Aurelia Butler

Is there any room for the Fed to surprise markets next week? The Federal Reserve is widely expected to raise interest rates by 0.75 percentage points at its July policy meeting next week. Officials such as Fed governor Christopher Waller have in the past few weeks signalled that the central bank will deliver the same size interest rate increase as last month, following an inflation report showing that consumer prices in June rose to fresh 40-year highs. The report also showed a sharp rise in so-called core inflation — which strips out the volatile food and energy sectors — led by higher rent and shelter costs. That inflation data had initially pushed traders in the futures market to price in the possibility of a full percentage-point increase, but investors have since scaled back their expectations of those levels. Analysts and economists say there is little chance the Fed will deviate from the expected 0.75 percentage point increase. But markets could be surprised by any clues from chair Jay Powell as to the bank’s plans for its September meeting. Futures markets are betting that the Fed’s key interest rate will be 3 per cent in September, implying a 0.75 interest rate increase. But signs that the Fed is concerned about weakening economic data could curtail expectations. Kate DuguidHas eurozone inflation accelerated again?Eurozone inflation is set to rise again when July’s data are released on Friday.Consumer prices in the eurozone rose at an annual pace of 8.6 per cent in June, the highest rate since the existence of the euro currency. Economists polled by Reuters expect price growth to have accelerated further to 8.8 per cent this month, reflecting high global energy and food prices following the war in Ukraine.“We expect inflation to remain undesirably high for some time, owing to continued pressures from energy and food prices and pipeline pressures in the pricing chain,” said Christine Lagarde, president of the European Central Bank, at the bank’s meeting last week in which she announced a 0.5 percentage point increase in the key policy interest rate.Lagarde added that higher inflationary pressures were also stemming from the depreciation of the euro exchange rate and that the risks to the inflation outlook “continue to be on the upside and have intensified, particularly in the short term”.However, the trend of inflation also depends on economic activity, which is deteriorating. Eurostat publishes eurozone economic growth data for the second quarter on Friday alongside flash inflation. Analysts expect quarter-on-quarter growth to have slowed to only 0.1 per cent from expansion of 0.6 per cent in the first three months of the year.Beyond the second quarter, the broader picture is that “the eurozone economy looks materially exposed to the possibility of gas supplies to Europe being cut off entirely”, said Sandra Horsfield, economist at Investec. While she does not believe that will happen, “the high level of energy prices in itself will act as a drag on output, as will rising policy rates”. Valentina RomeiWill Apple’s earnings point to slower growth?Apple’s June quarter is expected to look remarkably subdued compared with one year ago. Analysts are projecting the iPhone maker will pull in $82.5bn of revenue, up a mere 1.4 per cent from 12 months earlier when revenues surged 36 per cent.Apple has prepared investors for stagnation. In April, it projected that supply chain headwinds and factory shutdowns in China could cost it $8bn this quarter. Morgan Stanley, which is generally bullish on Apple, expects revenue of $80.6bn, which would mark the first decline in year-on-year sales for the tech giant since the March quarter of 2019.The bank says it will pay particular attention to foreign exchange hiccups because of the strengthening dollar, as Apple has been raising prices in foreign markets. Still, it calls Apple the “best-of-breed name in a downturn”.If the numbers are weak, just as recession fears intensify, investors looking to the September quarter may also worry that the past two years of unrestrained demand for iStuff could wane. Where Apple could manage to surprise is with the iPhone, which still accounts for about half of all revenue. Recent data from China indicates a smartphone recovery took hold in June after Beijing loosened Covid-19 restrictions. Some analysts believe iPhone shipments in China last month were triple that of a year ago.Another potential wild card is services, the fast-growing division of App Store revenue and media subscriptions where the tech giant sports profit margins north of 70 per cent. If a recession does end up sinking hardware sales, Oprah Winfrey’s 2019 reminder of Apple’s global reach in services could provide comfort to investors: “They’re in a billion pockets, y’all.” Patrick McGee More

The inspector is suspected of “serious disciplinary violations and is currently under disciplinary review” and has “accepted” the investigation, the China Banking and Insurance Regulatory Commission said in a statement on its website, without detailing the suspected violations.The statement follows an announcement from regulators on Thursday about a second round of repayment to depositors whose funds were frozen due to the banking fraud.Some deposits at four lenders in Henan and one in eastern Anhui province were frozen in what authorities said was a complex scam involving a private financial group that had stakes in the lenders and which had faked data by colluding with bank staff and siphoning off funds illegally.To revive depositors’ confidence in the sector, authorities in Henan and Anhui made repayments to smaller depositors starting July 15 following investigations and arrests.In addition to the scandal, the central government is also grappling with a growing mortgage payment boycott across the country in a politically sensitive year.President Xi Jinping is widely expected to secure a third leadership term at a once-in-five-years Communist Party congress. More

China’s new Belt and Road Initiative (BRI) investments in Russia have fallen to zero for the first time, signalling Beijing’s reluctance to incur sanctions in the wake of the Ukraine war.Beijing struck no new deals with Russian entities under the BRI programme in the first half of 2022, according to a report by the Green Finance & Development Center at Fudan University in Shanghai reviewed by the Financial Times. Christoph Nedopil Wang, director of the centre, said the threat of western-led sanctions could have deterred China from investing in Russia. While slowing its investments in Russia, China deepened its engagement with the Middle East.Nedopil Wang said the fall may be “only temporary” and that there was “definitely strong engagement between Russia and China”. He added that Chinese purchases of Russian energy exports have increased despite the war.Russia has been among the key beneficiaries of Chinese development spending through the BRI, President Xi Jinping’s signature foreign policy conceived as the world’s biggest development programme.Since its establishment in 2013, China’s cumulative BRI engagement amounts to $932bn, including $561bn in construction contracts and $371bn in investments, according to the report. BRI projects span across sectors — from ports to railways, to data centres and mines.The lack of Russian engagement in 2022 marks the first six-month period with no China-Russia BRI deals. Russia and China signed deals worth about $2bn in 2021, researchers said.Official lending commitments from China to Russia from 2000 to 2017 — which incorporates BRI spending — totalled $125.4bn, according to AidData, an international research lab at the College of William & Mary in Virginia. That includes $58bn from the China Development Bank and $15bn from China Eximbank, the country’s two big policy banks.China still depends on Russian supplies for about 15 per cent of its oil and 8 per cent of its gas. New energy deals expanding these arrangements were struck in early February, days before Russian troops were ordered to invade Ukraine.Since the February invasion, Beijing has criticised international sanctions on Russia, although many of its companies are being careful not to breach them.The Fudan University data showed that Saudi Arabia has now become one of the biggest beneficiaries of the BRI as China strengthens its ties with Middle Eastern states through large energy and construction deals.Beijing inked $5.5bn of new deals in Saudi Arabia in the first half of the year — more than any other country — as Chinese outbound investments broadly plateaued. In 2021, Iraq was the biggest BRI beneficiary with $10.5bn in new construction deals.“It is significant and it is showing . . . a focus on resources deals,” said Nedopil Wang.

China’s strengthening position in the Middle East comes after the US formally ended its combat mission in Iraq and pulled out of Afghanistan. US president Joe Biden travelled to Riyadh this month, promising to “not walk away and leave a vacuum to be filled by China, Russia, or Iran”. The Fudan University report reflected the changing role and smaller footprint of the BRI, once touted by Beijing as the “project of the century”.In the first half of 2022, there was a total of $28.4bn in Chinese investments and contractual co-operation across the 147 BRI countries, down from $29.6bn in the same period a year ago.The longer-term decline in BRI engagement comes in the wake of growing scrutiny on how the project loans exacerbate financial pressures on vulnerable governments. In the most recent example used by critics, Sri Lanka, a BRI beneficiary, defaulted on its sovereign debt in May.While the researchers do not expect Chinese BRI engagement to return to past peaks, the data suggest that focus was sharpening on deals to secure access to strategic resources, including minerals used in the clean technology supply chain as well as oil and gas across the Middle East, Africa and Latin America.“The Belt and Road Initiative remains very relevant,” Nedopil Wang said. More

The EU’s trade chief has vowed to accelerate efforts to boost the union’s network of trade deals, as Brussels responded to member state calls to strengthen global supply chains, wean itself off Russia and deepen links with key allies.Valdis Dombrovskis, EU trade commissioner, said geopolitical pressures were “shifting our perspective on trade policy”, adding that he was intensifying work aimed at landing deals with “like-minded partners” in a bid to bolster the EU’s economic resilience.Goals include a deal with Chile before year-end and an agreement with Australia in the first half of 2023, on top of efforts to ratify deals with Mexico and New Zealand and push ahead talks with counterparts such as India and Indonesia.“We can use our network of free trade agreements (FTAs) to face the current geopolitical challenges, to diversify away from Russia’s supplies, to strengthen the resilience of supply chains,” said Dombrovskis. “If we want to reduce our dependence on raw materials from some providers we need to broaden our base.”The commissioner, an EU executive vice-president, is seeking to re-energise the bloc’s free-trade agenda, which has sputtered as major economies erected barriers and sought to shelter domestic industries.France has just completed its six-month EU presidency, during which Paris dragged its feet on trade deals while seeking to harden trade defences and shore up the union’s so-called strategic autonomy.Some 15 member states including Germany, Italy and Spain wrote to Dombrovskis last month complaining that the EU’s process on negotiating, signing and ratifying trade deals was taking too long and that the union must “take advantage of windows of opportunity when they open, otherwise others will.”The EU’s trade agreements cover only a third of its external trade, the letter said, and that “we need to do better than this” given 85 per cent of the world’s future growth is projected to occur outside the bloc.In his reply, seen by the Financial Times, Dombrovskis agreed that accelerating its push for trade deals would increase the EU’s “credibility as a serious trading partner”, writing that the bloc needed to find ways of speeding up its own procedures for bringing new deals into force. In the interview, Dombrovskis defended EU efforts to be “more assertive” on trade, saying the union was in a “more confrontational geopolitical landscape than before” and that it needed tools to respond when other countries were not playing by the rules. The EU has been pursuing a range of instruments aimed at addressing unfair trade and investment practices, including foreign investment screening, tougher trade defences and a crackdown on investment by state-subsidised foreign companies. “We will act multilaterally whenever we can but we can act unilaterally if we must,” Dombrovskis said.At the same time, Dombrovskis argued that pursuing fresh bilateral trade agreements would also make the EU economy more robust and resilient, in particular by permitting it to reduce its dependency on a handful of commodities superpowers such as Russia and widen its range of suppliers.He pointed to Chile, and its vast stocks of lithium, as the EU seeks to sign a deal updating a 2002 agreement. The EU also wants an agreement with Australia, another raw materials powerhouse, by next summer. “Having a wide network of FTAs is a source of diversification and thus a source of resilience,” Dombrovskis said.The EU last month concluded an agreement with New Zealand which according to Dombrovskis contained unprecedented provisions on sustainability and labour rights. The commissioner said the EU would “draw inspiration” from the high standards agreed with Wellington but that this did not mean it would seek to impose the same provisions in all its negotiations, saying there would be a “tailor-made approach” depending on the partner in question.He stressed, however, that when it came to talks with G20 countries, which have an outsized impact on greenhouse gas global emissions given the scale of their economies, the EU would seek a commitment to climate neutrality.That means that, in principle, the EU would expect Australia, Indonesia or India to have climate targets that are ambitious enough to reach the goals of the Paris accord that aims to limit global temperature rises.EU demands for deals with significant environment protections and labour rights can make it harder to reach agreement with some developing countries. But without this Brussels can struggle to convince national parliaments to ratify them. More

In the minutes after former Japanese prime minister Shinzo Abe was shot this month, there was an outpouring of concern and outrage by leaders from around the world.In China, however, there was a torrent of messages on the internet of another kind. “I hope the gunman is OK,” declared one. Another popular meme read: “President Kennedy visits Shinzo Abe.” As tens of millions of Japanese waited for news of Abe’s fate, some in China called his attacker a “hero” and others sent their “warm congratulations”. After the 67-year-old’s death was confirmed, owners of some small Chinese restaurants and car yards offered discounts to mark the “happy” occasion. The messages were callous and offensive to many observers and highlighted a deep strain of anti-Japanese sentiment that has lingered in China for decades following Tokyo’s brutal invasion last century.Even though Beijing’s political leaders, state media and censors appear to have intervened to moderate the response, the episode was a clear reminder of the patriotic mobs that can dominate China’s internet. Yaqiu Wang, a senior China researcher at Human Rights Watch, said it was “understandable’’ that Chinese are still troubled by atrocities such as the Nanjing massacre, as well as Abe’s visits to the Yasukuni Shrine, which honours Japan’s war dead, including some convicted war criminals.But celebration of the former prime minister’s assassination still “speaks volumes of the degree of toxicity of China’s nationalism — which the Chinese Communist party only has itself to blame”.“In the minds of those who celebrated his death, Abe was not a human being who was tragically killed but a symbol of unremorseful Japanese imperialism,” she said.“Over the long term, directing Chinese people to hate an external enemy serves the function of distracting them from scrutinising the CCP’s own failure in governing the country.”In statements reported by Chinese state media on July 9, the day following the shooting, President Xi Jinping offered condolences, saying he and Abe had “reached an important consensus” on relations. And he expressed hope for “good neighbourly, friendly and co-operative” ties with Fumio Kishida, the prime minister.According to Henry Gao, a China expert at Singapore Management University, Beijing recognises that citizens’ “hatred” for Japan can spiral out of control and “become dangerous”.But Gao believes that the latest burst of nationalism reflects the “true beliefs of many people” in China.While mourners placed flowers in honour of Shinzo Abe, China’s Global Times criticised the former prime minister © Issei Kato/Reuters“Official propaganda has been instilling hatred of Japan due to its world war two crimes and the image of Japan as an enemy has taken firm hold in most people’s minds, despite the large amount of aid and investment Japan has provided to China since the start of [China’s] reform period,” he said.Despite Xi’s statement, in the days following Abe’s death the Global Times, a nationalist tabloid, used the assassination to highlight flaws in Japan’s economic and political systems.“Although Abe had been the longest-serving Japanese prime minister, there are mixed opinions on him in Japan, and anti-Abe public opinion always existed, including dissatisfaction with the widening gap between the rich and the poor caused by Abenomics, and disgust with his forced adjustment of military and security policies,” the paper quoted Xiang Haoyu, a research fellow at the China Institute of International Studies, as saying.The contradictions between some of the ghoulish online rhetoric, Xi’s message of condolence and the state media needling, revealed the delicate balance Beijing has had to strike against the backdrop of rising pressure from the US, Japan and other allies against China.“Beijing has an interest in not letting nationalist sentiment get out of hand in a way that would undercut its foreign policy, in particular, its interest in easing tensions with Japan,” said Jessica Brandt, a foreign policy and technology expert at the Brookings Institution, a US think-tank.“What’s interesting in this case is that at least one senior figure, [former Global Times editor] Hu Xijin, came out right away to try to tamp down some of the fervour, and the foreign ministry and state media coverage have really played it quite straight.”

She also pointed out that while there is “clearly” a wave of nationalist sentiment, it remained difficult to get a representative picture of China’s public mood just by looking at online comments.The legacy of conflicts and atrocities has continued to drive deep cultural and political fissures between East Asia neighbours. For years, tensions have not only simmered between Japan and China, but also between Japan and South Korea and Taiwan and China, occasionally boiling over into political controversies and sparking protests and consumer boycotts. China’s latest nationalist flare-up was unlikely to cause irreparable damage to ties between Tokyo and Beijing, experts said. But some are wary of the role such episodes could play in stoking future clashes, especially given Beijing’s increasing military assertiveness in the region and uncertainty over whether Kishida will push ahead with revising Japan’s pacifist constitution, an ambition long held by Abe.“If Japan changes its peace constitution and starts to encourage militarism, then things could change,” Gao said.Additional reporting by Arjun Neil Alim in Beijing More