Aurelia Butler

When two superpowers fall out, lesser powers pick a side. The Netherlands is the latest to do so, as world tech bifurcates between the US and China. The Dutch government has mooted national security restrictions on chip technology exports. That aligns it with the US, whose anti-Chinese stance has momentum in the west.The proposals did not name ASML. They did not need to. Everyone knows the Dutch company is the world’s largest advanced chip equipment supplier. The dependence of Chinese manufacturers on ASML increased in October when the US banned exports of its own advanced kit. The Dutch curbs would require companies to apply for licences to export their technologies. These would include “DUV” or deep ultraviolet lithography systems, which create tiny patterns essential to the early stages of chipmaking. ASML machines dominate world chipmaking. China accounts for 15 per cent of its sales. But top-line damage would be shortlived. The company has an order backlog of more than a year. Lost demand from China will be replaced quickly as global chipmakers start construction of new plants in coming months. This year, ASML’s net sales are expected to grow at double the pace of 2022. The Dutch ban would have dire consequences for Chinese chip businesses, though. Their chances of making the most advanced chips without ASML machines are minimal. Even installed ASML equipment at Chinese groups such as Semiconductor Manufacturing International Corporation may become less useful. ASML has sold them more than €8bn worth of machinery in a decade. If Dutch restrictions preclude servicing and support, Chinese customers would take a further hit.SMIC shares have moved little in the past year despite US curbs. A 60 per cent drop from a 2020 peak priced in much of the damage early on. But shares still trade at 23 times forward earnings, 50 per cent higher than Taiwan’s TSMC. Expect that steep premium to ebb in parallel with residual western support for Chinese tech. More

LONDON (Reuters) – Two years after inflation began its rapid ascent, investors, economists and policymakers remain divided on the path ahead.Yes, headline inflation across major developed economies has retreated from multidecade highs, inflationary impulses from COVID-19 such as rocketing used car and semiconductor prices are fading, and Europe’s gas crisis has eased.But jobs markets are tight and price pressures excluding volatile energy and food remain elevated.The stakes are high for policymakers and traders, who have been repeatedly wrongfooted by inflation. Here’s the case for and against inflation falling quickly towards the 2% level most central banks target.CASE FOR A SWIFT RETREAT1/ ENERGY PRICESTumbling energy prices are pulling down headline inflation.With European natural gas prices at their lowest since August 2021, down 85% from last year’s peak, euro area inflation is no longer in double digits.U.S. inflation rose 6.4% in January, the smallest rise since October 2021, from a 9.1% high last June.China’s reopening has boosted oil prices. But at $83 a barrel, Brent crude is still down 40% from $139 hit just after Ukraine was invaded. It should average $89.23 this year, a Reuters poll shows. Europe’s gas prices tumble in good news for inflation https://www.reuters.com/graphics/GLOBAL-MARKETS/egpbyogkavq/chart.png 2/ SUPPLY CHAINS SETTLE Supply chain disruptions caused by COVID-19 and the war in Ukraine, key drivers of surging inflation, have eased sharply.A New York Federal Reserve index suggests global supply chains have “returned to normal” as pressures are their lowest since before the pandemic, with China’s reopening from tight COVID-19 restrictions the latest source of improvement.Oxford Economics’ lead economist Adam Slater notes that this Fed gauge leads inflation in the Group of Seven economies by around 12 months.That implies G7 core inflation, excluding food and energy, could drop to around 2.5% by the end of the year and below 2% in early 2024, he estimates. US labour market stays tight https://www.reuters.com/graphics/GLOBAL-MARKETS/zdvxdxeyevx/chart.png 3/ WHAT WAGE PRICE SPIRAL?Yes, labour markets are tight. But the employment cost index the Fed watches is slowing and posted its smallest rise in a year in the fourth quarter.”If it’s a strong growing economy, where demand for workers vastly outstrips supply, you would expect to see those wages and employment costs ticking higher,” said ING chief international economist James Knightley. Japan’s real wages fell the most in nearly nine years in January, while Italian wages rose just 1.1% in 2022 versus average inflation of 8.7%.Even central bank hawks like Germany’s Joachim Nagel accept that no wage-price spiral is developing.Instead, corporate profits have accounted for the lion’s share of domestic euro zone price pressures since 2021, ECB data shows. A recent IMF study going back to the 1960s found that only in a small minority of cases where wages and inflation rose together for several quarters did sustained inflation result.CASE FOR STICKY INFLATION 1/ HISTORY LESSONSince 1970, once price rises averaged 8% across 14 developed markets, it took at least six years for inflation to come back down to 3%, according to a Research Affiliates analysis.London Business School data shows that inflation across 21 countries since 1900 spiked during wars and energy crises and was then followed by a series of smaller peaks instead of a clear downward trajectory.”I would bet the house against inflation averaging, say, 2.5% for the next 10 years. It will be much higher,” said Frédéric Leroux, head of cross-asset at Carmignac.A Reuters poll forecast U.S. headline inflation at 2.7% by the end of 2023, with estimates as high as 4.6%. Euro area inflation is seen anywhere between 2% and 5.2% by the end of the year. History shows 2% inflation is not the norm https://www.reuters.com/graphics/GLOBAL-MARKETS/jnvwyaogmvw/chart.png 2/ PAY DAYA tight U.S. labour market suggests inflation stays sticky. Remember, the creation of 500,000 new jobs in January prompted a renewed ratcheting up of interest rate-hike bets.Wage rises may not be driving inflation now, but the risk is that they will. Euro zone wage growth expectations among consumers are still rising, ECB data shows.ECB policymakers have said that if high inflation persists, demands for pay matching inflation become more likely. Fed officials in February saw wage growth keeping services prices elevated.Even in Japan, renowned for decades of deflation and stagnant pay, Uniqlo parent Fast Retailing has said it will raise wages by as much as 40%. US labour market stays tight https://www.reuters.com/graphics/GLOBAL-MARKETS/zdvxdxeyevx/chart.png 3/ CHINA FACTORChina’s economic reopening will add to global price pressures as trade and travel boosts demand from the world’s largest commodities buyer.The impact of this on energy prices is yet to be fully felt, said Idanna Appio, portfolio manager at First Eagle Investments and would build as Chinese travel returns.Analysts polled by Reuters expect China to import a record amount of crude oil in 2023.Chinese factories are now powering ahead. February manufacturing activity rose at the fastest pace in over a decade.The chief executive of Gunvor, a top oil trader, sees oil prices rising in the second half of 2023 on renewed Chinese demand. Goldman Sachs (NYSE:GS) expects China’s re-opening could eventually raise U.S. headline inflation by 0.5 percentage points. More

Investing.com — Crypto shudders as Silvergate shutters. Initial jobless claims and the Challenger job cuts survey flesh out the picture of the labor market. U.S. President Joe Biden will outline his administration’s budget plans, including a raft of measures that would put downward pressure on stock prices. JPMorgan pins the blame on Jes Staley for being tarred by the Jeffrey Epstein affair, and Europe’s natural gas prices fall to their lowest in over 18 months as the Freeport LNG plant gets the go-ahead to resume exports. Here’s what you need to know in financial markets on Thursday, 9th March.1. Crypto falls as Silvergate announces liquidationCryptocurrencies fell, along with stocks exposed to the asset class, after Silvergate Capital (NYSE:SI) said it will wind down operations and return cash to depositors.Silvergate has been a key provider of banking services to crypto exchanges in the U.S. and it is far from clear how they will find anyone else to facilitate the transfer of money between the crypto and fiat currency universes.Bitcoin fell to its lowest in a month before recovering slightly to trade at $21,632 by 06:30 ET (11:30 GMT), while Ether, Cardano, and Solana all fell too. Other indicators suggested that crypto investors continued to pull their money out of the space, with the value of Binance USD’s outstanding circulation falling to barely $8 billion – a drop of 50% in the last month – despite Binance saying that it has no exposure to Silvergate.2. All not quite quiet on the labor market frontThe U.S. labor market remains front and center on Thursday after two reports on Wednesday that showed only patchy evidence of a cooling off.Initial claims for jobless benefits are expected to bump along below 200,000 again, while the Challenger Job Cuts survey is due an hour before that at 07:30 ET.On Wednesday, ADP’s monthly survey of private hiring had come in well above expectations at 242,000 in February, while its wage tracker continued to show pay growth well above official estimates. The Labor Department, meanwhile, reported that job openings fell in January – but only from an upwardly revised 11.23 million, which was a nine-month high.3. Stocks drift in post-Powell daze; JPMorgan tries to claw back $80M from Epstein associate StaleyU.S. stock markets are set for a mixed opening, struggling to develop any momentum after Federal Reserve chair Jerome Powell’s warnings of more rate hikes to come in two days of testimony on Capitol Hill.By 06:30 ET, Dow Jones futures were essentially flat, while S&P 500 futures were down 0.2% and Nasdaq 100 futures were down 0.5%. That’s a mirror image of the big three cash indices’ performance on Wednesday when the Nasdaq outperformed.Stocks likely to be in focus later include JPMorgan (NYSE:JPM), which is suing former private bank head Jes Staley for any damage it incurs from links to the deceased sex trafficker Jeffrey Epstein. JPMorgan is seeking $80M from Staley, his entire compensation between 2006-2013. ADRs in Barclays (NYSE:BCS), where Staley was CEO until November 2021, fell in premarket trading.Oracle (NYSE:ORCL), Ulta Beauty (NASDAQ:ULTA), DocuSign (NASDAQ:DOCU) and Gap (NYSE:GPS) all report earnings after the close4. Biden to present budget plans U.S. President Joe Biden will lay out some $3 trillion of deficit-cutting measures in his administration’s new budget plans, as his Democrat allies prepare for a showdown in Congress over the debt ceiling.Various reports indicated that Biden will renew his call for a tax on billionaires’ wealth, as well as taxing stock buybacks and private equity’s internal returns. Those measures have failed to gain any traction in previous initiatives, leaving cynics wondering whether the budget is not really just a stunt to profile Republican opponents as defenders of a small, wealthy minority.5. European gas prices hit new low as Freeport LNG gets restart OKEuropean natural gas fell to their lowest since the summer of 2021, after a major LNG plant in the U.S. received the all-clear from regulators to resume exports.Freeport LNG has been out of action for months while it repaired damage from a fire. That fire choked shipments to Europe at the peak of last year’s energy scare.Front-month TTF futures, the reference price for northwest Europe, fell as low as €40.50 a megawatt-hour before bouncing to trade at €41.73/MWh by 06:45 ET, down 1.4% on the day.Elsewhere in energy, U.S. crude futures were up 0.1% at $76.75 a barrel, while Brent was up 0.1% at $82.77 a barrel. More