Aurelia Butler

Trade Minister Don Farrell said he would meet Chinese Commerce Minister Wang Wentao in Beijing and “be advocating strongly for the full resumption of unimpeded Australian exports to China – for all sectors – to the benefit of both countries and in the interests of Australian exporters and producers”.There has been goodwill on both sides but more needed to be done, he told reporters at Beijing’s Capital Airport.”Nothing is going to do more to achieve peace in our region than strong trading relationships between Australia and China,” he said. Speaking during a roundtable discussion later at the Australian Embassy with representatives of Australian Chambers of Commerce in China, Farrell called for “perseverance and persistence” to overcome the trade issues.”The problems we’ve had to solve didn’t occur overnight and we’re not going to solve them overnight, but we’re working towards that,” he said.China is Australia’s largest trading partner, with two-way trade in goods worth A$287 billion ($195 billion) in 2022, dominated by iron ore exports which China cannot easily replace. Yet an Australian trade minister had not visited China since 2019. China’s commerce ministry said Farrell would stay through Saturday, adding that it hoped the visit would further cement the “important consensus” reached between the two heads of state at a G20 meeting Bali in November last year.”China hopes to exchange views to develop bilateral economic and trade relations, and move the ties forward,” Shu Jueting, a ministry spokesperson, told a news briefing.The ministers will also chair a Joint Ministerial Economic Commission, a meeting first held in 1986, but suspended since 2017 when ties began to deteriorate over diplomatic disputes.Australian wine, beef, barley, coal, seafood and timber exports to China were hit by trade curbs in 2020, and Australian journalist Cheng Lei was detained in Beijing on national security charges, after Australia called for an international inquiry into the origins of COVID-19, which angered Beijing.Canberra had earlier barred Chinese telecommunications giant Huawei from its 5G network over national security concerns.Diplomatic tensions have eased since Australia elected a Labor government in May 2022. But there has been no shift in policy on screening foreign investment for national security concerns, and a defence shake-up announced last month will draw Australia closer to its security alliance partner the United States. Prime Minister Anthony Albanese said in a British television interview last week that his government “hasn’t engaged in rhetoric that is inflammatory” about Beijing.Australia last month suspended its complaint over Chinese barley tariffs at the World Trade Organization as a WTO panel was due to report its findings, giving China time to review the 80.5% duties imposed in 2020.”The Australian Government is pleased there have been several positive trade developments, including the resumption of coal, cotton, and copper trade and China’s agreement to undertake an expedited review of duties on Australian barley,” said Farrell. Australia exported roughly $40 million worth of copper ore and concentrate to China early this year, the first month of exports since 2020, Australian customs data shows.Farrell said he would also raise “other issues of importance to Australians”, a likely reference to human rights cases.Albanese has said his government will continue to raise the case of Cheng, who has been detained in Beijing for 1,000 days. ($1 = 1.4743 Australian dollars) More

LONDON (Reuters) – The Bank of England must stay the course to ensure the level of inflation falls back to its 2% target, the central bank’s Governor Andrew Bailey said on Thursday.”We have to stay the course to make sure inflation falls all the way back to the 2% target,” he said at a press conference after the bank raised its key interest rate. More

BEIJING (Reuters) -New Chinese bank loans tumbled far more sharply than expected in April, adding to worries that the economy’s post-pandemic recovery is losing steam and putting pressure on the central bank to ease policy.While some moderation in lending had been expected after a record first quarter, the weak readings came hours after data showed deflationary pressures were deepening in China, and days after news that imports had contracted sharply, suggesting domestic demand is still frail and more stimulus may be needed. Chinese banks extended 718.8 billion yuan ($103.99 billion) in new yuan loans in April, less than a fifth of March’s tally and just over half of the amount expected by analysts, data from the People’s Bank of China (PBOC) showed on Thursday.Analysts polled by Reuters had forecast new yuan loans would fall to 1.4 trillion yuan in April, versus 3.89 trillion yuan in March, though the total was higher than 645.4 billion yuan a year earlier when the economy was rocked by COVID lockdowns.”China’s credit data came in well below estimates, reinforcing the concerns over the sustainability of a post-COVID recovery,” said Zhou Hao, economist at Guotai Junan International.”Both aggregate financing and new loans were only half of the market expectations, suggesting that the first wave of post-COVID recovery has more or less faded.”Dashing investors’ hopes for a robust and sustained rebound, a recovery in the world’s second-largest economy from three years of pandemic lockdowns has been gradual and uneven, with consumption, especially services spending, faring notably better than the factory, property and export-oriented sectors.China’s consumer prices rose at the slowest pace in more than two years in April, while factory gate deflation deepened, separate data showed on Thursday, highlighting the broader economy’s struggles to rev-up.To spur credit growth, the central bank in March cut banks’ reserve requirement ratio (RRR) for the first time this year.The PBOC also has been guiding down bank deposit rates in recent weeks in a move that could ease burdens on banks from a savings glut, and create some room for the central bank to lower lending rates to spur economic growth, analysts say.The PBOC, caught between an “atypical deflation” cycle and strong credit growth, has limited room to ease policy, even as anticipation over an end to the Federal Reserve’s interest rate hikes eases fears about capital outflows.MODEST POLICY EASING SEEN LIKELY China has already told its banks to reduce the ceiling on interest rates they pay on certain types of deposits.”Low inflation now and a Fed pivot later are opening the room for further easing. A rate cut also becomes more necessary to support the weak links of recovery and break the ‘confidence trap'”, analysts at Citi said in a note. “With a more supportive PBoC, we now expect a reduction of 20 bps (basis points) to the MLF rate in rest of this year, our proxy of the policy rate,” it said, referring to the bank’s medium-term loan facility.The MLF rate is a guide to China’s benchmark lending rate, or loan prime rate (LPR), and will next be set on Monday.Reflecting growing market bets on policy easing, the yield on the benchmark 10-year government bonds fell below the psychologically important 2.7% level early on Thursday.But analysts at ING are not expecting a cut, saying it “would be perceived by the market that the economy was not on the path to recovery”, and it would do nothing to revive flagging export demand.The PBOC has kept the LPR steady since September.WEAK HOUSEHOLD DEMANDHousehold loans, mostly mortgages, contracted by 241.1 billion yuan in April, compared with 1.24 trillion yuan in March, while corporate loans slid to 683.9 billion yuan last month from 2.7 trillion yuan in March.”The weakness of lending to households – primarily mortgages – tallies with daily data suggesting that the recovery in property sales has at least partially reversed,” Capital Economics said in a note to clients.”The implication is that credit demand is faltering, which suggests we shouldn’t have high hopes for domestic demand later in the year. Broad M2 money supply grew 12.4% in April from a year earlier, central bank data showed, falling short of the Reuters poll estimate of 12.5%. M2 rose 12.7% in March.Outstanding yuan loans grew 11.8% in April from a year earlier compared with 11.8% growth the previous month. Analysts had predicted 12% growth.Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, was at 10% in April, unchanged from March. TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.In April, TSF fell to 1.22 trillion yuan from 5.38 trillion yuan in March. Analysts polled by Reuters had expected March TSF of 2 trillion yuan. More

Several high street banks have been challenged to increase their savings rates by MPs concerned over their sluggish response to successive official rate rises by the Bank of England, underlined on Thursday by a further quarter-point increase.MPs on the Treasury select committee wrote to Nationwide, Santander, TSB and Virgin Money this week, widening their campaign for banks to improve their interest rates on easy access savings accounts. It follows the committee’s earlier engagement with the big four banks — Barclays, HSBC, Lloyds and NatWest — which in February gave evidence defending their offerings by arguing that they offered market-leading rates on regular savings accounts. MPs have highlighted double-digit growth in pre-tax profits at banks and rising net interest margins — the difference between savings and lending rates — with banks moving swiftly to increase rates on lending products such as mortgages in response to higher BoE base rates.“The UK’s biggest banks are continuing to squeeze record profits from their loyal savers. In a high interest rate environment, and with further Bank of England base rate rises possible, banks must do more,” said Harriett Baldwin, chair of the Treasury select committee, in a statement on Wednesday. As official rates have risen, consumers have borne the brunt of high inflation but are still not receiving respectable returns on their deposits. The BoE raised rates by 0.25 basis points to 4.5 per cent on Thursday — the twelfth consecutive increase since December 2021. Investors expect rates to remain high for much of the remaining year.MPs launched an inquiry into retail banks in February, attacking slow savings rate increases and challenging executives over their failure to pass on benefits to consumers. In a response to MPs’ questions in March, NatWest chief executive Alison Rose said the taxpayer-backed bank had seen a surge in net revenue from £80mn to £1bn between 2021 and 2022. Like other senior bank executives, Rose pointed to the low level of savings in the UK, citing figures which showed that one in four people have less than £100 in savings. The big four, however, have said around 20 per cent of retail customers hold more than £5,000 in instant access accounts. “Savers who compare the top easy access rates will find they currently pay 3 per cent or more,” said Rachel Springall, finance expert at comparison site Moneyfacts. She said challenger banks and building societies offered better returns and were covered by the Financial Compensation Service Scheme.Chip, an investing and savings app, offers an easy access rate of 3.71 per cent. The Post Office offers around 3.47 per cent, though this includes a bonus of 2.57 per cent for 12 months. Baldwin added: “We are concerned that the loyalty penalty may be particularly severe for elderly or vulnerable customers . . . Consumers should continue to vote with their feet and find better offerings.” Virgin Money said it offered a broad range of savings accounts, while Nationwide said its average deposit rate had been at least 42 per cent higher than the market average. Nationwide offers 1 per cent on its easy savings account, while Virgin Money’s everyday saver account is at 0.25 per cent. Santander and TSB said they would respond to the committee in due course. They offer 0.7 and 0.9 per cent, respectively, on easy access savings accounts. More

China has told the US there is little chance of a meeting between the countries’ defence ministers at a security forum in Singapore due to a dispute over sanctions, the latest obstacle to top-level dialogue between the two powers.US defence secretary Lloyd Austin wants to meet Li Shangfu, China’s new defence minister, at the Shangri-La Dialogue security forum in Singapore in June. However, arranging such a meeting is fraught with difficulty because Li was placed under sanctions by the US in 2018 in relation to Chinese imports of Russian arms when he was serving as a general.The US has told China that the sanctions do not prevent Austin from meeting Li in a third country. But several people said it would be almost impossible for China to agree to a meeting while they remain in place. Li became defence minister in March.There was no prospect of the Biden administration removing the sanctions, some of the people said. The White House declined to comment.The latest stalemate in US-China relations comes as the countries struggle to arrange high-level visits by American cabinet secretaries to Beijing.Presidents Joe Biden and Xi Jinping agreed that the countries needed to stabilise relations when they met at the G20 summit in Bali in November. But early efforts to kick-start high-level engagement were derailed after a suspected Chinese spy balloon flew over North America in early February.The countries are negotiating visits to China by secretary of state Antony Blinken, Treasury secretary Janet Yellen and commerce secretary Gina Raimondo. The US is also trying to arrange the first call between Biden and Xi since the spy balloon incident.However, Beijing is reluctant to receive Blinken because of concerns that the FBI might release a report into the Chinese balloon.Worries about the lack of engagement between the countries’ top military officials have mounted over the past year.Admiral John Aquilino, head of Indo-Pacific command, has been trying to meet his Chinese counterparts for two years. General Mark Milley, chairman of the joint chiefs, has also not had any communication with his counterpart since the balloon episode.The Shangri-La Dialogue, which is run by the International Institute for Strategic Studies think-tank, frequently serves as a venue for US and Chinese defence officials to meet. Austin last year had a bilateral meeting with Wei Fenghe, Li’s predecessor.The Pentagon said it wanted “open lines of communication” with Chinese military leaders but blamed Beijing for the impasse. “It has been the People’s Republic of China’s decision to ignore, reject, or cancel multiple US requests for senior-level communication.”The Chinese embassy in the US said the two countries were engaging in “necessary communication”. US ambassador Nicholas Burns met China’s commerce minister Wang Wentao on Thursday, following talks with foreign minister Qin Gang on Monday.But Liu Pengyu, the Chinese embassy spokesperson, added that “communication should not be carried out for the sake of communication”, in a comment that echoed the approach the US took towards China at the start of the Biden administration.“We call on the US side to show sincerity, to work together with China, and to take concrete actions to create the conditions and atmosphere needed for communication and help bring China-US relations back to the right track,” Liu said.Bonnie Glaser, a China expert at the German Marshall Fund, said south-east Asian nations were increasingly uneasy with the intensity of the competition between the US and China and the lack of high-level dialogue. She said these countries would be “shocked” if Austin and Li attended Shangri-La without holding a bilateral meeting.

“The question is, will they blame the US or China? My sense is that there is recognition in much of the region that the US has been seeking to engage with Chinese counterparts but are being stonewalled,” Glaser added.Jude Blanchette, a China expert at the CSIS think-tank, said the dispute illustrated how “political dynamics on both sides gum up the possible stabilisation” of Washington-Beijing relations.“The longer Beijing refuses to meet with the US, the more countries in Europe and across Asia will come to see Chinese behaviour as intransigence,” he said.Evan Medeiros at Georgetown University said the best way for the US to achieve its aim of “deterring and constraining China” was to show its Asian partners it was “always open to dialogue with Beijing”.“The US needs to find a compromise solution for the sake of its strategic goals,” said Medeiros.Additional reporting by Joseph Leahy in BeijingFollow Demetri Sevastopulo on Twitter More

Ecuador and China have signed a free trade agreement, deepening ties between the Andean nation and the world’s second-biggest economy and frustrating US opposition to Beijing’s growing influence in the region.The deal would boost Ecuador’s non-oil exports over the next 10 years by $3bn-$4bn, or as much as a third, according to the trade ministry. China is Ecuador’s largest non-oil trade partner and has become an increasingly important source of financing for the Latin American nation, where it has backed infrastructure and energy.The free trade agreement could dismay the US, Ecuador’s largest trading partner when including oil, its biggest export. Washington has sought to counter Beijing’s growing influence in Latin America, where China has free trade agreements with Peru, Chile and Costa Rica.The deal allows preferential access for 99 per cent of exports to China, the government said, in particular agricultural and agro-industrial products including shrimp, bananas, cut flowers, cocoa and coffee. It excludes 800 products to protect local manufacturing.The deal “puts Ecuador on Asia’s map”, said Ecuadorean production, trade, investment and fishing minister Julio José Prado during a signing ceremony on Wednesday. “This is an opportunity to widen co-operation,” said China’s trade minister Wang Wentao, who appeared from Beijing via video link.But the deal, which still needs to be ratified by Ecuador’s national assembly, is likely to face resistance. President Guillermo Lasso faces possible impeachment by the opposition-led congress on embezzlement charges, which he denies. With a trial expected next week, the president may no longer be in office when the agreement reaches the legislature.Lasso is a pro-American conservative who had sought closer trade and investment ties with the US but his ambassador to Washington, Ivonne Baki, had complained in 2021 that the Biden administration was not paying Ecuador enough attention and did not understand the urgency of helping its allies in Latin America. “We don’t want to go there, [Lasso] doesn’t want to,” Baki told Axios in an interview outlining that Quito might be “obliged” to shift towards China.In December, Republican senator Marco Rubio wrote to Scott Nathan, chief executive of the US International Development Finance Corporation, urging enhanced American investment in Ecuador to counter Chinese influence.China has become Ecuador’s most important financial partner over the past decade, beginning under leftist former president Rafael Correa, who was in office from 2007 to 2017 and was openly critical of the US. Since 2010, loans from two Chinese state-backed policy banks — many of them tied to long-term crude oil delivery contracts — have totalled about $18bn, according to the China-Latin America Finance Database. Some economists say the debt burden gives Beijing more political leverage.Last September, Ecuador reached a debt restructuring deal with banks that is expected to provide $1.4bn in relief until 2025.

Bilateral trade was estimated at $12bn last year, with exports to China valued at $5.7bn, up 58 per cent from 2021, according to the Quito Chamber of Commerce. Imports from China, mostly industrial materials, were valued at $6.4bn.China’s commerce ministry said Ecuador was “an important partner” in its Belt and Road Initiative, adding that the trade pact sent “a positive signal to the international community to support multilateralism and free trade”, as Beijing seeks to push back against economic decoupling and portray itself as a proponent of globalisation.Lasso has also pursued a free trade deal with the US to little avail.“The Lasso administration consistently looks to play the US and China off of each other, and there is a strong desire in Washington to support his government, but trade is an area where there are real limits to how far it can go,” said Risa Grais-Targow, who covers Ecuador for the Eurasia Group.“Ecuador is a small economy where the US can potentially counter China, and probably unique in that it’s a US ally with significant exposure to China.” More

Good morning. The founder of DeepMind says that AI will put a lot of people out of work in the next decade. We assume he means people like us (though our efforts to get ChatGPT to write this newsletter have not produced good results thus far). What can we say, except to note, in the words of Judge Smails, that “the world needs ditch diggers, too.” Send us your thoughts, or those of your digital assistant: [email protected] and [email protected]. Five questions about the inflation report Yesterday’s April consumer price index data was really quite confusing. Below, five clarifying questions, and our best stab at the answers.Why has the reaction from pundits and the market been so mixed? Probably the noisy data. Andrew Hunter, Capital Economics, found it uncomfortably hot:The 0.4 per cent m/m gains in headline and core consumer prices in April leaves core inflation at 5.5 per cent, broadly unchanged from its level at the start of this year, further illustrating that the previous downward trend has stalled. We don’t think that will in itself be enough to convince the Fed to hike again at the June FOMC meeting but it does suggest a risk that rates will need to remain high for a little longer than we have assumed.Ian Shepherdson of Pantheon Macroeconomics, on the other hand, thinks the temperature is falling nicely: The increase in the core-core CPI [core inflation excluding the noisiest components] was the smallest since July last year, and it marked the second straight improvement after the grim January and February numbers . . . the case for expecting future data to look more like April’s than the earlier spikes is quite strong, and is centred on the labour market . . . The core inflation outlook, in short, is improving.The market was similarly equivocal. The rate-sensitive two-year Treasury yield fell 11 basis points, suggesting a dovish report; the futures-implied expectation for the year-end fed funds rate slid, too. But stocks didn’t get the message, and hardly budged. The reason for the confusion, as far as we can tell, is that the report was stuffed with weird little outliers. But the totality of the data looked encouraging. All of April core goods inflation was driven by a huge 4.4 per cent monthly jump in used car prices (more on this later). Shelter services, inflation’s beating heart, looked calm for the second month running (more on this later, too). Non-housing core services, the Fed’s main focus, collapsed to 0.1 per cent (under 2 per cent annualised). This is improbably low, and reflects volatility in hotel prices and airfares. But it suggests, at the very least, that services prices aren’t spiralling out of control.Why isn’t core inflation falling faster? Shelter, mostly. The Bureau of Labor Statistics’ own chart, it must be said, does not paint an encouraging picture of core inflation:

Year-over-year core inflation has been parked at 5 and a half per cent since January. What gives? The answer is familiar, but worth repeating and updating: The issue is that CPI shelter inflation is a lagging indicator. Because it covers existing as well as new leases, its constituent prices only update every year, or even less often. There are various more timely private sector measures, though, which include only new leases. The Zillow Observed Rent Index, for example, looks at listed prices for vacant rental units. This makes it much more volatile, as well as more timely. Below is CPI shelter inflation lagged by 12 months, against the Zillow measure.The turn that we saw in new rental listings a year or so ago appears at last to be taking hold in CPI shelter, suggesting that measure will fall steadily in the months to come. The pig is working its way through the python. The welcome change in the trajectory of CPI shelter is even more visible if you look at it on a month-over-month basis. We’ve now had two months of solid progress: The rent subcomponent of shelter inflation did tick up on a month-over-month basis, from 0.5 per cent to 0.6 per cent. But this probably obscures the underlying trend. The rent component is split into small and large cities, and the small cities series is very volatile. The steadier large city series has been trending down steadily, especially in the past two months:Aichi Amemiya, Nomura’s inflation specialist, offered us this read: “The long-awaited rent moderation trend started in March. We saw some reversal in April in month-over-month inflation [but] the partial reversal came from small cities. Rent inflation in major cities remained pretty low, after declining in March. I mainly monitor rent inflation in major cities, because they’re less volatile and represent the underlying trend in rent inflation.”In short, a stable trend in core inflation now plus the lagged effect of shelter certain to kick in later equals good news. But there was another thing that contributed to the flat core inflation trend in April: used cars. What the heck, used cars? Don’t take them too seriously. CPI idiosyncrasies often come as surprises, but not this one. Many Wall Street economists had higher used car prices pencilled into their forecasts, for the simple reason that the wholesale used auto indices, which lead CPI, saw a price pop in January and February. The Manheim used car index shot up 9 per cent between December and March, but it hasn’t lasted. Chart from Pantheon Macroeconomics:

Omair Sharif of Inflation Insights adds: “We’re going to see some more used car price increases in next month’s report. But after that, I think we’re very likely to see this come off the boil [by June and July’s CPI]. Mostly, what we saw was a quick burst of demand, mostly in January, that is starting to fade out. [It was so fast that] we went from oversupplied in December to undersupplied in January. It was a very quick turn in the market, which started a frenzy of getting stuff to auction.”With wholesale prices already starting to fall and the post-Silicon Valley Bank credit crunch further throttling auto loan financing, used car inflation doesn’t look too scary.How does this fit in with the larger macro picture? Neatly. Most data is telling the same believable tale: an overheated economy is cooling from a high level. The still-tight labour market is decelerating gradually; growth is getting dragged along by consumers; and the industrial economy is in something like a recession. In that context, it makes sense inflation would inch lower, and so it is. If the trends in shelter and goods inflation keep up, core inflation should grind lower.How’s the Fed going to take this? With cautious optimism. The April data helps along the Fed’s three-pronged goal: subdued goods inflation, falling shelter inflation and decisively lower non-housing core services inflation. One recent mystery has been why goods inflation hasn’t always fallen in sympathy with flat goods spending and contracting manufacturing. April’s CPI eased the tension: core goods inflation other than used cars was about nil. Shelter is coming down, too. Non-housing core services showed tantalising progress, though it’s too early to tell if it can last. All told, we reckon a Fed pause in June is likelier now than yesterday morning. But rate cuts by year-end seem no closer, no matter what the futures market is telling you. (Wu & Armstrong)One good readThe return of the dart-throwing monkey (and by monkey, we mean our former colleague Spencer Jakab). More