Aurelia Butler

Hello and welcome to the working week.Cold enough for you? Blame Punxsatawney Phil. Or, when it comes to the icy cold that has descended (again) over US-China relations, rogue weather balloons.The cancellation of US secretary of state Antony Blinken’s China trip, and with it the prospect of a historic meeting of him and President Xi Jinping has put relations between the two military and economic powers back in the deep freeze. But Beijing will at least do some thawing on Monday when it further lifts travel restrictions imposed as long as three years ago. This includes fully reopening mainland China’s border with Hong Kong, expected to boost tourist traffic to the city.Biden is preparing to warm up his domestic audience with the annual State of the Union address before a joint session of Congress on Tuesday. Attention has been focused on the Republican governor chosen to give the Union response, Sarah Huckabee Sanders, who was a polarising figure during her time as press secretary to former president Donald Trump, before being elected in Arkansas as the youngest governor in the US.One thing that shows little sign of thawing this week is UK industrial relations. Another big day of labour disputes by NHS staff takes place on Monday and Friday – read this analysis of the state of the British health service on the eve of its 75th anniversary. But Britain is not alone. French train workers at SNCF will strike for two days over proposed pension age reforms, demonstrations are planned in Portugal over teacher pay and Spaniards are marching in Madrid in support of healthcare workers.Thank you again for your comments and suggestions about the new look Week Ahead and the items discussed. Email me at [email protected] or if you are receiving this in your inbox just hit reply.Economic dataThe UK has been exceptional among leading nations recently for all the wrong reasons. My colleague Chris Giles wrote an excellent explainer on why this has been the case, partly due to the flow of economic reports. This week we will see whether Britain has actually been doing better than expected with an update on fourth-quarter gross domestic product.Elsewhere, the US has trade, consumer credit, preliminary Michigan Sentiment and annual consumer price index (CPI) inflation rate revisions, Germany publishes its delayed CPI data along with factory orders and industrial production data while China provides its inflation updates.CompaniesWe are knee-deep in company earnings this week, particularly from the US, where the likes of Disney, PepsiCo and MGM Resorts will provide a guide to consumer confidence in these disrupted times. Similar insights from Europe will be provided by Carlsberg on Tuesday and Pandora on Wednesday.AP Møller-Maersk reports figures on Wednesday and investors will be eager to hear what new chief executive Vincent Clerc plans to do with what is now the world’s second-largest container shipping company. It is challenging times for Maersk given the rather sudden and sharp downturn in container shipping rates.Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayEU, December retail sales figuresGermany, December factory ordersUK, S&P Global/Cips construction purchasing managers’ index (PMI) dataResults: Activision Blizzard Q4, Anima FY, JFE Holdings Q3, Pinterest Q4, Sumitomo Corp Q3, Take-Two Interactive Software Q3, Tyson Foods Q1TuesdayCanada, Bank of Canada governor Tiff Macklem speech at the CFA Society QuébecFrance, December trade balance dataJapan, December current account and trade balance dataSwitzerland, January unemployment figuresUK, January BRC-KPMG Retail Sales MonitorUS, December consumer goods and services trade balance dataResults: BNP Paribas FY, BP Q4, Carlsberg FY, Nintendo Q3, SoftBank Q3, Suzuki Motor Q3, WednesdayChina, monthly crop outlookFrance, Q4 private sector payrolls dataIndia, central bank rate-setting meetingPoland, monetary policy committee’s rate-setting meetingResults: ABN Amro Q4, Adyen H2, AP Møller-Maersk Q4, Ashmore H1, Barratt Developments H1, Bunge Q4, CVS Health Q4, Equinor Q4, Fox Corp Q2, MGM Resorts Q4, Pandora Q4, Smurfit Kappa FY, Société Générale Q4, Walt Disney Company Q1, Yum Brands Q4ThursdayGermany, Harmonised Index of Consumer Prices (HICP) inflation rate dataMexico, consumer price index (CPI) inflation rate dataNorway, $1.3tn sovereign wealth fund annual report on responsible investingUK, RICS January house price dataUS, unemployment claimsResults: Aegon Q4, ArcelorMittal Q4, AstraZeneca Q4, Banca Generali FY, Bellway trading update, Bombardier FY, British American Tobacco FY, Compass Group Q1 update, Crédit Agricole FY, Credit Suisse Q4, Deutsche Börse Q4, Enel FY, Equifax Q4, Expedia Q4, Kellogg Q4, L’Oréal FY, Mediobanca H1, Nippon Steel Q3, Nissan Motor Q3, PayPal Q4, PepsiCo Q4, Philip Morris Q4, Ralph Lauren Q3, Redrow H1, Siemens Q1, Toyota Q3, Unilever Q4, Volvo Q4, Willis Towers Watson Q4, Zurich Insurance FYFridayCanada, January unemployment rate figuresChina, January CPI and producer price index (PPI) inflation rate dataChina, Q4 current account balanceGermany, December current account balanceRussia, key interest-rate decisionUK, flash Q1 GDP figuresUK, December trade balance dataUK, December industrial production dataUS, February University of Michigan sentiment figuresResults: Aker BP Q4, Eneos Q3, Honda Motor Q3, Saab Q4World eventsFinally, here is a rundown of other events and milestones this week. MondayChina, travel agencies and online travel booking sites are allowed to resume selling group and business travel for Chinese citizens to 20 China-friendly countries, including South Africa, Thailand, New Zealand, Russia and SwitzerlandNorway, defence ministers of Sweden and Finland, deputy secretary-general of Nato and various Norwegian military chiefs begin a two-day security conference in Oslo dedicated to the war in UkraineUK, the NHS will be hit with another day of widespread strikes as more than 10,000 ambulance workers in the Unite and GMB unions in England stage further industrial action, while the Royal College of Nurses expects tens of thousands of its members in England to walk out for 12 hours today and tomorrow, in separate pay disputes. Separately, legal advisers and court associates that are part of the Public and Commercial Services Union continue industrial action at HM Courts & Tribunals Service over a new digital case management system.UK, Church of England General Synod begins its meeting to agree the annual budget and approve new laws for the Anglican denomination as well as debating matters of importance. This year, senior bishops will ask the synod to rescind the policy that clergy in same-sex relationships must be celibate.TuesdayFrance, SNCF workers embark on another two-day strike to protest against President Emmanuel Macron’s plan to raise the retirement age from 62 to 64.UK, shadow defence secretary John Healey speaks on the Labour party’s vision for defence and security at an event in LondonUK, parliament’s Digital, Culture, Media and Sport Committee questions BBC chair Richard Sharp, who has been accused of helping arrange a loan to former prime minister Boris Johnson when he was applying for his current positionUS, President Joe Biden delivers his first State of the Union address after Republicans gained control of the House of Representatives, with observers wondering whether he will launch his 2024 presidential election campaignWednesdayNorth Korea, commemorations of the 75th anniversary of the founding of the Korean People’s Army in its current formThursdayUS, former FBI agent Charles McGonigal, who has been charged with working for sanctioned Russian oligarch Oleg Deripaska, is expected to appear in federal court in ManhattanFridayEU, leaders of member states meet to discuss migration and the effects of the US Inflation Reduction Act and the bloc’s longer-term competitiveness against other big economiesFrance, annual Nice Carnival opens for its 150th yearUK, ambulance workers from the Unite and Unison unions to strike in London, the South West, North West, North East, Yorkshire and the West Midlands. University staff at more than 150 universities across the UK continue strike action begun yesterday.US, New York Fashion Week begins with a series of events in ManhattanSaturdayIran, Islamic Revolution Day commemorating victory in the 1979 uprisingPortugal, third day of demonstrations planned to demand higher wages and better working conditions for the country’s teachersUK, Brit Awards for the music industry take place in LondonUS, Chicago Auto Show beginsSundayGermany, Berlin to rerun “chaotic” 2021 state election after the results were declared invalid by the constitutional court owing to numerous irregularities.Spain, tens of thousands are expected to march in Madrid to support primary healthcare workers over better salaries and working conditionsUS, Super Bowl Sunday when the Philadelphia Eagles will take on the Kansas City Chiefs at the State Farm Stadium in Glendale, Arizona. The sporting contest is often overshadowed by the half-time entertainment and the budgets spent on the adverts played in the breaks between play More

Did the UK economy avoid a technical recession at the end of 2022?The UK economy is expected to have narrowly avoided a technical recession at the end of last year, thanks to growth in November cancelling out a contraction in December.Economists polled by Reuters forecast UK GDP to have shrunk by 0.3 per cent between November and December. In the fourth quarter overall the economy is expected to have stagnated.If forecasts miss expectations and output fell in the fourth quarter of 2022, the UK economy would have entered a technical recession, defined as two consecutive quarters of contraction, after the economy shrunk in the three months to September.However, even if the country did avoid entering a downturn in 2022, Philip Shaw, economist at Investec doubts “that the economy will be able to avoid a recession through 2023”.He is not the only one. The IMF last week forecast that the British economy would be the worst performer among advanced economies and the only one expected to see its output shrink this year.The Bank of England agrees that the economy probably sidestepped recession in late 2022. Its latest forecast this week pointed to growth of 0.1 per cent in the final quarter due to a rebound from a mini-slump at the time of the Queen’s funeral. The BoE nevertheless expects a prolonged recession to begin in the current quarter that lasts until the first three months of 2024. That would be a shallower downturn than the central bank forecast in November, thanks to the decline in wholesale gas prices and the unexpected resilience of the labour market. Nonetheless, British output is still forecast to be smaller in early 2026 than in its pre-pandemic level in 2019, according to the BoE. Valentina RomeiWill the boom in emerging market bond issuance continue?Emerging market governments have embarked on a record borrowing spree since the start of 2023, raising more than $44bn on international markets in January, according to data from Morgan Stanley.With inflation cooling off in the developed world, taking the pressure off central banks to raise rates further, money has flowed back into emerging market bonds. Technical market conditions for future issuances remain ideal, say analysts, who point to the slew of maturing bonds in 2023 which will free up resources for fund managers to reinvest. Qatar, Poland, Egypt and Turkey are among the issuers expected to come to market in during the first quarter, analysts say. “Issuances should continue until there’s a bigger correction in risk appetite,” said David Hauner, head of EM strategy and economics at Bank of America Global Research. “Last year, many countries delayed coming to market because of unfriendly conditions and there are fears that turbulence might re-emerge, so people are trying to issue as soon as possible.”However, the significant front-loading of issuances in 2023 could decelerate as the year continues.“Nearly 50 per cent of hard currency sovereign issuances were done in January for the full year. So I would expect the amount to decrease,” said Uday Patnaik, head of emerging markets debt at Legal and General Investment Management.Whether the borrowing boom continues may also depend on whether investors are right that to bet that the US Federal Reserve is close to the end of its cycle of interest rate rises. “The perceived future direction of US interest rates will play a major role in determining whether tensions in emerging markets can ease further,” said Charles Mangin, head of FX trading at Crown Agents Bank. Martha MuirWill Sweden’s rate rises have peaked after next week’s increase?Policymakers from Sweden’s central bank will have to balance higher than expected inflation with an economy teetering on the edge of a recession when they meet this week. Economists are divided over whether the Riksbank will focus on rapid price growth and go for an extra large interest rate rise, given that an ailing economy may soon force the central bank to start cutting rates again. Erik Thedéen, one month into the top job at the Riksbank, said last week that “significant vulnerabilities”, such as banks’ exposure to highly indebted commercial property groups, have built up in the Swedish financial system. Stefan Ingves, his predecessor as central bank governor, has predicted a 20 per cent peak-to-trough decline in house prices.Many economists predict the central bank will raise borrowing costs on Thursday to 3 per cent, a 0.5 percentage point rise. ING economists, however, caution of an “elevated risk” of a large rise of up to a full percentage point because of raging inflation and the fact that the Riksbank is keen to support the currency. The krona has declined against the euro more than 8 per cent over the past 12 months.Capital Economics analysts see a rate peak of 3 per cent with this week’s meeting ending the tightening cycle. They are bringing forward their forecast for a first rate cut to January next year.Fourth-quarter gross domestic product shrank 0.6 per cent from the previous three-month period while December’s consumer price index rose 12.3 per cent from a year earlier.The government expects the economy to contract 0.7 per cent this year, with the banking group Nordea predicting a fall in GDP of around 2 per cent. The finance ministry in December said Sweden will enter a recession that is expected to last until 2025. Sarah Provan More

For some time, American officials have talked about the need to “put a floor” under the sharp deterioration in US-China relations. But the controversy surrounding the Chinese spy balloon (which Beijing insists was a “civilian” vessel blown by accident into American airspace) has dashed efforts to gradually improve relations between the two countries. A visit to Beijing by Antony Blinken, the US secretary of state, has now been cancelled.Even before the current crisis, there was very little trust or warmth left between Washington and Beijing. Both sides understand that tensions are dangerously high. General Mike Minihan, head of the US Air Mobility Command, recently predicted in a leaked internal memorandum that the US and China “will fight in 2025” — as a result of a Chinese attack on Taiwan. While Minihan’s views do not represent a settled consensus within the US government, they do reflect the fevered nature of the debate between western officials about China’s intentions towards Taiwan. The rise in military tensions has also led to a much more determined American effort to restrict the supply of cutting-edge technology to China. New restrictions on the export of semiconductors and related equipment to the country have been announced, threatening its high-tech sector and some leading Chinese and western firms. Talk of the two economies “decoupling” is now routine — although the current reality is that the volume of trade between the countries continues to increase.It is hardly a revelation that China and the US are spying on each other. But the progress of the balloon from Alaska through Canada and down past Montana has a certain Hollywood quality that has fascinated television audiences and politicians across the US — increasing pressure on the Biden administration to respond. By historic standards, the current episode looks like a relatively minor infraction. Between 2010 and 2012, China is believed to have dismantled CIA operations within its borders — executing at least a dozen US sources. In 2015, it was announced that China had successfully hacked America’s Office of Personnel Management, gaining access to the personal data of over 4mn current and former federal government employees. The US has intensified its own intelligence-gathering efforts aimed at China. In 2021, the CIA announced the formation of a new China mission centre to “address the global challenge posed by the People’s Republic of China.” The increased surveillance capabilities of the Chinese state, linked to the rise of the smartphone, have made it increasingly difficult for western intelligence agencies to run agents within China. But the technological surveillance capacities of both Washington and Beijing continue to expand. One oddity about the Chinese spy balloon is that, in the age of spy satellites, it sounds like a technological solution from a previous era. Spy balloons were employed as long ago as the French revolutionary wars.The current incident is, however, particularly inflammatory given America’s already heated political debate about China. Leading Republican politicians used the balloon’s journey across the US to accuse the Biden administration of weakness towards Beijing. The White House’s decision to shoot the balloon down just off the US coast may have reflected domestic political imperatives, as much as national security ones.China has its own nationalists and hawks to satisfy. They too may demand a response to America’s attack on the balloon, which the Chinese government has called a serious violation of international conventions. In recent weeks, more moderate voices in both Beijing and Washington had been cautiously trying to restart dialogue between the two countries. Those efforts are over — for now. But in the long run, the stakes are too high for diplomacy between China and the US to fall victim to a spy [email protected] More

The writer is professor emeritus at the Stern School of Business, NYU and chief economist at Atlas Capital TeamThe US dollar has been the predominant global reserve currency since the design of the Bretton Woods system after the second world war. Even the move from fixed exchange rates in the early 1970s did not challenge the greenback’s “exorbitant privilege”. But given the increased weaponisation of the dollar for national security purposes, and the growing geopolitical rivalry between the west and revisionist powers such as China, Russia, Iran and North Korea, some argue that de-dollarisation will accelerate. This process is also driven by the emergence of central bank digital currencies that could lead to an alternative multipolar currency and international payment regime.Sceptics argue that the global share of the US dollar as unit of account, means of payment and store of value hasn’t fallen much, despite all the chatter about a terminal decline. They also point out that you can’t replace something with nothing — as former US Treasury secretary Lawrence Summers put it: “Europe is a museum, Japan is a nursing home and China is a jail.”More nuanced arguments point out that there are economies of scale and network that lead to a relative monopoly in reserve currency status, and that the Chinese renminbi cannot become a real reserve currency unless capital controls are phased out and the exchange rate made more flexible. Moreover, a reserve currency country needs to accept — as the US long has — permanent current account deficits in order to issue enough of the liabilities held by non-residents as a counterpart. Finally, such sceptics argue that all attempts to create a multipolar reserve currency regime — even an IMF Special Drawing Right basket that includes the renminbi — have so far failed to replace the dollar.These points may once have had some validity, but in a world that will be increasingly divided into two geopolitical spheres of influence — namely those surrounding the US and China — it is likely that a bipolar, rather than a multipolar, currency regime will eventually replace the unipolar one.Complete exchange rate flexibility and international capital mobility is not necessary in order for a country to achieve reserve currency status. After all, in the era of the gold-exchange standard the dollar was dominant in spite of fixed exchange rates and widespread capital controls. And while China may have capital controls, the US has its own version that may reduce the appeal of dollar assets among foes and relative friends. These include financial sanctions against its rivals, restrictions to inward investment in many national security-sensitive sectors and firms, and even secondary sanctions against friends who violate the primary ones. In December, China and Saudi Arabia conducted their first transaction in renminbi. And it is not farfetched to think that Beijing could offer the Saudis and other Gulf Co-operation Council petrostates the ability to trade oil in RMB and to hold a greater share of their reserves in the Chinese currency.It is likely that the GCC countries, as well as many other emerging market economies, may soon start accepting such Chinese offers given that they do a great deal more trade with China than the US. Also, there is a clear so-called Triffin dilemma in a currency regime in which the reserve country runs permanent current account deficits that will eventually undermine its reserve status as the growth in its international liabilities becomes unsustainable. Critics question whether the currency of a country running a persistent current account surplus can ever achieve global reserve status. But China may in any case be moving towards a growth model less dependent on trade surpluses. It is also an anachronism that the US, whose share of global gross domestic product has halved to 20 per cent since the second world war, still accounts for at least two-thirds of all so-called vehicle currency transactions. The current system makes emerging market economies financially and economically vulnerable to changes in US monetary policy driven by domestic factors such as inflation. Finally, new technologies including CBDCs, payment systems such as WeChat Pay and Alipay, swap lines between China and other countries, and alternatives to Swift, will hasten the advent of a bipolar global monetary and financial system. For all these reasons, the relative decline of the US dollar as the main reserve currency is likely to occur over the next decade. The intensifying geopolitical contest between Washington and Beijing will inevitably be felt in a bipolar global reserve currency regime as well. More