemic. We also see the U.S. labor pool shrinking as people over 65 account for a larger share of the population in coming decades.
The Fed can only try to push wage and overall core inflation quickly down to its 2% target by crushing demand with a deep recession, in our view. We expect the Fed to pause its sharp hikes only after having caused a recession and when confronted with the economic pain. We don’t think a soft landing is in the cards. (…)
Amazon Set to Lay Off Thousands of Corporate Workers The layoffs, which could total 10,000 employees, follow job cuts by other tech companies
(…) While leasing from all businesses declined during the pandemic, the tech sector accounted for the largest portion of the leasing that took place, according to real estate services firm CBRE Group Inc. Some tech companies, such as Alphabet Inc.’s Google, continued to expand their office footprints during that period. (…)
Companies in the technology sector have placed about 30 million square feet of office space on the sublease market, more than triple the 9.5 million square feet they looked to sublet in the fourth quarter of 2019, according to CBRE. (…) Overall, tech firms have about 500 million square feet of office space in 30 North American markets, according to CBRE. (…)
The national office vacancy rate is 12.5%, up from 9.6% in 2019 and the highest since 2011, according to data firm CoStar Group Inc. Overall, about 212 million square feet of sublease space is on the market, a record since CoStar started tracking the statistic in 2005. (…)
Office buildings are backed by $1.2 trillion of the $5.4 trillion in total commercial real estate debt that was outstanding at the end of the second quarter—more debt than any other asset type other than apartment buildings, according to data firm Trepp Inc. If landlords begin defaulting at a high rate on their mortgages, their distress could ripple through the financial system. (…)
Mr. Yasukochi predicted downsizing would continue to dampen tech’s demand for office space. “The layoffs are starting to gain momentum,” he said.
China’s Economy Takes a Deeper Hit as Retail Sales Turn Negative China’s economy sank into a deeper funk last month as the weight of strict zero-Covid measures, a real-estate downturn and sinking export demand underscored the difficulties of rekindling growth.
(…) Two large provinces—Guangdong, a major export hub in southern China, and Henan, home to Apple Inc.’s main iPhone assembler—have stepped up restrictions over the past month. In Beijing, schools have been shut as many residents have been confined to their homes again as cases surge.
The new restrictions took a toll on retail sales, a key gauge of domestic consumption, which fell 0.5% in October from a year earlier, according to China’s National Bureau of Statistics—the first such year-over-year decline since May, when Shanghai was stuck in a grueling monthslong lockdown. (…)
Spending on restaurant dining dropped by nearly 9% from a year earlier, though sales of medicine and fresh food ticked higher. (…)
Industrial production rose 5% from a year earlier in October, slowing from September’s 6.3% growth, amid falling export demand and weakening domestic sales. Growth in the auto sector slowed particularly sharply, rising just 8.6% in October from a year earlier, down from an increase of 25.4% in September.
Fixed-asset investment, including government spending on infrastructure projects, rose 5.8% in the first 10 months of 2022 from a year earlier, a step down from the 5.9% year-over-year growth for the first nine months. (…)
Home sales by value fell 28.2% from a year earlier for the first 10 months of 2022, compared with a 28.6% decrease for the first nine months, the National Bureau of Statistics said Tuesday.
Property investment fell 8.8% from a year earlier for the first 10 months of the year, worsening from a 8% decline for the first nine months. (…)
- Integrated circuits contracted 26.7%YoY, the biggest contraction among all items in industrial production. Integrated circuits represent the biggest share of exports in China. It is an indicator of global economic growth. The big contraction in this item gives us an important signal that the external environment for China is slowing, and will affect exports and related manufacturing activity as well as the jobs market and wages in the manufacturing industry. (ING)
Japan’s Economy Contracts Slightly in the Third Quarter The world’s third-largest economy contracted for the first time in a year, reflecting weak external demand and a sluggish recovery in private spending.
Russian Oil Exports Hold Up Despite Impending EU Ban Moscow will struggle to redirect shipments elsewhere, threatening to further tighten global energy markets, the International Energy Agency said.
More than 1 million barrels a day of Russian oil exports are set to be obstructed by Western sanctions that are expected to come into force within weeks, the International Energy Agency said Tuesday, and Moscow will struggle to redirect shipments elsewhere, threatening to further tighten global energy markets. (…)
Russian exports to the EU were 1.5 million barrels a day in October, of which 1.1 million barrels a day will be halted when the bloc’s ban comes into effect on Dec. 5, the IEA said.
It was unclear how much of those supplies Russia would be able to redirect to customers elsewhere in the world, the IEA said. India, China and Turkey have snapped up discounted Russian crude shipments, but buying from those nations has stabilized in recent months, the IEA said. Meanwhile, the volume would be too large for the remaining nations to absorb, the agency said. (…)
The agency increased its 2022 forecasts for global oil demand by 170,000 barrels a day to 99.8 million barrels a day. For 2023, it raised its oil demand forecasts by 130,000 barrels a day to 101.4 million barrels a day.
Russia’s declining oil output will drag on global supplies which will grow at an anemic rate next year, failing to keep pace with growing oil demand. The IEA said global oil supplies would rise to 100.7 million barrels a day in 2023, 100,000 barrels a day more than it was forecasting last month, but still 700,000 barrels a day short of the world’s expected appetite for oil.
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Biden Trade Chief Says Xi Meeting Sends Powerful Signal to World
The face-to-face meeting between US President Joe Biden and Chinese President Xi Jinping was a powerful signal to the rest of the world that both leaders can manage ties, according to US trade chief Katherine Tai.
“It’s a really good thing, it’s really important” that the talks took place, Tai told the Bloomberg New Economy Forum in Singapore on Tuesday. (…)
“The two leaders have tasked their senior officials to continue to communicate and we are looking forward to building on the open and candid conversations that we have been having with our counterparts in Beijing,” she said. (…)
Presidents Xi and Biden greeted each other with a handshake and agreed to resume bilateral talks on climate change, economic stability and health and food security. The White House said in a statement afterward that Secretary of State Antony Blinken would travel to China to follow up.
Plenty of disagreements remain, over topics including Taiwan, technology and human rights. But tensions have eased, with China’s statement offering the US more incentives to work together and issuing fewer warnings than other recent communications. (…)
In July, Xi bluntly accused the US of “misperceiving” China as a primary rival that posed a long-term challenge. On Monday, the emphasis fell on the benefits a rising China could bring to the US.
“The world is big enough for the two countries to develop themselves and prosper together,” Xi said, adding that “under the current circumstances, China and the United States share more, not less, common interests.”
(…) on Monday, Xi focus on mutual benefits, saying: “The two economies are deeply integrated, and both face new tasks in development. It is in our mutual interest to benefit from each other’s development.” (…)