Aurelia Butler

China is crucial to Apple in two ways. First, for manufacturing; second, for sales. So far, the company has navigated the tit-for-tat tech fight between the US and China with remarkable success. But it has increased its dependence on the country in the process. Despite deteriorating US-China relations, Chinese sales are now almost half as big as those in Apple’s “Americas” market, up from just over a third in 2019. This week, Apple made a move to further bump up revenues by selling its products on popular Chinese social media platform WeChat’s online store. Like Tesla, Apple is a US company that outsells domestic rivals, aided by price cuts. The focus makes sense. China is the world’s biggest market for smartphones, just as it is for electric vehicles. Even as phone sales dipped last year, Apple’s own sales grew. Its iPhones accounted for 18 per cent of all Chinese smartphones sold in the first half of June, according to Counterpoint research. All the while, Apple is trying to prove to the US that it can disentangle its supply chain from China and bring production onshore. In 2018, it announced plans to invest $350bn in the US economy, later boosted to $430bn. A recent deal with Broadcom to make 5G phone chips in US states is part of this plan. China’s multiple Covid-19 lockdowns spurred interest in alternative production sites, particularly in India. But wholesale diversification away from China remains a pipe dream. Apple still manufactures more than 90 per cent of iPhones in China, according to data from IDC. Note too that its newest product, the “mixed reality” Vision Pro headset, is being assembled by Luxshare, a Chinese contract manufacturer. US tech companies including Nvidia have warned that US policies that restrict Chinese access to US technology risk damaging American businesses. This year, the Cyberspace Administration of China banned operators of key infrastructure from buying chipmaker Micron’s products, for example. The Idaho company’s reaction was to announce more investment in Chinese manufacturing. For the US, China is both customer and supplier. Washington cannot change the relationship with one without having an impact on the other. Nor can Apple. When it comes to leaving China, the company’s best bet is to continue with its strategy of all talk, little action. More

BUENOS AIRES (Reuters) -An Argentine team is traveling on Tuesday to the United States to meet with officials from the International Monetary Fund (IMF) to negotiate terms to relax the agreement between the two, a source at Argentina’s economy ministry said.Argentina, Latin America’s third-largest economy, is looking for fresh cash injections through the end of the year and to modify requirements imposed by the IMF under the framework of a $44 billion loan.The trip comes as Argentina faces an economic crisis, with inflation expected to hit 142% this year and central bank reserves dwindling.”Yes, a team is traveling (Tuesday),” the source, who is involved in the decision, told Reuters.The IMF did not immediately respond to a request for comment.The fund on Friday said talks are focused on aiding Argentina in rebuilding foreign cash reserves and improving fiscal stability following the economic hit from a fierce drought.The grains-producing giant lost out on an estimated $20 billion due to the drought’s impact on soybean and corn crops, Argentina’s main source of export income. Last month Argentina was forced to make a $2.7 billion debt payment to the IMF using the last of its Special Drawing Rights (SDRs) and a Chinese yuan currency swap to avoid further weakening its U.S. dollar reserves.The government also postponed $2.6 billion in payments set to come up in July, including $1.3 billion due last Friday, until the end of the month. More

WASHINGTON (Reuters) – International Monetary Fund Managing Director Kristalina Georgieva said on Tuesday that the IMF expects global growth around 3% annually for the next five years, well below historical averages of about 3.8%, which may pressure capital flows.Georgieva said in opening remarks at an IMF economics lecture that governments, particularly in emerging markets, will need to tighten fiscal policy to keep debt under control and to help inflation. They also will face further tightening of financial conditions as inflation persists, and “there may be impact on capital flows,” she said. More

According to many investors, economists, households and a lot of annoying people on the internet, a US recession has been looming for well over a year. It hasn’t materialised.Take the divergence between consumer vibes and the hard numbers. As Gillian Tett pointed out last week, almost half of Americans polled by TransUnion think the US is already in a recession, yet retail sales remain defiantly strong.The equivalent on the corporate side is how buoyant business investment has been, despite CEO pessimism, rising interest rates, rocky stock markets, commercial real estate worries and even a small banking crisis that forced many lenders to retrench. In a report published today (public link here), Goldman Sachs estimates that capex has grown by 3.5 per cent over the past year. And while analysts expect a slowdown, Goldman predicts capex will remain strong enough to lift overall economic growth above its previous forecasts. Here are its main bullet points. As David Glaymon wrote here last year, the CHIPS Act has played a big role in keeping capex strong. Alphaville’s emphasis below:— Business investment has grown a solid 3½% over the last year, defying consensus forecasts for the sharp declines usually seen in recessions. However, weak business sentiment, banking stress, and falling office investment threaten to slow capex growth going forward. In this note, we assess the outlook and discuss how these three headwinds will affect capex.— First, forward-looking survey measures of capital spending expectations have fallen to their lowest levels since the financial crisis and are currently in contractionary territory. However, hard indicators on spending plans have not fallen as sharply, and a tracker based on capex-specific hard data — which has historically been a better predictor of realized capex than a soft data equivalent — has remained in expansionary territory throughout this year.— Second, the Fed’s H.8 release indicates that bank lending to businesses has stagnated in recent weeks. The slowdown in bank lending poses an acute threat to structures investment, as commercial real estate is particularly exposed to bank lending, and academic research suggests that alternative financing options can be several hundred basis points more expensive. But reassuringly, small businesses report in the NFIB survey that they have not had a harder time accessing credit since the bank failures.— Third, the fundamental backdrop for some segments of structures investment remains weak. Office investment is likely to fall further because office vacancy rates have continued to increase sharply, and guidance from energy companies suggests that oil and gas investment will continue to decline. However, strong investment in domestic manufacturing incentivized by the CHIPS Act and the Inflation Reduction Act should at least partly offset these headwinds. Over the last two years, companies have pledged to spend $365bn in new semiconductor and battery investments, of which we estimate less than one-fourth has been spent.— Structures investment growth looks likely to turn slightly negative after increasing 3.1% over the last year. Equipment investment growth is likely to rebound after a 1.2% decline last year as the drags from tighter financial conditions and fears of imminent recession fade. Intellectual property product investment looks likely to slow from the +6.2% pace of the last year, as company guidance suggests businesses are limiting growth in IT investments amid uncertainty about the economic outlook and after pulling forward demand in the immediate aftermath of the pandemic.— Taken together, we expect that business fixed investment growth will slow from a +2% annualized growth rate in 2023H1 to a roughly +1% annualized rate in 2023H2, before rebounding to a +3% rate in 2024. We now expect GDP growth of 2.3%/1.1%/1.1% in 2023Q2-Q4. Our new path translates to 2023 GDP growth of 2.0% on a full-year basis (vs. consensus of 1.3%) or 1.6% on a Q4/Q4 basis.Goldman is generally one of the more bullish forecasters on the street. Read the full report here and make up your own mind. More

“I hope the Senate will repeat what the lower house did so we can get to the end of the year with a new tax policy approved,” Lula said in a weekly live broadcast on social media.Speaking to reporters, Finance Minister Fernando Haddad expressed his support for the upper house to enact the reform bill based on areas of agreement with the lower house, stating that any potentially contentious issues should be addressed at a later time.”There are certain specific issues that should not hinder the overall consensus from prevailing,” he said prior to a meeting with Senate President Rodrigo Pacheco.Lula noted people were becoming increasingly optimistic about Brazil’s economic prospects, reiterating his calls on the central bank to lower interest rates as local inflation trends down.”The central bank chief is a stubborn guy, but interest rates will start to fall soon,” said the leftist leader in a reference to central bank Governor Roberto Campos Neto, adding it was “inexplicable” to have benchmark rates at 13.75%.Brazil’s monetary authority has conducted one of the world’s most aggressive tightening cycles to tame high consumer prices, but left the door open for an August rate cut if the positive inflation scenario continues. More

NEW YORK (Reuters) – Federal Reserve Bank of New York President John Williams said the central bank is not done raising its short-term rate target, in an interview with the Financial Times published on Tuesday. “We’ve indicated through our projections and our communications that we think we still have some ways to go to get the policy to this sufficiently restrictive stance to get inflation to 2%. All of those reflect a commitment to get price stability not in over 10 years, but over a few years,” Williams told the newspaper in a transcript of his interview. Williams did not put any numbers on how much tightening he expects from the Fed after it held its overnight target rate range steady last month at between 5% and 5.25%, while signaling it’s likely rates will rise a half percentage point more over the course of the year. Strong data is widely seen as pushing the Fed to raise rates again at the end of the month. Williams said the economy has yet to feel the full impact of past rate hikes. “We are not getting the full effects of the restrictive policy that we put in place yet,” he said, adding “those are still ahead of us, although we have gotten some of the effects already in certain interest-rate-sensitive sectors.”Williams said in the interview that supply and demand in the job market are coming into better balance and he doesn’t see the nation falling into a downturn. “It’s still clearly a very strong labor market with very good jobs growth,” Williams said, adding that in terms of labor force participation rates he sees no weakness. But he added that there are “definitely signs of things slowing in terms of the direction of demand in labor.” As for the economic outlook, “I don’t have a recession in my forecast. I have pretty slow growth,” Williams said. The central banker also said the Fed’s balance sheet run-off process will continue for some time to come and did not give an end date. More

LONDON (Reuters) – British companies were the most upbeat about their trading prospects in 10 months in June and their hiring plans increased again but rising interest rates could prompt consumers to rein in spending, according to a survey published on Sunday.Accountants BDO said their measure of business optimism hit its highest since August 2022, helped by the survey’s gauge of inflation pressure dropping to its lowest in nearly two years.The survey’s employment index posted its fifth consecutive monthly increase with rises in the number of self-employed and part-time workers, despite a slowdown in output growth with manufacturers seeing the worst output reading since May 2020.”Whilst there’s hope that the new (energy regulator) Ofgem price cap will drive down household energy prices and in turn ease inflation, the recent rise in interest rates and stagnating price growth indicate that this may still be a long way off,” Kaley Crossthwaite, Partner at BDO LLP said.The Bank of England, which is trying to curb the highest inflation rate among the world’s big rich countries, is worried about long-term price pressures in the labour market and it is widely expected to continue raising interest rates. More