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Central banks walk inflation-recession tightrope

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Investors fear that while rate increases are needed, they could put the brakes on economic growth if the tightening of monetary policy becomes too aggressive
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Central banks have ramped up their battle against runaway inflation, a necessary remedy that could have the adverse side effect of tipping countries into recession, analysts say.

Just this past week, the US Federal Reserve announced its biggest interest rate hike in almost 30 years, followed by the fifth straight increase by the Bank of England and the first in 15 years in Switzerland.

“This week was a first. The craziest in my experience,” said Frederick Ducrozet, chief economist at Pictet Wealth Management.

The moves rattled stock markets as investors fear that while the rate increases are needed, they could put the brakes on economic growth if the tightening of monetary policy becomes too aggressive.

“Recessions are increasingly likely as central banks race to dramatically raise rates before inflation spirals out of control,” said Craig Erlam, an analyst at online trading platform OANDA.

Capital Economics, a research group, said it does not anticipate a recession in the United States.

“But the Fed is deliberately tempering demand in order to reduce price pressures. This is a difficult line to tread and there is clearly a risk that it goes too far and the economy tips into recession,” it said in a note.

Emerging countries could be collateral victims from rate hikes. The dollar rises when the US Fed raises its rates.

“A strong dollar will complicate (debt repayments) of countries with deficits, which borrow often in that currency,” Ducrozet said.

– Swiss surprise –

Central banks had insisted last year that inflation was only “transitory” as prices were driven up by bottlenecks in supply chains after governments emerged from lockdowns.

But energy and food prices have soared in the wake of Russia’s invasion of Ukraine, pushing inflation higher and prompting economists to lower the world’s growth prospects for this year.

This has left central banks with no other choice but to move more aggressively than planned.

Australia’s central bank raised rates more than expected earlier this month while Brazil last week lifted its benchmark rate for the 11th straight time. More hikes are looming in the United States and Europe.

But it is the Swiss National Bank that caused the biggest shock on Thursday when it announced a rate increase of 0.5 percentage points, the first since 2007.

The SNB had focused on keeping the Swiss franc from being too strong until now.

“The actions of the SNB are notable in that they mark a significant shift in policy (away) from a very dovish position,” said Michael Hewson, chief market analyst at CMC Markets UK.

The European Central Bank has been slower to act than its peers. It is putting an end to its massive bond-buying scheme and will finally raise rates next month for the first time in a decade.

The eurozone faces another problem: The yields paid by its governments to borrow money have surged, with indebted countries such as Italy being charged a premium compared to Germany, a safer bet for investors.

This “spread” revived memories of the eurozone’s debt crisis, prompting the ECB to hold an emergency meeting on Thursday after which it said it would design a tool to prevent further stress in the bond market.

The Bank of Japan bucked the global trend on Friday as it stood by its decision not to raise its rate, sending the yen close to the lowest level against the dollar since 1998.

But even the Bank of Japan could adjust its policy, said Stephen Innes, managing partner at SPI Asset Management.

“BoJ members are considering public dissatisfaction with inflation and the rapid depreciation of the yen,” Innes said.

“While they plan to maintain the current easing policy, they may look to make some tweaks to support the currency,” he said.

– No immediate fix –

Consumers will have to be patient before they see the rate hikes have an effect on prices.

ECB chief Christine Lagarde said it bluntly when announcing plans for a rate increase next month: “Do we expect that July interest rate hikes will have an immediate effect on inflation? The answer to that is no.”

Central banks do not have control over some of the problems that are lifting inflation, such as soaring energy and food prices, and the supply chain snarls.

Capital Economics said energy and food prices accounted for 4.1 percentage points of the 7.9 percent rise in consumer prices in major advanced economies over the past year.

It expects oil, gas, and agricultural commodity prices to start falling later this year, which would bring inflation down sharply, but core inflation rates will remain elevated.

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Warehouse business catches fire, boosted by pandemic, e-commerce

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Prices for warehouse space has surged, but commercial real estate executives warn they won't keep going up
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The rise of e-commerce and the logistical nightmare created by the Covid-19 pandemic have caused a surge in demand for warehouse space in the United States, and big investment funds have taken note.

“It’s been a tremendous struggle to find the appropriate location for clients,” said Michael Schipper of Blau & Berg, a commercial real estate specialist in New Jersey and New York.

Available space has been dwindling steadily for a year and a half, and the vacancy rate is now 3.4 percent, although developers delivered 90 million square feet of new warehouse space in the first three months of the year, according to commercial real estate firm Jones Lang LaSalle.

Demand is so strong that purchase prices have tripled or quadrupled in just six years in northern New Jersey. 

Nationally, average rental costs have jumped 22 percent in two years, according to analytics firm Beroe. 

“Demand for space from logistics and distribution activities driven by e-commerce industry” is the major factor in the US market, according to Beroe, which notes that demand has exceeded supply for 18 months. 

In addition, unlike traditional storage sites, fulfilling online orders requires technologically advanced warehouses, said Mark Manduca, chief investment officer at GXO, a supply chain management company.

Beroe said this equipment, which requires massive investments, allows firms “to improve warehouse efficiency and to speed up warehouse activities to meet the same-day delivery demands.” 

Pioneered by Amazon, other retailers were obliged to scramble to catch up to the new standard of immediate delivery set by the Seattle-based online sales giant.

In recent years, a lot of those companies have been rapidly ramping up their own e-commerce efforts, Manduca said. 

“Those are the people that are really driving that demand for last mile warehousing,” he said.

The demands of instant delivery have forced many sellers to acquire multiple storage locations to get closer to customers, especially in urban areas where real estate was already expensive.

The coronavirus pandemic accelerated that trend, as e-commerce sales surged by 56 percent between early 2020 and early 2022.

– A correction coming?-

Another pandemic effect was the logistical mess caused by Covid-lockdowns and health restrictions. 

That revealed storage capacity “in the wrong place, supply chain issues, and more recently, inventory rebuilds that have kind of almost overshot to a certain degree,” Manduca said.

To address those issues, he says, many companies are “now looking at facilities closer to home, which is naturally increasing the demand for warehousing,” he said. 

Amid the rise in demand, private equity firm Blackstone has invested heavily in the sector, and currently owns $170 billion worth of warehouses. It now rivals Prologis, the world’s number one.

“We’re also now seeing a surge in corporations increasing inventory holdings to mitigate supply chain issues” and are therefore looking for additional storage space, Blackstone President Jon Gray said in April. 

Other private equity giants, such as KKR, Carlyle, Apollo or Sweden’s EQT have all bought sites to ride the wave. 

But Schipper cautions that while the warehousing industry “has a long term positive trajectory, … I think that there needs to be a pause.” 

“You cannot run up in parabolic fashion forever,” he said, noting that the current tightening of credit conditions also could play a role. 

One sign of a possible correction coming: Amazon’s decision to sublet or renegotiate the rent for 30 million square feet of warehouse space. 

“You’re going to see demand for space go down and rental rates will stop going up at the pace that they’re going up. There’s just not any way around it,” Ward Fitzgerald, chief executive of EQT Exeter Property Group, warned in the Wall Street Journal.

“They’ll continue their trajectory maybe 12 months from now, but … there’s going to be a correction.”

While demand could keep rising for some time, Schipper said, “The question really is how much? And for how long?  

“I don’t think anybody knows the answer.”

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Apple store workers vote to form their first US union

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Workers at an Apple store in the US state of Maryland have voted to form a union, a first for the tech giant
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A majority of employees at a US Apple store have voted to form a union, a first for the tech giant, which has so far tried to discourage unionizing attempts. 

Of the 110 employees at the Towson, Maryland shop, 65 voted in favor and 33 against, according to a live count broadcast Saturday by the federal agency overseeing the vote.

The vote comes after a group of employees called AppleCORE (Coalition of Organized Retail Employees) campaigned for unionization. 

“We did it Towson! We won our union vote! Thanks to all who worked so hard and all who supported! Now we celebrate… Tomorrow we keep organizing,” AppleCORE tweeted.

They are demanding a say in deciding on wages, hours and safety measures. 

Saturday’s result means that the shop’s employees, who have been voting since Wednesday, should form their own branch of the International Association of Machinists and Aerospace Workers (IAM) union, once the agency has certified the results. 

IAM International President Robert Martinez Jr said he applauded the workers’ “courage.”

“They made a huge sacrifice for thousands of Apple employees across the nation who had all eyes on this election. I ask Apple CEO Tim Cook to respect the election results and fast-track a first contract for the dedicated IAM CORE Apple employees in Towson,” he said in a statement.

“This victory shows the growing demand for unions at Apple stores and different industries across our nation.”

It was not the first time employees at an Apple store have tried to unionize, but it was the first attempt that resulted in a vote. 

Apple’s director of distribution and human resources, Deirdre O’Brien, visited the shop in May to address employees. 

“I want to start out by saying it’s your right to join a union, but it’s equally your right not to join a union,” O’Brien said, according to audio published by Vice. 

“If you’re faced with that decision, I want to encourage you to consult a wide range of people and sources to understand what it could be like to work at Apple under a collective bargaining agreement.” 

She said that the presence of an intermediary would complicate relations between Apple and its employees. 

The Silicon Valley giant told AFP it was “declining to comment” on the news.

Unions, on the decline for decades, have won several symbolic victories in the United States in recent months, with President Joe Biden voicing his support.  

After a union was formed at two Starbucks coffee shops in December in the northern city of Buffalo, employees at more than 160 of the chain’s locations have filed for similar votes. 

At Amazon, employees at a New York warehouse surprised everyone in early April by voting overwhelmingly to form a union, a first for the online retail colossus in the United States.

But the company has asked for the result to be cancelled and a second vote to be held. 

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Lunch with Warren Buffett goes for a whopping $19 mn … tip included?

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A mystery bidder will pay $19 million to have lunch with iconic investor Warren Buffett, chairman and CEO of Berkshire Hathaway, seen speaking at a Washington event on October 13, 2015
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Talk about an expensive date: a mystery bidder will be spending a record $19 million for the right to have lunch with legendary American investment guru Warren Buffett. 

That whopping bid, announced by eBay, came in the 21st — and last — such charity luncheon with the aging multibillionaire, who is chairman and CEO of Berkshire Hathaway.

Bidding on the eBay website opened last Sunday at a modest $25,000. But it shot up rapidly as rival bidders tried to outdo one another, finally ending Friday at a total of just over $19 million.

The auction — held annually, though canceled by Covid-19 concerns for the past two years — raises funds for Glide, which fights poverty in San Francisco. It distributes food to the homeless and helps them find shelter, medical assistance and training.

San Francisco, a place of income extremes, has struggled for years with a large homeless population. 

This year’s still-anonymous winner of the charity auction “has not only made history, but will spend an unforgettable afternoon with American legend Warren Buffett at a private lunch with up to seven guests at Smith & Wollensky Steakhouse in New York City,” said an announcement posted by eBay.

The last pre-pandemic auction was won by Justin Sun, an American entrepreneur active in cryptocurrencies, who spent $4.6 million for the right to dine with Buffett, an outspoken critic of bitcoin.

The eBay statement quoted the 91-year-old Buffett — revered throughout the investment community as the “Oracle of Omaha” — as saying he had “met a lot of interesting people all over the world” through the auctions.

“The one universal characteristic,” he added, “is that they feel the money is going to be put to very good uses.”

Buffett’s net worth was estimated in March at $117 billion, according to Forbes.com. 

He joined Bill and Malinda Gates in forming a group of the ultra-wealthy who have vowed to give away half their fortunes. Buffett is estimated to have already donated some $48 billion.

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