Aurelia Butler

Apollo’s chief economist Torsten Sløk sent around an interesting presentation on supply chains over the weekend, which we thought was worth sharing more widely. Basically, he thinks the pandemic-triggered period of messed-up supply chains — which led to pricey and delayed shipments for pretty much all of global trade — is now over. Whether it’s the cost of sending a container between China and the US or Europe . . . 

. . . renting an entire Capesize cargo ship or Supramax carrier . . . 

. . . or the time it takes to unload a vessel . . . 

. . . it seems that supply chains are basically healed, which Sløk argues will help subdue inflation.

Of course, dislocated supply chains were just one factor behind the recent bout of inflation, and was always going to be the easiest one to solve. But every little bit helps. You can find the whole chart extravaganza here. More

Spanish inflation has dropped to 2.9 per cent, its lowest level for almost two years, boosting hopes that price pressures will ease quickly across the eurozone.Economists said the bigger than expected fall was good news for the European Central Bank, suggesting that inflation data for the rest of the eurozone published later this week could show a rapid deceleration in inflation across the region. However, Spain already had one of the lowest rates of inflation in Europe even before the latest figures, and economists said it could take longer for a similar cooling of price pressures to happen elsewhere in the region.Annual consumer price growth in Spain slowed from 3.8 per cent in April, which was a much bigger drop than the decline to 3.4 per cent forecast by economists in a Reuters poll.Spain’s statistics office said the main factor pushing down inflation was a fall in fuel prices. Slower growth in food and non-alcoholic drink prices “also played a role, although to a lesser extent”, it added.Spain’s ruling Socialist party, led by Prime Minister Pedro Sánchez, sought to take credit for the country’s relatively low inflation, linking it to government energy policies aimed at dimming the effect of high gas prices. But the devastating results of local and regional elections on Sunday showed the message did not resonate with voters.As the Socialists lost control of huge swaths of the country to the conservative People’s party, discontent over Sánchez’s political alliances outweighed any perceptions that the prime minister had steered the economy successfully through a series of crises.After the Spanish inflation data was released on Tuesday, eurozone bond markets rallied and the euro fell against the dollar as investors bet that inflation in the bloc could fall quicker than expected and require fewer rate rises by the ECB.But bond prices later fell back and the euro recovered, as economists said the pace at which Spanish price pressures were cooling might not be matched across the rest of Europe.“I don’t think we can read that much into the wider eurozone figure from today’s Spanish numbers, though they are good news in their own right,” said Claus Vistesen, an economist at research group Pantheon Macroeconomics.After stripping out energy and unprocessed food, inflation in Spain fell from 6.6 per cent to 6.1 per cent — which showed underlying price pressures were still “relatively high”, according to Andrew Kenningham, an economist at research group Capital Economics.He said the structure of Spain’s electricity market meant any changes in wholesale energy costs were transmitted to consumer prices much faster than in most of Europe.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 prices — excluding energy and food — which policymakers have said they want to see falling sustainably towards its 2 per cent target before they stop raising rates. Core prices in the eurozone are expected to fall only slightly to 5.5 per cent in May. More

Chinese stocks fell into bear market territory but Wall Street futures moved higher on Tuesday, as traders were encouraged by a long-awaited agreement on the US debt ceiling. The Hang Seng China Enterprises index was down during Asian trading on Tuesday, pushing it 20 per cent lower from its peak in January. That temporarily placed it in bear market territory, although it later rallied to close up 0.5 per cent. China’s benchmark CSI 300 index of Shanghai- and Shenzhen-listed stocks was also down more than 10 per cent from its peak this year, matching the technical definition of a market correction, although it also later rallied to close marginally up.Pressure on Chinese stocks follows mounting worries over the outlook for the world’s second-largest economy as tensions rise between Washington and Beijing.In Europe, the region-wide Stoxx 600 rose 0.2 per cent and Germany’s Dax gained 0.5 per cent, as markets reopened after a long weekend. US stock futures were higher, with contracts tracking Wall Street’s benchmark S&P 500 up 0.6 per cent and those tracking the tech-heavy Nasdaq 100 up 1.2 per cent ahead of the New York open. The firm tone was helped by the hammering out on Saturday of a last-minute deal between US lawmakers and the White House, which would raise the country’s $31.4tn debt ceiling for two years, until after the next presidential election in late 2024.Although the bipartisan bill still needs to pass both chambers of Congress in the coming week, with traders poised for the first vote in the House on Wednesday, it also helped ease pressure on US Treasuries.The yield on policy-sensitive two-year bills fell 0.07 percentage points to 4.52 per cent. The yield on the benchmark 10-year note was down 0.1 percentage points to 3.72 per cent. Bond yields fall as prices rise. In foreign exchange markets the Turkish lira weakened to 20.34, hitting a new record low after President Recep Tayyip Erdoğan secured victory in the country’s election over the weekend. For Chinese equities, the relentless sell-off reflects a growing consensus among investors that the country’s economic recovery is losing steam, roughly half a year after Beijing abandoned President Xi Jinping’s disruptive zero-Covid 19 policy. Winnie Wu, China equity strategist at Bank of America, said clients had described many Chinese stocks as “too cheap to short but not good enough to go long”. Wu said that while valuations for China shares had become attractive, the recovery remained weaker than anticipated and the economy was likely to continue underperforming without more substantial state support. Worsening geopolitical tensions with the US have also stoked worries among foreign investors, accelerating the sell-off. Traders said losses on Tuesday were partly spurred by China’s decision to decline a request from the US for a meeting between defence officials at an upcoming security forum in Singapore.“It’s the economy, yes, but it’s also more than that,” said Louis Tse, managing director at Hong Kong-based brokerage Wealthy Securities.In addition, Tse said the interest rate differential between the US and China was driving outflows from China’s government bond market, adding to downward pressure on the renminbi.“US and European fund managers don’t want to hold Chinese assets in their portfolios right now,” Tse said. “The economy, the risk premium from US-China tensions, slim market turnover and the renminbi — all of these are coming together to drive more selling.” More

It is a sign of the times that a book entitled How to Blow Up a Pipeline, in which Swedish climate activist Andreas Malm advocates targeted sabotage of physical property, is being given the movie treatment. Even as political and corporate Europe have swung definitively behind the decarbonisation agenda, the toughest wing of the climate change movement argues increasingly loudly that this is not enough.Advocates of “degrowth” say that addressing climate change requires nothing less than a fundamental rejection of the whole principle of continuous economic growth as a policy objective. Their concerns have, slowly but surely, moved from the fringes of Europe’s policy debate to at least being granted a hearing in the EU institutions.Earlier this month, European parliamentarians organised the second iteration of a conference entitled “Beyond Growth” (the first was in 2018). Philippe Lamberts, a Green MEP behind both events, says he faced “quite a lot of pushback from the [European] Commission” the first time around. The attitude then, he says, was “if I didn’t believe in growth, I should find another job”.Five years on, it is a different story. Now “the big shots” — leading EU officials — “are playing ball” and engaging with the debate, says Lamberts. Commission president Ursula von der Leyen and several of her commissioners and top civil servants spoke at the conference, as did European parliament president Roberta Metsola and Frank Elderson of the European Central Bank’s executive board.It may help that the MEP does not, in fact, call outright for an end to growth. The conference materials studiously avoided the word “degrowth”. Lamberts says he prefers to speak of “shared prosperity within planetary boundaries”. He argues that we should debate what economic developments are consistent with this and act accordingly — “discussing these things is no longer seen as sacrilege”. As for von der Leyen, her speech emphasised a vision of sustainable growth, and drew applause when declaring that “a growth model centred on fossil fuels is simply obsolete”.

Others, however, go further. For example, in an article for the scientific journal Nature last December, a group of ecologists, environmental scientists and economists wrote: “Wealthy economies should abandon growth of gross domestic product as a goal, scale down destructive and unnecessary forms of production to reduce energy and material use, and focus economic activity around securing human needs and wellbeing . . . Degrowth is a purposeful strategy to stabilise economies and achieve social and ecological goals . . . ”But most economists give no quarter to the suggestion that there is an inherent problem with growth in GDP, a measure of total paid-for production in the economy. Sir Dieter Helm, professor of economic policy at the University of Oxford, insists that “a sustainable economy can grow because technical progress continues”. He points to how “energy demand and emissions have been falling in the UK independent of the level of GDP”.This divergence between carbon emissions and economic growth is known as “decoupling”, and disagreements over climate policies hinge, to a large extent, on how much decoupling people think it is realistic to expect.“If you can have decoupling from GDP to materials and energy use, then you can have growth,” agrees Lamberts. But “if not, then what are the implications for fiscal policy, social security, labour markets, trade policy? . . . That’s what we want to start a discussion about.”Views like Helm’s still dominate this debate. The idea that we may have to reduce GDP “is still extremely controversial”, says Diana Urge-Vorsatz, professor of environmental science at Central European University in Vienna and one of the authors of the Nature article. Still, she and her co-authors point out that mentions of degrowth and “sufficiency” have started to enter the reports of the Intergovernmental Panel on Climate Change — the UN body that assesses the scientific knowledge on climate change — as possibilities worth exploring.

In Europe, particularly, further impetus to the debate has come from Russia’s war in Ukraine, and the energy crisis that its weaponisation of gas supplies produced. Less than a year after the full-scale Russian invasion, large EU countries had reduced their natural gas consumption by more than 20 per cent compared with the five-year average, without a corresponding increase in oil and coal use. Their overall industrial production, nevertheless, held up strongly.The experience of 2022, in other words, showed that large cuts in energy use and emissions are possible with concerted political action.It is an open question whether this plays into the hands of degrowth advocates, or of the believers in decoupling who argue that decarbonisation is perfectly compatible with growth. What is certain is that the past year will have changed expectations about what policy action can achieve. There is a “massive potential for more efficiency”, says Lamberts. “German industrialists now admit to me that gas was so cheap there was no reason to save it.” More

SHANGHAI/BEIJING (Reuters) – Wang Chunxiang pushes a cart around busy areas of Shanghai, playing cat and mouse with the authorities as she tries to sell pastries. The jobs she could get do not pay enough for her to make ends meet.”Salaries are too low,” said the 43-year-old, after serving a customer steamed sweet rice cakes from a wok. “At my age, without much knowledge, I could only earn 5,000 to 6,000 yuan ($868) per month as a cleaning lady. Shanghai rent is so expensive. Even low quality homes are 2,000-3,000 yuan,” said Wang, who recently resumed hawking after a six-year break.She can earn about 10,000 yuan in a good month selling pastries for 15 yuan a box.As life in China returns to normal after the pandemic, hawkers are hitting the streets. They look to at least supplement their income amid an uneven economic recovery in which jobs and wage growth has been sluggish.For decades, street stalls and hawkers – common elsewhere in Asia – have been banned or tightly regulated in many Chinese cities, with authorities seeing them as unsightly. There are signs, however, that local governments are giving hawkers more leeway, a trend expected to continue.Zibo in eastern China became a media sensation this month after a rush of tourists visiting street food stalls forced authorities to issue warnings about overcrowding.The tech hub of Shenzhen, which banned hawking in 1999, will ease restrictions on street stalls from September. Shanghai is seeking public opinion on revising hawker regulations and in April said it had set up 74 spots for vendors.Lanzhou in the northwest said this month it would designate areas for street stalls as it sought to encourage innovation and entrepreneurship.”It’s natural for some local governments to trial street vending as they are facing great pressure in stabilising local economies and the job market,” said Bruce Pang, chief economist at Jones Lang Lasalle (NYSE:JLL).Household income grew 3.8% year-on-year in the first quarter, lagging broader economic growth. The job market remains sluggish with youth unemployment at a record high.Economic pressure is forcing hawkers to risk fines or having their products confiscated.Wang Xuexue, 28, who sells flowers off her scooter in Shanghai, prefers to hawk her goods away from designated areas, which she says are out-of-the-way and charge fees.”Of course authorities try to catch us. Otherwise we wouldn’t run so fast,” said Wang Xuexue, who worked in a flower shop until recently.Even in Beijing, which President Xi Jinping said should remain above all a “political centre” without a street economy, hawkers were seen at tourist spots.Lu Wei, a pen seller, had his own store before the pandemic but cancelled the lease in 2020 as sales dropped and he could no longer afford rent. He now touts his 30-yuan pens along Beijing’s Houhai lake, although business is slow.”People have no money in their pockets. Even if they do, they don’t want to spend it,” Lu said.($1 = 6.9121 Chinese yuan) More

SYDNEY (Reuters) – Australian senators will use parliamentary hearings this week to demand accounting firm PricewaterhouseCoopers (PwC) name staff and clients who were in on the “big four” firm’s misuse of confidential government tax plans.The staff and clients were referenced in a cache of partially redacted emails released amid a scandal over a former partner at PwC who shared confidential information with colleagues on government plans to crack down on tax avoidance by multinational corporations, then used to drum up business.Acting CEO Kristin Stubbins, who took the job after her predecessor resigned over the scandal earlier this month, on Monday apologised in an open letter and said nine unnamed partners had been directed to take leave.Labor Senator Deborah O’Neill, who helped release the emails, said PwC’s apology could not be taken seriously and the firm’s letter was “another exercise in cover up”.”They provided a curated list of people forced to have a long holiday,” O’Neill told Reuters late on Monday, ahead of Economics Legislation Committee hearings on Tuesday and Wednesday. “They established relationships with 14 of the largest multinational companies in the world. I’m determined to get that on the record.”In response to a request for comment, PwC Australia pointed to its letter on Monday, where it did not name the dozens of staff referenced in hundreds of partially redacted emails and said the vast majority were not knowingly involved in any confidentiality breach.No confidential information was used to help clients pay less tax, it said in the statement on Monday.The cache of emails between 2014 and 2017 discuss how confidential drafts of new rules were used to seek work with U.S. technology companies, among others.The parliamentary committee will hear from the Australian Tax Office and the Tax Practitioners Board and Treasury, which last week referred the matter to police for a possible criminal investigation. More

TOKYO (Reuters) – Japanese Finance Minister Shunichi Suzuki on Tuesday said he must guide fiscal policy based on common international understanding as global economic and financial situations change greatly.Suzuki told reporters the finance minister’s advisory panel argued on Monday that economic fundamentals that have backed the yen’s credibility are no longer considered absolute and that policymakers must strive to maintain credibility in the currency. More