Stock markets all over the world were rocked when the People’s Bank of China’s devalued its currency by two percent for the second time. A poll of economists suggests many expect the Federal Reserve to hike interest rates. Consumers in the United States hit a record when it came to borrowing in June. The Kraft Heinz merger will lead to hefty job losses. And a recent report slammed Amazon’s workplace culture.
These are the five global business headlines from last week.
1. China Rocks Stock Markets with Yuan Devaluation
Is this a temporary hiccup in the roaring Chinese economy or is it just the beginning of the raging global currency war? Last week, the Chinese central bank announced that it would conduct a one-time two percent devaluation of its yuan and change the way it’s traded on the open market.
This move both shocked and rocked stock markets in every part of the world. China defended itself by arguing that it was a response to the market and its tumbling economy. Critics, including 2016 presidential candidate Donald Trump, say that China is purposely weakening its currency to reduce the cost of its imports.
Others also purport that China is just adding fuel to the fire known as the currency war. This means central banks are taking advantage of exchange rates to keep their currency more competitive in relation to global exports.
The billionaire real estate mogul and Republican presidential candidate told CNN that they’ll persist in debasing its currency "until they get it right," as quoted by Reuters, adding that a large cut in the renminbi would be "devastating for us."
“We have so much power over China,” he told the news outlet. “China has gotten rich off of us. China has rebuilt itself with the money it’s sucked out of the United States and the jobs that it’s sucked out of the United States.”
One economist opines that perhaps this is a form of foreign aid for the United States since it will now be a lot cheaper to purchase an array of goods from the world’s third largest economy.
2. Economists Expect Fed Rate Hike
Two polls of economists were conducted in the past week. The first poll showed that most economists expect the Federal Reserve to raise interest rates, while the second highlighted that most economists believe the Fed will increase interest rates. There you go!
First, a Reuters poll of economists suggested that 55 percent say the U.S. central bank would boost its short-term lending rate twice this year. The poll found that economists placed a 60 percent probability of a September rate hike, while economists pegged an 85 percent chance it would go higher before the end of the year.
Although the Fed is targeting 0.25 percent, economists are expecting 0.375 percent by the end of September and 0.625 percent by the end of 2015.
Second, a Wall Street Journal survey shows that 82 percent of economists believe the first rate increase will take place in September, while 13 percent say the Fed will bide its time until December.
Former Texas Republican Congressman and three-time presidential candidate Ron Paul, however, doesn’t think the Fed will raise rates this year, citing the yuan devaluation and a weak economic recovery. Speaking in an interview with CNBC last week, Paul noted that Janet Yellen, the Federal Reserve’s Chair, will have a plethora of excuses for not raising rates.
“She’s going to be more hesitant to raise rates because she sees how fragile the global economy is,” Paul said. “She’s under the gun. I could be wrong, but I don’t think they are going to raise interest rates… I think there’s going to be enough problems existing, whether it’s the Chinese precipitating some crisis, or whether it’s our economy breaking down.”
3. U.S. Consumer Borrowing Hits Record
U.S. consumers have returned to their borrowing ways. A new report by the Federal Reserve finds that consumer borrowing hit a record in the month of June. The report discovered that Americans added an additional $20.7 billion to their debt loads.
This means the total consumer borrowing reached a record of $3.42 trillion.
The central bank noted that borrowing in the category that includes auto and student loans inched higher by $15.2 billion. The category that includes credit cards, meanwhile, jumped by $5.5 billion.
Financial experts make the case that we’re going to see this trend precipitate throughout the rest of the year as consumers are more confident of the economy and will therefore borrow and spend more. This is an important finding considering that consumption accounts for 70 percent of the U.S. economy.
The news comes as the Department Labor reported that the economy created more than 200,000 jobs in July, but the unemployment rate remained unchanged at 5.3 percent, a seven-year low.
4. Kraft Heinz Slashes Jobs Following Merger
The Kraft Heinz stock is roaring, but about 2,500 employees won’t be feeling it.
The company announced last week that it was cutting roughly 2,500 jobs in the U.S. and Canada as part of its restructuring process following the merger of the two companies. These workers, who are salaried and not working in the factories, are expected to be contacted in person.
It’s expected that 700 of the job cuts would take place in Kraft’s soon-to-be former headquarters in Northfield, Illinois. The company did not elaborate on where the other cuts would take place.
Prior to the job cuts, a total of roughly 46,600 employees were involved in the Kraft Heinz company. Heinz also maintained two operations in St. Mary’s and Toronto, Ontario, in addition to a small office in Leamington, Ontario. Overall, Kraft had about 2,000 Canadian employees with three distribution centers and two manufacturing and process facilities.
Kraft Heinz projects it will save $1.7 billion by 2017.
Synergies often lead to duplications of jobs. When two companies merger, it then creates two positions when one would suffice. There would be two HR managers, two factory supervisors, two CEOs, and so on. As part of the process, at least one other position is eliminated.
5. New York Times Piece Lambasts Amazon Culture
Amazon may be one of the richest and most celebrated brands in the world today, but a new exposé suggests that things may not be entirely peachy within the confines of the workplace.
According to an article published in the The New York Times, workers cry at their desks, employees clock in 80 hours per week, and many work several days in a row without any sleep. This is life at Amazon, at least according to the newspaper article.
The 5,600-word article contained interviews with many of the company’s managers and subordinates. Here are just some of the revelations from the investigative report:
- Bosses perform regular firings at random to keep employees on their toes.
- A worker with breast cancer was placed on a "performance improvement plan".
- A worker who had a stillborn child was also placed on a "performance improvement plan" to encourage her to keep focused on the job.
- Workers are encouraged to snitch on each other to keep their jobs.
- An employee who suffered a miscarriage was told to start seeking employment elsewhere.
- One employee saw nearly all his coworkers cry at their desks.
"The sheer number of innovations means things go wrong, you need to rectify, and then explain, and heaven help if you got an email from Jeff," said former Amazon engineer Jason Merkoski. "It’s as if you’ve got the CEO of the company in bed with you at 3am breathing down your neck.”
High-level Amazon employees dismissed the claims and said it was just "reader bait" for The New York Times. Amazon CEO Jeff Bezos, who founded Amazon as an online bookstore, defended the company and encouraged the workforce to read the article "carefully."
"The article doesn’t describe the Amazon I know or the caring Amazonians I work with every day," Bezos said in a memo. "But if you know of any stories like those reported, I want you to escalate to HR."
These were the major business headlines from last week. Did we miss anything? Let us know in the comments section below!