Connect with us

Economic

US central bankers hope lower profit margins will help fight inflation

Avatar

Published

on

Profit margins are slipping across much of the US as companies struggle to keep raising prices, elating central bankers trying to fight spiraling inflation but frustrating investors looking for higher returns.

Earnings before tax for S&P 500 companies hit an all-time high in the second quarter of this year, US Bureau of Economic Analysis data show. It has jumped nearly 70 percent since the same period in 2020, buoyed by government stimulus payments designed to boost the spending power of consumers and businesses when Covid-19 hit the global economy.

Wall Street’s estimated net profit margin for the index fell this quarter to just 11.6 percent, according to FactSet. That would be down from 11.9 percent in the third quarter, and from 12.4 percent in the last three months of last year, to the lowest level since the end of 2020.

Analysts have lowered their earnings forecasts for 2023 and now expect a further decline. BMO Capital Markets recently predicted a contraction of about 5 percent this year, and some strategists have raised the possibility of Profits stagnant.

Advertisement

The Fed’s Second Vice President, Lyle Brainard, said lowering “high” retail margins — the difference between what a retailer costs and what a consumer pays — would help ease price pressures that have forced the central bank to raise interest rates.

inflation related to services, including costs related to dining out, travel, and medical care, still high And by most estimates, price pressures are likely to keep them elevated until at least the end of next year.

But recent data suggests that inflation more broadly may be It has already peakedwith gains in other sectors offset by lower costs of energy and everyday items such as clothing, furniture and appliances.

It will take “deteriorating profit margins” to finally lower consumers’ inflation expectations and convince the Fed to ease the tightening, said Brian Belsky, chief investment analyst at BMO.

For more than two years, most companies have responded to the rising costs of supplies, logistics and labor by increasing prices. In an earnings announcement in December, for example, cereal maker General Mills indicated that it managed to raise prices by 17 percent to make up for a 6 percent drop in volumes.

Advertisement

Keurig Dr Pepper CEO Bob Jamgort similarly said at a recent Bank of America event that despite “aggressive” price increases in the soft drink industry to protect margins, “consumer resilience has held up really, really well.”

But executives at other companies warn that their ability to continue to raise prices may be stretched to the limit. Nike recently stated that it needs to cut some prices, which is eroding its margins.

CFO Andrei Scholten said at a Morgan Stanley conference this month that consumer goods giant Procter & Gamble expects to strike a new balance between price and volume growth over the next 12 to 18 months, because “growth driven purely by prices will not be sustainable.”

Most Fed officials expect their preferred measure of inflation, the core personal consumption expenditures index, to fall to 3.5 percent by the end of 2023, down from the 4.8 percent projected for the end of 2022.

Ian Shepherdson, chief US economist at Pantheon Macroeconomics, expects inflation to fall much further, though, not least because the Fed is “underestimating the inflationary forces that are already at work in the economy.”

Advertisement

Instead, it expects core PCE inflation to fall below 2 percent year-on-year in the second half of 2023, largely because it expects profit margins to contract rapidly.

Complicating the outlook is the fact that many economists expect a recession in the US next year as the Federal Reserve advances the most. fierce campaign to raise interest rates in contracts. As of mid-December, most officials expect the US central bank’s benchmark interest rate to peak above 5 percent next year, up from the current target range of 4.25 to 4.50 percent.

Against a weaker economic backdrop, Tom Porcelli, chief US economist at RBC Capital Markets, warned that companies will try to protect their profit margins by “going after labour”, pointing to more job losses than the Fed expects.

Advertisement

According to officials’ latest projections, the median estimate for the unemployment rate is 4.6 percent, roughly 1 percentage point higher than the current level.

Across the tech sector.

“We are seeing glimpses of what 2023 could look like: a year of margin pressure, layoffs, backtracking and caution,” he said. “If we are all frugal at the same time, we have driven ourselves into a sluggish one.”

Source link

Advertisement
Continue Reading
Advertisement
Click to comment

Leave a Reply

Your email address will not be published.

Economic

We need to pay more attention to skewed economic signals

Avatar

Published

on

By

The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

Advertisement

International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

Advertisement

The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

Advertisement

However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

Source link

Advertisement
Continue Reading

Economic

Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

Avatar

Published

on

By


© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

Advertisement

Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

Advertisement

David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

Source link

Advertisement

Continue Reading

Economic

German automakers point to easing supply chain problems

Avatar

Published

on

By

Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

Advertisement

BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

Advertisement

Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

Source link

Advertisement

Continue Reading
Advertisement

Trending