Economy

A key measure of eurozone inflation has fallen into negative territory for the first time in two and a half years, in a further sign that the surge in prices that has plagued businesses and households is now in retreat. The EU’s statistics office, Eurostat, said factory gate prices in the region fell 1.5 per cent in the year to May, the first outright decline since December 2020. The measure has fallen significantly since the summer, when annual price rises hit a peak of 43.3 per cent in August after energy costs surged in the wake of Russia’s full-scale invasion of Ukraine. The decline will raise hopes that a series of rate rises by the European Central Bank is finally beginning to pay off. Central bank figures out on Wednesday showed households increasingly expect inflation to fall sharply over the coming year, a trend that Andrzej Szczepaniak, an economist at Nomura, described as “exactly what the ECB will have been looking for”. However, consumer price inflation remains well above the ECB’s 2 per cent target at 5.5 per cent in the year to June. At 5.4 per cent, the core consumer prices are close to record highs. Higher borrowing costs are also weighing on activity in the region’s housing market. Separate data published by Eurostat on Wednesday showed house prices fell for the second quarter in a row — though by a smaller amount in the three months to March than in the final quarter of 2022. Average mortgage rates across the eurozone now stand at 3.58 per cent, up from 1.78 per cent a year ago, according to ECB figures. The central bank has raised its benchmark deposit rate by 4 percentage points to 3.5 per cent over the past year. A breakdown of producer prices showed energy costs were down 13.3 per cent compared with May last year. Factory gate prices charged on intermediate goods, such as parts of machinery, also contracted. Producer prices were down 1.9 per cent between April and May, with all EU countries except Malta reporting a contraction.Eurozone house prices fell 0.9 per cent in the first quarter compared with the previous three months, following a 1.7 per cent contraction in the previous quarter. That marked the first two consecutive contractions in almost a decade.Households’ expectations for inflation over the next 12 months decreased to 3.9 per cent in May, from 4.1 per cent in April, according to the ECB’s quarterly poll. The fall in inflation expectations to the lowest level since last March “nicely illustrate that the disinflationary process in the eurozone is gaining momentum”, said Carsten Brzeski, an economist at Dutch bank ING. He added that it confirmed his view “that both headline and core inflation could fall faster towards the end of the year than the ECB currently thinks”.Markets expect rate-setters to raise borrowing costs by a quarter point at the next two policy meetings in July and September. In Germany, the region’s largest economy, prices have fallen 6.8 per cent. Sven Jari Stehn, economist at Goldman Sachs, said: “The drag from policy tightening via the housing market is likely to build.” More

Dear reader, Investors are putting big bets on who the immediate winner will be in geopolitical backbiting between China and the US. China has hit back at mooted US-led restrictions on chip sales by limiting its own exports of two metals used in chipmaking. A rally in related stocks overlooks the likely long-term effects. The US dented China’s plans to make advanced artificial intelligence chips. By subjecting gallium and germanium to export restrictions, Beijing has set up roadblocks in the world’s chip manufacturing supply chain. The two materials are used in chip production and can serve as alternatives to some traditional silicon wafers. They are also needed in a wide range of products in the defence and renewable energy industries, including solar cells, night-vision devices and satellites.China accounts for about two-thirds of the world’s germanium production and about 80 per cent of global gallium output. Shares of Chinese metals producers surged following the export controls. Yunnan Lincang Xinyuan Germanium Industrial rose by its 10 per cent daily limit for the second straight day on Wednesday, bringing gains for the year to more than 50 per cent. Expectations are running high that prices and demand for the materials will surge as controls limit supply.Most germanium is a byproduct of zinc production. Gallium is found in small amounts in zinc ores. That has boosted related stocks such as Aluminum Corp of China, which also produces gallium, and Zhuzhou Smelter Group. The timing of the export controls suggests Beijing will no longer sit back as it loses access to advanced chips. The move comes just days after the Netherlands announced its latest set of export controls on high-end chipmaking equipment made primarily by Dutch group ASM. China is sending a signal to the US. Treasury secretary Janet Yellen is scheduled to visit Beijing this week.Chinese curbs on metals exports are not an insuperable problem for chipmakers elsewhere. The US, Canada and Belgium can make germanium while South Korea and Japan produce gallium.

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Production capacity is limited at present. Setting up new processing plants is time-consuming and costly. Yields are low.The move comes at a high cost to Chinese producers. These are mostly relatively small companies. One of the main groups, Yunnan Lincang Xinyuan Germanium, for example, has a market valuation of just $1bn. Operating margins are negative. That makes it difficult for the companies to weather an extended period of declining export volumes. Chipmakers in South Korea, one of the world’s largest importers of the two materials, can fall back on large stockpiles in the government’s inventory. That could mean a slower rise in material prices than Chinese suppliers hope. But a dent to local companies’ earnings may be a price Beijing is willing to pay. Like Washington, it is prioritising political objectives over the health of its businesses and international trade.Rising tensions with the US are far from over. The Biden administration is reportedly preparing to restrict the access of Chinese companies to US cloud-computing services that use advanced AI chips.Beijing may well add more materials to its export control list in retaliation for this and other side swipes from the US. China accounts for about two-thirds of the world’s rare earth mining and most of the world’s processing capacity. Some of these metals — including dysprosium, cerium and neodymium — are critical for the supply chains of electric cars, missiles, magnets and renewable energy production.The effects could be far-reaching. The world is attempting to switch to a net zero economy. The move is dogged with uncertainty, inertia and feeble policymaking. A trade war that impedes a full switchover from combustion vehicles to the electric kind may be an added problem.Meanwhile, the battle over high technology will surely retard innovation in both the west and east. In the geopolitical contest to cut off noses to spite faces, Washington and Beijing are both making steady progress.Enjoy the rest of your week,June YoonLex Asia [email protected] More

Even with sheets of rain falling, the sprawling construction site was buzzing. Yellow and orange excavators slowly danced around a maze of muddy pits, swinging giant fistfuls of dirt as a chorus line of trucks traipsed across the landscape.This 50-acre plot in Oradea, Romania, close to the border with Hungary, beat out scores of other sites in Europe to become the home of Nokian Tyres’ new 650 million-euro, or $706 million, factory. Like an industrial-minded Goldilocks, the Finnish tire company had searched for the just-right combination of real estate, transport links, labor supply and pro-business environment.Yet the make-or-break feature that every host country had to have would not have even appeared on the radar a few years ago: membership in both the European Union and the North Atlantic Treaty Organization.Geopolitical risk “was the starting point,” said Jukka Moisio, the chief executive and president of Nokian. That was not the case before Russia invaded Ukraine on Feb. 24, 2022.Nokian Tyres’ altered business strategy highlights the transformed global economic playing field that governments and companies are confronting. As the war in Ukraine drags on and tensions rise between the United States and China, critical decisions about offices, supply chains, investments and sales are no longer primarily ruled by concerns about costs.As the world re-globalizes, assessments of political threats loom much larger than before.Oradea, Romania, became Nokian Tyres’ top choice for a new factory.Andreea Campeanu for The New York TimesThe new factory is going on a 50-acre site.Andreea Campeanu for The New York Times“This is a world that has fundamentally changed,” said Henry Farrell, a political scientist at Johns Hopkins. “We cannot just think in terms of innovation and efficiency. We have to think about security, too.”For Nokian Tyres, which first sold shares on the Helsinki stock exchange in 1995, the new reality struck like a hammer blow. Roughly 80 percent of Nokian’s passenger car tires were manufactured in Russia. And the country accounted for 20 percent of its sales.The perils of over-concentration hit home, Mr. Moisio said, “when your company loses billions.”Within six weeks of the war’s start, it became clear that the company had no choice but to exit Russia and ramp up production elsewhere. Rubber had been added to the European Union’s rapidly expanding package of sanctions. Public sentiment in Finland soured. The share price plunged. In January 2022, the share price was over €34; today it’s €8.25.“We were very exposed,” Mr. Moisio said, sipping coffee in a sunny conference room at the company’s low-key Helsinki office. The Russian operation had high returns, but it also had high risks, a fact that, over time, had faded from view.Diversifying may not be as efficient or cheap, he said, but “it’s far more secure.”With roughly 80 percent of its production located in Russia, “we were very exposed” when Russia attacked Ukraine, said Jukka Moisio, Nokian’s chief executive.Juho Kuva for The New York TimesC-suite executives are relearning that the market often fails to accurately measure risk. A January survey of 1,200 global chief executives by the consulting firm EY found that 97 percent had altered their strategic investment plans because of new geopolitical tensions. More than a third said they were relocating operations.China, which has become an increasingly fraught home for foreign businesses and investment, is among the places that firms are leaving. Roughly one in four companies planned to move operations out of the country, a survey conducted last year by the European Union Chamber of Commerce in China found.Businesses are suddenly finding themselves “stranded in the no-man’s land of warring empires,” Mr. Farrell and his co-author, Abraham Newman, argue in a new book.Mr. Moisio’s tenure at Nokian has coincided with the triple crown of crises. He started in May 2020, a few months after the Covid-19 pandemic essentially shut down global commerce. Like other companies, Nokian hunkered down, cutting production and capital spending. Its lack of outstanding debt helped it ride out the storm.And when the economy bounced back, Nokian scrambled to restart production and restock raw materials amid a huge breakdown of the supply chain and transportation. The war posed an existential threat to Nokian’s operations.Adding production lines to existing facilities is often the fastest and cheapest way to increase output. Still, Nokian decided not to expand its operation in Russia.Production there was already concentrated, Mr. Moisio said, but more important, the persistent supply chain bottlenecks underscored the added risks and costs of transporting materials over long distances.The Nokian Tyres main office in Nokia, Finland.Juho Kuva for The New York TimesNewly completed tires on the production line. Nokian is moving manufacturing closer to specific markets.Juho Kuva for The New York TimesGoing forward, instead of locating 80 percent of production in one spot, often far from the market, 80 percent of production would be local or regional.“It turned upside down,” Mr. Moisio said.Tires for the Nordic market would be produced in Finland. Tires for American customers would be manufactured in the United States. And in the future, Europe would be serviced by a European factory.Diversification had, to some extent, already been incorporated into the company’s strategic plan. It opened a plant in Dayton, Tenn., in 2019, in addition to the original factory that operated in Nokia, the Finnish town that gave the tire maker its name.At the end of 2021, the company opened new production lines at both of those plants.When it came time to build the next factory, executives figured it would be in Eastern Europe, close to its largest European markets in Germany, Austria, Switzerland and France, as well as Poland and the Czech Republic.That moment came much sooner than anyone expected.In June 2022, less than four months after the invasion of Ukraine, Nokian executives asked the board to approve an exit from Russia and the construction of a new plant.Negotiations to leave Russia commenced, as did a high-speed search for a new location. Aided by the consulting firm Deloitte, the site assessment process, which included dozens of candidates across Europe, was completed in four months, said Adrian Kaczmarczyk, senior vice president of supply operations. By comparison, in 2015 Deloitte took nine months to recommend a site in a single country, the United States.Nokian expedited its search for a site, selecting Oradea in just four months, said Adrian Kaczmarczyk, senior vice president of supply operations.Andreea Campeanu for The New York TimesMr. Kaczmarczyk and engineers examining designs for the project.Andreea Campeanu for The New York TimesThe aim was to start commercial production by early 2025.Serbia had a flourishing automotive sector, but was eliminated from the get-go because it was in neither the European Union nor NATO. Turkey was a member of NATO but not the European Union. And Hungary was labeled high risk because of its illiberal prime minister, Viktor Orban, and close relationship with Russia.At each successive round, a long list of other considerations kicked in. Where were the closest highway, harbor and rail lines? Was there a sufficient pool of qualified employees? Was land available? Could permitting and construction time be fast-tracked? How pro-business were the authorities?Nokian would have looked to reduce a new factory’s carbon footprint in any event, Mr. Moisio, the chief executive, said. But the decision to commit to a 100 percent emissions-free plant probably would not have happened in the absence of war. After all, cheap gas from Russia was what helped lure Nokian there in the first place. Now, the disappearance of that supply accelerated the company’s thinking about ending dependence on fossil fuels.“Disruption allowed us to think differently,” Mr. Moisio said.As the winnowing progressed, a complex matrix of small and large considerations came into play. Was there good health care and an international school where foreign managers could send their children? What was the likelihood of natural disasters?Countries and cities fell out for various reasons. Slovenia and the Czech Republic were considered low-to-medium-risk countries, but Mr. Kaczmarczyk said they couldn’t find appropriate plots of land.A machine operator monitoring equipment on the production line inside the factory in Nokia.Juho Kuva for The New York TimesTires being made on the production line.Juho Kuva for The New York TimesSlovakia fell into the same bucket and already had a large automotive industry. Bratislava, though, made clear it had no interest in attracting more heavy industry, only information technology, Mr. Kaczmarczyk said.At the end, six candidates made Deloitte’s final cut: two sites in Romania, two in Poland, and one each in Portugal and Spain.The messy mix of new and old considerations that businesses have to contemplate were evident in the list of finalists. Geopolitics, as the Nokian Tyres chief executive said, had been a starting point, but it was not necessarily the end point.Spain has virtually no geopolitical risk. And the site in El Rebollar had a large talent pool, but Deloitte ruled it out because of high wage costs and heavy labor regulations. Portugal, another country with no security risk, was rejected because of worries about the power supply and the speed of the permitting process.Poland, along with Hungary and Serbia, had been labeled high risk despite its staunch anti-Russia stance. It has an antidemocratic government and has repeatedly clashed with the European Commission over the primacy of European legislation and the independence of Poland’s courts.Yet low labor costs, the presence of other multinational employers and a quick permitting process outweighed the worries enough to elevate the sites in Gorzow and Konin to second and third place.Oradea, the top recommendation, ultimately offered a better balance among the company’s competing priorities. The cost of labor in Romania, like Poland, was among the lowest in Europe. And its risk rating, though labeled relatively high, was lower than Poland’s.The factory in Nokia. The low cost of labor in Romania attracted the company.Juho Kuva for The New York TimesStretching the lining for tires. The main raw materials for tires are natural rubber, synthetic rubber, soot and oil.Juho Kuva for The New York TimesThere were other pluses as well in Oradea. Construction could start immediately; utilities were already in place; a new solar power plant was in the works. The amount of development grants from the European Union for companies investing in Romania was larger than in Poland. And local officials were enthusiastic.Mihai Jurca, Oradea’s city manager, detailed the area’s appeal during a tour of the turreted confection of Art Nouveau buildings in the renovated city center.“It was a flourishing cultural and commercial city, a junction point between East and West,” in the early 20th century, under the Austro-Hungarian Empire, Mr. Jurca said.Today the city, an affluent economic hub of 220,000 with a university, has solicited businesses and European Union funds, while constructing industrial parks that house domestic and international companies like Plexus, a British electronics manufacturer, and Eberspaecher, a German automotive supplier.Nokian is not looking to replicate the kind of megafactory in Romania that it ran in Russia — or anywhere else, for that matter. The idea of concentrating production is “old-fashioned,” Mr. Moisio said.For him, the company emerged from crisis mode on March 16, the day $258 million from sale of its Russian operation landed in Nokian’s bank account. Although only a fraction of the total value, the amount helped finance the construction and closed out the company’s involvement with Russia.Now uncertainty is the norm, Mr. Moisio said, and business leaders need to constantly be asking: “What can we do? What’s our Plan B?”Oradea “was a flourishing cultural and commercial city, a junction point between East and West,” in the early 20th century, said Mihai Jurca, the city manager.Andreea Campeanu for The New York TimesOradea is an affluent hub of 220,000 people with a university, and has solicited businesses and European Union funds.Andreea Campeanu for The New York Times More

Shares in some Chinese metals companies rallied for a second session as investors bet that higher prices for gallium and germanium, which Beijing’s export restrictions target, could boost revenues.Germanium is used in high-speed computer chips, plastics, and in military applications such as night-vision devices as well as satellite imagery sensors. Gallium is used in building radars and radio communication devices, satellites and LEDs.China’s abrupt announcement of controls from Aug. 1 on exports of some gallium and germanium products, also used in electric vehicles (EVs) and fibre optic cables, has sent companies scrambling to secure supplies and bumped up prices.On Wednesday, former Vice Commerce Minister Wei Jianguo told the China Daily newspaper that countries should brace for more should they continue to pressure China, describing the controls as a “well-thought-out heavy punch” and “just a start”.”If restrictions targeting China’s high-technology sector continue then countermeasures will escalate,” added Wei, vice commerce minister 2003-2008 and now vice chairman of China Center for International Economic Exchanges, a state-backed think tank.Announced on the eve of U.S. Independence Day and just before Yellen visits Beijing from Thursday, analysts said the controls were clearly timed to send a message to the Biden administration, which has been targeting China’s chip sector and pushing allies such as Japan and the Netherlands to follow suit. China’s move has also raised concerns that restrictions on rare earth exports could follow, with analysts pointing to a curb on shipments imposed 12 years ago in a dispute with Japan.China is the world’s biggest producer of rare earths, a group of metals used in EVs and military equipment.Analysts have described Monday’s move as China’s second – and bigger – countermeasure in the long-running U.S.-China tech fight, coming after it banned some key domestic industries from purchasing from U.S. memory chipmaker Micron (NASDAQ:MU) in May. The Global Times state media tabloid, in a separate editorial published late on Tuesday, said it was a “practical way” of telling the United States and its allies that their efforts to stop China procuring more advanced technology was a “miscalculation”.The Chinese commerce ministry did not respond to a request for further comment. Asked about the metals export curbs, Chinese foreign ministry spokesman Wang Wenbin said on Wednesday the government’s actions were reasonable and lawful. He told a regular press briefing that some European Union states also curb exports of some related goods. “Our action is not targeted at any specific country,” Wang said.WARNING SHOTSome larger chip manufacturers view China’s export controls on gallium as more of a warning shot about what economic pain the country could inflict. Others have warned in the past that if China really wanted to hit global automakers where it hurts it could, for example, control exports of graphite.China produces 61% of global natural graphite and 98% of the final processed material to make EV battery anodes, according to Benchmark Mineral Intelligence.A source at a major western chip maker, who spoke on condition of anonymity, said China’s gallium move seems more like a “message that they can hit back rather than intending a real punch”.Democratic Republic of Congo state miner Gecamines said its new plant opening in September could help fill the gap in germanium production. Washington is considering new restrictions on the shipment of high-tech microchips to China, following a series of curbs over the past few years. The United States and the Netherlands are also expected to further restrict sales of chipmaking equipment to China, part of efforts to prevent their technology from being used by the Chinese military.A day after China unveiled the curbs, President Xi Jinping called on nations to spurn decoupling and avoid severing supply chains in a virtual address to leaders attending the Shanghai Cooperation Organisation summit, state media reported.Shares in Chinese metals companies such as Yunnan Lincang Xinyuan Germanium Industry Co and Yunnan Chihong Zinc & Germanium Co surged for a second session on Wednesday, with local media reporting that a rise in germanium prices would boost revenue growth for the firms.Gallium at 99.99% purity in China was trading at 1,775 yuan ($245) a kg on Tuesday, unchanged from the day before, but up 6% week-on-week and 4% year-on-year, respectively, Shanghai Metal Exchange Market data on Refinitiv Eikon showed. It was, however, 46% lower from the same period a year earlier.China’s germanium ingot was priced at 9,150 yuan per kg on Tuesday, also flat on the day and on the week, Refinitiv data showed. It was down 4% month-on-month and up 4.6% year-on-year, respectively. ($1 = 7.2447 Chinese yuan) More

MANCHESTER, England (Reuters) – Sick of customs delays and extra bureaucracy since Britain left the European Union, Farrat, a small manufacturer on the edge of Manchester, is ramping up investment to compensate – in Germany.The maker of anti-vibration parts for buildings and machinery is growing fast, almost doubling its headcount in the English city over the past five years, but it says Brexit is proving to be an obstacle.”We are now channelling a lot of investment in setting up production facilities in Germany to remove the trading friction,” said chief executive Oliver Farrell. “Brexit is materially restricting our growth now.”The company is far from alone, according to a dozen conversations Reuters has had with company bosses, business groups and politicians across England over the course of 2023.Economic data tell a similar story. German data show British firms opened 170 foreign direct investment projects in Europe’s biggest economy last year as companies sought a foothold in the bloc’s single market.That’s a far cry from the 50 enquiries from British firms – rather than projects committed – recorded by German Trade & Invest in 2015, the year before the Brexit referendum.Next door, the government in the Netherlands said over 300 “Brexit companies” – British firms it reckons are trying to sidestep trade friction – had moved operations there since 2016.Business investment within Britain in early 2023, meanwhile, stood about 1% above its level at the time of the June 2016 vote, a reading some economists put down to uncertainty over EU trade ties.Over the same period, business investment jumped 25% in France, 21% in the United States and rose 7% in Germany, according to data from the Organisation for Economic Co-operation and Development.Pro-Brexit economists say such data ignore the fact British corporate investment boomed in the years before mid-2016, and it was bound to slow. Business surveys, though, point to Brexit as a factor behind weak investment in recent years.LOST OPPORTUNITIESTales of lost opportunities due to Brexit are commonplace among business leaders in and around Manchester in England’s northwest, the city’s mayor Andy Burnham said.”Barely anyone has anything positive to say,” said Burnham, who is a member of the opposition Labour Party and wanted Britain to remain in the EU. “In most cases, it’s added a layer of complexity that they didn’t have before.”Burnham said, nevertheless, that the EU market remained massively important for Manchester, the third biggest city in Britain after London and Birmingham.About 61% of goods exports from Greater Manchester went to the EU in 2019, according to official estimates, compared with 42% of exports from London and the southeast of England.Burnham said Manchester had a successful track record in attracting international trade and investment but, like at Farrat, there was a feeling among local businesses that easier trade ties would have made that track record even better.While some firms in Manchester are investing in production facilities and offices in the EU to skirt trade disruption, others say they have no choice but to share new business with companies in a better position to work within the bloc. Creative Concern, an advertising and marketing agency, employs over 20 staff and for the last 20 years has built up a strong European business, capitalising on the status of English as a common language on the continentFounder and director Steve Connor said it was business-as-usual in the years immediately following the Brexit vote – until new trade terms with the EU came into force in January 2021.Now, Creative Concern finds it can no longer bid directly for projects involving the European Commission, even though some rivals from other non-EU countries can, and must share projects it used to bid for on its own with firms based in the EU.”Because our government, in its infinite wisdom have chosen to pursue a hard Brexit, we find ourselves more disadvantaged than other non-EU countries, which is rubbing salt in the wound,” Connor said.The British government says EU relations are progressing, pointing to a memorandum of understanding for financial services trade signed last month, described by finance minister Jeremy Hunt as a “turning point” in dialogue with the bloc. ‘PEOPLE ARE NERVOUS’Economists and business groups say the problem of trade friction with the EU has been compounded by a lack of long-term fiscal strategy in Britain, as repeated temporary tax breaks sit uneasily with the average seven-year investment cycle for manufacturers, according to trade body Make UK.British firms are also waiting to hear how – or even if – London intends to compete with the enormous green energy and tech subsidies pitched by the United States and EU.Britain’s government said it has an ambitious target to reach net zero emissions by 2050 and it believes free markets – rather than subsidies – are the best way to achieve that.At Farrat, the effects of Brexit are insidious, running beyond decisions over investments, said Farrell, describing a sense of unease felt towards British firms from potential foreign clients, worn down by years of political turmoil”People are nervous. We’re going to customers who are saying, ‘Great, this is good technical proposal – but hmmm, we’re going to have to get British guys on it’,” he said.This unease has already hurt 3P Innovation, another fast-growing manufacturer based 85 miles (137 km) south of Manchester in the midlands town of Warwick.It makes automation equipment used in the healthcare and food industries, machinery often paired with isolator units – housings for sterile production – built by specialist firms. Founder Dave Seaward said 3P missed out on an EU contract because the client deemed it too risky to send the isolator unit to Britain to pair with 3P’s machinery before coming back to the EU – because of the potential for customs checks and delays.”So that was a contract that we know we lost just because we’re no longer in the EU,” said Seaward, declining to identify the client in question.’LESS HASSLE’Seaward said easy access to the EU’s CE certification programme is key to 3P Innovations’s survival, as the safety, health and environmental requirements are demanded by EU clients, as well as U.S. and Japanese customers who want CE-certified equipment. He said there were fraught months while the company worked out how to access the CE programme outside the EU. In the end, it opened an office in the Netherlands.So far, there has also been little sign firms are bringing production back to Britain in the wake of Brexit, though some are considering it, according to research by UK in a Changing Europe, a think-tank, which looked at smaller manufacturers in the West Midlands.But, like with Farrat and 3P Innovation, it also found some companies had opened or expanded their operations in the EU.”EU customers … want less hassle. They don’t see the UK as a reliable supplier,” said Subrah Krishnan Harihara, head of research at the Greater Manchester Chambers of Commerce (GMCC).”The long-term impact of this is probably going to be that fewer businesses are keen on taking up the opportunities for international trade,” he said. More

(Reuters) – Federal Reserve meeting minutes from the June policy gathering to be released on Wednesday are likely to show an active debate among policymakers who still on balance appear inclined to support more action to tame inflation.The meeting minutes, due at 2 p.m. EDT (1800 GMT), will arrive after U.S. central bank officials have spent the last three weeks following the June Federal Open Market Committee meeting sketching out their policy outlooks. Key officials like Fed Chair Jerome Powell have pointed to forecasts released at that gathering indicating that a half percentage point’s more tightening this year was very much still in play. “The committee clearly believes that there’s more work to do, that there are more rate hikes that are likely to be appropriate” at some point over the course of the year, Powell said last Wednesday in an appearance with other central bank chiefs in Portugal. “Although policy is restrictive, it’s not, it may not be restrictive enough and it has not been restrictive for long enough,” which keeps alive prospects for more increases, Powell said.But some feel enough has been done. Atlanta Fed President Raphael Bostic said last Thursday that he believes no more rate increases are needed, noting “the data, survey results, and on-the-ground intelligence constitute a reasonable case that gradual disinflation will continue.” He added, “that will happen even if the Committee does not increase the federal funds rate.”The minutes will describe the deliberations that allowed the Fed, after just over a year of very aggressive rate rises, to maintain its overnight target rate at between 5% and 5.25%. It stood at near zero levels in March 2022 and has risen swiftly as Fed officials have sought to tame the worst levels of inflation in decades. The Fed held steady on June 14 in large part to take stock of the impact of the increases it has already implemented. Over recent days, some central bankers have noted that the effects of past tightening are still flowing into the economy. The meeting minutes will also add details about what officials and their staff expect for the economy, and some are watching the central bank staff’s view with particular interest. Fed economists have been warning of recession prospects for some time and have authored a series of recent papers that have sounded cautionary notes about parts of the economy and financial system. “The Fed staff look to be priming the Board to expect soft data,” said Tim Duy, chief U.S. economist at SGH Macro Advisors, which could tilt against the need for rate rises, if realized. More

ISLAMABAD (Reuters) – Prime Minister Shehbaz Sharif said on Wednesday that he hoped the $3 billion short-term bailout for Pakistan would be given final approval by the International Monetary Fund board when it meets on July 12.After eight months of negotiations, both sides signed a staff-level agreement on Friday, to avert a imminent default on sovereign debt. Finance Minister Ishaq Dar has said Pakistan will receive a first installment of $1.1 billion, but the IMF board’s approval is needed before funds can be disbursed.”The agreement will go through, God willing,” Sharif said during a ceremony in Islamabad.Sharif also thanked longtime allies China, Saudi Arabia and United Arab Emirates for their support while his government was in negotiations with the IMF. The allies had pledged bilateral financing or rolled over debts to help slow the drain on Pakistan’s foreign currency reserves, which by the end of last month were down to just a little below $4 billion, barely enough to pay for a month of controlled imports.Dar said on Friday that the IMF deal would unlock bilateral lending from friendly governments and other multilateral lenders, and Pakistan’s reserves could rise up to $15 billion by the end of this month.Pakistan is due to hold a general election by early October, though Sharif’s coalition government only came to power in April last year, after former prime minister Imran Khan lost a confidence vote in parliament.The government desperately needed the IMF bailout to avoid the deepening balance of payments crisis, while dealing with an economy suffering record high inflation, running at 38% annually in May.Sharif has had to take unpopular policy decisions demanded by the IMF since February. It has already announced an increase in the petroleum levy, and it will be raising electricity prices too. The government has also committed to raise more than 385 billion rupee ($1.34 billion) in new taxation, and in recent days the central bank raised the policy interest rate 22%. More

1. U.S. stock futures point lower after Independence Day holidayU.S. stock futures inched down on Wednesday as Wall Street prepared to reopen after the Fourth of July holiday and investors awaited the release of the minutes from the Federal Reserve’s June meeting (see below).At 05:20 ET (09:20 GMT), the Dow futures contract dropped by 99 points or 0.29%, S&P 500 futures shed 13 points or 0.31%, and Nasdaq 100 futures lost 70 points or 0.46%.Markets in the U.S. were shuttered on Tuesday and closed early on the prior day.In shortened trading on Monday, the main indices posted muted gains to kick off the second half of 2023, with the benchmark S&P 500 increasing by 0.12% and the broad-based Dow Jones Industrial Average rising by 0.03%. The tech-heavy Nasdaq Composite, which has performed strongly throughout the year thanks in part to a surge in interest in artificial intelligence, ticked higher by 0.21%.2. Fed minutes on the horizonThe Federal Reserve is set to publish the minutes from its June policy meeting Wednesday, with observers keen to learn more about why officials at the U.S. central bank decided to keep interest rates on hold last month.At their last gathering, the Federal Open Market Committee voted to keep borrowing costs steady at the existing target range of 5% to 5.25%. But policymakers signaled the possibility of two further rate hikes in 2023, including one at the Fed’s next meeting later this month.According to Investing.com’s Fed Rate Monitor Tool, the Fed is widely tipped to implement a quarter-point increase in July, which would bring the benchmark federal funds rate up to 5.25% to 5.5%.The minutes from last month’s meeting, as well as the upcoming release of the June jobs report on Friday, could factor into these expectations.Elsewhere, John Williams, president of the Federal Reserve Bank of New York, is scheduled to deliver remarks on Wednesday.3. Brent slips as broader economic concerns weighOil benchmark Brent retreated on Wednesday as renewed worries over a global economic slowdown dented market sentiment and overshadowed the news earlier this week of further supply cuts from two major exporters.By 05:20 ET, the Brent contract dipped by 0.54% to $75.84 a barrel, while U.S. crude futures traded 1.69% higher at $70.97 per barrel, having traded through the Fourth of July holiday without a settlement.Brent had climbed on Tuesday, lifted by announcements from Saudi Arabia and Russia that they planned to roll out more output reductions.However, concerns remain over how a renewal of Fed policy tightening could impact overall economic activity and, by extension, fuel demand.Much of the focus will subsequently center on the release of the Fed minutes later today, although traders will also be keeping an eye on U.S. crude and product inventory data from the American Petroleum Institute.4. China services activity slowsChina’s services sector expanded at a slower-than-expected pace in June, according to a private survey on Wednesday, raising more alarm bells over the post-pandemic recovery of the world’s second-biggest economy.The Caixin services purchasing managers’ index came in at 53.9 during the month, weaker than expectations of 56.2 and below May’s level of 57.1. It was the index’s second-worst reading this year.Despite the Dragon Boat festival holiday earlier in June, a revival in tourism has appeared to only give a limited boost to services demand. Government liquidity injections and interest rate cuts by the People’s Bank of China have also provided only subdued support to local business activity.When coupled with a recent series of weak economic data, the Caixin print adds to concerns over whether China will rebound from the COVID-19 era as strongly as markets are expecting.5. U.S. factory orders dueThe May reading for new orders for U.S.-made goods will also be released later on Wednesday, with recent data showing that the country’s manufacturing sector is being dragged down by a recent string of aggressive Fed interest rate hikes.U.S. factory orders are expected to increase by 0.8% during the month, up from the April mark of 0.4%.The manufacturing industry, which accounts for more than 11% of the economy, was boosted largely by defense spending in April.However, the Fed policy tightening, along with stricter lending conditions following the collapse of three U.S. banks earlier this year, have hit these businesses. Spending is also showing signs that it is shifting away from goods and into services. More