Aurelia Butler

Joe Biden is facing a dilemma: on the one hand, he is under pressure to help Americans struggling with rising prices and a slowing economy, but on the other, any unilateral measures he might take risk making the inflation problem even worse. On Wednesday, the US president is travelling to Cleveland, Ohio, as he refocuses his attention on the economy after his trip to Europe for the G7 and Nato summits and ahead of a planned visit to the Middle East next week. The journey to the heart of industrial America comes as Biden tries to regain his political footing. His approval ratings have been stuck at the lowest levels of his presidency for weeks, and voters are widely disappointed by his handling of the economy — and the economic picture for the White House has only grown more complicated and difficult in recent weeks. With inflation still stubbornly high, the Federal Reserve has embarked on an aggressive cycle of interest rate increases, fuelling concerns that the economy may be headed for a significant deceleration or even a recession as consumers cut back on spending and businesses reduce investment. Meanwhile, with the midterm elections just four months away, Democratic lawmakers are growing increasingly impatient with the persistence of inflation and the financial pain it is causing. “The Fed is a sledgehammer: stopping the economy from growing or contracting the economy has a hugely negative impact on the working class and the middle class,” said Ro Khanna, a Democratic congressman from California. “We should try everything we can to lower food and gas prices to stave off more draconian action by the Fed.”Biden has said that addressing inflation is his highest priority given its importance to many voters. The administration has been seeking ways to support households and businesses suffering under elevated costs, including a proposed petrol tax holiday, a possible move to cancel some student loans and the removal of tariffs on some Chinese imports. But some economists have warned that these measures could be counterproductive. “I think we have to be careful when we think about potential solutions to the problem,” said Gregory Daco, chief economist at EY-Parthenon. The White House does not want to be “potentially adding fuel to the fire by suggesting policies that actually stimulate demand instead of stimulating supply”, he added. Jean Boivin, head of the BlackRock Investment Institute, said: “I think they might work initially to alleviate some of the pressure but I think they will be storing up more inflation worries down the road.”The White House’s struggle to come up with a decisive inflation-fighting plan is a result of the fact that its powers to curb prices are limited compared with the Fed’s. Many of the factors driving inflation are also outside of its control, including the war in Ukraine and Opec’s willingness to produce more oil.The Biden administration’s goal is for the economy to cool enough to bring down costs, though not at the expense of a large chunk of the labour market gains — in terms of jobs and wages — that have occurred since the start of last year.To some economists, there is not much more that Biden can do to change the dynamic, other than let the effect of last year’s $1.9tn stimulus fade and try to tackle supply-side bottlenecks as aggressively as he can. “Far and away the most important thing that fiscal policy is doing to dampen inflationary pressures is allowing fiscal support to wane,” said Wendy Edelberg, director of the Hamilton Project, an economic think-tank in Washington. “Anything else that we are going to talk about in terms of what fiscal policymakers can do with respect to inflation is second and third order.” “Some of the policies the administration has been talking about have an aspect of really increasing demand at a time where we’re trying to rein it in some,” said Claudia Sahm, a former Fed economist. “But they don’t have good tools.” The White House is hoping that Congress will pass legislation in the coming weeks that will improve voters’ perceptions of its handling of the economy. Lawmakers are debating a bill to fund domestic manufacturing of semiconductors and increase America’s competitiveness with China. While it has bipartisan support, it remains stalled on Capitol Hill after Mitch McConnell, the Republican leader in the Senate, threatened to hold it up.

The White House is also hoping that Democrats will pass a slimmed-down version of Biden’s failed Build Back Better plan. It would include measures aimed at reducing the cost of prescription drugs, which would also help relieve some financial pressure on US households, as well as clean energy tax credits and higher taxes on the wealthy and large corporations. In California, Khanna would rather see a windfall tax on oil profits than a gas tax holiday, but he said he does support student loan relief and is advocating for more aggressive steps by the White House to boost supply by promoting domestic manufacturing. It is crucial for the administration and Democrats in Congress to offer answers to voters, he added. “It’s the price of gas, it’s the price of food — we have to be laser-focused on having an initiative on it. When my constituents talk to me that’s central on their minds.” More

The “unmasking” of American shoppers as they shed pandemic precautions “could lead to a Roaring Twenties type of consumer exuberance”, RH chief executive Gary Friedman predicted on his upmarket furniture company’s earnings call last June.One year on, US companies have stopped predicting a repeat of Jazz Age excesses, according to an analysis of transcripts via Sentieo, the financial data group. On Thursday, Friedman announced that RH was cutting its financial forecasts because of “multiple macro headwinds”. The strong housing market, record equity valuations and low interest rates that Friedman hailed in summer 2021 have been replaced by rising rates, a bear market and a 40-year peak in US inflation.Instead of exuberance, consumer sentiment has hit its lowest level since the University of Michigan’s index began in 1952, stoking fears of a recession. Adjusted for inflation, consumer spending fell 0.4 per cent in May, figures released on Friday showed.Behind those headlines lies a more complicated story, however. Comments from retail and consumer industry executives in recent weeks suggest that the picture of consumer demand is being clouded by supply disruptions and by Americans’ changed priorities as they emerge from two years of pandemic restrictions. Companies serving the high and low ends of the economic spectrum also see a split in spending that has left some businesses highlighting low-priced “value” offerings while others project confidence about demand for premium products. Delayed shipments pushed up inventories 15% at Bed Bath & Beyond © Andrew Kelly/ReutersThat “bifurcation of consumers” should leave companies such as Hormel Foods well positioned in a recession, chief executive James Snee told one analyst two weeks ago.So while Hormel is reporting record sales of Spam, the canned pork product targeted at lower-income consumers, Snee also highlighted demand for pricier charcuterie boards. At Estée Lauder, similarly, chief financial officer Tracey Travis told a conference that it was seeing more price sensitivity for its “entry-level” products but customers of La Mer were still loyal to the premium brand, which sells 2oz pots of face cream for $360. The split in spending patterns is showing up in survey data. Monthly spending among US adults making less than $50,000 was down 8 per cent in May year on year, according to pollster Morning Consult, while spending among those making more than $50,000 was up 25 per cent. Higher-end consumers “are worried about inflation but they’re not necessarily tightening their belts”, said Katherine Cullen, head of consumer research at the National Retail Foundation, the trade group.The problems facing some retailers stem less from a shortage of demand than from an excess of supply. Large chains were left with bloated inventories, often because they had over-ordered in anticipation of supply chain disruptions. At home goods retailer Bed Bath & Beyond, for example, delayed shipments pushed inventories up by 15 per cent year on year in its most recent quarter, just as sales dropped by 25 per cent. Some of the inventory that retailers ordered for last December’s holiday season arrived late because of bottlenecks at US ports. Covid-19 shutdowns in China have since caused further disruption.Chains from Walmart to Macy’s have lamented similar inventory overstocking, with Target announcing on June 7 that it would mark down prices and cancel orders in order to clear out excess inventories.When Covid-19 stimulus packages ended, “that was a big, big turning point”, said Ravi Saligram, chief executive of Newell Brands, the company behind Sharpie pens and Coleman tents. Newell began losing the less affluent consumers who had traded up in the pandemic to brands such as Yankee Candle, and “just chasing them with huge discounts is not going to bring them back”.But executives see bright spots in other categories where pandemic restrictions created pent-up demand.“We have a generally resilient consumer. They’ve come out of the pandemic. They’re trying to find something that feels like normal life,” Brian Cornell, chief executive of Target, told the Economic Club of New York last month.Travel spending has surged, for example, surpassing 2019 levels in April for the first time since the pandemic began, according to the US Travel Association, a trade group. Target’s chief said: ‘We have a generally resilient consumer’ © Jeenah Moon/BloombergConsumers now have a strong desire to celebrate in person, the NRF’s Cullen said, meaning they may be willing to spend more for special occasions.Even with average petrol prices up nearly 60 per cent year on year, record numbers of consumers were expected to drive 50 miles or more from home over the July 4 weekend, according to the AAA, the US automobile travel group.The return to workplaces is also boosting sales of clothing that people did not need at home. “People need to rebuild their wardrobes,” said Scott Baxter, chief executive of Kontoor Brands, which owns Lee and Wrangler jeans. “Our product means you’re going back out.”Ken Perkins, president of Retail Metrics, an industry analyst, said: “Consumers are still willing to spend in most places that they haven’t been able to do it for two years.”Over the longer term, however, that impetus may not offset the pressure from inflation. Perkins said his 22-year-old son complained that he had just spent $74 to fill his car — double what it cost last year.“That’s money that he normally would have used to go out and spend in restaurants and other places,” Perkins said. “You multiply that across the country . . . [and] that can’t bode well for retail spending.” More

The 25 eurozone rate-setters meeting in Amsterdam last month thought they had plenty of time to finalise the European Central Bank’s plan for avoiding a bond market crisis when they started to raise rates. They were wrong. A surge in borrowing costs for weaker southern European countries, in particular Italy, led to a divergence in yields with northern member states — a phenomenon central bankers describe as “fragmentation”. At an emergency meeting, the ECB decided to “accelerate the completion of the design of a new anti-fragmentation instrument” to counter any unwarranted sell-off in a country’s bonds.“If the fragmentation in bond markets is unwarranted then we should be as unlimited as possible,” Pierre Wunsch, head of Belgium’s central bank and ECB governing council member, told the Financial Times. “The case to act is strong when faced with unwarranted fragmentation.”The ECB governing council is expected to discuss the plan at a meeting in Frankfurt this week and give more details by its next meeting on July 21, when it plans to raise its deposit rate for the first time in over a decade. But it will face significant scrutiny over how the scheme will function, investors and analysts warn.Why is the ECB doing this?Like most major central banks — except the Bank of Japan — the ECB has stopped buying more bonds and plans to raise rates as it seeks to bring inflation down from its multi-decade highs by lifting borrowing costs and therefore cooling demand.But the ECB has to deal with the fact that the 19 countries sharing the euro still have separate fiscal policies, meaning they can experience a growing divergence in their borrowing costs — especially when rising rates intensify anxiety over high debt levels.The difference, or spread, between Germany’s 10-year bond yields and those of Italy has doubled from 1 percentage point a year ago to about 2 percentage points in recent weeks.This is far below the levels reached during the 2012 sovereign debt crisis, when Italy paid almost 5 percentage points more than Germany for long-term bonds. But with Italy’s debt now even higher than in the last crisis, officials worry the country could find itself trapped in an unsustainable spiral of rising debt costs.The ECB believes a new instrument will help ensure its monetary policy is transmitted evenly across the bloc. “We need to keep the transmission channels open, so we can’t have fragmentation,” said Mário Centeno, head of Portugal’s central bank and an ECB council member. “We need a backstop.”The ECB said: “Discussions are ongoing and no decision has been taken yet.”How will it work?The ECB is expected to commit to buying the bonds of countries whose borrowing costs it believes are rising because of market speculation to levels beyond those warranted by economic fundamentals. Unlike its previous schemes, which bought bonds of all countries in relation to their size, the new plan would target only the countries that most need support. The ECB may offset the inflationary impact of any bond purchases by raising a matching amount of deposits from banks.The hard part will be deciding when to intervene. “The difficulty will be about the grey zone in between what is warranted and what is not and that is the area of moral hazard we have to navigate,” said Wunsch. Pierre Wunsch, head of Belgium’s central bank: ‘The case to act is strong when [the ECB is] faced with unwarranted fragmentation’ © James Gekiere/BELGA MAG/AFP/Getty ImagesSilvia Ardagna, an economist at Barclays, said it would be “complicated” to design the new tool, adding: “We do not expect that the ECB would unveil any specific detail on the level of yields, spreads and their respective rate of changes that would define an orderly versus a disorderly regime.”The ECB has from this month been able to flexibly reinvest the proceeds of maturing bonds in a €1.7tn portfolio it already owns, allowing it to use German maturities to buy more Italian debt, for instance. But most analysts think such reinvestments will not be enough. What safeguards will there be?ECB president Christine Lagarde told its forum in Sintra, Portugal, last week that the scheme needs “sufficient safeguards to preserve the impetus of member states towards a sound fiscal policy”.This means countries are likely to have to meet certain fiscal conditions before the ECB can buy more of their debt. Some conditions may already exist, such as the structural reforms countries agreed to carry out in return for their share of the EU’s €800bn coronavirus recovery fund. They could also be linked to the EU’s budget rules, even though these are suspended until the end of 2023.The ECB is likely to ask the European Commission to police any conditions linked to the new instrument. “Otherwise the central bank is steering governments on fiscal policy, which is not what it wants,” said Carsten Brzeski, head of macro research at ING. The ECB is also considering an extra requirement for countries to commit to a medium-term fiscal sustainability plan, according to officials. This could be part of the commission’s annual monitoring of national budget plans. “We need countries to make an effort and come up with a credible fiscal plan,” Wunsch said.Any strings attached are likely to be less onerous than those for the ECB’s Outright Monetary Transactions, an earlier bond-buying programme that requires a rescue package from the European Stability Mechanism, together with tough reform requirements. The OMT has never been used and the ESM’s involvement is seen as politically toxic in southern EU countries — especially Italy. Will the plan be legally and politically contested?Yes, probably both. There has been a guarded response from the German and Dutch finance ministers, who insist the ECB must not encourage fiscal lassitude among member states or stray into “monetary financing” of governments, which is against the EU treaty.The ECB’s previous purchases of sovereign bonds have been challenged repeatedly in Germany’s constitutional court and most analysts expect similar moves against its latest plan.German central bank boss Joachim Nagel this week outlined several constraints he expected to be placed on the anti-fragmentation scheme, which he said “can be justified only in exceptional circumstances and under narrowly defined conditions”.Economists worry the ECB may end up being tied down by so many conditions it lacks the firepower needed to contain markets. “If they do things halfway and don’t meet expectations, they will have to do even more later, as so often happens in the euro area,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management. 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Tempers are running high in Europe’s automotive industry. So high, in fact, that VDA, Germany’s automotive industry association, has had to intervene to try to broker peace between manufacturers and suppliers.At the end of June, the association updated a code of conduct that for 20 years had governed best practice in supplier-carmaker relationships. The move, first reported in Germany’s Handelsblatt last week, followed months of growing tension over how to spread the soaring costs of materials and energy. It seems many carmakers are less inclined to share the financial burden of a volatile environment with suppliers who may not be as relevant in the coming electric revolution as in the past. “Tensions today are really, really high,” one industry executive told me under condition of anonymity. “There used to be an understanding that . . . the whole system was as strong as the weakest link. There was more solidarity and partnership.”Some suppliers have had enough, and are refusing to renew inflexible contracts. Speaking to Handelsblatt, the chair of filter specialist Mann+Hummel, Thomas Fischer, said it was “quite normal” to terminate contracts where “both sides can no longer laugh”. Times have been tough for everyone in the automotive sector. Covid-19 was the catalyst for a semiconductor shortage that hit global car production. Many companies adapted by prioritising higher-margin, premium models. This in turn hit a supply chain accustomed to providing high volumes of components to many customers. Where once suppliers boasted higher margins, the situation has reversed, according to AlixPartners’ Global Automotive Outlook published last week. Carmakers delivered almost 13 per cent average operating margins in 2021, against less than 11 per cent for suppliers.Suppliers are now furious that carmakers refuse to share the bounty of booming profits.Because as suppliers struggle with soaring costs, they are bracing for a rough transition to electric vehicles. AlixPartners estimates traditional suppliers will be able to claim just 28 per cent of the value of the electric powertrain in the future, the system that drives the car forward and is by far the most valuable element of an EV. The rest will be taken by new entrants or the carmakers. Some estimates suggest about 500,000 jobs are at risk.There is nothing new about tensions between manufacturer and supplier. But supplier anxiety is heightened by signs that carmakers want a greater share of the EV value chain, bringing more systems, manufacturing and software design under their control. “From raw material procurement to battery recycling, we want to keep everything in our hands,” said Volkswagen chair Herbert Diess recently. “We are increasingly sourcing in, not out.” Ford’s chief executive Jim Farley in March said he intended to control battery supply chains “all the way back to the mines”. The world’s big carmakers understandably want to exploit opportunities offered by technological change to secure competitiveness and create new revenue streams. They also have to reshape supply chains for the EV world.But the strategy comes with risk. Mining, battery production and software are not carmakers’ traditional skill sets. Nor has vertical integration been problem-free for Tesla. It also seems unwise in the longer term to turn a blind eye to the struggles of current suppliers. Not everything will change in an EV. Even the absence of a relatively innocuous component can hold up production.More importantly, EV production will have to accelerate dramatically, as conventional car sales will be banned in Europe from 2035. This can be done only if the traditional price-focused relationship with suppliers changes — and not just with big companies, but those further down the chain. Carmakers will have to give suppliers more visibility over production and technology plans — and security over orders — if they are to invest the sums needed to succeed. Better transition planning right down the supply chain could help to save 40 to 60 per cent of the estimated $70bn restructuring costs, according to AlixPartners’ Global Automotive Outlook.Inevitably many companies will not find a place in the new EV world. But there are those whose value lies not just in the components they produce, but in the industrial competences developed over many years. It would be a pity not to value that expertise in the rush to realise electric [email protected]

Video: Cars, companies, countries: the race to go electric More

ASML has already been unable to ship its most advanced tools to China, but the report said Washington would also restrict the sale of slightly older machines, citing “people familiar with the matter.”A spokesperson for ASML said the company was unaware of any policy change.”The discussion is not new,” the spokesperson said. “No decisions have been made, and we do not want to speculate or comment on rumours.”ASML’s U.S. shares sank 7.2% in the wake of the report. Other chip gear makers also lost ground, with Lam Research (NASDAQ:LRCX) off 3.6% and Applied Materials (NASDAQ:AMAT) losing 2.4%.China is ASML’s third largest market, after Taiwan and South Korea, representing around 16% of 2021 sales, or 2.1 billion euros.ASML has a near monopoly on the manufacture of lithography systems, machines vital for chipmakers such as Intel (NASDAQ:INTC), TSMC and Samsung (KS:005930). Lithography systems cost hundreds of millions of dollars apiece and use focused beams of light to create the circuitry of computer chips.Lithography and other semiconductor manufacturing equipment require an export license, as computer chips are considered “dual use” technology, with military as well as commercial applications.Since 2019, the Dutch government, in agreement with the U.S., has not granted a license for ASML to sell its most advanced machines, which use “extreme ultraviolet,” or EUV, light waves, to Chinese chipmakers.ASML still sells “deep ultraviolet,” or DUV, machines, to Chinese customers.The majority of chips worldwide are manufactured with DUV lithography. Restricting their sale to China would be highly damaging for China’s chip industry and would likely worsen a global semiconductor shortage.In 2021, the U.S. National Security Commission on Artificial Intelligence — led by former Google (NASDAQ:GOOGL) CEO Eric Schmidt — recommended that the U.S. Departments of State and Commerce should push allies to deny China access to top DUV, EUV and related tools.In a reaction, analysts from Citi said they viewed a total ban on DUV equipment as “highly unlikely” but further restrictions for equipment makers could be tied to China foreign policy “escalations with Russia or incursions into Taiwan.” More

LONDON (Reuters) – Britain’s new finance minister Nadhim Zahawi takes the reins of an economy struggling under the strain of nearly double-digit inflation and a slowdown that looks set to be more severe than in most of the world’s other big nations.Like his predecessor Rishi Sunak, Zahawi will face pressure to spend more and cut taxes from lawmakers in Prime Minister Boris Johnson’s Conservative Party who have been stung by a slump in the party’s popularity.The former education minister – who co-founded opinion polling firm YouGov before entering parliament – will also be expected to play a key role in settling the still-unfinished business of Brexit with Britain and the European Union.A stand-off over trade rules for Northern Ireland could yet lead to increased barriers for British exports to the bloc.The International Monetary Fund forecast in April that Britain in 2023 faced slower economic growth and more persistent inflation than any other major economy around the world.Since then, the value of sterling has fallen further and it hit a two-year low against the U.S. dollar on Tuesday, which will add to inflation pressures building in Britain.Inflation hit a 40-year high of 9.1% in May and the Bank of England has forecast it will top 11% in October.With the Bank of England raising interest rates and confidence slumping among households and some businesses, British gross domestic product shrank in April and is expected to contract over the second quarter as a whole.Most economists think that in the short term it will avoid the technical definition of a recession – two consecutive quarters of contraction – thanks in part to the latest emergency cost-of-living support measures announced by Sunak in May.But with growth likely to slow to a standstill next year, there have been calls by Conservative Party lawmakers for a cut to value-added tax in the autumn – a move that would potentially cost tens of billions of pounds.That would add to Britain’s public debt pile that surged above 2 trillion pounds ($2.39 trillion) during the coronavirus pandemic and now stands at almost 96% of GDP.Johnson and Sunak were often reported to be at odds over how much more the government should borrow.In his resignation announcement on Tuesday, Sunak – who frequently stressed the importance of fixing public finances – said it had become clear to him that his approach to running the economy was “fundamentally too different” to Johnson’s.Sarah Hewin, senior economist at Standard Chartered (OTC:SCBFF), said shortly before Zahawi’s appointment that it was difficult to see how Johnson could continue as prime minister.”If he does cling on, markets may expect more generous tax and spending giveaways now that Rishi Sunak has gone, which in turn would increase pressure for the BoE to do more, potentially providing some underpinning for sterling,” she said.($1 = 0.8363 pounds) More

WASHINGTON (Reuters) -U.S. President Joe Biden’s team is still looking at options on whether to cut tariffs on Chinese imports to ease inflation, the White House said on Tuesday as industry requests to maintain the duties mounted.More than 400 requests to keep tariffs in place on Chinese goods had been submitted to the U.S. Trade Representative’s office as of late Tuesday, complicating Biden’s decision-making.Among these are a committee of 24 labor unions from the AFL-CIO to the Air Line Pilots Association, which has requested https://www.usw.org/news/media-center/articles/2022/june/22-06-06-LAC-mbrs-comments-on-301-Tariff-Extension.pdf that all of the “Section 301″ tariffs imposed by former President Donald Trump continue, covering some $370 billion in Chinese imports.If he substantially removes the tariffs, Biden would have to turn his back on a key constituency. He has described himself as the most pro-labor president ever, heavily relying on unions to power his Democratic Party primary and general election wins in 2020.After weeks of deliberations within the administration over cutting tariffs as a way to ease high inflation, White House Press Secretary Karine Jean-Pierre said Biden’s team was still weighing various strategies.”There are a lot of different elements to this, especially since the previous administration imposed these tariffs in such a haphazard way, in a non-strategic way,” Jean-Pierre said. “So we want to make sure that we have the right approach. And again, his team is talking, is figuring it out, and they’re talking through this.”Jean-Pierre declined to provide a timeline for Biden’s decision when asked whether it would wait until he speaks with Chinese President Xi Jinping – a planned call that is yet to be scheduled.People familiar with the tariff deliberations have told Reuters that Biden also is weighing whether to pair a removal of some tariffs with a new Section 301 investigation into China’s industrial subsidies and efforts to dominate key sectors, such as semiconductors.A probe would take up to a year to conduct and could lead to a new round of tariffs, but the sources said that Biden can claim that any such duties would be more strategically focused than many of the current tariffs on consumer goods such as cotton sweaters and home internet routers. The deliberations come as USTR is conducting a four-year statutory review of the tariffs, with one deadline for submitting requests to keep tariffs in place expiring late on Tuesday and another lasting until Aug. 22.The tariff issue was raised during a call between U.S. Treasury Secretary Janet Yellen and Vice Premier Liu He on Monday night, but a Treasury statement did not mention the duties and focused on broader economic challenges and Russian sanctions. More

“To begin with, even with no inflation target breaching we should normalise monetary policy as GDP recovers,” Bangko Sentral ng Pilipinas Governor Felipe Medalla said in a phone message. The central bank has raised its benchmark interest rate by a total 50 basis points so far this year, and a cumulative 100 bps hike will bring the rate to 3.5%. Its next policy review is on August 18. More