Aurelia Butler

Annual inflation in France fell to 6 per cent, its lowest level for a year, boosting hopes that a swift easing of eurozone price pressures will allow monetary policymakers to stop raising interest rates soon.Coupled with falling German regional inflation and Spanish price growth also dropping more than forecast to almost a two-year low, the decline in French inflation in May lifted economists’ expectations that the European Central Bank may stop increasing rates by July.Investors responded by scaling back their bets on how much higher the ECB will raise rates. Germany’s rate-sensitive two-year bonds rallied, while the euro fell 0.6 per cent against the dollar to $1.0675, its lowest level for more than two months.“We now see clear signs of disinflation in the eurozone,” said Claus Vistesen, economist at research group Pantheon Macroeconomics. “Investors should brace for a change in tune at next month’s meeting [of the ECB], setting the stage for the hiking cycle to end in July.”As energy and food prices soared last summer, the ECB raised its deposit rate by an unprecedented amount from a record low of minus 0.5 per cent. It is expected to increase the rate by another quarter percentage point to 3.5 per cent when it meets in two weeks. Luis de Guindos, vice-president of the ECB, said on Wednesday that the latest data was “positive news”. But he pointed out that underlying inflation, which strips out energy and food prices, remained high, adding: “Has the battle been won? I would not say that.”There were signs of persistent price pressures in other parts of Europe’s 20-country single currency bloc. Italian inflation fell, but by less than expected, from 8.7 per cent in April to 8.1 per cent in May. Economists had expected it to fall to 7.2 per cent.Ignazio Visco, the governor of Italy’s central bank who sits on the ECB’s governing council, noted that core inflation was “still high”, after falling from 6.7 per cent in April to 6.5 per cent. The ECB had a “tough challenge” to bring inflation down to its 2 per cent target without causing an “excessive brake on consumption and investment”, he added.In Belgium, headline inflation fell to an 18-month low, but core price growth still accelerated from 8.3 per cent in April to 8.7 per cent in May.Price pressures, however, eased more than expected in North Rhine-Westphalia, Germany’s most populous region, where inflation fell from 6.8 per cent in April to 5.7 per cent. Economists said this meant overall German inflation was also likely to drop more than forecast when national data was released on Wednesday afternoon.In France, price growth slowed in May across almost all areas except tobacco, according to the national statistics institute. Energy inflation fell from 6.8 per cent in April to 2 per cent in May, while food inflation dipped from 15 per cent to 14.1 per cent. Price growth in manufactured goods and services also eased.François Villeroy de Galhau, France’s central bank governor and ECB council member, said the fall in inflation from 6.9 per cent to below the 6.4 per cent level forecast by economists polled by Reuters was “a step in the right direction” and boosted his confidence that France would reach the 2 per cent target by the end of next year. Pantheon estimated that core French inflation fell from 4.7 per cent in April to 4.4 per cent in May.Eurozone inflation is expected to fall from 7 per cent in April to 6.3 per cent in May, when those figures come out on Thursday, according to a Reuters poll of economists.But the ECB is focused on core inflation, which policymakers have said they want to see fall towards its 2 per cent target before they stop raising rates. This measure is expected to dip only slightly to 5.5 per cent in May. More

JPMorgan chair Jamie Dimon has warned of the risk for investor confidence of “uncertainty” about the Chinese government’s policies, as manufacturing data showed that the recovery in the world’s second-largest economy is faltering. His comments came as a contraction in China’s factory activity cast doubt over the country’s growth prospects, shaking regional equity markets against a backdrop of worsening relations with the US. “If you have more uncertainty, somewhat caused by the Chinese government . . . it’s not just going to change foreign direct investment,” Dimon told Bloomberg TV, in response to questions on China’s Covid-19 policy and its crackdown on consultants and the tech sector. “It’s going to change the people here, their own confidence.”China is struggling to revive economic growth after abandoning its zero Covid policy at the end of last year, as Wednesday’s figures highlighted.The official manufacturing purchasing managers’ index fell to 48.8 for May, compared with 49.2 in April, according to the National Bureau of Statistics.

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The data drove down Hong Kong’s Hang Seng China Enterprises index, which tracks large mainland companies, almost 2 per cent on Wednesday, taking the benchmark more than 20 per cent below its January peak and into a bear market. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks fell 1 per cent.The renminbi slipped as much as 0.5 per cent to Rmb7.1128 against the dollar, down about 3 per cent for the year to date.“The foundation for recovery and development still needs to be consolidated,” said Zhao Qinghe, a senior statistician at the NBS. In the manufacturing sector, he said, “production and demand slowed distinctly”.Economists said if the index remained several months below 50, which indicates a contraction, the government would consider stimulus policies to support the economy.“We expected that the initial rebound would be led by consumption and services post-reopening and that optimism would eventually translate into a broadening of the base of this economic recovery to include stronger manufacturing and investment,” said Carlos Casanova, senior economist for Asia at UBP. “That broadening has not taken place yet.”China’s economy grew rapidly in the first quarter but the rebound has since begun to falter. High hopes for business reopening have been undermined by a lack of investor confidence and geopolitical tensions after the US shot down a suspected Chinese spy balloon and ramped up sanctions on semiconductors.Beijing has also carried out raids on foreign groups such as Bain & Company, Capvision and due diligence group Mintz and increased regulation of domestic private sector players including tech companies and education businesses.Property investment, credit and industrial profits have declined, while indicators such as retail sales have fallen short of analysts’ expectations, casting doubt on the government’s modest full-year growth target of 5 per cent.FDI as measured by one of the Ministry of Commerce’s principal benchmarks rose 2.2 per cent in the first four months of 2023 to just under Rmb500bn, though it declined in USD terms by 3.3 per cent to $73.5bn.Dimon highlighted “scary” youth unemployment figures, which at more than 20 per cent in May reached their highest level since records began in 2018.“They [China] need growth, too. And confidence is very important for growth,” said Dimon.His visit to Shanghai is one of several high-profile trips by foreign executives as China reopens. Elon Musk, chief executive of Tesla, flew into Beijing this week and met foreign minister Qin Gang.

On Tuesday, Dimon met Chen Jining, Shanghai’s party secretary. In a statement published on the Shanghai government’s social media account, Chen said he hoped JPMorgan would continue to invest into China, while Dimon also said the bank would play a role as a bridge for foreign companies into Shanghai.JPMorgan has invested significantly in the mainland, where the government has given foreign businesses greater flexibility to set up their own financial companies as part of a push to develop the country’s largely closed-off financial system. In 2018, Dimon said during an interview in Beijing that “we’re building here for 100 years”.The bank’s Shanghai conference, which included speeches from Henry Kissinger and Baidu chief executive Robin Li, has attracted about 3,000 attendees but was largely closed to the media.Additional reporting by William Langley, Andy Lin and Hudson Lockett in Hong Kong More

Turkey’s growth accelerated in early 2023 as the ultra-loose economic policies president Recep Tayyip Erdoğan put in place ahead of this month’s pivotal election offset a hit from February’s devastating earthquake. Gross domestic product rose 4 per cent in the first quarter of 2023 compared with the same period in 2022, the Turkish Statistical Institute said on Wednesday. This was up from 3.5 per cent in the final three months of 2022 and better than economists’ forecasts. The strong growth rate highlights how Erdoğan, who was re-elected on Sunday to a new five-year term, has adopted fiscal and monetary policies focused on boosting Turkey’s $900bn economy despite soaring inflation. The president embarked on a spending binge ahead of the presidential and parliamentary election, increasing wages of public sector workers and retirees and giving away a free month of gas. Turkey is also spending billions of dollars to reconstruct the southern and eastern areas that were hit hard by February’s earthquake, which killed more than 50,000 people and levelled thousands of buildings.This fiscal expansion is expected to add fuel to the inflation crisis, and some economists see a risk that consumer price growth begins rising again after falling from last year’s high of more than 85 per cent. JPMorgan this week warned of “upside risks” to its forecast that Turkey’s government budget deficit would hit 4.5 per cent of GDP this year, from 0.9 per cent in 2022. Monetary policymakers have also sought to boost economic growth after Erdoğan called for reductions in borrowing costs. The central bank’s main interest rate is set at 8.5 per cent following several cuts over the past two years, despite inflation that registered above 40 per cent in April. This means that “real”, or inflation-adjusted interest rates are deeply negative, which has led to rising trade imbalances in Turkey’s economy and weighed on the lira. “Monetary policy will remain easy [following Sunday’s election] despite high levels of inflation . . . and the focus on stimulating the economy will trump financial stability,” said Gabriele Foà, portfolio manager at Algebris Investments. “Ongoing imbalances reached extreme levels and are likely to increase further in absence of policy change.”Turkey’s lira remained under heavy pressure on Wednesday, falling for the eighth day in a row to trade at 20.7 against the US dollar. The currency has fallen about 3.4 per cent since the end of last week. Still, many economists say the lira is still over-valued given the country’s high inflation and negative real interest rates, something that has irked exporters who say it is making their products and services uncompetitive.In a sign of the imbalances that have spooked investors, expenditures on imports of goods and services jumped 14.4 per cent in the first quarter of 2023 on a year over year basis, while exports fell 0.3 per cent, Wednesday’s GDP data showed. The trade gap has been a significant driver of Turkey’s yawning current account deficit, which was nearly $4.5bn in March. The deficit has been largely financed this year with Turkey’s foreign currency reserves, which have fallen by about $24bn in 2023. Goldman Sachs said this week that it expected Erdogan’s government would have to tighten policy with the election out of the way, something that could damp growth. “Given Turkey’s declining reserves with a current account deficit that reached over 6 per cent of gross domestic product in the first quarter and the consequent pressures on the lira, we expect policy to tighten in the second half leading to a slowdown in growth,” the US bank said. More

Bloomsbury Publishing has reported record annual sales and profits, helped by readers who are choosing books as an affordable form of entertainment during the rising cost of living, according to its head. The group, which publishes JK Rowling’s Harry Potter books and continues to see strong demand for the fantasy series, posted a 16 per cent rise in profit before tax and “highlighted items” of £31.1mn for the year to February 28. Sales rose 15 per cent to £264.1mn. “In challenging economic times, readers are turning to books as affordable as they cut back on more expensive forms of diversion,” said chief executive Nigel Newton.Shares were up 0.5 per cent in early trading, Bloomsbury having flagged its upgraded expectations in March. The group proposed a 10 per cent increase to its final dividend. Sales growth was boosted by the success of the series by fantasy author Sarah J Maas. Bloomsbury has contracts for seven new titles with the US writer, whose success is partly attributable to the BookTok social media trend on TikTok and whose sales grew 51 per cent in the year. The company has published all 15 of Maas’s titles so far, including House of Sky and Breath, which was published last February and has become a best-selling title. Bloomsbury said current consensus market expectations were for pre-tax profit of £32.2mn and revenue of £272.1mn in its current financial year to 2024. International revenues now account for 73 per cent of the total, the highest proportion ever, with the US accounting for almost half.The company’s digital academic resources business that provides ebooks to universities grew 41 per cent on the back of growing demand for online education resources.“These results demonstrate the strength of our strategy to publish for both the consumer and the academic markets, unusual in our industry, and to grow digital revenues while expanding globally,” added Newton. More