Aurelia Butler

President Xi Jinping launched the common prosperity drive in 2021 as an effort to reduce income inequality, which could threaten long-term economic growth and even the legitimacy of Communist Party rule.Bank of China didn’t immediately reply to a Reuters’ request for comment. The move follows pay cuts being made at investment banks such as China International Capital Corp (CICC).Commercial banks have suffered record low profit margins due to disruptions from the embattled property sector and local government debt risks in a faltering economy.The sources said Bank of China has launched an internal “salary management system reform plan”, after an inspection team under the Central Commission for Discipline Inspection found the bank’s pay system has issues of “wealth inequality” in several rounds of investigations since late last year. The sources declined to be named as they were not authorized to speak with media.Two of the sources said the bank had finished implementing the plan at its headquarters in the first half of the year.It is now rolling out the plan to its branches across the country and plans to complete that process within the next two years, according to an internal notice seen by one of the sources.Under the plan, the salary package for employees below mid-level managers was raised by about 10% to 15%, and salaries for higher-level managers were reduced by a similar range, a second source said. A third source said the bank’s Shanghai branch staff last week received notice that the bank would be reducing pay gaps there.The move also comes as a surprise to state bankers, who generally earn less than peers at investment banks and other local financial institutions and who were spared from pay cuts last year after Beijing called for the promotion of common prosperity. More

WASHINGTON (Reuters) – Pessimists watching the Federal Reserve battle inflation have focused on the so-called “last-mile” problem, convinced a full return to the U.S. central bank’s 2% inflation target will require a recession and significant job losses to cool ongoing price rises.History is on their side, with academic studies and other research concluding the levels of inflation seen over the last two years can’t be fixed without a downturn, and prominent economists projecting a jump in the U.S. unemployment rate to between 5% and 10% from the current 3.5% – with millions out of work – might be the price that’s paid.As a counterpoint, however, Brent Meyer, the Atlanta Fed’s assistant vice president and chief inflation watcher, suggests in a new analysis that the road to 2% inflation may in fact be smooth, rather than filled with the setbacks and difficult choices many Fed officials have said they expect.It’s true that some of the main headline price measures have been sticky. The personal consumption expenditures price index stripped of food and energy was stuck in the comparatively high 4.6%-4.7% range for six months before finally falling in June to 4.1%, a fact some policymakers took as evidence the return to the Fed’s target would be slow.But the annual headline numbers can mask developing trends, and Meyer said the just-released consumer price index report for July showed the breadth of inflation narrowing and its pace moderating in ways he felt could continue.By his calculation, for example, a rising share of goods, currently about 18.3% of the CPI “basket,” is now in what he calls an inflation “sweet spot,” with prices increasing between 1% and 3%. Assuming that shelter cost inflation continues to fall, the share of goods where prices are rising more than 5%, presently about 38% of the basket, could be more than halved.He added that inflation for services less energy and shelter costs, known as the “supercore” and an area of particular concern for the Fed, has by his calculation been increasing over the last three months at just a 2% annual rate. Since CPI inflation tends to be faster than the PCE measures that the Fed uses to set its inflation target, that means one important area of policymaker focus may have dipped below target already.If that continues, “it’s possible that we could cover that last mile fairly quickly,” Meyer wrote.RENTS TO THE RESCUE? Meyer is not alone among economists who see some positive inflation trends in the making. The cost of shelter, for example, accounts for about a third of the CPI, and after playing a central role in driving inflation higher early in the coronavirus pandemic it is now expected to help moderate it.The behavior of the single-family housing market has in some ways beat expectations. Home price indices are rising after only a brief period of decline despite a jump in mortgage rates fueled by the Fed’s interest rate hikes since March 2022. The average 30-year fixed mortgage rate rose to more than 7% last October and was just under that level in the latest week. But the pace of increase pales against the double-digit gains in 2021, and the inflation rate for rental housing has also slowed. Because of how the inflation indices are assembled, it takes time for those changes to appear in the headline numbers. A recent study by San Francisco Fed economists, using real-time housing and rent data from companies like Zillow, projected “a sharp turnaround in shelter inflation” through late next year.Compared with increases running as high as 8% annually, the pace of shelter inflation should fall below 5%, and possibly even turn negative, they estimated, “with important implications for the behavior of overall inflation.”Two versions of the San Francisco estimates show shelter inflation hitting 0% next year, well below the 3%-to-4% range that Meyer said could help the Fed traverse its last inflation mile more quickly.BACK TO NORMAL?Other aspects of the economy may also be snapping into place, a possible late-arriving validation of the Fed’s initial expectation that rising inflation in 2021 would prove “transitory.”Supply chain pressures have eased, and as that has happened changes in goods prices have also slowed and helped pull down the headline inflation number. The road may not be fully clear. Data released on Friday showed the prices paid by producers in July rose more than expected, which may mean core PCE will go up again in July from the 4.1% reading in June. That would be a blow for the many Fed officials who want to see steady declines in the main inflation indicators before putting further rate increases on hold. The recent producer price index report “offers the hawkish wing of the Fed more ammunition to advocate for another rate hike,” said Quincy Krosby, chief global strategist for LPL Financial (NASDAQ:LPLA). But just as Fed officials were surprised by the rapid run-up of inflation beginning in 2021, they’ve been surprised at the economy’s resilience to the rapid run-up of interest rates they’ve engineered, and surprised at the progress they have made on inflation so far without clear damage to the job market or economic output.Fed officials like Governor Christopher Waller have sketched out theoretical reasons for why that could continue, arguing that pandemic-era closures created so many extreme pressures in the economy that a simple return to normal – in the demand for workers, for example – could allow prices to cool without much harm to employment or economic growth.Additionally, staff economists at the Richmond Fed last week said the central bank is in “uncharted” territory historically given the progress made in lowering inflation without any significant rise in unemployment.Looking at past Fed interest rate cycles, they noted that since the 1980s the unemployment rate has been less volatile through each one – good news for officials hoping they can pull inflation back to target without a heavy price paid by workers. Can it continue?Meyer said it may be “overly optimistic” to expect a trouble-free return to the 2% target.Still, “the underlying details … point to good news.” More

A severe drought in Panama is leading to unusually long delays and tough restrictions along one of the world’s most important trade routes, illustrating the challenge climate change poses to global commerce.High temperatures and one of the driest years on record have led authorities in the Central American country, which is usually one of the world’s wettest, to lower the number of crossings and bar ships with heavy loads from using the Panama Canal.The restrictions — rare during Panama’s wet season, which lasts from May to December — have led big carriers including German group Hapag-Lloyd to announce surcharges for routes that rely on the gateway between the Atlantic and Pacific. While lower demand for goods exports has lessened the impact, vessels with loads still light enough to use it are facing extended waits of more than two weeks.“The Panama Canal is really the wild card in the container shipping market right now,” said Peter Sand, chief analyst at Xeneta. “Shippers should consider their options and manage their risks as Panama congestion is on the rise.”More than 3 per cent of world trade by volume, including liquid gas from the US and soft fruits from South America, passes through the nearly 110-year-old canal, which also provides essential income for Central America’s richest country per head of population.Up to 29 per cent of container trade crossing the Pacific travels through the canal, according to data provider MDS Transmodal.The restrictions, which have been increasing throughout the year, will now be in place into 2024 barring unexpected weather changes, the canal authority said on Thursday. The limit on the number of transits came in July, just as carriers were set to increase trade ahead of Black Friday and Christmas in the US.“If all of a sudden our customers see a stronger-than-expected demand for [Christmas goods], then of course you want to have the ability to try and inject more capacity,” said Lars Ostergaard Nielsen, Maersk’s head of customer delivery in the Americas, based in Panama, adding that doing so had “become a little bit harder” with the restrictions.The Panama Canal is the only big maritime route dependent on freshwater, with more than 50mn gallons needed for each ship to cross.The canal’s locks rely on reservoirs. But the first half of the year was the second driest in almost a century in the canal’s watershed, according to the Smithsonian Tropical Research Institute. The drought led Panama to declare an environmental state of emergency in May.The lack of water pushed the Panama Canal Authority, or ACP, to toughen restrictions and in May it imposed a depth limit of 44 feet on the largest ships, capping the amount of cargo they can carry. From the end of July it also limited daily crossings to 32, down from an average of 36.That had contributed to a backlog of 264 ships waiting to cross the canal on Friday, a 16 per cent increase compared with the same day last year, according to shipment tracker MarineTraffic.Average waiting times for larger tankers carrying liquefied natural gas north through the canal increased from eight days as of July 10 to 18 days as of Thursday, according to shipping agency Norton Lilly.The ACP said on Thursday that it was limiting pre-booked slots for crossings to ease congestion for ships without reservations, and noted that demand was still high despite the restrictions.The average cost of sending a 40ft container from China to the US Gulf Coast via the canal at short notice has risen 36 per cent to $2,400 since the end of June, according to data provider Xeneta.Industry executives said tankers carrying liquid gas were more likely to be disrupted, as container carriers often book access to the canal months in advance.Michael Aldwell, an executive in the sea logistics business at Kuehne+Nagel, said the freight forwarder had advised customers that containers travelling between Asia and the US could be diverted to the Suez Canal if necessary, although experts say this could add a week to journey times.The prospect of further delays could also affect time-sensitive food deliveries from the South American west coast to Europe. Food and drink made up 77 per cent of container shipments between these regions last year, according to MDS Transmodal.“If shipping lines have to find a different way of moving fruit and veg, that will cost money,” said Antonella Teodoro, a consultant at MDS Transmodal. “[This] definitely doesn’t help food inflation.”Global temperatures have soared this year, with countries battling extreme heatwaves and flooding. July was the hottest month ever recorded, according to the European earth observation agency.Panama is also affected by El Niño, which happens every two to seven years. It warms the Pacific Ocean’s surface, changing temperature and rainfall patterns and is expected to exacerbate the effects of climate change.This is not the first time the Panama Canal has imposed depth restrictions. But the fact that the restrictions were in place during the rainy season was highly unusual, Steve Paton, director of the physical monitoring programme at the Smithsonian Institution in Panama City, said, adding that the next dry season was “looking very, very problematic”.Tourists observe the Agua Clara locks in the Panama Canal. The first half of the year was the second driest in almost a century in the canal’s watershed © Carlos Lemos/EPA-EFE/ShutterstockThe ACP — owned by Panama’s government — has been working on the looming water problem for years. It introduced a freshwater surcharge in 2020, and in 2021 hired the US Army Corps of Engineers to advise on its water supply programme.Ilya Espino de Marotta, the canal’s deputy administrator, said short- and long-term measures were being taken to secure water supply. Discussions have stepped up over solutions in recent weeks, with a new reservoir in the Rio Indio region one of the leading options, she said. Espino de Marotta said this would mitigate issues until 2075.“We are seeing a pattern that tells us we need to take action now on a significantly bigger project to avoid these situations,” she said. “It’s a somewhat bitter pill now but we are definitely going to take action soon.”The canal finished a $5bn expansion in 2016 to make room for larger ships. Now these vessels, which have become increasingly important to trade through the passage, are more likely to be affected by the restrictions due to their heavier loads. The curbs could cost the canal up to $200mn in lost revenue this year, according to the ACP.The freshwater sources the canal relies on are not just used for trade. More than 2mn Panamanians get their drinking water from its watershed, creating a potential tension as scarcity grows.To mitigate the water problem, continuing to protect the forest around the canal, which acts like a “sponge” by storing water for the dry season, was vital, said Paton at the Smithsonian Institution.In the short-term, the shipping and logistics world is bracing for more frequent disruptions. “Engineering-wise, I don’t know if there is a solution,” said Jonathan Roach, container market analyst at shipbroker Braemar. “It’s likely to be a continuing problem. It’s going to happen again and again.”Panama has been working to shake off its reputation as a global haven for shady money and is burnishing its environmental credentials. It is now one of just three countries in the world which is carbon negative, along with Bhutan and Suriname. More

1. China’s property sector woes deepenChinese residential real estate giant Country Garden (HK:2007) suspended trading in more than ten of its onshore bonds on Monday, sparking a sell-off in the company’s Hong Kong-listed shares as well as other stocks exposed to the country’s ailing property sector.Media in China reported that Country Garden, once China’s largest developer by sales, is also seeking a potential debt structuring after it warned of a sharp loss in the first half of 2023.Taken in conjunction with peer Evergrande (HK:3333), which last month reported combined losses of more than $81 billion in 2021 and 2022, the ongoing issues in China’s real estate sector now seem to be intensifying. The industry has been severely hit by a liquidity crisis fueled by a slowdown in buyer demand, which has in turn weighed on the post-pandemic recovery of the world’s second biggest economy.Longfor Properties (HK:0960) and Seazen Group (HK:1030), two other Chinese real estate firms currently considered to be financially healthy, saw their shares and bonds dip on Monday.China’s government has chosen not to step in to bail out the struggling property businesses yet, but the issues at Country Garden, Evergrande, and elsewhere have spurred on calls for Beijing to provide more support.2. Goldman Sachs’ Fed outlookThe Federal Reserve is expected to start slashing interest rates again by the end of next June, according to predictions from economists at Goldman Sachs (NYSE:GS).In a note to clients over the weekend, the investment banking giant forecast that the Fed will roll out gradual reductions in borrowing costs every quarter after that month.Over a shorter term, Goldman sees the U.S. central bank foregoing a rate rise at its next meeting in September and then declaring in November that a moderation in inflation means that a final hike would be “unnecessary.”Data last week showed that growth in consumer prices in July cooled by more than anticipated on an annual basis, bolstering the case for policymakers to step back from a long-standing tightening cycle that began in March 2022. Headline inflation has slowed significantly since peaking last summer, but still remains above the Fed’s stated 2% target.3. Futures edge higher with key earnings aheadU.S. stock futures inched into the green on Monday, as investors geared up for the release of quarterly results from big-box stores and retail sales data this week.By 05:07 ET (09:07 GMT), the Dow futures contract added 47 points or 0.13%, S&P 500 futures climbed by 9 points or 0.20%, and Nasdaq 100 futures rose by 54 points or 0.36%. Last week, both the benchmark S&P 500 and tech-heavy Nasdaq Composite slipped, although the Dow Jones Industrial Average moved higher.Traders will be keen to parse through earnings from Home Depot (NYSE:HD) on Tuesday, Target (NYSE:TGT) on Wednesday, Walmart (NYSE:WMT) on Thursday. The numbers will likely provide small snapshots of the current health of their U.S. customers, who have recently reined in spending on nonessential items amid broader inflationary pressures and elevated interest rates.A more comprehensive picture of consumers in the world’s largest economy will come on Tuesday when the Census Bureau releases its retail sales figures for July.4. Oil dips on stronger dollar, China fearsOil prices retreated on Monday, as concerns about China’s faltering economic recovery as well as a stronger dollar prompted profit-taking after seven weeks of gains on tightening supply from OPEC+ output cuts.Worries over an economic slowdown in top oil importer China weighed, following a string of weak economic readings from the country over the past two weeks. Turmoil in China’s beleaguered property market also cast a pall over sentiment.Meanwhile, the U.S. producer price index released late last week saw the dollar climb to a five-week high, which hurts demand for crude as it makes the commodity more expensive for international buyers.But losses in oil markets were limited as recent production cuts by Saudi Arabia and Russia pointed to tighter markets. Crude prices remained close to their strongest levels for the year.By 05:08 ET, U.S. crude futures traded 0.4% lower at $82.87 a barrel, while the Brent contract dropped 0.4% to $86.46.5. Tesla slashes some prices in ChinaTesla (NASDAQ:TSLA) has cut prices in China for two of its Model Y models, as the electric car maker attempts to combat increased competition and entice customers wary of making big purchases in an uncertain economy.Starting prices for both the Model Y long-range and performance models were reduced by 4.5% and 3.8%, respectively. Tesla also said it would offer insurance subsidies to buyers of its entry-level, rear-wheel drive Model 3 in China until the end of September.Sales of Tesla cars made in China dropped by 31% month-on-month in July, the first decline since December.The company has been offering deeper discounts both in and out of the country since late last year in a bid to protect market share, and Chief Executive Officer Elon Musk has hinted that it would continue to slash prices even if it crimps profit margins.In a call with analysts last month, Musk said it made sense to “sacrifice margins to make more vehicles,” arguing that the value of Tesla’s cars will go up once Tesla’s Full Self-Driving mode is perfected. More