Aurelia Butler

The gulf between price pressures in the US and the UK is likely to widen to levels not seen since the late 1970s this week, as Britain increasingly becomes a global inflationary outlier. Figures out last week confirmed US consumer price inflation is abating fast, with the annual figure for June falling to a two-year low of 3 per cent. That contrasts with economists’ expectations that last month’s CPI reading for the UK, due out on Wednesday, will come in at above 8 per cent. As of Friday afternoon, economists polled by Reuters expected, on average, a figure of 8.2 per cent for June. If they are right, that would mean UK inflation is now 5.2 percentage points higher than in the US — the widest gap since November 1977, when the country was beset by economic stagnation and political strife. “The drop in US inflation shines a light on the UK’s persistent inflation problem,” said Victoria Scholar, head of investment at Interactive Investor, an online investment service.

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Economists blame a combination of EU-style high energy prices and US-style labour shortages for the UK becoming the G7 economy most plagued by inflation. “Inflation is higher in the UK than the US because it has suffered a worse energy shock, worse labour shortages, and goods inflation rose later and subsequently started to fall later than in the US,” said Simon MacAdam, economist at research firm Capital Economics. Food price inflation, another important aspect of the surge in global prices, has also fallen faster in the US and much of Europe — partially because of Britain’s reliance on imports and weather limiting crop supplies. Historically the US and UK inflation measures have tended to track one another. However, over the past year, a gap has emerged. US inflation began declining during the autumn of 2022 after hitting its highest level in decades last June on the back of falling energy costs and slowing food inflation, while UK inflation continued to climb during the autumn on the back of a surge in European energy prices and accelerating services price growth. While UK inflation has declined since hitting a peak of 11.1 per cent in October, it has done so less dramatically than elsewhere in Europe. In the eurozone, where inflation hit a high of 10.6 per cent last October, the annual rate is now 5.5 per cent with price growth in Spain falling even below the European Central Bank’s target of 2 per cent.

In emerging markets, inflation is also plummeting as the after effects of the coronavirus pandemic and surge in commodity prices during the early stages of the Ukraine war drop out of indices. In Brazil, price pressures fell from more than 12 per cent in April 2022 to only 3.2 per cent in June. In China, price pressures are non-existent, with the world’s manufacturer-in-chief immune to the surge in producer prices that has contributed to inflationary pressures elsewhere. It also has substantial stores of grain and continues to purchase large amounts of energy from Russia. The widening gap between the UK and the US comes despite the Bank of England abandoning its near-zero interest rate policy ahead of the Federal Reserve.

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The Fed first raised rates in March 2022, while the BoE’s hikes began in the autumn of 2021. However, the Fed moved more quickly once it started to tighten, raising rates by 5 percentage points in just over one year. The ECB did not begin raising interest rates until the summer of 2022. Susannah Streeter, senior investment analyst at asset manager Hargreaves Lansdown, said strong wage growth raised the prospect of inflation remaining high for some time yet in the UK, “especially with consumer spending proving to be far more resilient than forecast”. More

SYDNEY (Reuters) – A bruised dollar took respite on Monday after suffering its worst weekly drop of the year, as traders waited on economic data and policy decisions before selling it down any further.Chinese growth data and loan-rate settings are due later in the session, ahead of U.S. retail sales and British inflation later in the week and a slew of central bank meetings next week.The euro, which jumped 2.4% last week to a 16-month high, held just below that peak at $1.1228. The yen, also up 2.4% last week, held at 138.69 per dollar.The dollar’s slide began with yen buying, as investors unwound yen-funded positions in emerging markets, but extended sharply after softer-than-expected U.S. inflation data leant support to wagers that U.S. interest rates will soon peak.Hikes are expected from the Federal Reserve and European Central Bank next week, but beyond that market pricing implies the Fed will likely stop, before cuts next year, while in Europe another hike probably beckons.”The FX market is front running possible normalisation of Fed policy in 2024,” said Chris Weston, head of research at broker Pepperstone in Melbourne.”The question then is whether the dollar sell-off has gone too far and we are at risk of mean reversion early this week.”The U.S. dollar index dropped 2.2% last week, its sharpest one-week fall since November, and was steady at 99.956 early in the Asia session on Monday.The Australian dollar has come back from last week’s top of $0.6895 to trade at $0.6830 on Monday and likewise at $0.6364 the New Zealand dollar was below Friday’s five-month peak of $0.6412.The Antipodeans could face pressure if Chinese data disappoints. Elsewhere the dollar moves have been so large that a short-term breather may be in order.Sharp (OTC:SHCAY) gains in the yen have slowed as traders weigh whether the ultra-dovish Bank of Japan is really likely to make any shifts at its policy meeting next week, given rhetoric suggests they are in no hurry. The Swedish and Norwegian crowns made gains of more than 5% on the dollar last week. At $1.3089 sterling was parked just below last week’s 15-month peak.”The dollar may remain on the backfoot as the market re-positions itself for a less hawkish Fed,” said Rabobank’s head of FX strategy, Jane Foley.”That said, the outlook for the latter few months of the year is less clear cut,” she said.”By then other major central banks including the ECB will also likely have reached their peak policy rates … interest rate dynamics may therefore swing back in favour of the dollar.” More

LONDON (Reuters) – Finance executives at top British firms have turned more cautious in the face of high inflation and rising interest rates and they expect a slowdown in hiring and pay growth, a survey showed on Monday. A quarterly survey by Deloitte found the difference between chief financial officers who were more optimistic about their businesses’ prospects and those who were less optimistic stood at -10 percentage points, a sharp change from +25 three months earlier.”The burst of business optimism seen in the spring has faded under the weight of inflation and rising interest rates,” Deloitte’s chief economist, Ian Stewart, said. “Corporates have responded with an increasing focus on cost reduction and cash control.”The survey showed early signs of cooling in the labour market with CFOs signalling a further easing in recruitment difficulties and a slowdown in wage growth.The Bank of England has said the pace of wage growth is too high and it is monitoring the labour market closely as it considers whether to raise borrowing costs for the 14th time in a row on Aug. 3 in an attempt to combat high inflation.Tight monetary policy was seen by the CFOs as the main threat to their business, overtaking concerns around geopolitics and energy prices that have dominated for the past two years.The survey of 69 CFOs – 13 of them from FTSE 100 firms and 21 from FTSE 250 companies – was conducted between June 15 and June 27.Separately on Monday, the Confederation of British Industry said Britain’s economy could get a boost of as much as 57 billion pounds ($75 billion), or 2.4% of GDP, by 2030 if the country capitalises on green growth opportunities.The CBI called on the government to deliver a clear and stable policy environment and offer incentives for investment, among other measures.”With a pivotal general election fast approaching, all parties should be on red alert for green growth and put it at the very heart of their manifestos,” CBI Director-General Rain Newton-Smith said.($1 = 0.7625 pounds) More

Property website Rightmove (OTC:RTMVY) said average asking prices of homes coming onto the market declined by 0.2% last month, compared with the 0% norm for this time of the year. Tim Bannister, director of property science at Rightmove, said stubborn inflation and further mortgage rate rises contributed to the fall in prices and number of agreed sales.Britain’s housing market has been hit by rapid increases in interest rates, which financial markets expect to rise to 6.25% by the end of this year from 5% now, adding to pressure on homeowners and buyers. “The interest-rate brakes being applied more strongly to slow the economy are now beginning to bite in the housing market,” Bannister said.House prices have also shown the impact from higher rates, with mortgage lenders Nationwide and Halifax both reporting falls in annual prices in June as buyer demand softened.The Bank of England, which has raised interest rates at its last 13 meetings, is tasked with brining persistent inflation, running at 8.7% in May, back to its 2% target. The central bank increased its Bank Rate by more than expected to 5% in June, pushing up the cost of mortgage borrowing. Average two-year fixed mortgage rates reached a 15-year high last week. Righmove’s monthly survey showed buyer demand remained resilient this month, up 3% compared to the pre-COVID market of 2019. “There remains a large volume of motivated buyers who can factor rate rises into their budgets and are continuing to enquire about homes for sale, which is keeping the market functioning,” Bannister said. More

Good morning. Microsoft has moved a step closer to sealing its contentious $75bn purchase of Activision Blizzard with the announcement that arch-rival Sony has signed a licence for the games company’s most popular title, Call of Duty, after the deal is completed.The agreement signalled a truce between the two gaming giants after a bruising 18-month battle that had seen the Japanese company become the biggest opponent to the acquisition. It follows regulatory breakthroughs for Microsoft on both sides of the Atlantic last week that have left it on brink of clinching victory for a deal that is expected to reshape the gaming industry.The pact appeared to resolve Sony’s biggest complaint about the acquisition, which it has said would hurt competition by giving Microsoft the power to make Call of Duty exclusive to its own Xbox game console and other services. The weekend agreement followed the failure late on Friday of a last-ditch legal attempt by US regulators to prevent the deal from closing.Phil Spencer, head of Microsoft’s Xbox gaming division, said on Twitter that the companies had signed “a binding agreement to keep Call of Duty on PlayStation following the acquisition”. Sony later confirmed the new licence, though both sides refused to give further details.Here’s what else I’m keeping tabs on today: China GDP: The world’s second-largest economy publishes its second-quarter gross domestic product growth data. Economists will be closely watching for clues about the underlying health of China’s economy as it struggles to recover from strict Covid controls last year.John Kerry in Beijing: The US climate envoy is visiting China to restart stalled negotiations over global warming between the world’s two largest polluters. Dyson lawsuit: London’s High Court will hear forced-labour claims against Dyson by 23 migrant workers and the estate of one deceased employee at the vacuum cleaner manufacturer’s Johor factory in Malaysia.Japan: Financial markets are closed for Marine Day.Five more top stories1. Top Biden administration officials have dimmed hopes of an immediate easing of tariffs against China. US Treasury secretary Janet Yellen said she was eager to work more closely with Beijing on areas of “mutual concern”, but that it is “premature” to relax trade restrictions. National security adviser Jake Sullivan called China’s move to impose export controls on two metals critical to semiconductors “self-defeating.”2. Moscow has taken control of the Russian subsidiaries of Danone and of Carlsberg’s Baltika Breweries, according to a decree signed into law by President Vladimir Putin. The move marks the first time that Russia has seized the subsidiaries of western businesses since it took over Finland’s Fortum and Germany’s Uniper in April. Read more on the Russian confiscations. iPhone ban: Russian authorities have banned thousands of state officials from using iPhones and other Apple products as a crackdown against the American tech company intensifies over espionage concerns.3. Exclusive: Czech billionaire Daniel Křetínský is poised to win the battle for control of Casino after a trio of investors led by billionaire Xavier Niel dropped out of the running to bail out the heavily-indebted French food retailer. Křetínský told the FT that he had submitted a revised offer to Casino as part of the company’s voluntary debt restructuring negotiation with creditors. Here’s what Křetínský’s new offer would mean for Casino. 4. “Rats” is how Hong Kong leader John Lee has taken to referring to a group of eight pro-democracy activists with a combined bounty of $1mn on their heads. Meanwhile, Lee is also the jovial face of a “Hello Hong Kong” government campaign drawing international visitors. Here’s why Lee’s hard line stance could hinder attempts to restore confidence in Hong Kong’s financial hub status. 5. UBS executives have chosen EY for one of the world’s most lucrative banking audit contracts after deciding to retain the Big Four firm following its takeover of Credit Suisse. The size of the contract means EY will have to call in staff from other countries to work on the audit, two people said. Read the full story. News in-depth

Global companies are racing to decouple China data in response to the country’s increasingly stringent data and anti-espionage laws, as relations between Washington and Beijing deteriorate. Here’s what “concerned” multinationals are doing to hive off their systems. We’re also reading . . . Wimbledon: Young Spanish tennis star Carlos Alcaraz defeated Novak Djokovic in an epic five-set battle to win his first Wimbledon men’s title.Hollywood strike: Writers and actors are picketing together in the industry’s biggest strike in 60 years as they protest against reduced pay in the streaming era and the threat of AI. Adam Posen: The economist warns about the flaws of the Inflation Reduction Act and viewing industrial competition as a zero-sum game. Read the full interview. Anti-social social media: Apps such as Mark Zuckerberg’s Threads are a stage for brands and celebrities, not a network for friends to connect, writes Elaine Moore. Chart of the dayTurkey has tripled petrol taxes as the government tries to raise money to recoup the cost of huge giveaways ahead of May’s election and fund reconstruction costing up to $100bn after February’s devastating earthquake. The increase pushed up petrol prices at the pump by about 20 per cent, data from state oil company Turkish Petroleum showed. Take a break from the newsEveryone complains about tourists. But following the pandemic, international travel is reviving unexpectedly fast and complaints about overcrowding and cultural insensitivity are getting louder. Now some destinations are trying to repel tourists.

Visitors to the Louvre in Paris crowd in front of the Mona Lisa in May 2022 © Magali Cohen/Hans Lucas

Additional contributions by Tee Zhuo and Gordon Smith More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.The macro and market week in Asia starts with a bang on Monday, with a raft of top-tier economic indicators from China culminating in second-quarter GDP growth data.Just how weak has the world’s second largest economy been recently, and will that be enough to dampen the growing optimism that the U.S. economy is heading for a ‘soft landing’?A raft of Chinese economic indicators for June – investment, retail sales, industrial production and unemployment – will be released on Monday, as well as the second-quarter GDP report.A Reuters poll of economists suggests growth slowed significantly. The consensus view of 0.5% expansion over the first quarter is much lower than the 2.2% quarter-on-quarter growth in the January-March period, which captured the initial bounce after lockdown restrictions were lifted.Year-on-year growth is expected to come in at a more impressive 7.3%, but that is inflated by base effects from the low level of growth in the same period last year.Any optimism there was early this year has evaporated. Activity has slowed, the economy is sliding towards deflation, and investors have shunned China’s stocks, bond and currency. China’s economic surprises index last week hit a one year-low.Later in the week China’s central bank sets its key one- and five-year lending rates. A sub-consensus Q2 GDP print on Monday could tilt expectations toward further easing. Looking beyond China, inflation data from Japan and New Zealand on Friday and Wednesday, respectively, and unemployment figures from Australia on Thursday will be the most important points on the regional calendar for investors this week.These come amid a renewed wave of bullish sentiment across local and world markets, in large part stemming from surprisingly tame U.S. inflation data. The dollar and U.S. bond yields have slumped, stocks and risk appetite have taken off.According to Goldman Sachs (NYSE:GS)’s financial conditions indexes, global financial conditions are the loosest since April last year, and emerging market financial conditions are now the loosest since February last year.Little wonder the MSCI World stock index jumped 3.4% last week, its best week since March, and the MSCI Asia ex-Japan index rallied 5.6%, its best week since November and finally showing signs of catching up after underperforming all year.The early stages of the second-quarter U.S. earnings season have also helped sustain the positive mood. Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS), Goldman Sachs, Tesla (NASDAQ:TSLA) and Netflix (NASDAQ:NFLX) are among the big names reporting in a busier reporting schedule this week. Here are key developments that could provide more direction to markets on Monday:- China GDP (Q2)- China investment, retail sales, industrial production, unemployment (June)- Indonesia trade (June) (By Jamie McGeever; Editing by) More