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Investors will finally get a better picture of how the Trump administration’s trade war affected US inflation in September when delayed consumer price data is released on Friday.The ongoing government shutdown has halted official data releases, pushing back CPI data, which had been due to come out on Wednesday this week. The Federal Reserve has nevertheless called in a limited number of employees to put out the delayed data, which is scheduled for October 24, more than a week late. Delays in official data have left investors “flying blind” amid concerns over lingering price pressures and the health of the world’s largest economy, with many instead relying on private data and Fed surveys such as the Beige Book for insight into the US economy.Economists polled by Reuters expect the data to show a rise in the annual inflation rate to 3.1 per cent from 2.9 per cent, while the core rate is forecast to stay at 3.1 per cent.The data will be considered by the Fed at its upcoming two-day meeting starting on October 28. At its last meeting, the central bank shifted its focus towards the risks of a weakening labour market over rising inflation. Its so-called dot plot shows policymakers expect inflation to reach 3 per cent at the end of the year.Traders are pricing in a 0.25 percentage point cut this month and a further reduction in December.Until the data arrives, many investors may hold off on placing major market bets, with the vacuum of reliable information complicating forecasts for interest rates and corporate earnings. Kate DuguidWill UK inflation make it harder for the BoE to cut interest rates?In a busy week ahead for UK economic data, investors will be focused on September’s inflation numbers for clues about the Bank of England’s next move on interest rates.Economists polled by Reuters expect headline consumer price index inflation to rise to 4 per cent, the fastest pace since the end of 2023, from 3.8 per cent the previous month.The rate would match the BoE’s forecast and is widely expected to mark this year’s peak before inflation begins to ease again. Services inflation — a closely watched measure of domestic price pressures — is forecast to have risen from 4.7 per cent in August to 4.9 per cent in September.A stronger than expected reading, especially in services, could reinforce the view that inflation is proving sticky and strengthen the case for keeping interest rates higher for longer.Traders are pricing in a roughly 50 per cent chance of a 0.25 percentage point reduction in rates by December, while a cut is fully priced in by March.The rise in UK inflation in September is expected to have been driven by higher fuel, airfares and clothing costs. Some analysts also point to a delayed pass-through from the imposition of VAT on private school fees from January.Food prices remain a concern, with inflation in August at 5.1 per cent — the highest since January 2024 — highlighting the risk of entrenched price expectations. However, a stabilisation of global food costs is expected to be reflected in the UK data.The IMF this week warned the UK was on track to post the highest inflation in the G7 this year and next. Updates on retail sales, public finances and the latest S&P purchasing managers’ indices are also due during the week. Valentina RomeiHow severe is the slowdown in China’s economy?China will release a range of data on Monday, including third-quarter GDP, that is expected to show slowing growth in the world’s second-largest economy.The data follows an escalation in the country’s trade dispute with the US, and comes as Chinese officials convene to discuss its next five-year plan.The consensus among economists is that growth slowed in the third quarter, with an average forecast of a reading of 4.8 per cent year on year, down from 5.2 per cent three months earlier.Recent data has been weak, which economists say reflects the impact of Beijing’s so-called anti-involution campaign to trim excess production capacity in response to deflationary pressures. Fixed-asset investment slowed sharply over the summer due to weak construction activity and an ongoing contraction in property investment.However, while there has been a slowdown in domestic investment, exports have been strong, despite the trade war, rising 8.3 per cent in September.“Exports have been more resilient than initially feared on the back of the increased US tariffs,” Goldman Sachs analysts said in a recent note.On Monday, authorities will also announce the five-year loan prime rate — the benchmark for home mortgages — which is expected to be held at 3.5 per cent, as well as September retail sales, industrial production and fixed-asset investment.“We do not believe September’s data release will trigger monetary policy easing and interest rate cut in the near term,” ANZ economists wrote in a note.Meanwhile, analysts say that China’s mix of export dominance and domestic weakness are a result of policies pursued in its previous five-year plan to redirect investment from real estate into manufacturing and technology.Officials in Beijing appear unlikely to fundamentally change course from this strategy even if they promote the private sector, services and consumption, say analysts.“There are no signs that policymakers are about to pivot away from the technology centric growth model they adopted in 2020,” Adam Wolfe, an emerging markets economist for Absolute Strategy Research, wrote in a recent note. 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This article is an onsite version of our Europe Express newsletter. Sign up here to get the newsletter sent straight to your inbox every weekday and fortnightly on Saturday morning. Explore all of our newsletters hereWelcome back. De-risking rather than decoupling. This neat phrase to describe the EU’s way of dealing with China was first coined by Ursula von der Leyen in early 2023 before becoming official EU policy a few months later. The European commission president frequently recites it. But the formulation is looking a little threadbare. There has been too little de-risking in terms of trade and investment and now European governments and companies are under pressure to decouple from both China and the US.I’m at [email protected] agreementThis week, the Netherlands waded into the struggle between the US and China for supremacy in semiconductor technology. The Dutch government seized control of Nexperia, a maker of basic chips for cars, consumer electronics and industrial applications, from its Chinese owner and chief executive Zhang Xuezheng.It was a drastic and risky move.“As the second-largest EU investor in China and trading nation that positions itself as the gateway to Europe, stable Sino-Dutch relations are key to the Netherlands,” Xiaoxue Martin, Tobias Koster and Raoul Bunskoek, researchers at the Dutch foreign policy think-tank The Clingendael Institute, wrote in a report earlier this year. “Thus, the Netherlands has been and will continue to be strongly affected by US-China competition. With its open economy, the Netherlands is vulnerable to global economic fragmentation and protectionism.”Home to ASML, the world’s leading maker of chip manufacturing equipment, the Netherlands is no stranger to US-China tensions. The Hague has complied with US curbs on exports of ASML’s most advanced machines to China without, so far, incurring the wrath of Beijing. ASML is a much more important piece in the chip wars than Nexperia, a maker of specialised but low-margin semiconductors. But using an emergency production law to take control of a company whose sale to a consortium of Chinese investors was approved by the government in 2017 was still an extraordinary step.The China Chamber of Commerce to the EU described it as a “modern act of economic banditry”.ClawbackThe Nexperia seizure fits into what Reva Goujon and Juliana Bouchaud of the consultancy Rhodium Group describe in a report as Washington’s “unspoken mission to claw back strategic assets from China”. Unwinding dependencies on Chinese-origin or Chinese-controlled critical technologies and infrastructure through tariffs, bans or setting up new production lines can be difficult and slow, they write. So making it impossible on national security grounds for a strategic asset to remain in Chinese hands offers a “swifter path”.The Hague has denied acting under instruction from the US. In a letter to parliament, economy minister Vincent Karremans said he intervened because the actions of Zhang threatened the “preservation of crucial technological knowledge, as well as production and development capacities in the Netherlands and Europe”.The actions “include, among other things, the improper transfer of production capacity, financial resources, and intellectual property rights to a foreign entity owned by the CEO and not affiliated with Nexperia”, Karremans wrote.American pressureThe Dutch court decision allowing the government to take control of Nexperia provides more details of these claims. But it also shows The Hague was acting under pressure from the US. The US in December placed Zhang’s company Wingtech on its “entity” list, subjecting it to export controls. And, as the Dutch government and Zhang argued over steps to ringfence the chipmaker’s European operations, the US told The Hague a rule change would extend the blacklisting to Nexperia too. When that rule came into effect on September 30, the Dutch took over the reins of the company.Beijing has hit back by banning the exports of some of Nexperia’s products that are assembled in China. This, says Goujon, will only encourage other manufacturers to diversify their packaging operations away from China. So the decoupling is accelerating. It is also a reminder that in the complex business of semiconductors, just because you manufacture chips in Europe doesn’t necessarily make you less dependent on China for other steps, like assembly. It’s one reason to question the EU’s ambition under its chips Act to produce 20 per cent of the world’s chips by 2030. Another is that the EU is way off hitting that target, with large manufacturing projects in Europe stalled or abandoned.The US has weaponised semiconductor technology in the race with China for technological and military supremacy; China meanwhile is exploiting its dominance in critical raw materials.Rare earths weaponisedAs the Nexperia case was coming to a head, China unveiled sweeping curbs on exports of rare earths, including new rules akin to those used by Washington to block chip technology exports to China from third countries.Western companies have warned the rare earths restrictions would lead to broken supply chains, higher prices and delays to production, with the auto and defence sectors particularly exposed. Partial curbs introduced by China already cause major disruption for European manufacturers.Europe is arguably more vulnerable than the US because of its big bets on electric vehicles and wind turbines, which require a lot of rare earth elements.The EU’s critical raw materials act, which came into force last year, sets the right objective of diversifying supplies. But progress has been slow. A €1bn special German fund for investing in critical minerals was paused. According to Rebecca Arcesati and Jacob Gunter of the Berlin-based Mercator Institute for China Studies, the EU needs to be more decisive in drastically reducing its rare earth dependencies, using subsidies, regulations and acting as buyer of last resort to encourage new sources of production.Inflection pointBeijing’s rare earths offensive comes as European officials are reflecting on a tougher approach to China. Brussels sees no serious Chinese effort to reduce its industrial overcapacities flooding European markets. The EU’s contentious tariffs on Chinese electric vehicle imports have made barely a dent in sales, while Beijing has hit back at brandy, pork and dairy imports from the bloc.The “painful of episode” of EV tariffs has “exposed the flaws” in Europe’s trade defences, says Noah Barkin in this note for the German Marshall Fund. “In a world where China and the US are moving fast and hitting hard, the EU has been too slow, too timid, and too wedded to a rulebook the others have torn up.”On a trip to Beijing in July von der Leyen said the EU-China relationship was at an “inflection point”. Restrictions on steel imports, local content rules for public procurement, technology-sharing requirements for new Chinese investment projects in the EU, and a new economic security strategy are all possible tools to give Europe leverage. The question is whether EU capitals are willing to use them.More on this topicMisha Glenny on why Europe stands to be the biggest loser from China’s rare earth restrictionsPick of the weekHow Vladimir Putin’s history rant in Alaska nudged Donald Trump closer to Ukraine (for now) by Max Seddon, Henry Foy, Christopher Miller and Amy MackinnonRecommended newsletters for you The AI Shift — John Burn-Murdoch and Sarah O’Connor dive into how AI is transforming the world of work. Sign up hereChris Giles on Central Banks — Vital news and views on what central banks are thinking, inflation, interest rates and money. Sign up here More
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