Aurelia Butler

Hello and welcome to the working week.The Federal Reserve and the European Central Bank both meet to set rates this week against a backdrop of gloomier domestic data and fears about the banking sector. For the US, the sharp drop in growth during the first quarter of 2023 indicates that the year-long battle to tame inflation is beginning to yield results, but the European meeting will be complicated by last week’s data that unexpectedly showed a stagnating German economy and rising inflation in France and Spain.The working week will begin a day later for many because of May Day or Labor Day holidays, giving those in France who are unhappy with President Emmanuel Macron’s pension reforms a chance to use the traditional workers celebration to stage further protests in Paris. Plus ça change.Apple will be one to watch in the earnings reports, where transport will also be a strong theme. Carmakers BMW, Volkswagen, Ferrari, Stellantis, Aston Martin and Ford all update along with aircraft maker Airbus and carriers IAG, Lufthansa and Air France, and transport apps Lyft, Trainline and Uber. We have two key political events for the UK news agenda. Thursday’s local elections will be Rishi Sunak’s first big electoral test since becoming prime minister with voters deciding more than 8,000 local authority seats in 230 councils across England. The Financial Times will have extensive coverage as the results trickle in on Friday morning.The coronation of King Charles III on Saturday is in a sense pure theatre, but it will also be a moment to assess the UK’s constitutional monarchy. Coincidentally, this week is also the anniversary the 1707 Act of Union coming into force, when the English and Scottish kingdoms first united.Thank you for your ongoing comments about the Week Ahead’s content and format. Email me at [email protected] dataThe Federal Open Market Committee meeting concludes on Wednesday. GDP is on the rise but tighter credit conditions in the wake of the recent banking crisis has made monetary policy decision-making even more of a tightrope walk than usual.

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The expectation is that officials will deliver another quarter-point rate rise this week, lifting the federal funds rate to a new target range of 5 per cent to 5.25 per cent, before considering a pause in further increases.In Europe, economists are split on whether the ECB will increase rates by another half percentage point or ease the tightening.CompaniesFour of the world’s largest airlines — IAG, Lufthansa, Air France-KLM and Japan Airlines — will give an insight into the strength of consumer demand for flying when they report earnings. Senior executives across the industry have been scarcely able to believe the resilience of sales throughout the winter months, as people have continued booking despite the cost of living crisis and weakening economies across many parts of the world. For the three European airlines in particular the coming summer season will be crucial as they look to rebuild their finances following the pandemic.We are at the end of a run of earnings from the world’s biggest banks and technology companies. This week we have a company that is undeniably one of those things and has aspirations to be the other: Apple.Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayChina, France, Germany, Italy, South Africa, Switzerland, UK and other countries: May/Labor Day public holiday to celebrate achievements of worker movements. Financial markets closed in these countriesAustralia, Canada, India, Japan, US: S&P Global manufacturing purchasing managers’ index (PMI) figuresJapan, April consumer confidence figuresResults: Check Point Software Q1, ON Semiconductor Q1, Logitech Q4, Loews Q1, MGM Resorts Q1,TuesdayAustralia, Reserve Bank of Australia monetary policy rate-setting meetingEurozone, France, Germany, Italy, Spain, UK: HCOB/S&P Global/Cips manufacturing (PMI) dataKorea, April consumer price index (CPI) inflation dataUK, Nationwide April house price indexResults: Advanced Micro Devices Q1, BP Q1 trading statement, Ford Motor Company Q1, Geberit Q1, HSBC Q1 trading statement, Japan Airlines FY, Marriott International Q1, Pfizer Q1, Starbucks Q2, Thomson Reuters Q1, T Rowe Price Q1, Uber Q1WednesdayAustralia, UK, US: S&P Global services PMI dataEU, Italy, Spain: March unemployment figuresJapan, Constitution Memorial day. Financial markets closedUK, Blue Book GDP revisionsUS, Federal Open Market Committee’s May rate-setting decision announcedResults: Airbus Q1, Aston Martin Lagonda Q1, Bank of Ireland Q1 trading update, Barratt Developments trading update, BNP Paribas Q1, Deutsche Post Q1, Enel Q1, Estee Lauder Q3, Flutter Entertainment Q1 trading update, Haleon Q1 trading statement, Kraft Heinz Q1, Lloyds Banking Group Q1 management statement, Lufthansa Q1, Metro Bank Q1 trading update, Ørsted Q1, OSB Group Q1 trading update, Pandora Q1, Porsche Q1, Prudential Financial Q1, Qualcomm Q2, Reach trading update and AGM, Securitas Q1, Stellantis Q1, Wickes Group Q1 trading update, Yum Brands Q1ThursdayCressida Hogg succeeds Sir Roger Carr as BAE Systems chair at the conclusion of the company’s AGM todayEurozone, Canada, France, Germany, Italy, Spain, UK: S&P Global services PMI dataEU, European Central Bank’s Governing Council makes May rate announcementResults: Adecco Q1, AIB Q1 trading update and AGM, Anheuser-Busch InBev Q1, Apple Q2, ArcelorMittal Q1, Bertelsmann Q1, BMW Q1, ConocoPhillips Q1, Ferrari Q1, Hargreaves Lansdown trading statement, Hiscox Q1 trading statement, Hyatt Hotels Q1, Jones Lang LaSalle Q1, Kellogg Q1, Lyft Q1, MetLife Q1, Moncler Q1, Next Q1 trading statement, Novo Nordisk Q1, Shell Q1, Skanska Q1, Swiss Re Q1, Trainline FY, Veolia Q1, Virgin Money UK H1, Volkswagen Q1FridayAustralia, Reserve Bank of Australia quarterly economic outlookCanada, April labour force surveyChina, S&P Global services PMI dataGermany, March manufacturing ordersUK, construction PMI dataUS, employment reportResults: Adidas Q1, Air France-KLM Q1, Clariant Q1, IAG Q1, Piaggio Q1, Warner Bros Discovery Q1World eventsFinally, here is a rundown of other events and milestones this week. MondayUK, Royal College of Nursing members in England continue a 48-hour strike over pay, forced to end today by a High Court ruling. Separate walkouts will happen at Guy’s and St Thomas’ Trust in south London and the Yorkshire Ambulance Trust after Unite union members rejected their latest pay offer.US, president Joe Biden welcomes his Philippine counterpart Ferdinand “Bongbong” Marcos Jr for a bilateral meeting at the White House.US, the 2023 Met Gala is held at the Metropolitan Museum of Art in New York with the theme, Karl Lagerfeld: A Line of Beauty, honouring the late designerTuesdayKorea, the Asian Development Bank annual meeting begins in Incheon. The finance ministers and central bank governors of Asean Plus Three countries, including Indonesia’s Sri Mulyani Indrawati and Japan’s Shunichi Suzuki, will hold a news conference on the event’s sidelinesUK, another day of widespread industrial action over pay. Teachers in the National Education Union in England hold another one-day strike, having rejected an initial government pay offer last month. Separately, about 750 Unite members at pharmaceutical company GSK will begin a 48-hour walkout and Passport Office workers in the Public and Commercial Services union escalate their strikes. Industrial action is also planned by Unite members at South Central, South East Coast and West Midlands ambulance trusts plus workers at Christies NHS Foundation Trust, the Christie Pathology Partnership, East Lancashire Hospitals NHS Trust, and Sandwell and West Birmingham NHS TrustUS, nominations for the 2023 Tony Awards for theatre productions announcedWednesdayNigeria, Africa’s most populous country is due to begin its first national census in 17 years, although the three-day exercise has been postponed several times, including once this year. The current population tops 200mn and the UN expects it to become the third-largest in the world by 2050, ahead of the US.ThursdayUK, local elections in England. Results announced tomorrowUK, further industrial action with 1,400 security officers at Heathrow airport from the Unite union beginning a three-day walkout over pay. The RMT ballot closes for a further six months of industrial action in its dispute with the Rail Delivery GroupUS, National Day of Prayer with a service held in the White HouseFridayUK, industrial unrest continues with a 24-hour strike by journalists working for BBC Local in a dispute over radio cuts.SaturdayItaly, Giro d’Italia cycling race beginsUK, the coronation at Westminster Abbey of Charles III and his wife Camilla as King and Queen of the United Kingdom and the other Commonwealth realmsUS, Berkshire Hathaway holds its renowned annual shareholders meeting in Omaha, Nebraska, led by chair Warren BuffettSundayUK, a Coronation Concert to celebrate the new monarch will be held at Windsor Castle, headlined by boy band Take That and singer Katy Perry. Financial markets will be closed again tomorrow as the country has an additional bank holiday to commemorate the coronation More

Cutting ties with China would be “unthinkable for almost all of German industry”, the chief executive of automaker Mercedes-Benz has said, as Europe’s largest economy grapples with its deep reliance on Beijing.Ola Källenius said cutting ties with China was impossible and “not desirable”.“The major players in the global economy — Europe, the USA and China — are so closely intertwined that disengaging from China makes no sense,” Källenius told the German newspaper Bild am Sonntag. “It’s about win-win on growth and climate protection, not conflict.”The economic reverberations of Russian president Vladimir Putin’s war in Ukraine have triggered a wave of anxiety in Europe about the continent’s even greater dependency on China.But there is heated debate in German political and business spheres about the best approach to the country’s deep economic ties to China, which was Germany’s most important trading partner for the seventh consecutive year in 2022. An agreement by Chancellor Olaf Scholz’s three-way coalition in 2021 struck a critical tone on China. But deep divisions have subsequently emerged between Scholz, who is cautious about calls for drastic changes in Berlin’s relationship with Beijing, and his Green party partners who have long been more hawkish in their approach.Concerns about the threat posed by China to Germany’s critical infrastructure have prompted recent re-evaluations of the role of Chinese telecoms company Huawei in the country’s communications networks. The government is also being forced to re-examine a contentious decision to sell a stake in a Hamburg port terminal to the Chinese shipping conglomerate Cosco.Many of Germany’s largest companies, meanwhile, are not wavering in their commitments to the world’s biggest and most important destination for consumer goods. China was the most important global market for Mercedes cars last year, with a 37 per cent market share — compared with 31 per cent for Germany and other European markets and 15 per cent for the US. Källenius insisted that his company was “not naive” about the threats posed to business by the mounting tensions between Washington and Beijing — and the risk of an invasion of Taiwan. “Of course, we see the political differences and tensions,” he said. “The [coronavirus pandemic] showed how fragile supply chains are. We have to become more resilient here and more independent of individual states in the case of lithium batteries, for example.”He added, however, that “decoupling from China is an illusion, and also not desirable”. More

The writer is head of the centre for financial crime and security studies at the Royal United Services Institute think-tankIn February 2022, I compared the UK’s first round of sanctions against Russia and the Putin regime to taking a peashooter to a gunfight. The threat of sanctions failed to deter Vladimir Putin’s full-scale invasion of Ukraine and their early imposition was slow and lacked bite. Western leaders were initially poor at articulating their ambitions — which ranged from “degrading and disrupting” Russia’s supply chains to “shaking” the foundations of its economy. But they are now restricting Moscow’s access to the international financial system and applying ever-greater trade restrictions. While the tempo of sanctions designations has remained high, and the targets have broadened, the coalition of countries implementing sanctions has not. The holes in the net are significant and manifold. Too many countries are at best ambivalent and at worst profiting from providing sanctions circumvention opportunities for the Kremlin and its proxies. The recent US warning that Russia is trying to repair its degraded military industrial supply chains by getting around western export controls was a welcome one. The Financial Action Task Force (FATF), the global watchdog on financial crime, has also drawn attention to the risks posed to the financial system by Russia’s activity, such as its reported arms trades with other sanctioned jurisdictions. But this signalling presupposes that countries ignoring allied sanctions are inclined to agree with the view of the FATF (or the US). The UK and the EU do, but those countries providing circumvention opportunities for Russia are far less diligent, and indeed some rail against the FATF, seeing it as hypocritical.Far better than relying on uninterested states to react to a process or guidance they already disregard, is to pressure their companies. While the UAE, Turkey and South Africa may choose to ignore sanctions decisions made in Washington, London and Brussels, the interconnected nature of global trade means their companies and financial institutions cannot: they need connections to international partners and are thus sensitive to the signals they receive. For example, a bank in a non-compliant country that continues to offer financial services to designated companies or individuals will almost certainly require access to the international financial system. This access is most often provided by large, globally-operating banks located in the US, Europe or the UK that are required to implement sanctions to the letter. These correspondent banks must at the very least increase their scrutiny of these client banks, and if necessary sever their relationships altogether to avoid facilitating circumvention. Harnessing influence to coerce sanctions compliance in this way may seem distasteful, but so too is facilitating the funding and resourcing of Moscow’s war machine.Beyond their direct connections with third country financial institutions, these global banks also facilitate trade finance payments and should be alert to changes in their corporate clients’ activities since the Ukraine invasion. In particular, they should interrogate companies which have increased business with the countries — such as Armenia, Kazakhstan and Turkey — that are acting as trade “cut-outs”, in effect helping Russia to evade sanctions.Finally, those companies in countries that facilitate sanctions circumvention — such as the Iranian provision of drones to Russia — must themselves be added to the designation lists, to restrict their access to western markets. This has the added benefit of signalling to companies in compliant countries that dealing with these less scrupulous actors poses significant risks. It was encouraging to see some efforts in this direction as part of the renewed western sanctions imposed on the first anniversary of Russia’s invasion. But there is still more that could be done — starting with better domestic implementation of sanctions in allied countries and more robust diplomatic engagement to reverse the progress Russia has made in blunting international support for sanctions. There is no doubt that Ukraine’s allies have learnt lessons from their lacklustre sanctions response to Russia’s annexation of Crimea in 2014 and have come a long way from their tentative start last year. But as the Kremlin adapts and disguises its supply chains and financial connections, the west will need to assess and adjust its activities accordingly. On second thoughts, maybe there is no shame in taking a peashooter to a gunfight — as long as it is suitably nimble. More

“Somehow, in the UK, someone needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices [or] wages or passing the energy costs on to customers.” This comment by Huw Pill, the Bank of England’s chief economist, has set off a firestorm. Is he right? Yes, but only up to a point. Is lecturing people useful? No. What is useful is for the BoE and other central banks to show that they will do whatever it takes to bring inflation back under control.Pill’s point is that the UK has suffered an exceptionally large deterioration in “terms of trade” (the ratio of its export prices to those of its imports). Between December 2020 and September 2022, this fell by almost 10 per cent. Since prices of imports rose dramatically, this raised the overall price level, while making the country significantly poorer. Pill is right on this.Yet it also creates a distributional struggle, the outcome of which will be determined by political and economic power. Such a struggle would also have happened if the UK were self-sufficient in the goods whose prices rose. Domestic producers of oil, gas and food would have gained at the expense of everybody else. The fact that the redistribution is to foreigners just made it costlier overall.However, the loss of real income is not the only effect of the deterioration in the terms of trade. One must also consider the effects of the inflationary process itself. This is never smooth. Some groups are better at getting ahead of inflation than others: businesses, for example, can adjust prices faster than workers can force up wages. Public employees and people on benefits are likely to find gaining upward adjustments of their incomes especially difficult. Pill is right that this process will be futile, in aggregate. But it will not be at all futile for the winners if they succeed in protecting their incomes by shifting most, or even all, losses on to others.

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The fact that an inflationary process is arbitrary and unjust is one of the reasons it is so politically and socially corrosive. After the long period of low and stable inflation, many have forgotten this. But those who lived through the 1970s remember it well. Today’s labour unrest is reminiscent of what happened then. It was also quite predictable.The impact of slow adjustment to inflation is particularly harsh on the recipients of benefits. The Resolution Foundation notes, for example, that the real level of unemployment benefit fell 12 per cent between March 2021 and March 2023. These are very large falls in the real incomes of already poor people. Moreover, with headline inflation at 10 per cent, real wages fell 3.2 per cent in the year to February 2023, despite a 6.9 per cent rise in money wages.

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Nevertheless, optimism is possible. One reason is that headline inflation is about to tumble, as the increase in prices after Russia’s invasion of Ukraine falls out of the index. This will deliver a sharp fall in headline inflation, so improving real wages and disposable incomes, and weakening wage pressure.Another reason for optimism is the fact that market expectations of average inflation are 3.5 per cent over the next decade. This is not far from the BoE’s target, once we take an inflation risk premium (plus the fact that index-linked gilts use the retail price index, rather than the consumer price, as the measure of inflation) into account.Yet I am unconvinced. Real wages in February were nearly 5 per cent below their level in March 2022. After such large losses in real wages and disposable incomes, why would one expect growth in nominal wages (which was 6.9 per cent in the year to February) to slow sharply, especially when core inflation was 6.2 per cent in the year to March 2023 and unemployment was as low as 3.7 per cent in the fourth quarter of 2022? What is likely to bring about a really sharp fall in wage growth?

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Standard economic models also assume that the inflation target is self-validating: if people generally believe it will happen, then it will. Yet expectations will always adjust to experience. If, as I expect, wage growth continues at not far short of today’s pace, productivity growth stays low, and so unit labour costs continue to rise quite fast, the core rate of inflation seems likely to stabilise well above target. Moreover, monetary policy is not even tight by normal standards: the Bank of England’s intervention rate of 4.25 per cent is well below core inflation, never mind the headline rate of over 10 per cent.Yes, the BoE cannot fix the income distribution. That is for the government to do. What it can and must do is stop inflation from remaining too high for too long. The costs of dealing with entrenched high inflation would be huge. It is the BoE’s job to prevent [email protected] Martin Wolf with myFT and on Twitter More