Aurelia Butler

“Team transitory” does not have many members left in the Anglosphere. The Bank of England is so concerned about inflation that its governor, Andrew Bailey has politely asked the public to stop asking for “large” pay rises. The US Federal Reserve, while slightly slower to raise rates, may not remain that way for long. New Zealand turned towards higher interest rates months ago in an effort to fight inflation. All in all, central banks are increasingly coming to the conclusion that they have to tighten, even if it risks choking off growth and an uplift in wages.One country, though, is committed to keeping the transitory dream alive. As Philip Lowe, the head of the Reserve Bank of Australia, made clear last week, Australia will hold firm to a 0.1 per cent rate for the foreseeable future in an effort to boost wage growth. He gave no indication of when rate rises may occur, saying that some point in 2022 was possible. But this approach has risks — and not many of them lie within the central bank’s control. The primary reason Lowe can afford to take a wait-and-see approach is that the country appears to be in a very different position to other members of the Anglosphere. Headline inflation sits at 3.5 per cent in Australia. This is a much lower figure than that seen throughout many other advanced economies. The reason is likely to be Australia’s relatively low wage growth. It is not entirely clear why its wages have failed to rise to the same extent seen in other economies. But it is likely to have much to do with how Australia’s economic response to the pandemic interacted with particular features of its labour market. The central plank of Australia’s economic strategy to deal with Covid-19 was its version of a furlough scheme that kept many employees attached to their employers and, crucially, existing wage-bargaining agreements. These only come up for renewal in Australia every two to three years. This has meant that workers who may want to negotiate for higher pay have only had the opportunity to do so in dribs and drabs. This has created a “lag” in wage growth that Lowe is determined to make use of: he wants Australia to wait out the inflation that has been imported into the country through pandemic-disrupted supply chains.Sticking with team transitory is not without risks, however. The most obvious is that Lowe is wrong and inflation takes hold. Most measures of inflation expectations have taken an upward trajectory in Australia and unions have indicated a degree of restlessness. Unemployment rates are low and participation rates are up, which should mean a strong bargaining position for labour when workers do get the opportunity to negotiate for higher wages. Whether this will result in the much-feared wage-price spiral is difficult to tell. Australia has a history of “grand bargains” between unions and government to control wage growth. Whether political conditions will allow for this to be attempted again is another matter entirely. As Australians look overseas to rising inflation in their Anglosphere counterparts, there is considerable anxiety that they will be unable to avoid the same fate. Lowe admitted there were still many uncertainties. But it is his job to make predictions. In this case, there is much to be gained if he, and the RBA, are correct. Not only will this be beneficial for Australia. It will also offer the world a lesson on whether other central banks may have jumped the gun on tightening. If they are wrong, however, team transitory will have one member fewer to count on. More

FRANKFURT (Reuters) – The European Central Bank could end its stimulus programme earlier than planned but it is unlikely to raise its main interest rate in July as investors are expecting, ECB policymaker Martins Kazaks told Reuters.Investors have brought forward their bets on the bank’s first rate hike in more than a decade after ECB President Christine Lagarde on Thursday opened the door to such a move and acknowledged mounting inflation risks.But Kazaks, who is Latvia’s central bank governor, pushed back against market bets on a July move because this would imply a complete winding down, or “tapering” of the ECB’s bond purchases before that date.”July would imply an extremely and unlikely quick pace of tapering,” Kazaks said in an interview. “But overall, at the current juncture, naming a specific month would be much premature.”The ECB has long said it would end its bond purchases “shortly before” raising its deposit rate from minus 0.5%, and Lagarde and colleagues have reaffirmed that commitment in recent days. Asset purchases are currently set to run at least until October although sources have told Reuters the ECB is likely to bring that date forward at its March 10 meeting.With euro zone inflation at a record 5.1% in January – more than twice the ECB’s 2% goal – Kazaks was also open to action.”If we see that inflation remains high and the labour market remains strong or strengthens further, if we see that the economy keeps going, the direction is clear: we may act sooner than we assumed in the past,” the 48-year old economist said.Kazaks noted that wages, a key driver of growth in prices, had surprisingly failed to pick up, but he still saw mounting risk that high inflation persisted in the euro zone, lessening the need for ECB largesse.”With the economy recovering, inflation at this level and increased risk of persistency of inflation, new net asset purchases become less necessary,” Kazaks said.He favoured laying out a new “roadmap” for how bond purchases would be reduced rather than setting the pace at every policy meeting, which would create “recurrent cliff effects” for the bond market. Euro zone government bond yields rose across the board on Monday. Italian bonds, which are highly sensitive to ECB’s purchases due the country’s high debt burden, were among the worst performers. [GVD/EUR]Kazaks singled out a potential war between Russia and Ukraine as the biggest risk to the ECB’s policy path.”If a war breaks out, God forbid, we reassess the baseline scenario and act accordingly,” he said.Money markets have priced in a 15 basis point rise in the ECB’s deposit rate in July, plus nearly a further 40 basis points by December.The ECB’s deposit rate has been below 0%, meaning banks are charged to park their spare cash at the central bank overnight, since 2014. Dutch central bank governor Klaas Knot said on Sunday he expected the first ECB rate rise to come in the fourth quarter of this year. France’s Francois Villeroy de Galhau said on Friday that markets shouldn’t “rush to conclusions” about the timing of any ECB move, while Slovakia’s Peter Kazimir said the ECB “will be wiser in March” when it has more data. [L8N2UF470] More

MYBank was also warned and fined for failing to follow the central bank’s know your customer (KYC) requirements and instructions to report suspicious transactions, the Hangzhou branch of the People’s Bank of China (PBOC) said in a penalty decision dated Jan. 29.A spokesperson at MYBank told Reuters on Monday the relevant problems had been rectified by 2020. China’s financial regulators have been ramping up anti-money laundering efforts for online financial institutions, as part of Beijing’s efforts to rein in financial risks.The PBOC and China’s Ministry of Public Security are leading a three-year campaign to fight money laundering in a bid to safeguard national security and social stability.China also ordered Ant to become a more strictly regulated financial holding firm and strictly comply with the requirements of credit information business regulation after its record $37 billion IPO was derailed by regulators in 2020. Nine executives and managers at MYBank including then-deputy chief executive Feng Liang were also fined for such violations, according to the penalty decision. ($1 = 6.3573 Chinese yuan renminbi) More

The European Central Bank’s meeting last week turned out to be quite a policy pivot. With euro zone inflation running above 5%, money markets had already been betting the ECB would wake up, smell the coffee and possibly signal when it might follow the U.S. Federal Reserve and the Bank of England in tightening policy. But by opening the door to a rate hike in 2022, President Christine Lagarde unleashed a massive readjustment, with German 10-year government yields seeing their biggest jump since the March 2020 COVID-19 crash.ECB governing council member Klaas Knot doubled downed over the weekend, saying he expected rates to start rising in the fourth quarter. Quick take? Well, with the ECB also now on board to tighten policy, this looks like a new financial markets cycle.”The times of low growth, low inflation, low rates and excess central bank liquidity are over in our view”, Berenberg analysts write. All eyes will be on Lagarde when she addresses the European Parliament later on Monday. In the meantime, strategists are adjusting equity risk premium models to the paradigm shift. Shares in European banks hit their highest since 2018 and the continent’s tech index is down 20% from its November highs.Wall Street meanwhile has been on a roller coaster after Facebook-owner Meta Platforms Inc’s historic $200 billion market value plunge, but also a $190 billion jump by Amazon.com (NASDAQ:AMZN).Overall though, there seems no cause for alarm — 78% of S&P 500 earnings have beaten forecasts so far according to Refinitiv I/B/E/S. And the U.S. economy also created far more jobs than expected in January.So despite a dip on Asian stocks earlier, European and U.S. futures indicate a cautiously optimistic mood. Clouded of course by the Ukraine diplomatic crisis and oil prices north of $90 a barrel.Key developments that should provide more direction to markets on Monday:-Indonesia’s GDP speeds up-China’s Jan services activity expands at slowest rate in five months -German industrial production dips in December -UK house prices rise at slowest pace since June Chinese Caixin Services PMI/FX reserves-Euro zone Sentix index(Graphic: German two-year yield surges, https://fingfx.thomsonreuters.com/gfx/mkt/klvykmqjyvg/german%202%20yr%20weekly%20feb%204.png) More

The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyIn the past two weeks, a much brighter light has been shone on how and why the world’s most influential central banks are scrambling to regain control of the inflation narrative and contain further damage to their policy credibility. The key message coming out of recent meetings of central bank policymakers is that inflation is higher and more persistent than expected — and the risks to their projections are tilted to an ever greater rate of price rises. It is a major shift for the US Federal Reserve and the European Central Bank which, unlike the Bank of England, maintained a call that inflation was “transitory” for far too long. Some market commentators have characterised this as a “hawkish pivot”. If it is a pivot, it is partial at best, still too slow and risks an over-compensation later this year. Currently, the two banks’ extremely accommodating policies are inconsistent with both their change in language on inflation and developments on the ground.Rather than facilitate a smooth transition for monetary policy and the economy, this continued go-slow approach will force both to tighten more this year than they would have had to otherwise. This will amplify worries about how the global economy and markets will cope with rising borrowing costs and prices.Already concerns about inflationary expectations becoming more embedded are building. There is a risk that price and wage setting shifts from seeking to compensate for the impact of past cost increases to also starting to include an element for future anticipated inflation.These considerations led the Bank of England to raise interest rates by 25 basis points, the first time it has opted for back-to-back increases since 2004. The fact that four of the five members of the Bank’s policymaking committee preferred an immediate 50 basis points rise suggests that a third consecutive increase at the next meeting is almost a done deal.What I view as desirable and timely policy moves by the Bank of England stand in stark contrast to ECB and Fed inaction — a disparity that increases the BoE’s policy challenges.With its policy meeting last month, the Fed should at a minimum have signalled more seriousness in tackling inflation by immediately stopping its large-scale asset purchases.Even before Friday’s blowout December jobs report, failure to do so had contributed to a remarkable shift in market expectations that centre on five hikes for this year alone, with one prominent bank (Bank of America) forecasting seven. This, in my view, would constitute an excessive tightening of monetary policy given that the Fed is also expected to reduce its bloated balance sheet.For its part, the ECB should have provided stronger guidance on interest rate rises this year at its policy meeting last week. The markets are already pricing in such increases. The ECB also reiterated its adherence to a “step-by-step” approach to raising rates only after stopping net bond purchases, a move that further reduces its degrees of freedom.All this increases the possibility of a second central bank policy mistake in as many years. The more the Fed in particular delays, the greater the risk of a summer bunching of monetary policy tightening that unduly suffocates the much needed strong, inclusive and sustainable economic recovery.An even bigger risk is that such policy tightening would come after inflationary expectations have been de-anchored, resulting in a twin blow — higher prices and lower income. That hits particularly hard the most vulnerable segments of the population. The damage would be amplified if pronounced market volatility spills back into the broader economy.The consequences of these policy mistakes extend well beyond Europe and the US. They are particularly threatening to developing countries lacking policy flexibility and financial resilience. It took way too long for the Fed and ECB to correct their misreading of price increases. The additional difficulties this poses are now being compounded by unnecessary delays in altering what remains an inexplicably uber stimulative monetary policy stance. Rather than ensure a soft landing for the economy, the world’s two major central banks are likely to be forced into excessive “catch-up” policy tightenings.Stubbornly slow and partial now, the policy pivot that is sure to occur in the next few months risks considerable damage to livelihoods.  More

Fifth-generation networks offer higher data speeds and cut delays — to give almost instantaneous response, promising new opportunities and applications for business and consumers. So why has 5G been slow to make an impression on everyday life, and what can we expect next? More

International wrangling over standards for 5G technology is not only about improved speed or efficiency. Such standards also reflect the political struggles between the US and China — and, to a lesser degree, Europe — over how future technology is developed and deployed.“5G has been described as essential for economic progress,” says Priya Chopra, head of network technology for communications, media and information for the EU and UK, at Tata Consultancy Services. Expansion of the technology has also become more important as older networks are increasingly switched off. Vodafone and EE aim to phase out 3G networks in the UK by 2023.But the standards set for the next generation network — who decides them, and how far they apply — will be equally important for national security and individual safety, as well as the geopolitics of equipment deployment around the world.

“Arrangements of technical architecture are arrangements of power,” argues Laura DeNardis, a professor in communication at American University, Washington DC specialising in internet governance and infrastructure. So far, the most obvious casualty of the power struggle has been Huawei, the Chinese technology company. The UK government banned it from supplying equipment in the country after 2021, which hit its revenue and profit.But Beijing has been prolific in its efforts to set the agenda on 5G — an approach that has challenged US efforts to blacklist Chinese technology.The costs of this tension are borne not only by Huawei, but by other companies, says Chopra. “Some of the immediate impacts are felt due to Chinese telecom equipment, intensive auditing of telecom products by technical specialists, the review and certification of network technology, and involvement in encryption requirements at application levels.”DeNardis says one area where establishing standards is vital is the so-called ‘Internet of Things’ — networks of connected devices such as smart speakers and security systems. “The internet is no longer just about connecting people, it’s also about communications and controls for connected things,” she notes.Laura DeNardis: ‘As standards evolve, they’re recognised as opportunities for nations to prioritise their indigenous companies’ © Jeff Watts/American UniversityFurthermore, the Internet of Things has developed way beyond connected homes, in which residents can turn on the lights from their phones.Highly connected smart cities are becoming more common. This prompts debates about the measures that should be taken to control the use of technologies such as facial recognition.There are also questions over safety and security standards embedded into smart cities. A report released in 2020 and funded by the Australian government found that a data centre built by Huawei in Papua New Guinea had serious security vulnerabilities. Europe is seeking to play a role in establishing connectivity standards. Making 5G available everywhere, and setting the standards for it, are among the “Digital Decade Principles” announced in January by the European Commission, in order to guide digital transformation in the EU.Also in January, the French and German governments announced €17.7mn in funding for four 5G projects. These included open 5G networks in business parks and 5G solutions for operating theatres, to improve telesupport.Bruno Le Maire, French minister for the economy, finance and recovery, said the Franco-German ecosystem “will play a key role to position Europe at the forefront of innovation in 5G and its evolutions”. But 5G standards are not only a question of international geopolitics, says DeNardis. She points to the question of airline flight disruption in the US. In January, the largest US airlines warned that the imminent introduction of 5G threatened to ground flights across the country by interfering with equipment needed for take-off and landing.US lawmakers have expressed concern over the rollout of new 5G wireless services and their effect on aviation © Bloomberg“In no advanced society should the issue of 5G antenna placement be making the news,” DeNardis says. “This should be behind the scenes, not mediated by social media mobs. This is not how tech policy should be done in any way.”The effect of the fracas, she warns, is to fuel public distrust in 5G, which had previously been more pronounced in Europe. “This is yet another area of anxiety and lack of trust in institutions,” DeNardis says. “This serves to raise the importance of technical standards in society and how they are rules and structures which bleed into important social issues.”As debate about 5G standards continues, discussions are already under way about its successor, 6G. “It’s not surprising that this is happening — as standards evolve, they’re recognised as opportunities for nations to prioritise their indigenous companies,” DeNardis adds. The competition is heating up. A report released in December by the Center for a New American Security, a Washington DC think-tank, recommended that the US craft a 6G strategy, expand funding and increase collaboration with allies in order to avoid a repeat of problems with 5G.“While the current policy conversation around telecommunications has largely focused on China’s 5G efforts, the United States is engaged in a long-term technology competition that will extend far beyond 5G,” the report noted. More