By David Milliken and William Schomberg

LONDON -Britons’ earnings shrank by the most since 2013 in February when adjusted for surging inflation, despite unemployment falling to its joint lowest in almost 50 years, highlighting the challenges facing the Bank of England.

The jobless rate sank to 3.8% in the three months to February from 3.9% before, official figures showed, matching a rate last seen in late 2019 and one that has not been lower since 1974.

Annual growth in average earnings excluding bonuses picked up to 4.0% from 3.8% but fell short of rising inflation – which hit 6.2% in February – and led to a 1.3% drop in its real value, the Office for National Statistics (ONS) said.

“Soaring inflation is casting a big shadow over an otherwise buoyant labour market,” Nye Cominetti, an economist at the Resolution Foundation think tank, said.

Compared with before the pandemic, British employers are struggling to hire and job vacancies rose to a record high of 1.288 million in the first quarter of 2022.

The tight labour market is making many Bank of England (BoE) policymakers fear that Britain’s currently high inflation – pushed up by energy prices and post-pandemic supply-chain difficulties – could become entrenched.

The BoE has raised interest rates three times since December, more than any other big central bank, and markets expect it do so again at its next meeting in May.

But the BoE also fears growth will slow sharply this year as the squeeze on living standards intensifies.

Government budget forecasters predict inflation will peak at nearly 9% at the end of the year, and that living standards are set to see their biggest fall since records began in the late 1950s once the effect of April’s payroll tax rises are included.

Figures due on Wednesday are expected to show consumer prices rose by 6.7% in the 12 months to March.

SLOWER EMPLOYMENT GROWTH

Tuesday’s data showed employment growth was slowing, possibly as a result of firms’ concerns about the outlook for demand as well as the difficulty in securing staff.

Employment in the three months to February rose by 10,000, far less than the 50,000 forecast in a Reuters poll of economists.

The number of job vacancies rose by the smallest amount in nearly a year, while a separate tax office measure of the number of employees on company payrolls rose by 35,000 in March – a lot fewer than February’s downwardly revised reading of 174,000.

Also on Tuesday, British retailers reported weaker annual sales growth for March, reflecting growing pressure on consumer spending as well as the timing of Easter.

Reduced immigration from the European Union since post-Brexit restrictions came into force in January 2021 has also increased hiring difficulties for some employers.

Overall, the number of people in Britain’s workforce has fallen by 655,000 since the start of the pandemic – due to a rise in long-term sickness to its joint-highest rate in 20 years, as well as early retirement.

“The jury’s out on exactly why this is – or indeed how long it might last – but in the meantime it’s adding to labour shortages,” James Smith, an economist at Dutch bank ING, said.

(Reporting by William Schomberg and David Milliken; Editing by Alex Richardson)

By Paul Sandle

LONDON – EasyJet said it was yet to see an easing of crew sickness that is causing it to cancel flights and disrupt the Easter plans of thousands of travellers, but it was confident it would be able to return to a near pre-pandemic schedule this summer.

The British low-cost carrier had no option but to preemptively cancel hundreds of flights in recent days as COVID-related crew absences reached 20% at some of its bases, Chief Executive Johan Lundgren told reporters on Tuesday.

“You would expect that the spike that we’re seeing in COVID infections that really exists here in the UK and also in parts of the network is going to come down, but this is something that we don’t see yet,” he said.

“And (until) that moment in time, we’ll just continue to monitor the situation.”

The airline has flown 94% of its planned schedule in the last seven days, and Lundgren said daily cancellations were currently about 4% of flights, with the majority of customers able to rebook for the same day.

He said easyJet was flying around a quarter of a million customers each day over Easter on up to 1,600 daily flights, the highest number operated since 2019.

The carrier expects to operate about 90% of its pre-pandemic schedule in the April-June quarter, Lundgren said, and to return to near-2019 levels this summer, for which it was seeing strong customer demand.

“We are not worried to that extent for the summer and the things that sit inside our control, we have the crew in place,” he said.

Lundgren said despite COVID-19 and rising fuel prices, easyJet had outperformed expectations in the six months to the end of March, and would report a loss before tax of between 535 million and 565 million pounds ($696 million-735 million) for the period.

For the same period last year the carrier reported a headline loss before tax of 701 million pounds.

Shares in easyJet, which have fallen 31% in the last 12 months, were trading down 1.5% in early deals.

($1 = 0.7689 pounds)

(Reporting by Paul Sandle; Editing by Kylie MacLellan, Stephen Coates and Susan Fenton)

By Satoshi Sugiyama and Maki Shiraki

TOKYO – The weak yen was once a cause for celebration for Japanese companies, as they could sell cars and cameras cheaper abroad and enjoyed fatter profits when earnings were brought home.

These days, it’s not so straightforward.

    After years of bolstering overseas production and supply chains, Japan’s manufacturers now see less benefit from a softer currency, company officials and economists say.

    In fact, the economic pain from a weaker yen has become stark now, as the recent yen sell-off has sharply lifted commodities costs in a blow to household spending. It also shows how the steady move to overseas production is slowly changing the dynamics of the world’s no.3 economy.

WHAT’S CHANGED FOR JAPANESE COMPANIES?

Almost a quarter of Japanese manufacturers’ production is carried out overseas, according to the latest trade ministry data. That compares to around 17% a decade ago and less than 15% two decades ago.

Around two-thirds of the cars that Japanese makers sell annually are now made abroad, according to Reuters calculations based on data from the Japan Automobile Manufacturers Association.

    Two decades ago, cars made overseas accounted for less than 40% of sales.

Companies are also moving away from the manufacture-and-export model of old as technology has changed their businesses. Hitachi Ltd, for example, is increasingly focused on providing digital solutions to customers globally rather than just hardware.

WHAT’S THE DOWNSIDE RISK?

The weakness in the yen has driven up the cost of fuel and other commodities for manufacturers at home. Critically, it is also hitting household spending and consumer confidence in the domestic market – adding to the pain for a creaking economy.

A December survey of nearly 7,000 companies by data and research firm Tokyo Shoko Research found that almost 30% of companies said a weak yen was a negative for their business, while 5% said it was a positive. The remaining 65% said it was neither a negative or a positive.

Those that said the weak yen was negative on average cited a rate of 107 yen to the dollar as preferable – a level considerably stronger than the 125.75 hit on Tuesday.

The weak yen drives up the cost of acquiring businesses overseas, although that could be less of a concern for many cash-rich Japanese firms. At the same time, the weak yen makes Japanese companies cheaper targets for foreign buyers.

WHAT’S THE OUTLOOK FOR COMPANIES?

Many manufacturers, including automakers, say that one of the benefits of producing more in local markets is less sensitivity to currency swings.

Even though there may be concerns about producing in certain markets – such as China – it seems unlikely that the trend toward offshore production will reverse in any meaningful way soon.

Toyota Motor Corp has been working to reduce the impact of the yen on its earnings, a spokesperson said, without giving details. Within the company, the weak yen was not necessarily viewed as a benefit, the spokesperson said, adding the higher cost of raw materials was one demerit.

For retailers, the weak yen has been painful, as it drives up costs, including for energy and food. Budget clothing retailer Shimamura Co Ltd said recently it would have to increase the price of some of its items by an unprecedented 3-4%.

WHAT DO POLICYMAKERS SAY?

The Bank of Japan’s governor, Haruhiko Kuroda, has repeatedly said that while the weak currency can squeeze households and retailers, the benefits to the economy https://www.reuters.com/business/finance/boj-keep-rates-low-strong-not-weak-yen-still-kurodas-enemy-no-1-2022-04-01 outweigh the negatives.

But he looks increasingly alone in his emphasis on the positive, as government officials have increased their warnings against excessive yen declines.

Some of Kuroda’s former finance ministry colleagues now see the weak yen as a sign of Japan’s fading economic power.

Earlier this month he said the yen’s recent moves were “somewhat rapid”, his strongest warning yet on the currency’s move, although he followed that by emphasising the benefits of a weaker yen.

HOW LOW CAN IT GO?

That’s anyone’s guess. The yen’s rapid decline – last month it fell more than 5% versus the dollar, its biggest monthly drop since November 2016 – has taken some in the markets by surprise.

Japan’s former top currency diplomat Eisuke Sakakibara told Reuters last month that the government should intervene in the currency or raise interest rates to defend it if it weakens beyond 130 to the dollar.

Weakening beyond 130 “could cause problems” said Sakakibara, known as “Mr. Yen” for masterminding several currency interventions to soften the yen in the 1990s.

(Reporting by Satoshi Sugiyama and Maki Shiraki; Additional reporting by Tetsushi Kajimoto, Shinji Kitamura and Ritsuko Shimizu; Editing by David Dolan & Shri Navaratnam)

By Saikat Chatterjee

LONDON -Optimism among fund managers over global economic growth has hit an all-time low while concerns of possible stagflation have risen to the highest since August 2008, a monthly survey by investment bank BoFA Securities showed on Tuesday.

The survey, which took the views of firms managing a total of more than $833 billion, is one of the biggest regular tests of fund manager views and comes as inflationary pressures rise even as the risk of recession increases in major economies.

Asked about their expectations for global growth in the coming months, a net 71% of survey respondents were pessimistic about prospects, the most since the survey records began in the early 1990s.

The European edition of the survey found investors continuing to cut their European growth projections, with a net 81% of survey respondents expecting the region’s economy to weaken over the coming year compared with 69% in the March edition.

Though fund manager holdings of cash – traditionally an indicator of investor caution – eased to 5.5% in the April edition of the survey from 5.9% in the previous month, prospects of a global recession remain the top “tail risk” for global markets, the survey found.

The Russia-Ukraine conflict has receded to fourth place, after aggressive central bank interest rate actions and inflation.

Allocations to commodities jumped to a record 38%, with investments into oil and commodities zipping up the charts to become the top most “crowded trade”.

Other “long” positions were in resources stocks and healthcare, while “short” bets – by investors expecting a decline in prices – were evident in bonds and cyclical stocks whose performance is most linked to economic growth, BoFA said.

Participants in the survey expect the U.S. Federal Reserve to raise interest rates by as many as seven times in the current cycle, compared with four times in the previous edition, with a majority of investors expecting inflation to soften over the next 12 months.

Global profit expectations deteriorated to their weakest levels since March 2020, BoFA said.

In terms of regional stock market allocations, investors were most bullish on U.S. equities, while European and UK equities were the top bearish bets.

Despite the growing recession concerns, a majority of survey respondents expect European equities to mark new highs in the currency economic cycle, with less than 30% of survey respondents expecting market weakness.

The UK remains the favourite equity market in Europe, while Germany and Italy are the least preferred, the European edition of the survey said.

The survey was conducted between April 1 and April 7.

(Reporting by Saikat Chatterjee; Editing by Samuel Indyk and David Holmes)

SHANGHAI -German auto parts supplier Bosch on Tuesday said it has suspended production at two sites in the Chinese cities of Shanghai and Changchun as it follows government policies to contain a surge of COVID-19 cases.

Bosch said it had paused production at a Thermotechnology factory in Shanghai and an automotive components site in Changchun in northeastern Jilin province.

Two other auto parts plants in Shanghai and neighbouring Taicang city are maintaining “closed-loop” operations, in which workers sleep, live and work in isolation from the rest of society to prevent virus transmission, the manufacturer said.

“We are currently seeing temporarily effects on logistics and supply chain sourcing,” Bosch said in a statement. “In this situation, we are doing everything we can to maintain the supply chains as much as possible and to serve the demands.”

China has imposed strict lockdowns to contain the spread of the highly contagious Omicron variant, including in Jilin province and Shanghai.

Auto sales plunged in March as the country’s curbs to rein in COVID-19 outbreaks took their toll, while Tesla, Volkswagen and Toyota were among automakers feeling the impact of limits on production.

The European Union Chamber of Commerce in China said on Monday it had sent a letter to the country’s cabinet detailing how the country’s COVID control measures had disrupted European companies and urged it to revise its policies, such as by allowing home quarantine for some COVID patients.

(Reporting by Zhang Yan and Brenda Goh; Editing by Christopher Cushing and Susan Fenton)

By James Davey

LONDON -Supply chain snags hammered first-half profit at ASOS and the British online fashion retailer warned its expectations for a much better second half could be disrupted by surging inflation.

Shares in the company, which sells fast-fashion aimed at 20-somethings, dropped as much as 6% in early Tuesday trading after it reported an 87% plunge in first-half adjusted earnings.

However, they bounced back to last trade over 2% higher after it said stock levels – heavily affected in recent months by industry-wide supply chain problems – were much improved.

ASOS, which had warned on full-year profits in October when parting ways with then CEO Nick Beighton, said it was sticking with its latest annual guidance – excluding the already-flagged impact of quitting Russia following the invasion of Ukraine.

But it cautioned there was a greater risk to forecasting that normal as the full impact of recent inflationary pressure on consumers was yet to be felt.

Chief operating officer Mat Dunn said he expected analysts to trim about 14 million pounds ($18 million) from full-year profit guidance of 110-140 million pounds, to take account of the withdrawal from Russia. ASOS made an adjusted profit of 193.6 million pounds in its 2020-21 financial year.

The company said its forecasts reflected an improved stock profile, the easing of comparative growth rates, the return of event and holiday-led demand, increased marketing investment and improved lead-times as supply chain pressures ease.

“We’ve opened the (spring/summer) season with a very good level of stock,” Dunn told Reuters.

“There is some uncertainty around (supply from) China, but we’re in a much better situation than we were at the start of autumn/winter.”

Dunn said ASOS had raised prices by a low to mid-single percentage in January, but not since.

“We’re making sure that our value proposition is as attractive to customers as it can be and we’ve definitely absorbed some of the inflationary pressures in order to do that,” he said.

Dunn said the process to recruit a new CEO was ongoing.

Adjusted profit before tax was 14.8 million pounds for the six months to Feb. 28, down from 112.9 million pounds a year earlier. Revenue was up 4% to 2.0 billion pounds.

($1 = 0.7685 pounds)

(Reporting by James DaveyEditing by Kirsten Donovan and Mark Potter)

By Aby Jose Koilparambil

(Reuters) – Britain’s Deliveroo said on Tuesday that consumer spending could slow for the remainder of the year after the food delivery firm reported higher order values for the first quarter.

The warning comes as Europeans face a cost-of-living squeeze due to higher energy bills and soaring inflation, exacerbated by the Russia-Ukraine crisis.

The quarterly 12% growth in gross transaction value (GTV), the money value of all food orders on its platform, was higher compared to a year earlier, but shares fell 3% in early trading and analysts turned sceptical.

“For a growth company like Deliveroo, this (quarterly GTV growth) is not a stellar figure. Actually, it is a warning that the rest of the year is going to be quite volatile,” said AJ Bell analyst Danni Hewson.

During the peak of the pandemic last year, Deliveroo, which competes with the likes of Uber Eats and Just Eat Takeaway, had enjoyed strong orders from people stuck indoors.

“Consumer behaviour may moderate during the year, and this is reflected in our guidance,” Deliveroo Founder and Chief Executive Will Shu said even as the company stuck to its annual GTV growth of 15%-25% that it provided last month.

“We remain confident in our ability to adapt financially to any further changes in the macroeconomic environment.”

Britain and Ireland account for nearly 54% of the company’s overall GTV.

(This story corrects lower end of GTV growth forecast in paragraph 6)

(Reporting by Aby Jose Koilparambil in Bengaluru; Editing by Arun Koyyur)

(Reuters) -Russia’s economy is on track to contract by more than 10% in 2022, the biggest fall in gross domestic product since the years following the 1991 fall of the Soviet Union, former finance minister Alexei Kudrin said on Tuesday.

Russia is facing soaring inflation and capital flight while grappling with a possible debt default after the West imposed crippling sanctions to punish President Vladimir Putin for sending tens of thousands of troops to Ukraine on Feb. 24.

Russia’s economy and finance ministries are currently working on new forecasts, RIA state news agency quoted Kudrin, who now serves as head of the Audit Chamber, as saying.

“The official forecast would be for more than around a 10% contraction,” said Kudrin, who served as Putin’s finance minister from 2000 to 2011, according to RIA.

Previous Russian government forecasts envisaged gross domestic product growth of 3% this year after the economy expanded by 4.7% in 2021.

A source close to the Russian government who spoke on condition of anonymity told Reuters that the economy ministry projects a GDP contraction of between 10% and 15% this year.

A contraction of 10% would amount to the biggest decline in gross domestic product since 1994, according to World Bank and International Monetary Fund data.

The World Bank this month forecast Russian GDP output would fall 11.2% this year.

Analysts polled by Reuters in late March had on average forecast 2022 GDP contraction at 7.3%, predicting a pick up in inflation to nearly 24%, its highest since 1999.

Putin says the “special military operation” in Ukraine is necessary because the United States was using Ukraine to threaten Russia and Moscow had to act to defend Russian-speaking people in Ukraine against persecution.

Ukraine says it is fighting against an imperial-style land grab and dismisses Putin’s claims of genocide as nonsense.

(Reporting by Reuters, editing by Guy Faulconbridge)

By Samuel Shen and Selena Li

SHANGHAI/HONG KONG – Global index-tracking fund managers with exposure to U.S.-listed Chinese firms are pushing index providers to swap into their Hong Kong-traded peers as delisting risks threaten to roil the $37 billion market for China-focused exchange-traded funds (ETFs).

Washington is demanding complete access to the audit papers of these firms, a request so far denied by Beijing. Without a solution, Chinese American Depositary Receipts (ADRs) will be delisted by 2024, potentially bashing ETFs with big ADR exposure.

“We have proactively engaged all of our index providers on the risks associated with ADR delisting,” said Brendan Ahern, CIO of Krane Funds Advisors, which manages China-focused ETFs based on CSI and MSCI indices.

“Passive ETF managers will want their index providers to transition from ADRs to the HK share classes in order to avoid tracking error,” he said, referring to the unwelcome performance difference between an ETF and the index it tracks.

“Index providers are moving at varying speeds,” he added.

ETF managers including CSOP Asset Management and Samsung Asset Management said they have also nudged their index providers to swap Chinese ADRs into Hong Kong-traded peers, where available.

Some smaller index companies, such as China Securities Index Co, said they have started the switching but the likes of S&P Dow Jones Indices and MSCI are more cautious, citing the need for further clarity around Sino-U.S. audit talks, and concerns over relatively low liquidity levels in Hong Kong.

Also, many active fund managers, unfettered by index-tracking needs, have already dumped ADRs, or made the transition to Hong Kong shares.

TRACKING ERRORS

ADR exposure of the S&P New China Sector Index ETF, run by CSOP, has decreased to 6% from over 30% a year ago after discussions between the Hong Kong-based asset manager and its index provider, portfolio manager Wang Yi said.

Last month, Chinese index publisher China Securities Index started prioritising inclusion of Hong Kong-listed stocks for its CSI Overseas China Internet Index, when a company has multiple listings eligible for selection.

The index is tracked by a $6 billion ETF run by KraneShares and many other index funds.

Others are also holding out.

Earlier this month, China proposed rules that would potentially give U.S. regulators access to Chinese companies’ audit working papers, as Beijing seeks to reach a deal to keep Chinese ADRs listed.

Mike Shiao, Invesco’s chief investment officer, Asia ex-Japan, said the overhang on U.S.-listed Chinese companies was “partially” removed, but Invesco, which runs an ETF heavily invested in ADRs, would continue to monitor the U.S. response.

S&P Dow Jones declined comment on potential changes to methodologies, while MSCI and FTSE Russell also declined comment.

Underscoring some investors’ impatience, the KraneShares CSI China Internet ETF said last month that it aimed to fully transition to Hong Kong shares in coming months.

“Could an ETF convert without the index provider? Yes, though it would create tracking error,” KraneShares’ Ahern said. “Obviously one would rather have tracking error versus holding a stock through a delisting,” he said.

(Reporting by Samuel Shen in Shanghai and Selena Li in Hong Kong; Editing by Anshuman Daga & Shri Navaratnam)