Goldman CEO warns of ‘bumpy times’ ahead and recession risk – as it happened

Time for a recap.

The boss of Goldman Sachs has warned that there are ‘bumpy times ahead’, with the risk of recession next year as central bankers battle inflation.

Speaking to Bloomberg TV, David Solomon said we face a ‘very uncertain time’, with monetary and economic conditions changing very quickly, which is slowing economic activity.

Britain’s construction sector had a tricky November, with new orders falling as rising borrowing costs spooked clients.

The hospitality industry has warned that business will suffer as rail workers strike later this month.

But German factories have reported a bounceback in new orders, despite the economic pressures from high energy prices. It could mean Germany’s downturn will be shallower than feared.

Here’s the rest of today’s main stories:

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Ratings agency Moody’s has put UK commercial landlord Canary Wharf’s ratings under review for downgrade due to what it said was the worsening outlook for the real estate sector and the more difficult funding environment, Reuters reports.

Moody’s said it expects drops in office values that could be as high as 10-15% alongside materially increased funding costs and weaker demand for occupational space, and a challenging environment for asset disposal because of weak real estate markets.

Trade restrictions across the world economy have increased, according to a new report from the World Trade Organisation (WTO).

It warns that WTO members are introducing restrictions at an increased pace, particularly on food, feed and fertilizers, in “a context of economic uncertainty” exacerbated by the COVID-19 pandemic, the war in Ukraine and the food security crisis.

WTO Director-General Ngozi Okonjo-Iweala is calling on WTO members to refrain from adopting new trade-restrictive measures, particularly export restrictions.

She warns that such curbs could hurt the global economic outlook.

Countries should cooperate to keep markets open and predictable in order to allow goods to move around the world to where they are needed, Okonjo-Iweala argues, saying:

“Members have increasingly implemented new trade restrictions, in particular on the export side, first in the context of the pandemic and more recently in the context of the war in Ukraine and the food security crisis. Although some of these export restrictions have been lifted, many others persist.

Out of the 78 export restrictive measures on food, feed, and fertilizers introduced since the start of the war in late February, 57 are still in place, covering roughly USD 56.6 billion of trade. These numbers have increased since mid-October, which should be a cause for concern.”

India, for example, has just lifted a three-month long ban on rice exports, judging that it now has enough production to fulfill its domestic demand.

The New York stock market has dipped at the start of trading, as investors worry that the US Federal Reserve may raise interest rates by another 75 basis points next week.

The S&P 500 shares index has dropped by 0.75%, losing 30 points to trade around 3,968 points. Tech stocks are weaker, pulling the Nasdaq Composite down by 1.25%.

Traders are jittery about further interest rate rises, and not convinced the Fed will achieve that ‘soft landing’ which David Solomon mentioned.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, explains:

‘’Worries that the Fed could unwrap an unwelcome present of another super-sized rate hike when policymakers meet next week are sprinkling Christmas fear on indices. Wall Street registered its worst day in almost a month [on Monday] after a snapshot from the services industry showed consumer resilience was strong.

This has fuelled speculation that the US central bank will have to be more Scrooge-like and make borrowing even more expensive to rein in inflation. Companies still appear to be dealing with pent-up demand with the ISM reading showing the services sector is expanding merrily. With central bank policies so far having meagre impact on the jobs market, the chances of a 0.75% rate hike being announced on the 14^th are now considered to be higher. The potential effect of another rapid tightening round has led to jitters about repercussions for the global economy.

The boss of Goldman Sachs has warned that there are ‘bumpy times ahead’, as central bankers try to crush inflation without crashing economies.

Speaking to Bloomberg TV, David Solomon said we face a ‘very uncertain time’, with monetary and economic conditions changing very quickly, which is slowing economic activity.

“I think you have to assume that we have some bumpy times ahead”, Solomon explained, with activity levels likely to be constrained in a “tougher economic environment”.

Goldman’s economists predict global growth will slow in 2023, to 1.9% growth, Solomon explained.

The big question is whether central banks can orchestrate a soft landing, as they tighten monetary policy to combat inflation, Solomon warns:

I think that’s so uncertain. I think there’s a possibility of that [a soft landing].

But I certainly think we could see a recession in 2023 also, so I think you’ve got to be cautious and prepare.

Faced with this darkening outlook, Solomon signals that Goldman staff should expect lower compensation (ie: bonuses) this year, as 2022 was not as strong as 2021 – which was a record year for Goldman.

He says:

2022 is a different year, so naturally compensation will be lower.

We’re still early in the process of making those decisions. But just like every year, we pay for performance and we will pay people based on the overall performance of the firm.

There’s a clip here.

Sacha Lord, night time economy adviser for Greater Manchester, fears the UK’s train strikes will have a devastating impact on the hospitality sector:

Here’s a handy thread on today’s US trade report, from Chad Moutray, chief economist at The National Association of Manufacturers:

6 Dec 202208.53 EST

Oil tankers queue up off Turkey as price cap on Russian crude begins

Alex Lawson

A traffic jam of oil tankers has grown off Turkey after the imposition of a price cap on Russian crude by western powers attempting to hurt the Kremlin’s coffers.

The vessels have come to a halt after Turkish authorities in Ankara demanded that insurers prove that the ships heading through its straits are fully insured.

EU sanctions on Russian oil prices came into force on Monday after tense negotiations last week. The rules state that tankers carrying Russian crude oil must not carry western maritime insurance unless it is sold under the $60 ($49) a barrel G7 price cap.

The cap has been introduced in an attempt to curb Russia’s fossil fuel revenues while ensuring oil continues to flow and the maritime insurance industry, which is dominated by companies in London, was not damaged. Russian oil transferred via a pipeline is not covered by the cap.

About 19 crude oil tankers were waiting to cross Turkish waters on Monday, stopping near the Bosphorus and Dardanelles, which link Russia’s Black Sea ports with overseas markets, the Financial Times reported. It said one tanker had been waiting for six days.

Recession fears have knocked the oil price lower today.

Brent crude has fallen by 1.3% to $81.57 per barrel, towards last week’s 10-month low.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, says this week’s PMI reports have shown economic activity slowing

A wider snapshot of business activity across the Eurozone showed that optimism is also low, with activity falling for a fifth month in a row in November.

It is clear that surging inflation, combined with higher interest rates, is eating into budgets. The data is a fresh indication that the Eurozone is heading into a shallow recession, but a much colder winter and high demand for oil and gas could see energy prices shoot up again, piling on more pressure for companies.

For now, the oil price is being pushed lower, with a barrel of Brent Crude trading below $82, as concerns about the effect of central bank tightening on demand across the global economy take precedence over supply concerns.’’

The US trade deficit has widened to $78.2bn in October, up around $4.0bn from the $74.1bn recorded in September.

US exports dropped by $1.9bn during the month, while imports rose by $2.2bn in the month.

Natural gas exports dropped by $1.4bn while the value of crude oil exports jumped by $1.6bn in the month.

The Commerce Department reports that:

• The deficit with the European Union increased by $7.1bn to $23.1bn in October. Exports decreased $1.2bn to $28.8bn and imports increased $5.9bn to $51.9bn

• 
  The surplus with Singapore decreased by $1.9bn to $0.7bn in October. Exports decreased $0.8bn to $4.0bn and imports increased $1.1bn to $3.3bn.
  

• The deficit with China decreased by $6.0bn to $26.1bn in October. Exports increased $1.4bn to $13.6bn and imports decreased $4.6bn to $39.7bn.

6 Dec 202208.26 EST

Full story: UK households will spend 10% more on Christmas dinner, research finds

Kalyeena Makortoff

Households will typically have to spend nearly 10% more on Christmas dinner this year, despite data showing growth in supermarket prices slowed for the first time in nearly two years.

The figures from the market research firm Kantar shows the cost of a traditional Christmas dinner for four – including frozen turkey, carrots, cauliflower, potatoes and Christmas pudding – has risen to £31 this year, up 9.3% from 2021.

That is despite data showing that the rate of grocery price inflation dipped 0.1 percentage points to 14.6% over the past four weeks, thefirst time the annual growth in prices has slowed in 21 months.

“As we move into the busiest time of the year for supermarkets, there are signs that the pace of grocery price inflation is easing off slightly,” Fraser McKevitt, the head of retail and consumer insight at Kantar, said.

6 Dec 202208.09 EST

Sarah Butler

Asda is planning to open 300 small convenience stores and create 10,000 new jobs in the next four years as it tries to grab a bigger share of the grocery market and potentially overtake rival Sainsbury’s to become the UK’s second largest supermarket.

The retailer, which is controlled by the billionaire Issa brothers and private equity firm TDR Capital, currently has just two Asda Express stores – in Sutton Coldfield, near Birmingham, and Tottenham Hale, in north London.

It has already said it plans to have 30 by October next year and has now laid out a much bigger ambition. The 300 planned Asda Express sites will be in addition to the 132 convenience stores the group is acquiring from the Co-op.