World

The US economy rebounded in the third quarter, government data showed Thursday, in welcome news for President Joe Biden days before midterm elections, though analysts warn of a gloomier path ahead.

Economic issues have become a flashpoint in the United States, with decades-high inflation weighing on growth and squeezing households.

Fears of a downturn have intensified in the world’s biggest economy after two quarters of negative growth, commonly viewed as a strong signal that a recession is underway — a trend that would have global consequences and domestic political costs.

But gross domestic product rose for the first time this year, at an annual rate of 2.6 percent in the July to September period, according to Commerce Department data.

“Our economic recovery is continuing to power forward,” said Biden in a statement, later telling reporters that “things are looking good.”

But he also said that officials need to “make more progress” on bringing down costs for American households.

On Thursday, mortgage rates surged past seven percent for the first time in two decades according to the Freddie Mac survey, piling pressure on potential homebuyers.

The better-than-expected GDP performance was helped by strong trade, but housing investment plunged and weaker consumer spending on goods casts a pall on growth as higher prices bite.

Industrial supplies and materials, notably petroleum and products, kept exports robust.

In consumer spending, an increase in services was “partly offset” by a drop in products like motor vehicles and parts, along with food and beverages, data showed.

– ‘Unsustainable’ –

The leap in exports is “unsustainable,” as a strong dollar and weak global growth will pose constraints moving forward, cautioned Ian Shepherdson of Pantheon Macroeconomics.

“We’re relying on better consumption, rising government spending, and… investment to keep GDP in the black,” he added.

Overall, personal consumption expenditures — a key segment of the economy — grew 1.4 percent, slower than before.

The US economy shrank 0.6 percent in the second quarter, according to revised numbers, after a larger decline in the first three months this year.

Treasury Secretary Janet Yellen said Thursday that recent data signals the economy is shifting towards “sustainable growth.”

But analysts warn of risks ahead, as households grapple with soaring prices and draw down their savings.

Republicans have blamed Democrats for worsening price spikes through runaway spending, though inflation is a global issue over which presidents have limited power.

– Risks ahead –

Analysts see a slowdown in growth in the coming quarters, with the possibility of a recession in 2023.

“This will likely be the only positive quarter for the entire year,” said economist Diane Swonk of KPMG in a tweet.

While there is still some momentum in household spending and a rebound in business investment, there is also “ongoing weakness in residential investment,” added Rubeela Farooqi of High Frequency Economics.

There are particular risks to consumption “as households continue to face challenges from high prices and likely slower job growth going forward,” she said in an analysis.

Households have been reeling from decades-high inflation, with prices soaring on supply chain snarls due to Covid-19 lockdowns and fallout from Russia’s invasion of Ukraine, which sent food and energy costs rocketing.

To lower price pressures, the US central bank has embarked on aggressive rate hikes, walking a tightrope as it tries to avoid tipping the economy into a recession.

Already, there are signs of stress, such as a hit to the more interest-sensitive housing sector.

Rates on popular 30-year fixed-rate mortgages have also rocketed to 7.08 percent according to Freddie Mac, as the Federal Reserve’s moves ripple through the economy.

Policymakers are expected to press on with rate increases at a meeting next week, in the face of persistently high prices.

Disney on Thursday held a glitzy presentation of planned European events for the Hollywood studio’s 100th anniversary next year, returning to a London mansion used in its 2018 “Mary Poppins Returns” film.

Fiction’s most famous English nanny with magical powers was on hand to greet arriving celebrity attendees, urging them to “run along” through the venue’s columned hall filled with projections of Disney cartoons.

Events previewed at the show include a “Disney100” exhibition of historic film costumes and props that will be shown at ExCel in London next autumn. 

The studio will also stage a multimedia concert tour, with the Hollywood Sound Orchestra performing movie soundtracks as audiences watch scenes from films, which will have eight UK dates starting in May.

Events will also take place in Germany, Switzerland, Austria and France through next year.

Brothers Walt and Roy Disney founded the company in 1923 and it has evolved over the ensuing century from making lavish cartoon films such as “Bambi” to entering today’s video streaming market.

It is now increasingly behind dramas and documentaries, as well as movie franchises, while subsidiary operations include theme parks and TV networks.

“Over the past 100 years I think we’ve seen how it’s changed, starting off with one of the first cartoons set to sound (a 1928 Mickey Mouse film called “Steamboat Willie),” said Nicole Morse, a company vice president responsible for brand strategy.

The venue for Thursday’s showcase, Banking Hall in the City of London, was chosen because it featured in film “Mary Poppins Returns” released four years ago, she noted.

Silver models of Minnie and Mickey Mouse, artists drawing the famous characters for guests, alongside costumed Snoopy and Chip and Dale mascots, completed the Hollywood-evoking scene in the financial district building. 

Last month Disney held a preview of anniversary events for US fans at its D23 Expo in Anaheim, California.

The centenary comes as Disney+, its streaming service, is set to follow competitor Netflix in launching cheaper ad-subsidised subscriptions in December.

McDonald’s reported stronger-than-expected quarterly profits Thursday as executives pointed to signs it is drawing customers priced out of more expensive restaurants.

The fast-food chain, known for the Big Mac and its golden arches logo, scored a 9.5 percent jump in global comparable store sales as it benefitted from higher guest counts and “strategic” price increases.

While McDonald’s has not seen significant trade down among its own consumers, the company is “benefitting from trade down” from more expensive restaurant categories, Chief Executive Chris Kempczinski said on a conference call with analysts.

Executives said the dynamics favor the brand.

“We actually think we’ve got pricing power right now,” a McDonald’s executive said on the conference call. “We’re gaining share among low-income consumers and that goes back to the fact that we are positioned as the leading brand in terms of value for money and affordability.”

Profits declined eight percent to $2 billion from the year-ago period, while revenues fell five percent to $5.9 billion, reflecting the chain’s smaller footprint after the sale of McDonald’s Russia business earlier this year.

McDonald’s said it continued to face heavy cost pressures across its operations for food, paper and energy. 

The company’s base economic scenario calls for a “mild to moderate” recession in the United States and one that is “potentially a little deeper and longer in Europe.”

“We’re going to continue to have inflation into 2023, both food and paper as well as labor, but we like our position relative to competitor in terms of where we stand,” Kempczinski said on a conference call.

In the United States, McDonald’s raised prices 10 percent compared with the year-ago period, executives said on the call.

In Europe, the company plans to set up a program to provide financial support to franchise companies struggling with economic conditions, especially spiking energy prices.

The program will be akin to efforts set up early in Covid-19, when McDonald’s established $1 billion in liquidity assistance to help franchisee companies facing financial stress.

Shares jumped 3.6 percent to $265.73 in afternoon trading.

The US economy rebounded in the third quarter, government data showed Thursday, in welcome news for President Joe Biden days before midterm elections, though analysts warn of a gloomier path ahead.

Economic issues have become a flashpoint in the United States, with decades-high inflation weighing on growth and squeezing households.

Fears of a downturn have intensified in the world’s biggest economy after two quarters of negative growth, commonly viewed as a strong signal that a recession is underway — a trend that would have global consequences and domestic political costs.

But gross domestic product rose for the first time this year, at an annual rate of 2.6 percent in the July to September period, according to the latest Commerce Department data.

“Our economic recovery is continuing to power forward,” said Biden in a statement, later telling reporters that “things are looking good”.

But he also said that officials need to “make more progress” on bringing down high costs for American households.

On Thursday, mortgage rates surged past seven percent for the first time in two decades according to the Freddie Mac survey, piling further pressure on potential homebuyers.

The better-than-expected GDP performance was helped by strong trade, but housing investment plunged and weaker consumer spending on goods casts a pall on growth as higher prices bite.

Industrial supplies and materials, notably petroleum and products, kept exports robust.

In consumer spending, an increase in services was “partly offset” by a drop in products like motor vehicles and parts, along with food and beverages, data showed.

– ‘Unsustainable’ –

The leap in exports is “unsustainable,” as a strong dollar and weak global growth will pose constraints moving forward, cautioned Ian Shepherdson of Pantheon Macroeconomics.

A fall in imports that helped net trade also marks a reversal of earlier inventory rebuilding, but that is now over, he said.

“We’re relying on better consumption, rising government spending, and… investment to keep GDP in the black,” he added.

Overall, personal consumption expenditures — a key segment of the economy — grew 1.4 percent, slower than before.

The US economy shrank 0.6 percent in the second quarter, according to revised numbers, after a larger decline in the first three months this year.

Biden has insisted that the economy is on the right path, but analysts warn of risks ahead, as households grapple with soaring prices and draw down on their savings.

– Risks ahead –

Republicans have blamed Democrats for worsening price spikes through runaway spending, though inflation is a global issue that presidents have limited power over.

Analysts see a slowdown in growth in the coming quarters, with the possibility of a recession in 2023.

“This will likely be the only positive quarter for the entire year,” said economist Diane Swonk of KPMG in a tweet.

While there is still some momentum in household spending and a rebound in business investment, there is also “ongoing weakness in residential investment,” added Rubeela Farooqi of High Frequency Economics.

There are particular risks to consumption “as households continue to face challenges from high prices and likely slower job growth going forward,” she said in an analysis.

Households have been reeling from decades-high inflation, with prices soaring on supply chain snarls due to Covid-19 lockdowns and fallout from Russia’s invasion of Ukraine, which sent food and energy costs rocketing.

To lower price pressures, the US central bank has embarked on aggressive rate hikes, walking a tightrope as it tries to avoid tipping the economy into a recession.

Already, there are signs of stress, such as a hit to the more interest-sensitive housing sector.

Rates on popular 30-year fixed-rate mortgages have also rocketed to 7.08 percent according to Freddie Mac, as the Federal Reserve’s moves ripple through the economy.

Policymakers are expected to press on with rate increases at a meeting next week, in the face of persistently high prices.

Credit Suisse unveiled radical measures Thursday aimed at turning around the beleaguered bank following huge third quarter losses, including revamping its investment banking, slashing 9,000 jobs and a capital injection from the Saudi National Bank.

Switzerland’s second-biggest bank launched a new strategy intended to repair the damage following a series of scandals, saying it wanted to create “a simpler, more focused and more stable bank”.

“We all know Credit Suisse is at a critical point in its history,” chairman Axel Lehmann said.

For months, if not years, it has been “overshadowed by various issues”, while he acknowleged that the 166-year-old institution had become unfocused.

“We need to draw a line,” he insisted.

Lehmann said the reassessment of the bank’s direction included “a radical strategy and a plan to create a stronger, more resilient and more efficient bank with a firm foundation”.

The revamp came as Credit Suisse unveiled a third quarter net loss of 4.034 billion Swiss francs ($4.07 billion).

The Zurich-based bank revealed it was going for a “radical restructuring” of its investment bank, an accelerated cost-cutting effort, and strengthened and reallocated capital, “all of which are designed to create a new Credit Suisse”.

The group’s shares slid on the announcements, closing down 18.6 percent on the Swiss stock exchange’s main SMI index at 3.877 Swiss francs.

“The reaction is negative, which is not good. I think the markets were expecting more drastic things,” Carlo Lombardini, a professor of banking law at the University of Lausanne, told AFP.

“The bank is not going to go bankrupt… but the question is how it will generate income in a difficult market”.

– Saudi investment –

The bank intends to raise capital worth four billion Swiss francs ($4 billion) through issuing new shares to qualified investors, including Saudi National Bank, which has committed to invest up to 1.5 billion Swiss francs.

The Saudi bank will thus take a stake of up to 9.9 percent, becoming a chief shareholder alongside the US company Harris Associates (10.05 percent) and the sovereign wealth fund of Qatar (5.03 percent).

Making a capital increase is a “fairly radical choice”, said David Benamou, director of investments at Axiom Alternative Investments.

He told AFP it was a “very good message” for customers and creditors.

The Ethos foundation, which represents pension funds in Switzerland, welcomed that bank “finally seems to have understood that it was necessary to stop the investment banking”.

However, it criticised the Saudi injection, telling AFP that the current shareholders “have suffered a very significant dilution effect”.

– ‘Lengthy process’ –

Credit Suisse said it expects staff numbers to drop by 9,000 to approximately 43,000 staff by the end of 2025.

The group will also reduce its cost base by 15 percent, or around 2.5 billion Swiss francs, delivering a cost base of around 14.5 billion Swiss francs in 2025.

Credit Suisse will refocus on its most stable activities — wealth management and Swiss banking — and reduce its merchant banking.

It will revive its First Boston brand, named after an US investment bank it absorbed in 1990, where its capital market and advisory activities will be brought together.

Andreas Venditti, an analyst at Swiss investment managers Vontobel, said Koerner’s new strategic plan was “just the first step in a lengthy process to restore credibility and regain the trust” of Credit Suisse’s stakeholders.

“Resolute execution and no further mis-steps will be key and it will take time until results will begin to show,” he said.

Analysts at the US investment bank Jefferies said the capital raise was “larger than we thought it would be, and third quarter results show another quarter-on-quarter deterioration in momentum that we find concerning, though not very surprising”.

– Archegos, Greensill shocks –

Credit Suisse’s capital-guzzling investment banking arm has been the source of heavy losses which plunged Credit Suisse’s accounts into the red — eclipsing its more stable activities such as wealth management or its Swiss domestic banking services.

Credit Suisse’s investment bank suffered a loss of 3.7 billion Swiss francs in 2021 and backed that up with a 992 million Swiss franc loss in the first half of 2022.

It was hit by the implosion of US fund Archegos, which cost Credit Suisse more than $5 billion.

Meanwhile its asset management branch was rocked by the bankruptcy of British financial firm Greensill, in which some $10 billion had been committed through four funds.

Credit Suisse is one of 30 banks globally deemed too big to fail, forcing it to set aside more cash to weather a crisis.

While many industry experts think a bankruptcy highly improbable, these rumours helped drag its share price down to a low of 3.158 Swiss francs on October 3.

Closing in on his Twitter megadeal, Elon Musk said Thursday his goal is to enable “healthy” debate of ideas and counter the tendency of social media to splinter into partisan “echo chambers.”

In a message meant to reassure jittery Twitter advertisers on the eve of a court-imposed deadline to finalize the deal, Musk said he would work with marketers to “build something extraordinary together.”

The billionaire entrepreneur pursued the $44 billion deal “because it is important to the future of civilization to have a common digital town square, where a wide range of beliefs can be debated in a healthy manner,” Musk tweeted.

The planned takeover has dismayed activists who fear a surge in harassment and misinformation under the unpredictable Musk, who himself is known for trolling other Twitter users.

But Musk said he realizes Twitter “cannot become a free-for-all hellscape where anything can be said with no consequences.”

The Tesla boss’s on-again, off-again acquisition of the platform appeared to be entering its final phase after a Delaware judge paused litigation on October 6 on Twitter’s suit against Musk after he previously walked away from the deal.

Musk has reportedly been lining up financing and, while there is always the chance of a last-minute curveball, more signs point to the deal’s likely closure.

The New York Stock Exchange posted a pending order to suspend trading in Twitter before Friday’s session.

Shares of Twitter climbed 1.1 percent to $53.96 near 1615 GMT Thursday, not far below the $54.20 purchase price in Musk’s deal.

“We expect Musk and Twitter to officially close the deal by Friday morning with Cinderella finally getting the glass slipper that fits,” said Wedbush analyst Dan Ives.

– ‘Chief Twit’ –

Musk originally agreed to the Twitter acquisition in April, but soon pulled back, saying in July he was canceling the contract because he was misled by Twitter over the number of fake “bot” accounts — allegations rejected by the company.

Twitter in turn sought to prove Musk, who also heads aerospace firm SpaceX, was contriving excuses to walk away simply because he changed his mind.

A trial on Twitter’s suit was scheduled for mid-October, but the Delaware court gave the parties until 5:00 pm on October 28, 2022 to close the transaction.

Fresh questions about the deal and Twitter’s future surfaced last week following reports Musk planned deep staff cuts.

But on Wednesday, Musk changed his Twitter profile to “Chief Twit” and posted a video of himself walking into the company’s California headquarters carrying a sink.

The South African-born entrepreneur cuts a polarizing figure in American business.

Supporters cheer his disruptive spirit and achievements at Tesla, while detractors criticize him as a megalomaniac with a dangerous tendency to wade into geopolitical topics in which he lacks expertise, such as the Russia-Ukraine conflict. 

In his latest statement Thursday, Musk said much of the public speculation about his intentions in the deal had been “wrong” as he insisted his goals were noble.

In pursuing Twitter, “I didn’t do it because it would be easy. I didn’t do it to make more money,” Musk said. 

“I did so with humility, recognizing that failure in pursuing this goal, despite our best efforts, is a very real possibility.”

Musk urged marketers to devise ads that are “as relevant as possible” to consumers, appealing to the industry at a time when tech giants Google and Facebook have reported big declines in advertising revenue.

“Low relevancy ads are spam, but highly relevant ads are actually content!” he said.

Insider Intelligence analyst Jasmine Enberg said Twitter’s ad business has suffered due to uncertainty surrounding the Musk deal, as well as the macroeconomic concerns that have buffeted the broader online ad industry.

“Even slightly loosening content moderation on the platform is sure to spook advertisers, many of whom already find Twitter’s brand safety tools to be lacking compared with other social platforms,” Enberg said.

Having more relevant ads is “a noble goal, but one that is difficult to accomplish,” Enberg said.

“Musk is set to acquire Twitter at a time when data is already scarce and users are highly skeptical of forking over more personal information to social platforms.”