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Key inflation gauge hit 6.1% in January, highest in 40 years

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An inflation gauge that is closely monitored by the Federal Reserve jumped 6.1 percent in January compared with a year ago, the latest evidence that Americans are enduring sharp price increases that will likely worsen after Russia’s invasion of Ukraine.

The figure reported Friday by the Commerce Department was the largest year-over-year rise since 1982. Excluding volatile food and energy prices, core inflation increased 5.2 percent in January from a year earlier.

Robust consumer spending has combined with widespread product and worker shortages to create the highest inflation in four decades – a heavy burden for US households, especially lower-income families faced with elevated costs of food, fuel and rent.

At the same time, consumers as a whole largely shrugged off the higher prices last month and boosted their spending 2.1 percent from December to January, Friday’s report said, an encouraging sign for the economy and job market. That was a sharp improvement from December, when spending fell. Americans across the income scale have been receiving pay raises and have amassed more savings than they had before the pandemic struck two years ago. That expanded pool of savings provides fuel for future spending.

Inflation, though, is expected to remain high and perhaps accelerate in the coming months, especially with Russia’s invasion likely disrupting oil and gas exports. The costs of other commodities that are produced in Ukraine, such as wheat and aluminum, are rising, too.

President Joe Biden said Thursday that he would do “everything I can” to keep gas prices in check. Biden did not spell out details, though he mentioned the possibility of releasing more oil from the nation’s strategic reserves. He also warned that oil and gas companies “should not exploit this moment” by raising prices at the pump.

Russia’s invasion and the likely resulting rise in inflation have increased pressure on the Federal Reserve, which is expected to raise interest rates several times this year beginning in March. The Fed’s delicate task – to raise rates enough to restrain inflation, without going so far as to tip the economy into recession – has now become more difficult.

Fed officials are acknowledging that the invasion of Ukraine could alter the central bank’s plans for rate hikes. So far, though, the policymakers have not offered specific thoughts about their plans.

Loretta Mester, president of the Federal Reserve Bank of Cleveland, said Thursday that she supported a series of rate hikes beginning in March. But she said the Fed should remain flexible: faster rate hikes might be needed, she said, if inflation has not begun to fade by mid-year, or more gradual increases if inflation is slowing.

“The implications of the unfolding situation in Ukraine for the medium-run economic outlook in the US will also be a consideration,” she said.

Other Fed officials have offered similar remarks this week.

January’s data show inflation was already picking up before the invasion. From December to January, prices rose 0.6 percent, up from 0.5 percent in the previous month.

There are early indications that consumer spending has stayed healthy, boosted by the rapid fading of the Omicron wave of the coronavirus. JPMorgan Chase said that spending on its credit cards for airline tickets, hotel rooms, and restaurant meals rose in the first half of this month.

The JPMorgan Chase Institute also recently released data showing that cash balances remain elevated among their customers, including those with lower incomes. Bank account balances for Americans with less than $26,000 in income were 65 percent higher at the end of last year than they were two years before.

Americans’ paychecks are rising steadily. Average hourly earnings rose 5.7 percent in January compared with a year ago. Unless companies can offset their higher labour costs with greater efficiencies, most of them will likely charge their customers more. This would send inflation higher.

The combination of higher pay and enhanced savings suggests that Americans may be able to keep spending at a solid pace in the coming months, thereby sustaining the economy’s inflationary pressures.

SOURCE: AP

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BUSINESS

Stock futures rise after Dow falls for 8th-straight week in relentless sell-off

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Stock futures rose early on Monday after the Dow Jones Industrial Average fell for its 8th straight week amid a broader market sell-off.

Futures on the Dow Industrial Average gained 245 points, or 0.78%. S&P 500 futures added 1.07% and Nasdaq 100 futures rose 1.19%.

The moves came after the S&P 500 on Friday dipped into bear market territory on an intraday basis. While the benchmark was down 20% at one point, it did not close in a bear market after a late-day comeback.

In Friday’s regular trading session, the S&P 500 closed 0.01% higher at 3,901.36 after falling as much as 2.3% earlier in the session. The Dow added 8.77 points at 31,261.90 after sinking as much as 600 points and the Nasdaq inched 0.3% lower.

The S&P 500 currently sits 19% off its record high while the Dow is down 15.4%. The Nasdaq is already deep in bear market territory, down 30% from its high.

Last week marked the Dow’s first eight-week losing streak since 1923, while the S&P 500 capped a seven-week losing streak, its worst since 2001.

The Nasdaq saw its seventh negative week in a row for the first time since March 2001. The tech-heavy index also saw its lowest intraday level since November 2020 on Friday.

Eight of 11 sectors ended the week in the red, led by consumer staples, which dipped 8.63% and had its worst weekly performance since March 2020. Energy finished the week on top, rising 1.09%. Consumer discretionary and communication services also finished the week more than 32% off their 52-week highs.

“Investors are trying to come to grips with what exactly is happening and always try to guess what the outcome is,” said Susan Schmidt of Aviva Investors. “Investors hate, and the markets hate uncertainty, and this is a period where they don’t have any clear indication on what’s going to happen with this push-pull between inflation and the economy.”

Investors are looking ahead to a new batch of earnings this week, including an array of big retail names. Zoom Video is set to report results Monday followed by Costco, Nvidia, Dollar General, Nordstrom and Macy’s later in the week.

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US stocks suffer biggest daily drop in almost two years

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US stocks posted the biggest daily drop in almost two years as investors assess the impact of higher prices on earnings and prospects for monetary policy tightening on economic growth. The dollar and Treasuries gained amid a pickup in haven bids.

The selloff sent the S&P 500 down 4%, with the plunge in consumer shares surpassing 6%. Target Corp. tumbled more than 20% in its worst rout since 1987, after trimming its profit forecast due to a surge in costs. Shares of retailers from Walmart Inc. to Macy’s Inc. were caught in the downdraft. The Nasdaq 100 fell the most among major benchmarks, dropping more than 5% as growth-related tech stocks sank. Megacaps Apple Inc. and Amazon.com Inc. slid at least 5%.

Treasuries rose across the board, sending the 10- and 30-year Treasury yields down as much as 11 basis points. The dollar rose against all of its Group-of-10 counterparts, except the yen and Swiss franc. Gold caught bids in the move into havens.

The benchmark S&P 500 is emerging from the longest weekly slump since 2011, but any rebounds in risk sentiment are proving fragile amid tightening monetary settings, Russia’s war in Ukraine and China’s Covid lockdowns.

In some of his most hawkish remarks to date, Federal Reserve Chair Jerome Powell said Tuesday that the US central bank will raise interest rates until there is “clear and convincing” evidence that inflation is in retreat. Chicago Fed President Charles Evans said Wednesday he sees a half-point rate increase at next month’s meeting and “probably thereafter.”

In Europe, new-vehicle sales shrank for a 10th month in a row as the industry remains mired in supply-chain crises, while euro-area inflation plateaued at a record high. Meanwhile, UK inflation rose to its highest level since Margaret Thatcher was prime minister 40 years ago, adding to pressure for action from the government and central bank.

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Netflix lays off 150 employees due to slow revenue growth and business needs

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Netflix is reportedly laying off nearly 150 employees in the coming days due to disappointing earnings and slow revenue growth.

According to a Variety report, the Amazon Prime Video rival might also terminate its contract with contractual contributors.

The layoffs are about 2 per cent of Netflix’s US workforce. “As we explained [in reporting Q1] earnings, our slowing revenue growth means we are also having to slow our cost growth as a company. So sadly, we are letting around 150 employees go today, mostly U.S.-based,” a Netflix spokesperson said.

The statement further revealed that the decision was primarily driven by business needs rather than individual performance. Netflix reported $7.87 billion in Q1, which was short of Wall Street’s estimates of $7.93 billion.

The report further reveals that nearly 70 part-time employees in Netflix’s animation studio will have to pack up and leave. A report by The Verge stated that about 26 contractors working on Netflix’s fan-focused Tudum website might see a termination.

“A number of agency contractors have also been impacted by the news announced this morning. We are grateful for their contributions to Netflix,” the company said.

Netflix, in its recent earnings call, revealed that it lost thousands of subscribers, which is a first for the company in over a decade.

The company expects to lose an additional 2 million in the next quarter due to the ongoing war between Russia and Ukraine. Netflix has shut shop in Russia following the country’s invasion of Ukraine.

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