Economy

TOKYO (Reuters) -Japanese business sentiment improved in the second quarter as raw material costs peaked and the removal of pandemic curbs lifted factory output and consumption, a central bank survey showed, a sign the economy was on course for a steady recovery.Companies expect to increase capital expenditure and project inflation to stay above the Bank of Japan’s 2% target five years ahead, the quarterly “tankan” showed, offering policymakers hope that conditions for phasing out their massive monetary stimulus may be gradually falling into place.The headline index measuring big manufacturers’ mood stood at plus 5 in June, bouncing back from a two-year low of plus 1 hit in March in a sign firms were recovering from the hit from rising raw material costs and supply disruptions. The reading, which compared with a median market forecast for plus 3, was the highest since December 2022.The sentiment index for big non-manufacturers improved to plus 23 in June from plus 22 three months ago, increasing for the fifth straight quarter and hitting the highest level since June 2019, the survey showed on Monday.”The results turned out a bit stronger than expected, helped by recovery in automobiles and energy sectors. Strong capital expenditure also led to brighter sentiment among machinery makers,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute.”The tankan confirmed our view that Japan’s economy is on track for a moderate recovery.”Big manufacturers expect business conditions to improve three months ahead, while non-manufacturers project a deterioration, the survey showed.Large firms plan to ramp up capital expenditure by 13.4% in the current fiscal year ending in March 2024, exceeding the 3.2% increase projected in the March survey. The increase compared with a median market forecast for a 10.1% rise.The tankan also showed companies expect inflation to hit 2.6% a year from now, down from a 2.8% projection made in March.Inflation expectations stood at 2.2% in three years, down from 2.3% in March, and 2.1% five years from now, unchanged from the projection in March, the survey showed.Japan’s economy grew an annualised 2.7% in the first quarter and analysts expect it to continue expanding, as a post-pandemic pickup in domestic spending offset headwinds to exports from slowing global growth.BOJ Governor Kazuo Ueda has repeatedly stressed the need to keep monetary policy ultra-loose until inflation can sustainably hit the bank’s 2% target accompanied by solid wage growth. More

The final au Jibun Bank Japan manufacturing purchasing managers’ index was at 49.8, returning below the 50.0 threshold that separates growth from shrinkage, after May’s 50.6 reading.Output and new orders, the subindexes that constitute the majority of the headline index, fell back to contraction, ending a brief rebound buoyed by improved business confidence.”Weak demand for goods, especially semiconductors, alongside labour suitability issues weighed on sales and output volumes,” said Usamah Bhatti at S&P Global (NYSE:SPGI) Market Intelligence, which compiled the survey.New orders from overseas customers decreased at the fastest rate in four months, notably reflecting feeble demand from China, Japan’s biggest trade partner.The soft PMI reading came after Friday’s government data showed Japanese manufacturing output falling more than expected in May, dented by automakers’ parts shortage and production cuts.Thanks to flourishing service-sector activities and the ultra-loose monetary policy, Japan has managed to temper the impact of worsening global economic conditions, but slowing U.S., Chinese and European economies are hurting its export-reliant manufacturing sector. Meanwhile, suppliers’ delivery delays improved for a second month thanks to eased supply chain pressures, with the average lead times hitting the shortest since March 2016. The rise in input and output prices were the slowest in 28 months and 21 months, respectively. Some firms still noted rising labour costs as the cause of high input costs, the survey showed, after major companies lifted pay at the fasted pace in three decades to counter consumer inflation and respond to political calls.Looking a year ahead, manufacturers’ future output expectations were the strongest since October 2021, as they hope for a recovery in demand and an easing of disruptions seen in the semiconductor market. More

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen will travel to Beijing from July 6-9 for meetings with senior Chinese officials on a broad range of issues, including U.S. concerns about a new Chinese counterespionage law, a senior Treasury official said on Sunday.Yellen’s long-anticipated trip is part of a push by President Joe Biden to deepen communications between the world’s two largest economies, stabilize the relationship and minimize the risks of mistakes when disagreements arise, the official told reporters.It comes just weeks after Secretary of State Antony Blinken visited Beijing and agreed with Chinese President Xi Jinping to stabilize ties and ensure the two countries’ intense rivalry does not veer into conflict. China protested loudly when Biden subsequently referred to Xi as a “dictator,” but analysts say the remark had little impact on efforts to improve ties.The Treasury chief plans to tell China’s new economic team that Washington will continue to defend human rights and its own national security interests via targeted actions against China, but wants to work with Beijing on urgent challenges such as climate change and debt distress faced by many countries.”We seek a healthy economic relationship with China, one that fosters growth and innovation in both countries,” the official said. “We do not seek to decouple our economies. A full cessation of trade and investment would be destabilizing for both our countries and the global economy.”The official, speaking on condition of anonymity, declined to give details on which Chinese officials Yellen would meet in Beijing. A second administration official told Reuters that Yellen was expected to meet the Chinese Vice Premier He Lifeng.Yellen would underscore Washington’s determination to strengthen its own competitiveness while responding with allies to what Washington calls “economic coercion” and unfair economic practices by China, the first official said.One clear area of concern involved China’s new national security and espionage law, and the potential implications for foreign and U.S. firms, the official added. “We have concerns with the new measure, and how it might apply, that it could expand the scope of what is considered by the authorities in China to be espionage activity,” the official said, citing possible spillovers to the broader investment climate and the economic relationship.While no major “breakthroughs” were expected, Treasury officials hope to have constructive conversations and build longer-term channels of communication with China’s new economic team, including at the sub-cabinet level, the official said.U.S. officials would also reiterate concerns about human rights abuses against the Uyghur Muslim minority, China’s recent move to ban sales of Micron Technology (NASDAQ:MU) memory chips, and moves by China against foreign due diligence and consulting firms.Yellen would also talk with Chinese officials about a long-awaited U.S. executive action curbing outbound investment in China in certain critical sectors, and “make sure they don’t think something is more sweeping than it is or than it’s intended to be,” the official said. More

BENGALURU (Reuters) -The Reserve Bank of Australia will likely raise its interest rate by 25 basis points to 4.35% on Tuesday to tame stubbornly high inflation, although a Reuters poll of economists showed the decision to hike or hold was on a knife’s edge.While the latest monthly measure of consumer prices showed inflation slowed to 5.6% in May from 6.8% in April, it was still well above the RBA’s 2-3% target range, suggesting more tightening may be required.Since a surprise pause in April and consequent hikes in May and June, economists in Reuters polls have been mostly divided in recent months over the RBA’s next move.Indeed, the June 28-30 survey showed there was a near split among economists with 16 of 31 expecting the central bank to hike its official cash rate to 4.35% at the July 4 meeting. The remaining 15 predicted a pause. “While there is a higher risk of a pause in July … the strong employment growth in May and in previous months, as well as the lack of moderation in inflation, the balance is still such that the Bank is more likely to increase the cash rate in July than to pause,” said Adelaide Timbrell, senior economist at ANZ.”We don’t think a pause in July will reduce the total number of cash rate hikes the Reserve Bank needs to do. It will only mean the path to when we believe the peak cash rate will be at 4.60% will be slightly slower.” Among major local banks, ANZ, NAB and Westpac expected a hike on Tuesday while CBA predicted no move.Although economists were divided over the RBA’s move at the upcoming meeting, an overwhelming majority, 25 of 29, expected the central bank to hike once more in August to 4.60%.”We do think the current level of policy rates isn’t high enough given the data backdrop and the size of the disinflation task for the RBA,” said Taylor Nugent, economist at NAB.The prediction of a hike from the RBA was in line with other major global central banks who are expected to tighten policy more than previously expected as inflation remains sticky.[ECILT/GB][ECILT/US][ECILT/EU]Just over half of economists, 16 of 30, predicted rates to peak at 4.60% or higher by end-September. Of the remaining, 13 saw rates at 4.35% and one expected no change from 4.10%.That was 25 basis points higher than the peak expected in a poll taken after the June meeting. Median forecasts showed rates would remain at 4.60% until end-2023. When asked where core inflation will be in Australia by year-end, 11 of 16 said slightly lower. Of the remaining, four said significantly lower and one said around current levels. Inflation was forecast to average 5.7% and 3.2% this year and next, respectively. Australia’s economic growth was predicted to average 1.5% this year and 1.4% in 2024.(For other stories from the Reuters global long-term economic outlook polls package:) More

US Treasury secretary Janet Yellen will visit China this week, becoming the second Biden cabinet official to travel to Beijing as the two countries boost efforts to stabilise their turbulent relationship.Yellen will spend four days in Beijing for meetings with top Chinese officials and US business leaders, according to a senior Treasury official, who cautioned that the trip was unlikely to produce “significant breakthroughs”. Yellen is not expected to meet President Xi Jinping.Her visit comes just weeks after secretary of state Antony Blinken flew to China to resurrect efforts to set a “floor” under the relationship, which remains in its worst state since the countries established diplomatic ties in 1979.Yellen and Blinken are following on from an agreement reached between Joe Biden and Xi in Bali in November that was derailed after a suspected Chinese spy balloon flew over the US early this year.“Through this trip, we seek to deepen and increase the frequency of communication between our countries moving forward and to stabilise the relationship to avoid miscommunication and expand collaboration where we can,” said the official.The official added that Yellen planned to discuss the three pillars of the US-China economic relationship she outlined in a speech in April.Yellen said at the time that the US would secure its national security interests, including human rights, but was not using security tools to gain competitive economic advantage.She added that the US wanted a healthy economic relationship with China but would respond to its “unfair economic practices”, stressing that the US sought co-operation on global challenges such as debt relief and climate.Evan Medeiros, a former White House official and a China expert at Georgetown University, said Yellen’s trip was “simply the next step in an uncertain process”.“It’s good to do but hard to see how it moves the ball in the complex game of great power competition,” said Medeiros. “Given the militarised nature of the competition and the competing world views, it is hard to see how the visit moves the ball forward more than a few metres.”The US and China remain at odds over many issues. Washington is concerned about everything from Chinese military activity around Taiwan to anti-espionage and counter-sanctions laws that complicate US business operations in China. Beijing accuses the US of interfering in Taiwan, over which it claims sovereignty, and imposing sweeping export controls designed to make it harder to secure advanced chips.Asked about the anti-espionage law and a foreign relations law passed last week that gives Beijing more power to push back against western security-related actions, the official said Yellen would raise the issue.“We’re concerned about what kind of implications that would have potentially for all foreign firms or . . . US firms in particular,” the official said.

The US official said he would not be surprised if Yellen raised the situation surrounding Micron, the Idaho-based memory-chip maker which Beijing banned in May from supplying critical Chinese infrastructure operators. US experts viewed the move as retaliation for the export controls that Washington has used to target Chinese companies.In her April speech, Yellen also stressed that the US was not pursuing a policy of “decoupling” from China. Speaking one week later, national security adviser Jake Sullivan repeated that line and explained that the US was engaging in “de-risking,” employing a phrase coined by European Commission president Ursula von der Leyen.At a World Economic Forum event in Tianjin this week, Chinese premier Li Qiang criticised the rhetoric from the US and its allies about de-risking, saying they were engaging in the “politicisation of economic issues”. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.Asia gets the new quarter underway with a sense of optimism and momentum buoying world markets on the back of surprisingly strong U.S. economic data and a growing belief that risky assets can withstand ‘higher for longer’ global interest rates.If that can be sustained, Asia potentially has substantial upside relative to other regions – Japan aside, Asian stocks massively underperformed in the first half of the year, and Chinese equities even declined.World stocks rose almost 13%, Japan’s Nikkei surged 27% – reaching fresh 33-year peaks in the process – but MSCI’s Asia ex-Japan index rose only 1.65% in dollar terms. Blue chip Chinese stocks slipped 0.75%.Trading volume on Monday may be light due to the July Fourth U.S. holiday, but Friday’s rally on Wall Street should boost risk appetite as investors brace for a deluge of top-tier regional economic data and a couple of policy decisions this week.Purchasing managers index (PMI) reports on Monday from across the Asia-Pacific region, including China, India, South Korea and Australia, will give the first glimpse into private sector services and factory activity in June.Consumer price inflation figures from South Korea, Indonesia, Thailand, the Philippines and Taiwan will show how inflation ebbed and flowed across the continent last month, while the central banks of Australia and Malaysia will deliver their latest interest rate decisions.Monday’s Asian economic calendar is dominated by a raft of manufacturing PMIs including China’s, Indonesian inflation, Japan’s ‘tankan’ business sentiment survey for the second quarter, and Australian housing.China’s Caixin manufacturing PMI is expected to fall to 50.2 from 50.9, signaling a slowdown in factory sector growth almost the point of stagnation. The official PMI, expected to show a third month of contraction, will be released on Friday.China’s economic performance since lifting COVID-19 restrictions has been hugely underwhelming, putting the country’s stocks, bonds and currency under heavy downward pressure. China’s economic surprises index has collapsed and is now deeply in negative territory.Investors will be alert to signs of FX intervention from Chinese authorities to slow the yuan’s decline. The central bank last week surveyed some foreign banks about the interest rates they offer to their clients for dollar deposits, even guiding one commercial lender to lower such rates, sources said.They will also be wary of warnings from Japanese authorities that the yen’s slide is unwarranted. The yen shed nearly 10% of its value against the dollar in the first half of the year.Equity investors, meanwhile, will also be digesting Tesla (NASDAQ:TSLA) Inc’s announcement on Sunday that it delivered a record 466,000 vehicles in the second quarter, topping market estimates of around 445,000. Sales in China are expected to reach record levels too.Shipments beat forecasts but only thanks to hefty discounts and incentives. Underlying demand may be much weaker.Here are key developments that could provide more direction to markets on Monday:- China, India, South Korea manufacturing PMIs (June)- Indonesia CPI inflation (June)- Japan ‘tankan’ business survey (Q2) (By Jamie McGeever; Editing by Josie Kao) More

Good morning. Today’s scoop is on a “diplomatic note” sent by China to developing nations urging them to oppose a tax on shipping emissions and stronger targets for decarbonising one of the world’s most polluting industries. Beijing distributed the note to developing countries as they prepared for a critical meeting at the UN’s International Maritime Organization in July, according to four people present at IMO discussions. The lobbying effort comes days after France rallied 22 allies behind a shipping emissions levy.China warned that “an overly ambitious emission reduction target will seriously impede the sustainable development of international shipping, significantly increase the cost of the supply chain and will adversely impede the recovery of the global economy”, according to a document seen by the Financial Times.The note also criticised wealthy nations for setting “unrealistic” goals with “significant” financial costs. It said a shipping emissions tax was “a disguised way by developed countries to improve their own market competitiveness”. Wealthy nations have not agreed a price for the emissions levy.The efforts by China, the world’s biggest exporter which also has a large state-owned shipping industry, have deepened concerns over a lack of progress on decarbonising a fuel-intensive sector that delivers up to 90 per cent of traded goods globally, according to the OECD.By the end of next week the IMO has committed to strengthening its ambition, which has long been criticised by environmental campaigners as weak, to halve annual shipping emissions from their 2008 levels by 2050. Here’s what else I’m keeping tabs on today:Chinese manufacturing data: The Caixin Manufacturing purchasing managers’ index (PMI) is expected to come in at exactly 50 according to a Bloomberg poll of economists, straddling the PMI threshold between expansion and contraction. Other large economies, including the G7 nations, will also release PMI figures. Canada: Financial markets are closed to mark Canada Day.Sport: Wimbledon, the British grand slam tennis tournament, begins in London.Five more top stories1. President Emmanuel Macron and his top ministers are to meet to respond to the unrest that has shaken France after a fifth night of looting and rioting sparked by the fatal police shooting of a teenager. Paris authorities are set to deploy 7,000 extra police officers in the capital after the home of the mayor of the suburb L’Haÿ-les-Roses was attacked on Saturday night. Read more about Macron’s response to the crisis. Reopening old wounds: Residents of the banlieues say the 17-year-old’s death showed that little had changed since the serious disturbances of 2005. 2. China has tapped western-trained banker Pan Gongsheng to lead the country’s central bank, a move that is expected to provide some market certainty as Xi Jinping overhauls oversight of the financial sector. Pan, who has a reputation as a financial risk firefighter, will replace Guo Shuqing in the role of Communist party chief at the People’s Bank of China. 3. Tesla delivered a record number of vehicles in the second quarter, beating expectations and demonstrating the value of price cuts earlier this year. The electric vehicle maker cut prices of its cars to help boost demand, with chief executive Elon Musk saying affordability was the problem. Here are more details on Tesla’s second-quarter results. Related: Elon Musk sparked a backlash from Twitter users after he said the social media platform that he bought for $44bn in December was putting temporary limits on the number of posts they can view.4. The world’s largest active bond fund manager says markets are too optimistic about central banks’ ability to dodge a recession as they battle inflation in the US and Europe. Daniel Ivascyn, chief investment officer at Pimco, which manages $1.8tn of assets, said the market is “too confident in the quality of central bank decisions.” Read the full interview with Ivascyn. 5. Scott Bok, the chair and chief executive of Greenhill & Co, is set to collect as much as $78mn in payouts as a result of the boutique bank’s $550mn sale to Japan’s Mizuho Financial Group. A securities filing published on Friday revealed the Japanese bank agreed to pay more than double Greenhill’s stock price in the deal announced in May. The Big Read

Critics of Belarusian president Alexander Lukashenko accuse him of being a Putin puppet, and aspects of the economy, such as agricultural machinery, have grown more linked to Russia © FT montage/AFP/Getty Images/Bloomberg/AP/Sputnik

During his three decades in power, Belarus president Alexander Lukashenko has argued that he can be loyal to Moscow while also safeguarding his country’s sovereignty. But that claim has come to appear increasingly thin, especially to his critics, who accuse him of being a puppet of Russian president Vladimir Putin. Western sanctions have left Belarus even more reliant on Russia’s economy and the risk of outright dependency now hangs over the economy. We’re also reading . . . EU economic security: It will be easier to de-risk relations with China if Europeans can build a strong domestic market, writes Martin Sandbu. Ikea’s transformation: The furniture group’s CEO Jesper Brodin invested in online business and tested smaller stores as rivals such as Amazon and Alibaba circled. A ‘postgenerational’ society: Today’s generational labels are flawed and divisive, writes Pilita Clark, but thankfully more and more of us have stopped acting our age.Chart of the dayApple’s market valuation closed above $3tn for the first time as its shares hit a record high on Friday and the wider technology sector rallied. Shares in the company rose 2.3 per cent to $193.97 on the final trading session for June, while the tech-focused Nasdaq Composite index gained 1.4 per cent to notch for its best start to a calendar year since 1983.Take a break from the newsRepublican presidential candidate Chris Christie sits down with Edward Luce for Lunch with the FT to discuss his mission to stop Donald Trump returning to power. “Trump wants to be Putin in America,” Christie said. “That’s what he really wants. He wants to be a dictator.”

© James Ferguson

Additional contributions by Gordon Smith and Grace Ramos More

The NewsThousands of hotel workers in Southern California walked off the job on Sunday demanding higher pay and better benefits, just as hordes of tourists descended on the region for the Fourth of July holiday.“Workers have been pent up and frustrated and angry about what’s happened during the pandemic combined with the inability to pay their rent and stay in Los Angeles,” said Kurt Petersen, co-president of Unite Here Local 11, the union representing the workers. “So people feel liberated, it’s Fourth of July, freedom is reigning in Los Angeles and hotel workers are leading that fight.”Representatives for the hotels have said that the union had not been bargaining in good faith, and that leaders were determined to disrupt operations.“The hotels want to continue to provide strong wages, affordable quality family health care and a pension,” Keith Grossman, a spokesman for the coordinated bargaining group consisting of more than 40 Los Angeles and Orange County hotels, said in a statement.The strike is part of a wave of recent labor actions in the nation’s second-largest metropolis, where high costs of living have made it difficult for many workers — from housekeepers to Hollywood writers — to stay afloat.Thousands of hotel workers in Southern California walked off the job, demanding higher pay and better benefits.Philip Cheung for The New York TimesWhy It MattersWorkers across Southern California in a range of industries have threatened to strike or walked off the job in recent months, displaying unusual levels of solidarity with other unions as they push for higher pay and better working conditions.Dockworkers disrupted operations for weeks at the colossal ports of Los Angeles and Long Beach until they reached a tentative deal in June. And screenwriters have been picketing outside the gates of Hollywood studios for about two months.Hugo Soto-Martinez, a Los Angeles City Council member who worked as an organizer for Unite Here Local 11, said that the breadth of industries locked in labor fights demonstrated frustration especially among younger workers, who have seen inequality widen and opportunities evaporate.“It’s homelessness, it’s the cost of housing,” he said. “I think people are understanding those issues in a much more palpable way.”The hotel workers’ strike comes just as the summer tourism season ramps up, and labor leaders say they are hoping to capitalize on that momentum.Last year, tourism in the city reached its highest levels since the coronavirus pandemic, according to the Los Angeles Tourism and Convention Board. Roughly 46 million people visited, and there was $34.5 billion in total business sales in 2022, reaching 91 percent of the record set in 2019.But for many workers like Diana Rios-Sanchez, who works as a housekeeping supervisor at the InterContinental Los Angeles Downtown, the pay has not helped to keep up with inflation.She often wonders how long she and her three children, who live in a one-bedroom apartment in El Sereno, a neighborhood on the Eastside of Los Angeles, can afford to stay in the city.“All we do in hotels is work and work and get by with very little,” Ms. Rios-Sanchez said. “We take care of the tourists, but no one takes care of us.”Business groups say that simply demanding that employers pay workers more does not address the much-deeper problems that have led to sky-high costs of living in California.BackgroundThe union has been negotiating since April for a new contract. In June, members approved a strike.The group has asked that hourly wages, now $20 and $25 for housekeepers, immediately increase by $5, followed by $3 bumps in each subsequent year of a three-year contract.By contrast, Mr. Grossman said in the statement that the hotels had offered to increase pay for housekeepers currently making $25 an hour in Beverly Hills and downtown Los Angeles to more than $31 per hour by January 2027.On Thursday, the Westin Bonaventure Hotel & Suites, a large hotel in downtown Los Angeles, announced that it had staved off a walkout of its workers with a contract deal.Agreements made this year will set pay levels ahead of the 2026 World Cup and 2028 Olympics, which are expected to be enormous tourist draws to the region.What’s NextMr. Petersen said on Sunday that the strike would go on for “multiple days.” The Hotel Association of Los Angeles had said in a statement that the hotels would be able to continue serving visitors.Anna Betts More