Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.At China’s Belt and Road Forum last week, where Beijing marked the 10th anniversary of its lavish $1tn infrastructure programme, foreign leaders and executives were repeatedly invited to participate in China’s “high-quality development”.One of President Xi Jinping’s favourite slogans, the term is vaguely defined. But few sectors probably encapsulate its underlying ambition better than China’s green technology industries, particularly its electric-vehicle makers. Not only has China become an EV leader with its own brands and advanced technology, it is also rapidly increasing its exports. But while few could argue with the pursuit of high-quality industry, the broader question for Beijing is whether prioritising these sectors at this moment is the right answer for China’s more immediate malaise — slowing economic growth driven by a deep and sustained real estate slump.Central to this question is whether new sectors such as EVs can generate as much employment and economic growth as the once-mighty property sector. At its height three years ago, before a government crackdown on debt led to defaults among developers, real estate accounted for about 30 per cent of China’s economy, dwarfing EV production’s low-single digit share. But in a new report, Goldman Sachs analysts Maggie Wei and Xinquan Chen argue that each renminbi of “final demand” in “new energy vehicle” production generated only marginally less domestic value-added for the economy compared with the residential housing construction sector. Grouping EV production with battery production for other uses, as well as investment in wind and solar power generation, these “New Three” industries over time could partly offset the long-term decline in real estate. But even as they grew bigger, there would still be an average net negative 0.5 percentage point drag from the property sector’s decline on China’s gross domestic product growth over the five years until 2027, the report said.This would tail off in 2027, by which stage EV production would have risen from 6.7mn units last year to about 18mn units. They would account for about 60 per cent of total passenger car production in China by then, from about 29 per cent in 2022. Much would depend on the willingness of Chinese consumers to spend. In a low-growth scenario, production growth would rise 2 per cent a year, mostly driven by exports. In a higher-growth situation, Chinese consumers would replace their existing combustible engine car with more than one EV. But complicating the prospects for higher consumption is that the new greener industries also produce fewer jobs. The Goldman analysis pointed to 3mn net urban jobs losses next year for the property, internal combustion engine vehicle and “New Three” sectors combined. Growth in the “New Three” sectors would offset about half of the 6mn job losses in the property and internal combustion engine vehicle industries. Herein lies the challenge for Beijing. While the government fetes advanced industry as the future, particularly at a moment when it is facing geopolitical challenges from the US, these sectors generally do not employ as many people.Meanwhile, families had about 80 per cent of their wealth in property prior to the downturn. They are watching this deflate, with house prices falling again in September despite incremental government support measures. “It is too early to call the bottom for the property sector,” says Nomura chief China economist Ting Lu.Until the government can find a way to restore confidence among homeowners, as well as among businesspeople and entrepreneurs, the economy will continue to struggle. Worse still, from the government’s perspective, there will be fewer people willing to buy the shiny products pouring out of China’s new high-quality industries at a time when developed countries are shutting the doors.Many economists argue that Beijing not only has to stabilise the property market if it really wants to get people to feel secure enough to unlock their savings and begin spending again. It also needs to implement deeper reforms, such as providing better social welfare and access to quality healthcare. To be sure, such structural reforms are difficult. But doing so might finally bring about what the state-run media calls “high-quality consumption”. [email protected] More

TOKYO (Reuters) – The dollar softened against a basket of currencies on Tuesday, mirroring a dip in Treasuries yields as investors awaited key U.S. economic data before the Federal Reserve’s monetary policy meeting next week.The dollar index last sat around 105.57, having lost over 0.5% in the previous session as U.S. Treasury yields tumbled.The greenback found support last week after Fed Chair Jerome Powell said U.S. economic strength might warrant tighter financial conditions, which pushed the benchmark 10-year yield above 5% to its highest since July 2007.Bitcoin returned the market spotlight with the virtual currency soaring on speculation that the United States could soon approve a bitcoin exchange-traded fund.Market attention now turns to some of the last bits of U.S. economic data before the Fed’s meeting on Oct. 31 – Nov. 1, with the flash purchasing managers’ index (PMI) out later on Tuesday and gross domestic product due on Thursday.The PMI data could set the market expectations ahead of the GDP report, said Matt Simpson, senior market analyst at City Index.”If the data leans far enough one way it could prompt a strong dollar rally or breakdown with the Fed in a blackout period,” he said, referring to the period before the policy meeting in which limits are placed on public communications from central bank officials.The Fed is expected to hold rates at its meeting next week. The European Central Bank is also expected to leave interest rates untouched at their meeting on Thursday, after raising its key interest rates 25 basis points in September.The euro was mostly flat at $1.0665, holding gains against the dollar on Monday.Meanwhile, the dollar’s retreat gave the battered yen some slight relief. The Japanese currency had hit the sensitive 150-level both on Friday and Monday and was last flat against the greenback at 149.77.Traders see the 150 threshold as a possible line-in-the-sand for Japanese authorities to intervene in the currency market. However, the data out of the United States this week could have the yen inching back into the danger zone if it comes in strong.”The yen will be particularly sensitive to hot U.S. data, especially if it causes Treasuries to blow through what’s looking like a key resistance level of 5% or so,” said Kyle Rodda, senior financial market analyst at Capital.com.In cryptocurrency markets, bitcoin leapt as much as 14% to a 2-1/2 year high of $34,283. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK employers paying the voluntary “real living wage” will be asked to deliver a double digit pay increase for the second year running, helping to repair living standards as inflation starts to subside.The Living Wage Foundation, a charity that campaigns for fair pay, said on Tuesday it was increasing its national living wage rate from £10.90 to £12 an hour in 2024, following a similar increase in 2022.Meanwhile its London rate — which reflects the higher costs of living in the capital — will rise from £11.95 to £13.15 an hour.The change will directly benefit about 460,000 people working for 14,000 employers who are accredited by the charity. But it could benefit many more indirectly as some large companies, including supermarkets, use the living wage as a benchmark to keep their own pay rates competitive even without seeking accreditation.“There is a competition for labour in certain parts of the labour market,” said Katherine Chapman, the foundation’s director. She added that this pressure, combined with the need to convince investors of their social credentials, had led growing numbers of listed companies and smaller businesses to sign up despite the pressures they faced from rising costs during the past two years.The foundation sets the voluntary rate annually based on what a range of families need to get by — including rent, childcare and travel costs with other basic needs. A full-time worker on the new voluntary rate would earn £3,801 a year more than if they were paid the current UK statutory minimum, it said. The gap between the voluntary and statutory rates has narrowed in recent years, as the government pursues a target for the wage floor to rise to two-thirds of median earnings by 2024. Even as inflation eroded the value of average earnings last year, minimum wage workers were better protected than others, with the statutory minimum rising by almost 10 per cent to £10.42.Chancellor Jeremy Hunt confirmed last month that the statutory hourly minimum would increase next April to at least £11. In practice, the government is likely to adopt the recommendation of the independent Low Wage Commission, which is expected to be closer to £11.20.However, the rapid increase in the UK’s wage floor has not been enough to insulate low income households from cost of living pressures.Nye Cominetti, senior economist at the Resolution Foundation think-tank, which helps calculate the Living Wage Foundation’s rate, said that although low wage workers’ pay had roughly kept pace with inflation, this was for many families only just enough to offset cuts in the value of housing and other benefits.The Living Wage Foundation said 60 per cent of workers paid below the voluntary living wage had resorted to food banks over the past year.Meanwhile, separate research released on Tuesday by the Joseph Rowntree Foundation found that 3.8mn people in the UK had suffered destitution in 2022, a rise of 61 per cent from the pre-Covid period. The charity said the number of children experiencing destitution had tripled in the five year period since 2017. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.Investors hoping for a reprieve in the U.S. bond selling frenzy got their wish on Monday, which should bode well for Asian markets on Tuesday, although the doubts about how long the calm lasts are bound to swirl.The regional economic calendar on Tuesday is light, the highlights being South Korean producer price inflation for September, October’s flash purchasing managers index data from Japan and Australia, and a speech from Reserve Bank of Australia governor Michele Bullock.All of these could trigger short-term moves in the respective currencies, which all gained ground to varying degrees against the beaten down dollar on Monday.September’s PMIs showed that manufacturing activity in Japan and Australia shrank and services sector activity grew, although growth in Japan was the slowest this year.The big picture, however, is still dominated by the ebb and flow of the U.S. Treasuries market. The 10-year yield finally broke above 5.0% on Monday but quickly tumbled, and the peak-to-trough slide of 20 basis points pushed U.S. stocks into positive territory for most of the day and dragged down the dollar.All of that paves the way for a ‘risk-on’ day across Asia on Tuesday, right? Not necessarily.Wall Street gave back most of its gains in late trading, with only the Nasdaq out of the three main indexes closing in the green – an intuitive move, perhaps, given the tech sector’s sensitivity to interest rates.And while a broad easing of financial conditions on Monday – lower Treasury yields and a weaker dollar – should support emerging market assets, Wall Street’s late downward drift will warrant caution.So will the latest signals from China, which continues to post substantial capital outflows.According to Goldman Sachs, outflows in September jumped to $75 billion, the biggest monthly figure since 2016, up from a still hefty $42 billion in August.”The unfavorable interest rate spread between China and the US will likely imply persistent depreciation and outflow pressures in coming months,” Goldman analysts warned.Blue chip Chinese stocks on Monday hit their lowest level since February, 2019, and given China’s weight in Asian and emerging market equity indexes, Tuesday could be a challenge.The MSCI Asia ex-Japan and MSCI global emerging market indexes are both down around 13% over the past three months and on Monday both hit their lowest level since Nov. 11 last year.Japan’s yen and bonds will be under the spotlight again on Tuesday after the yen briefly slipped below 150.00 per dollar and the 10-year yield hit a fresh decade-high on speculation the Bank of Japan could tweak its yield curve control policy later this month.Here are key developments that could provide more direction to markets on Tuesday:- Japan flash manufacturing PMI (October)- Australia flash PMI (October)- South Korea producer price inflation (September) (By Jamie McGeever; Editing by Josie Kao) More

Stay informed with free updatesSimply sign up to the More

Steelmakers have seen prices tumble in recent months in part due to customers, including automakers and suppliers, exercising caution in building raw material inventory as the workers strike against the Detroit Three automakers drags on. Nucor (NYSE:NUE)’s net sales declined 16% to $8.78 billion for the quarter ended Sept. 30 from a year ago, but came ahead of analysts’ estimates of $8.31 billion, as per LSEG data. Average sales price per ton in the reported quarter decreased 14% from last year.Nucor posted a quarterly net profit of $1.14 billion, or $4.57 per share, down from $1.69 billion, or $6.50 per share, last year. Analysts were expecting $4.25 per share.Shares of the company rose 1.43% in after-market trading. Last week, Steel Dynamics (NASDAQ:STLD) also reported a drop in third-quarter profit, as higher manufacturing costs and a fall in steel prices hit its bottom line. More

On Monday, Fed Chair Jerome Powell hinted at steady interest rates at the next meeting but did not rule out another hike if robust economic growth persists. This led to an aggressive steepening of the rates curve, with short-dated yields falling while longer-maturity ones hit new multiyear highs.Mike Schumacher of Wells Fargo Securities anticipates this high interest-rate volatility will persist until more clarity on the Fed’s long-term vision emerges and the Middle East situation stabilizes. Mohamed El-Erian from Allianz (ETR:ALVG) SE also attributes part of this uncertainty to the Fed’s difficulty in articulating a clear long-term vision for interest-rate policy.Geopolitical concerns over the potential expansion of the Israel-Hamas conflict throughout the Middle East have also contributed to price swings. Ongoing drone attacks in Iraq and Syria, missile firings towards Israel by Yemen’s Houthi rebels, and Israel’s strikes against Hamas and Hezbollah have led investors to seek safety in Treasuries. As a result, 10-year yields dropped from just below 5% to around 4.91% by week’s end.The rising U.S. debt issuance has also played a role in increasing long-end rates. Over the past three months, the term premium has risen by more than a point due to increased auction sizes announced by the Treasury. Traders are preparing for further increases at the Treasury’s next quarterly refunding on November 1.William Marshall from BNP Paribas (OTC:BNPQY) SA noted that the current volatility is creating more uncertainty. He suggested that a pause in Fed commentary this week, due to the central bank’s quiet period before the November 1 policy meeting, might offer traders some respite. However, key readings on price pressures in the economy are still due later this week, including Friday’s personal-consumption expenditures data and the University of Michigan inflation expectations survey. The upcoming week will also see a series of economic data releases as per the scheduled calendar, and several auctions as part of the auction calendar.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

A new federal program will be a test of whether spreading funds outside of big cities will result in economic gains, or in inefficiencies.The Biden administration said on Monday that it had chosen 31 regions as potential recipients of federal money that would seek to fund innovation in parts of the country that government investment overlooked in the past.The announcement was the first phase of a program that aims to establish so-called tech hubs around the country across a variety of cutting-edge industries, like quantum computing, precision medicine and clean energy. In the coming months, the regions will compete for a share of $500 million, with roughly five to 10 of the projects receiving up to about $75 million each, the administration said.The program will test a central idea of a bipartisan bill that lawmakers passed last year: that science and technology funding should not just be concentrated in Silicon Valley and a few thriving coastal regions but flow to parts of the country that are less populated or have historically received less government funding.Proponents of the program say these investments can tap into pools of workers and economic resources that are not reaching their full potential, and improve the American economy as well as its technological abilities.But it remains to be seen if dispatching money to more remote places, which struggle with issues like an outflow of young workers, will ultimately be the most efficient way to use government funding to promote technological gains.The 31 finalists were chosen from nearly 400 applicants, the Commerce Department said. They include proposals to manufacture semiconductors in New York and Oregon, design autonomous systems for transportation and agriculture in Oklahoma, research biotechnology in Indiana and process critical minerals in Missouri.In Washington on Monday, President Biden said these tech hubs would bring together private industry, educational institutions, state and local governments, tribes, and organized labor to produce “transformational” research.“We’re doing this from coast to coast, and in the heartland and red states and blue states, small towns, cities of all sizes,” Mr. Biden added. “All this is part of my strategy to invest in America and invest in Americans.”Senator Chuck Schumer of New York, the majority leader, said in an interview on Monday that the tech hub program, which he had devised with Senator Todd Young, an Indiana Republican, had helped to secure bipartisan support for the CHIPS and Science Act last year.The legislation included $200 billion for basic scientific research, and more than $75 billion in grants and tax credits for semiconductor companies. It aimed to lower the country’s dependence on foreign manufacturers of computer chips and other critical technology.Mr. Schumer said “it was a very big selling point” for the overall bill that the funding was not just going to “three or four cities in blue states.”“There was such divisiveness in the country, the coasts and non-coasts, and a lot of it was because all these new tech and high-end industries were locating on the coasts,” he said. “And so we crafted the tech hub program to be spread throughout the middle of America.”Mr. Schumer was touring Buffalo, Rochester and Syracuse on Monday to celebrate the inclusion of two New York proposals, one focused on semiconductor manufacturing and the other on battery technology.“There’s a lot of talent here that’s not used,” he added.Mark Muro, a senior fellow at the Brookings Institution’s Metropolitan Policy Program, described the tech hub program as “a grand experiment” in industrial policy.Mr. Muro said the United States had seen the incredible strength of concentrating technology investments in a few key places like Silicon Valley, where companies in related businesses can benefit by clustering together. But those investment patterns have also resulted in tremendous imbalances in the country’s economy, where “only a few places are truly prospering and much talent and much innovation is left on the table,” he said.“This is a whole different map,” Mr. Muro said, adding, “I think we need to make some experiments and some of them will probably be great investments.”The announcements tried to balance several competing goals of the tech hubs, including whether to invest in as many regions as possible — or whether to concentrate spending in a few areas in hopes of engineering radical economic improvement in those areas. They also reflected the high interest in the program from regional officials and their representatives in Congress.The administration is also trying to do as much as possible with initial funding for the program that remains well below the maximum levels lawmakers set in the CHIPS bill. While that bill authorized Congress to fund a variety of programs, lawmakers still need to greenlight actual money for many of the tech hub investments, as well as other programs.Given those financial constraints, some supporters of the program said on Monday that they hoped administration officials would ultimately focus most of the money on a small set of the announced hubs. Ideally, “you’d be extremely narrow about who gets funding,” said John Lettieri, president and chief executive of the Economic Innovation Group, a Washington think tank. “The more narrow the better.”The later round of funding announcements, he added, “is where we have to be pretty ruthless about shielding the process from politics as much as possible.”Madeleine Ngo More