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Pay inflation accelerating in Europe – Industry roundup: 10 November

Eurozone wage growth accelerating, but still lags inflation

Growth in wages across Europe has picked up this year to reach 5.2% in October, but still lags the eurozone inflation rate over 10%, according to a new pay tracker based on real-time data from online job postings.

It shows pay growth accelerating across six leading eurozone economies, including Germany and France. The tracker, compiled jointly by the Central Bank of Ireland (CBI) and job search website Indeed, shows the median wage cited in adverts was 5.2% higher at the end of October than a year earlier — up from annual growth of 4.2% in June 2022 and more than three times the average of 1.5% for 2019, the first year analysed by the tracker.

The latest indicators suggest wage growth in job postings has now plateaued at these higher levels. The accompanying report found many employers across Europe are starting to rethink their demand for staff as they balance the currently tight labour market against an increasingly uncertain and deteriorating economic outlook.

“While wage growth accelerated earlier this year, and employees dealing with a higher cost of living benefited from higher pay, our latest data shows signs that wage growth may be plateauing in Ireland and several other countries in Europe,” said Pawel Adrjan, economist at Indeed and co-author of the report with Reamonn Lydon, a CBI economist.

They highlighted the “extraordinarily high” wage growth in Germany, where posted wages in October were 7.1% higher than in October 2021. Wage growth in France was 4.7% over the same period. The new tracker also shows wage growth of 4% in Ireland and Italy, 3.9% in Spain and 3.8% in the Netherlands — although all have similar inflation rates to Germany’s, implying a bigger drop in living standards. Growth in posted wages in the UK, where vacancy rates are higher, has been above 6% since June.

As workers seek to offset soaring food and energy costs, the European Central Bank (ECB) is alert to signs of bigger pay rises that could prolong high inflation. Eurozone inflation hit a 40-year high of 10.7% last month and the central bank fears that a 1970s-style “wage-price spiral” will develop if workers and companies come to expect double-digit inflation.

Eurozone wage growth has been more modest than in the US and UK, where unemployment rates are lower and post-coronavirus pandemic labour shortages more acute. Nonetheless, the ECB expects growth in average wages to pick up from 4% in 2022 to 4.8% next year, reflecting tight labour markets, rising minimum wages in some countries and compensation for rising costs exacerbated by Russia’s war in Ukraine.

In addition, France and Germany have raised the minimum wage several times over the past year and offered employers tax breaks for one-off payments to help staff cope with rising living costs. European unions have also been more aggressive on pay, with demands with industrial action shutting down oil refineries in France last month and Germany’s IG Metall beginning warning strikes as it seeks an 8% wage rise for almost four million workers.

Investors fear fallout of potential FTX bankruptcy

Investors are reported to be alarmed that a potential bankruptcy of FTX, once the world’s third largest digital asset exchange by trading volume, will spill over to the already battered crypto and stock markets.

Major cryptocurrencies and stock indexes plunged Wednesday as Binance, the world’s largest crypto exchange, said it was abandoning a proposed deal to buy FTX. “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of,” the company announced on Twitter.

The Wall Street Journal reports that FTX faces a shortfall of up to US$8 billion due to withdrawal requests in recent says and according to Bloomberg, FTX’s chief executive Sam Bankman-Fried told investors that the company will be forced to file for bankruptcy in the absence of a cash injection. The news pushed the price of Bitcoin down more than 15% on Wednesday to $15,554, its lowest level since November 2020

Should FTX fail to secure a lifeline its collapse in the crypto industry would follow those of several other major players this year, including blockchain Terra, crypto lender Celsius and hedge fund Three Arrows. FTX acted as a white knight for multiple embattled digital asset companies earlier this year, including Voyager and BlockFi. The insolvency crisis of FTX might hurt investor sentiment even further, analysts said.

Trio launches Blue Mediterranean Partnership at COP27

Among initiatives announced at this week’s COP27 climate summit in Sharm el-Sheikh, the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) and the Union for the Mediterranean (UfM) announced the creation of the Blue Mediterranean Partnership, which aims to support the development of a sustainable blue economy in the European Union’s Southern Neighbourhood countries in the Mediterranean region.

The Blue Mediterranean Partnership is described as the partners’ response to the commitments made at EU level to fully integrate the blue economy into the Green Deal, the priorities outlined in the EU’s new Agenda for the Mediterranean, the Union for the Mediterranean ministerial declaration on sustainable blue economy and the UfM blue economy agenda as well as to the environmental challenges faced by the Mediterranean region. This partnership has received wide political support, including from the European Commission.

It aims to bring together international donors, beneficiary countries, interested financial institutions (IFIs) and philanthropies to support policy reforms, attract donor funding and mobilise public and private financing for projects initially in Egypt, Jordan and Morocco.

Egypt Minister of Environment and COP27 Envoy H.E. Dr. Yasmine Fouad said: “With the Red and Mediterranean seas, the Suez Canal and River Nile, Egypt understands the critical importance of a sustainable blue economy for the future development of our country. As host of COP27, we want to stress the integral role of the seas and oceans in climate action. The proposed Blue Mediterranean Partnership is fully aligned with our new National Climate Change Strategy 2050 and we are keen to cooperate with international partners and IFIs.”

The EBRD notes that the Mediterranean Sea basin is a recognised marine biodiversity hotspot and a vital resource of economic activities for 480 million people living in the region’s 22 countries. It is the fifth largest economy in the region after France, Italy, Spain and Turkey, generating an annual economic value of more than Us$450 billion. However, the Mediterranean Sea’s ecosystem is under threat from habitat loss and degradation, over-fishing, pollution and climate change. 

The Blue Mediterranean partnership will promote the Sustainable Blue Economy Finance Principles (SBEFP), the world’s first global guiding framework ensuring alignment of investments with the United Nations (UN) Sustainable Development Goal 14 “life below water”.

Citigroup cuts jobs across investment-banking arm

Citigroup is reported to have eliminated dozens of jobs across its investment banking division this week, as a dealmaking slump continues to weigh on Wall Street’s biggest banks.

The cuts impacted staffers globally within the investment-banking group, which includes its capital-markets arms, according to people with knowledge of the matter.

“We obviously will look at how the wallet continues to evolve and are very disciplined as it relates to expenses … [We are] very focused on ensuring that we have productive talent in our business,” Citigroup Chief Financial Officer Mark Mason told Bloomberg.

The reduction in headcount contrasts with the bank’s hiring spree earlier this year to boost its position in certain sectors, including health care and technology. Last month a further staffing shake-up was reported at Citi when its director of blockchain and digital assets, Alexander Kech, left the company to join role at Six Digital, a Swiss digital asset exchange.

China property crisis “puts US$1.6 trillion of local state debt at risk”

China’s growing property crisis is adding to the pressure on a $1.6 trillion corner of the country’s onshore bond market reports suggest, as cities and local administrations step in as white knights to bail out troubled developers in a state-backed bid to aid the sector.

Having replaced builders as the biggest buyers of land earlier this year, the nation’s so-called local government financing vehicles (LGFVs) have now become the main purchasers of half-finished projects of defaulters including China Evergrande Group. Their increasing Involvement in real estate has analysts raising red flags, with credit rating agency Moody’s stating that their credit risk could grow as a result.

Bloomberg has reported that the crisis has seen pessimism about China’s banking sector has reached an unprecedented level, even approaching the depths where US lenders traded during the 2008 financial crisis.

The four biggest lenders, including Industrial & Commercial Bank of China Ltd., are priced at near record low valuations of about 0.4 of their book value in Hong Kong after a sector index weakened to an 11-year low. That depressed level roughly matches where investors priced JPMorgan Chase, Bank of America and others in the depths of the global financial crisis.

The crisis in Chinese property dollar bonds that has become so extreme that an analyst who has covered the market since its inception in 2005 says meaningful analysis is no longer possible. “The proven investment approach is that it won’t go wrong being negative or more negative ahead of the market,” said Zhi Wei Feng, a senior analyst at Loomis Sayles Investments Asia Pte but the contagion has now extended to firms previously regarded as safe.

Four countries blowing cold on CBDCs

Amid reports of central banks around the world reaching various stages in the development of a central bank digital currency, at least four countries have either halted or scrapped their CBDC initiatives reports the website.

It comments that while many observers were pushing a narrative of urgency around CBDCs, some countries have decided that launching one isn’t yet necessary, while others have tested CBDCs only to dismiss them.

“Each country had its own reasons, with global central banks providing very different insights on why their CBDC-related project didn’t go well or didn’t need to launch in the first place,” notes Cointelegraph, which focuses on Denmark, Ecuador, Finland and Japan as countries that have either paused or ended their CBDC initiative.

Japan is the third wealthiest economy after the US and China, and also is the world’s third largest pension market. The Bank of Japan (BoJ) released its initial report on CBDC development in October 2020 and began testing in early 2021, planning to finish the first pilot phase by March 2022.

However, in January, former BoJ official Hiromi Yamaoka advised against using the digital yen as part of the country’s monetary policy, citing risks to financial stability.

In July 2022, the BoJ issued a report that stated it had no plan to issue a CBDC, the “strong preference for cash and high ratio of bank account holding in Japan.” The regulator also emphasixed that a CBDC, as a public good, “must complement and coexist” with private payment services in order for Japan to achieve secure and efficient payment and settlement systems.

“Nevertheless, the fact that CBDC is being seriously considered as a realistic future option in many countries must be taken seriously,” the report noted.

Lightyear and LHV partner on instant euro payments

European investment platform Lightyear, which aims “to bring seamless, low-cost access to global markets to everyone in Europe” is partnering with banking services provider LHV to power real-time euro payments.

Lightyear says that with the help of LHV, which processes 7% of the total Single Euro Payments Area (SEPA) instant transactions in Europe, it can give customers access to real-time Euro payments, among other banking services.

The scheme processes payments in seconds, at any time, helping LHV to be a “one-stop shop” for its fintech customers’ banking needs.

“LHV is partnering with fintechs to innovate and build a better financial system for customers in Estonia and now across Europe,” its chief technology officer (CTO) Mihkel Aamer said. “We share a similar approach to providing best-in-class customer experience — when it comes to payments and people’s money, it’s key to eliminate unnecessary delays and slow processing times.”

In addition to SEPA and SEPA instant payments, LHV will offer the fintech stock trading app safeguarding accounts, separating client funds from the company’s. Lightyear says that LHV will also provide EU operational accounts, designed to hold businesses’ operating funds, international SWIFT and payments in European Economic Area (EEA) currencies alongside virtual IBANs.

DWS introduces Paris Climate Agreement-aligned corporate bond ETFs

German asset management company DWS – spun off from Deutsche Bank in 2018 via an initial public offering (IPO) – has expanded its range of Xtrackers exchange traded funds (ETFs) where the indices tracked are aligned with the goals of the Paris Climate Agreement.

Specifically, the indices of seven existing Xtrackers ETFs have changed, which previously tracked the market for corporate bonds in Euro and US dollars with different maturities and focused on good environmental, social and corporate governance (ESG) standards.

These ETFs now track indices that meet the requirements for EU Paris Aligned Benchmarks (PAB). An ESG-related exclusion criteria will remain in place as well. The new indices are characterised by the fact that they aim to reduce carbon emissions. Specifically, the ETFs track Bloomberg-MSCI Euro/USD Corporate SRI PAB indices that target a 50% reduction in carbon emissions compared to an equivalent non-ESG market benchmark, as well as a continuous reduction in carbon intensity of 7% per year.

The benchmark index includes a semi-annual exclusion process based on bond issuer emissions in addition to the usual monthly rebalancing. The semi-annual process determines which issuers should be excluded from the benchmark Index to ensure compliance with the private activity bonds (PAB) Regulation.

“The addition of corporate bond indices aligned with the Paris Climate Agreement to our Xtrackers ETF range is an important step. This allows investors to build a portfolio across several asset classes that formulates concrete climate-oriented goals that are also documented,” said Simon Klein, Global Head of Passive Sales at DWS.

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