By Ann Saphir

SAN FRANCISCO (Reuters) -Pandemic-related snarls in global supply chains have mostly receded, but their after-effects still account for a big chunk of excess U.S. inflation, an analysis published Tuesday by the San Francisco Federal Reserve Bank showed.

Supply shortages from supply chain disruptions drove most of the upswing in inflation since April 2021, and the easing of those disruptions since mid-2022 has contributed to the slowdown in inflation since then, the paper showed.

The Fed’s target for inflation, as measured by the personal consumption expenditures price index, is 2%.

A year ago, inflation by that measure reached a peak of 7%, and supply shock pressures contributed about 2.5 percentage points of that, according to the paper. As of March, PCE inflation had fallen to 4.2%, of which supply shocks accounted for around 1.4 percentage points.

Still, wrote San Francisco Fed economists Zheng Liu and Thuy Lan Nguyen, the contribution of supply chain pressures to inflation “remains positive, reflecting the delayed effects of the shock on inflation.”

The analysis is sure to feed into a central debate at the U.S. central bank about how best to bring inflation back down to the 2% target, now that the Fed has lifted its policy target to a 5%-5.25% range.

The San Francisco Fed paper suggests a sizeable further drop in inflation is already baked in due to the delayed effect of now mostly normalized supply chains. “If there are no additional shocks going forward, then supply-chain-driven inflation should vanish by early next year,” the authors said in an emailed response to a Reuters query.

All things equal, that would imply less may be needed from monetary policy to bring inflation back to the Fed’s goal.

But all things may not be equal. Separate research from San Francisco Fed economist Adam Shapiro suggests a handoff from supply-driven inflation to demand-driven inflation, a process that the authors of Tuesday’s paper say negates “a lot of the decline in supply-driven inflation.”

Further, an analysis by former Fed Chair Ben Bernanke and former International Monetary Fund chief Olivier Blanchard suggests that wage growth may take over from supply shortages as a main driver of inflation.

In that narrative, for which Fed Chair Jerome Powell has expressed some sympathy, cooling inflation requires softening in the labor market, which may in turn require further policy tightening.

Other Fed policymakers, including Chicago Fed chief Austan Goolsbee, have taken the view that wage growth says little about the future path of inflation.

Fed policymakers are also weighing other theories about the likely course of inflation, including one, laid out by researchers at the St. Louis Fed and others, that excess savings are feeding price pressures in a way that may persist despite the increase in interest rates.

(Reporting by Ann Saphir; Additional reporting by Howard Schneider; Editing by Andrea Ricci)

By David Ljunggren

OTTAWA (Reuters) – Canada’s national statistics agency on Tuesday revealed new weights for the basket of goods and services in its Consumer Price Index, giving more prominence to changes in the prices of food and gasoline.

The reweighting, which Statistics Canada carries out every year, has historically had only a marginal impact on the headline number. The new basket weights will be applied to May’s inflation data, due out on June 27.

The rebalancing reflects changes in 2022 compared to 2021. Statscan said the alterations were designed to take into account the continuing recovery from the impact of COVID-19.

“Spending that began to gradually shift back towards pre-pandemic patterns in 2021 continued and were more pronounced in 2022, with several sectors inching closer to pre-pandemic basket weight shares,” it said.

COVID-related measures and disruptions to supply chains helped push Canadian inflation up to a near-40 year high of 8.1%in June last year. It has now dropped to 4.4%, still more than double the Bank of Canada’s 2.0% target.

Gasoline prices, pushed higher by increased demand as well as Russia’s invasion of Ukraine, will now account for 4.27% of overall inflation, up from 3.47%.

Gasoline is part of the larger transportation component which, for the second consecutive year, increased the most among the major eight segments, rising to 16.94% from 16.16%.

The food component expanded to 16.13% from 15.75%, reflecting increases in sales at restaurants as lockdown measures were removed.

But the shelter component dropped to 28.22% from 29.67%, in part due to lower costs for rent and other accommodation expenses as the housing market cooled.

DVD players were removed from the 2023 basket as they have become less popular with consumers following the advent of streaming services. Conversely, charcoal barbecues and snow removal equipment were added.

(Reporting by David Ljunggren; editing by Jonathan Oatis)

By Tom Perry, Maya Gebeily and Laila Bassam

BEIRUT (Reuters) -Carlos Ghosn said on Tuesday he will fight “to the end” in a $1 billion lawsuit the former Nissan chairman has brought against the Japanese carmaker, marking his first such challenge.

Ghosn’s lawsuit, which he filed in Lebanon and a copy of which was seen by Reuters, includes allegations of defamation, slander, libel and the fabrication of material evidence by Nissan as well as 12 individuals and two other firms.

A Nissan spokesperson said it will not be commenting.

“We have a long battle in front of us. We are going to fight it to the end,” Ghosn told Reuters in Lebanon, where he has lived since fleeing Japan hidden in a box aboard a private jet.

Ghosn’s lawsuit seeks $588 million in lost remuneration, and another $500 million in moral damage.

“What I am asking for is only a little compensation compared to what they’ve done to me,” the 69-year-old, wearing a blue open-necked shirt, said during an interview in Beirut.

Once a global car industry titan, Ghosn was arrested in Japan in late 2018 and charged with under-reporting earnings, breach of trust and misappropriation of company funds.

He denied the charges and said his detention was part of a plot against him by Nissan.

Ghosn fled Japan in December 2019 as he awaited trial and after arriving in his childhood home of Lebanon said he was escaping a “rigged” justice system and would clear his name.

Tokyo prosecutors have previously said Ghosn’s allegations of a conspiracy were false.

‘HAVE TO PAY’

Asked whether he would expand his legal action to include Renault, part of the alliance with Nissan which he masterminded, Ghosn said his focus was currently on Nissan.

“I’m not precluding anything for the future. Today we are concentrating on the Nissan plot,” he said.

If found guilty, Nissan “will have to pay”, Ghosn said.

“It’s a large company and they have assets everywhere and you can go after their assets anywhere, so this is not a joke,” he said. “I hope they are going to provision this amount of money and I hope they are going to talk to their shareholders about what is happening and why this is happening,” he said.

Ghosn, who holds French, Lebanese and Brazilian citizenships, said he has not left Lebanon since 2019 because of an Interpol Red Notice issued by Japan.

“I’m stuck here. I cannot make a complaint of this size in another country,” he said, adding that putting his case together had taken his legal team time as they reconstituted the facts.

A judicial source in Lebanon said the prosecutor has scheduled a court session on Sept. 18 to begin proceedings.

Ghosn said documents had been taken from his home in Lebanon under false pretences on the day of his arrest in Japan and shared with Japanese authorities.

His lawsuit alleges that “the sanctity of a residence” had been violated and says crimes were committed in Lebanon, Japan, France, Brazil, the United States and the Netherlands.

“I have the intention get my rights back, to repair my reputation,” he said. “I am going to dedicate all the time necessary for the truth to prevail.”

(Reporting by Maya Gebeily, Laila Bassam, Tom Perry in Beirut and Daniel Leussink in Japan; Writing by Tala Ramadan and Tom Perry; Editing by Kirsten Donovan, Louise Heavens, David Goodman and Alexander Smith)

By Valerie Insinna

PARIS (Reuters) – Lockheed Martin has raised concerns with the U.S. Defense Department and Federal Trade Commission (FTC) about L3Harris’s acquisition of Aerojet Rocketdyne, Lockheed’s chief operating officer said on Tuesday.

Frank St John told Reuters that Lockheed, Aerojet’s biggest customer, wanted L3Harris to ensure access to rocket motors, fair pricing and IP protections, adding that it had received “little response” from L3Harris over its concerns.

“To date, we’ve been unable to gain a commitment from L3Harris for those provisions as a merchant supplier,” St John said in an interview at the Paris Airshow.

“This is really concerning to us because they are going to be vital to meeting the increasing demand that we’re seeing on multiple weapons systems,” such as the Javelin missile launcher and Patriot air defense system.

If L3Harris continues to be unresponsive, Lockheed wants the Defense Department or FTC to put in place a mechanism to guarantee access to technology, St John said.

A spokesperson for L3Harris did not comment on the concerns raised by Lockheed directly but said: “We are in an FTC process and expect the transaction to close the second half of 2023.”

The FTC declined to comment, Aerojet Rocketdyne referred requests for comment to L3Harris and Defense Department did not immediately respond to emailed requests for comment.

L3Harris said in December it would buy Aerojet for $4.7 billion in cash as it looks to tap into rising demand for missiles because of the Ukraine conflict.

Lockheed previously attempted to buy Aerojet in a $4.4 billion deal, but walked away from the acquisition in February 2022 after the FTC sued to block the deal, citing concerns that Lockheed could hinder competitors’ fair access to Aerojet products.

RTX executives, who opposed Lockheed’s failed bid for Aerojet, have signalled they would not do the same in L3Harris’ case, with RTX CEO Greg Hayes saying that L3Harris is not a competitor in the missile business in an interview with trade publication Defense One.

RTX Chief Operating Officer Chris Calio told Reuters in an interview on Monday that “any transaction that can bring investment, capability and capacity would be helpful. I don’t think status quo is an option.”

(Reporting by Valerie Insinna; Editing by Mark Potter and Barbara Lewis)

By Gabriel Araujo

PARIS (Reuters) -Brazilian planemaker Embraer on Tuesday notched fresh orders from American Airlines and Spanish carrier Binter for its E-Jets in deals announced at the Paris Airshow that are seen totaling about $1 billion.

The new firm orders come amid an influx of deals at the world’s largest air show, which is at Le Bourget for the first time in four years and took off on Monday with Airbus bagging a record 500-plane transaction.

Embraer, the world’s third-largest planemaker after Airbus and Boeing, said the new orders follow expansion goals of regional carriers such as Binter and Canada’s Porter Airlines, underscoring positive momentum for its planes in global markets.

Despite the new deals, shares of Embraer slipped more than 4% in midday trading in Sao Paulo, making it the biggest faller on the benchmark Bovespa stock index, as analysts at JPMorgan said the firm had a “slow start” in Paris.

“We were expecting Embraer to announce at least 30 new orders during the event,” they said. “We believe that additional new orders could be announced in the coming days, as in the last Paris Air Show Embraer divided its announcements into 3 days.”

Binter has placed a firm order for six E195-E2 aircraft, marking its fourth order of E2 jets to bring its fleet to 16 when delivered. The deal was valued at $504.7 million at list price, with deliveries commencing in the second half of 2024.

The carrier’s president Rodolfo Nunez touted the aircraft as “a game changer” for the company and “the perfect aircraft to lead our continued growth”, citing better-than-expected fuel burn and maintenance.

“The best orders are repeat orders,” Embraer’s Chief Commercial Officer for commercial aviation Martyn Holmes said.

That also applies for American Airlines which ordered seven E175 planes for its Envoy Air subsidiary, whose fleet of E-Jets will grow to over 141 aircraft by the end of 2024 after the new $403.4 million deal.

Leasing firm Avolon meanwhile signed a sale and leaseback agreement with Porter, already an Embraer customer, for 10 new E195-E2s in a transaction priced at $841.2 million, according to Embraer.

That is “another sign that the momentum the E2 is enjoying in the market is set to continue”, Holmes said.

The Brazilian company expects its commercial aircraft unit to deliver from 65 to 70 jets this year, up from 57 in 2022, and had previously said sales were also enjoying strong performance as travel rebounds post-pandemic.

The firm has restored its backlog to pre-2020 levels and is working to achieve 100 commercial deliveries a year within 3-4 years.

(Reporting by Gabriel Araujo in Sao Paulo; Editing by Steven Grattan, Jan Harvey, Alexandra Hudson)

By Brenda Goh and Casey Hall

SHANGHAI (Reuters) -Alibaba Group on Tuesday said its CEO and chairman Daniel Zhang will step down from the roles to focus on its cloud division as the Chinese e-commerce giant moves ahead with a plan to split into six business units.

Zhang has been concurrently serving in three roles since December when he took over as head of the cloud unit after it suffered an outage that it described as its “longest major-scale failure” for over a decade.

The CEO role will be handed over to Eddie Yongming Wu, chairman of Alibaba’s Taobao and Tmall Group, while Executive Vice Chairman Joseph Tsai will take over Zhang as chairman.

Both appointments will take effect on Sept. 10, Alibaba said.

“The appointment of Daniel to focus on running cloud is really a show of confidence and trust in him to take the most precious business and run with it to develop it in the right way given this age of generative artificial intelligence (AI),” said Brian Wong, a former Alibaba employee and author of the book, “The Tao of Alibaba”.

“The idea or expectation that one person could manage the business’ crown jewel Cloud and at the same time manage the entire Alibaba Group is an unreasonable expectation.”

The surprise reshuffle comes after a tumultuous two years that saw Alibaba heavily targeted by increased regulatory scrutiny and after the group announced in March that it would restructure into six units, each with their own boards and CEOs.

Its China-facing e-commerce division, which includes the Taobao and Tmall marketplaces, will stay wholly owned by Alibaba, but the other five units will be spun off, with Alibaba saying in May it aimed to complete the public listing of its cloud unit within the next 12 months.

Zhang, in a memo to staff seen by Reuters, said the cloud spin-off was approaching a crucial stage and that it was the right time for him to dedicate his attention to the business.

“From a corporate governance perspective, we also need clear separation between the board and management team as the Cloud Intelligence Group proceeds down the path to becoming an independent public company,” he said.

“It would be inappropriate for me to continue serving as chairman and CEO of both companies at the same time during the spin-off process.”

Analysts have estimated the cloud unit to be worth $41 billion to $60 billion but have said the reams of data it oversees could put it in the cross-hairs of regulators at home and abroad.

SINGLES DAY

Zhang, a former accountant, joined Alibaba in 2007 and is known for being the architect behind the company’s annual flagship “Singles Day” shopping festival. He has served as CEO since 2015 and took on the chairmanship in 2019, succeeding both roles from Alibaba co-founder Jack Ma.

Alibaba thanked Zhang for his “extraordinary leadership in navigating unprecedented uncertainties affecting the company’s business over the past few years.”

Alibaba’s Hong Kong-listed shares fell 1.5% after the announcement, in line with a 1.6% decline in the benchmark index, as analysts viewed the reshuffle as being in line with the overall restructuring previously announced.

“Under the new structure, the group will play a smaller role in setting strategies for the six business groups, so instilling Alibaba founders Joe and Eddie as chairman and CEO likely serves the purpose of ensuring smooth leadership transition and maintaining culture,” Shanghai based Independent analyst Eric Chen, who publishes on Smartkarma, told Reuters.

Wu, who co-founded Alibaba alongside Ma and Tsai over two decades ago, will continue to concurrently serve as chairman of Taobao and Tmall Group, Alibaba said. His previous roles include chief technology officer of Alipay and chairman of Alibaba Health.

Wu’s elevation to CEO “is a natural transition and signals the unswerving importance of e-commerce in the company’s roadmap,” said Jacob Cooke, co-founder and CEO of WPIC Marketing + Technologies, a Beijing-based e-commerce consultancy.

Cooke said he did not see the leadership changes as signalling a major strategic shift within Alibaba, given that the individuals are co-founders and close associates of Ma.

“If anything, it emphasises the increasing importance of AI in the company’s focus, while also underscoring that e-commerce is the core business unit.”

COMPETITION

Ma, China’s best-known entrepreneur, has stayed out of the public eye since late 2020 after a speech in which he criticised Chinese regulation, and which is widely seen as triggering an ensuing crackdown.

Ma left mainland China in late 2021 – appearing in photographs in Japan, Spain, Australia and Thailand – and returned in March, a day before Alibaba announced its restructuring. He has not made any public comments during that period.

Last week, Alibaba president J. Michael Evans said Ma remained Alibaba’s biggest shareholder and cared very much about the company. He said Ma was teaching at a university in Tokyo and was also spending more time in China.

Chinese tech news outlet LatePost on Monday reported that Ma convened a meeting with leaders from Taobao and Tmall Group where he highlighted severe competition and discussed the need to return focus to users, the internet and Taobao – whose merchants are mostly individuals or small businesses – to stay relevant.

Alibaba did not respond to a Reuters request for comment on the LatePost report, which cited company sources.

(Reporting by Abinaya Vijayaraghavan in Bengaluru and Brenda Goh in Shanghai; Additional reporting by Scott Murdoch in Sydney and Anne Marie Roantree and Josh Ye in Hong Kong; Editing by Muralikumar Anantharaman and Christopher Cushing)

(Reuters) -Groundbreaking on U.S. single-family homebuilding projects surged in May by the most in more than three decades and permits for future construction also climbed, suggesting the housing market may be turning a corner after getting clobbered by Federal Reserve interest rate hikes.

Still, even with the Fed skipping a rate hike this month for the first time since early 2022, credit conditions remain in the process of tightening, and that could make it challenging for builders heavily reliant on construction and development loans to keep pace with May’s rebound in the months ahead.

Indeed, economists noted that multifamily construction projects that had secured financing last year contributed to May’s gains and may level off as the year progresses as new financing becomes harder to obtain.

Housing starts rose to a seasonally adjusted annual rate of 1.631 million units last month from April’s downwardly revised 1.34 million, the Commerce Department said on Tuesday. May’s rate was the highest since April 2022, which was then the highest since 2006.

The 291,000-unit increase in starts was the most since January 1990, and the 21.7% rise was the largest percentage gain since October 2016.

“While housing starts data tend to be volatile and this figure may be revised down in coming months, the enormity of the increase suggests that builders are broadly expanding operations this summer,” Nationwide Senior Economist Ben Ayers said in a note.

Starts rose by double-digit margins in the South, Midwest and West while declining by nearly 19% in the Northeast. Single-family starts were up 18.5% with multi-family projects of five units or more climbing 28.1%.

Not all economists were convinced May’s upswing represented the start of a continued surge.

“The strength is so far off trend that it calls sustainability into question,” Jefferies U.S. economist Thomas Simons wrote. He noted the nearly 67% surge in starts in the Midwest, for instance, may be the product of rebuilding efforts after a damaging spring tornado season, which is unlikely to be repeated.

The housing market has taken the biggest hit from the Fed’s fastest monetary policy tightening campaign since the 1980s, but recent data have suggested the worst may have passed.

A survey on Monday showed the National Association of Home Builders/Wells Fargo Housing Market index in June rose above the midpoint mark of 50 for the first time since July 2022 as a dearth of previously owned homes supported new construction. The index has rebounded by 77% since December.

The average rate on the popular 30-year fixed mortgage has come down somewhat from last November’s high above 7%. It averaged 6.77% in the latest week, according to data from the Mortgage Bankers Association.

But tightening credit conditions could make it harder for builders to access funding for new projects, a prospect NAHB’s chief addressed alongside the association’s data release on Monday.

“(A)ccess for builder and developer loans has become more difficult to obtain over the last year, which will ultimately result in lower lot supplies as the industry tries to expand off cycle lows,” NAHB Chairman Alicia Huey said in a statement.

After lifting rates by 5 percentage points since March 2022, the Fed this month took a breather to assess the effects of its actions taken so far, though rate hikes are likely to resume next month with inflation still too high.

Nonetheless, most Fed officials see only one or two more quarter-point rate hikes as necessary, and businesses in rate-sensitive sectors like housing are showing signs of upward momentum as a result.

Permits for future construction, for instance, rose 5.2% to the highest since October at 1.491 million units, led by a 27.1% surge in the Northeast. Permits for single-family projects rose 4.8% while multi-family were up 7.8%.

Bill Adams, chief economist at Comerica Bank, said home construction is set to add to U.S. economic growth in the second half of this year. Residential construction has been a drag on gross domestic product growth for eight quarters in a row.

(Reporting by Dan Burns; Editing by Conor Humphries and Andrea Ricci)

By Shreyashi Sanyal and Bansari Mayur Kamdar

(Reuters) -German stocks fell on Tuesday as shares of speciality chemicals maker Lanxess plunged after lowering its earnings forecast, while a modest interest rate cut by Beijing did little to lift investor sentiment among Europe’s China-exposed shares.

Germany’s DAX index closed 0.6% lower, retreating further from a record high hit on Friday. The continent-wide STOXX 600 index also fell 0.6%.

Lanxess slid 15.4% to its lowest level in over three years after cutting its second-quarter and annual core profit forecasts, saying it saw no demand recovery in June as customers continued to destock.

The chemicals index slid 0.9%.

China cut its lending benchmarks on Tuesday, with investors worrying that it may be too small to jumpstart a slow economic recovery and awaited a wider stimulus package.

“The China reopening story has been one of the real disappointments,” said Steve Sosnick, chief strategist at Interactive Brokers.

The market feels that the Chinese have been a little timid, that they really have not been as aggressive as they can be, Sosnick added.

The China-exposed basic resources index dropped 2.2%, while luxury giant LVMH shed 0.9%.

Defensive sectors such as utilities and healthcare capped losses on the STOXX 600.

Sanofi supported the healthcare index as it rose 3.7%.

The French drugmaker said the International Chamber of Commerce ruled in its favour in an arbitration case over claims by Boehringer Ingelheim that Sanofi should be liable for ongoing Zantac litigation in the United States.

British auto retailer Lookers jumped 33.9% as Global Auto Holdings said it would buy the peer for about 465.4 million pounds (about $595 million) in cash.

Also in the UK, the focus is on elevated mortgage rates ahead of key inflation data due on Wednesday and the Bank of England’s policy meeting on Thursday.

London’s FTSE 100 index slipped 0.3%.

UBS Group fell 2.4% after report on Monday that the bank faces hundreds of millions of dollars in penalties over Credit Suisse’s mishandling of Archegos Capital.

Investors now await the testimony from U.S. Federal Reserve Chair Jerome Powell on Wednesday and Thursday for further cues on the monetary policy outlook for the world’s largest economy.

(Reporting by Shreyashi Sanyal, Siddarth S and Bansari Mayur Kamdar in Bengaluru; Editing by Eileen Soreng and Alison Williams)