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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The European Central Bank is set to scrap its focus on using the latest economic data to determine whether to cut interest rates, sounding the knell for one of the core strategies deployed by the Eurozone’s rate-setters to bring under control the worst bout of inflation in a generation. Philip Lane, the ECB’s chief economist, told the Financial Times’ The Economics Show with Soumaya Keynes that monetary policy decisions at some point in the future needed “to be driven by upcoming risks rather than being backward-looking” once the central bank was sure inflation was in line to hit its medium-term goal of 2 per cent. Before the post-pandemic surge in inflation, the ECB and other major central banks put a lot of weight on their forecasts for where inflation would be two years from now when deciding interest rates. But their inability to spot that price rises in energy markets — sparked by supply chain snags and the impact of the war in Ukraine — would stick around left rate-setters struggling to maintain their credibility. Their encounter with the first bout of persistently high inflation for decades led central bankers in Frankfurt and elsewhere to focus less on their forecasts and more on monthly inflation and survey data, along with quarterly GDP figures. While inflation in the Eurozone has fallen sharply from a peak of 10.6 per cent in October 2022 to 2.3 per cent as of November, short-term data continues to carry more weight than the central bank’s projections of where inflation will be two or three years from now. Lane stressed in the podcast that while inflation had fallen close to the ECB’s target of 2 per cent, “there is a little bit of distance to go”. Services inflation needed to come down further, he said. After the podcast was recorded, Eurostat reported that annual services inflation came down to 3.9 per cent and was slightly softer than predicted. “Once . . . the disinflation process [is] completed, then I think monetary policy needs to be essentially forward-looking, and to be scanning the horizon for what are the new shocks that might lead to less or more inflation pressure,” Lane said. As the ECB expects to hit its 2 per cent goal over the course of 2025, this implies that next year could be the point when the central bank could revert to its pre-2022 mode. “At some point, we will make the transition from having been driven by [the] very important disinflation challenge to the new challenge of keeping inflation [at] 2 per cent on a sustainable basis.” He declined to comment on exactly when this point would be, but said that over the course of next year, “there’s going to be a transition to a more sustainable neighbourhood of 2 per cent”.Some analysts hope that the ECB will start to change its wording about its future stance at its next policy meeting on December 12, when it is widely expected to lower its key deposit rate by another quarter-percentage point to 3 per cent — a level generally still considered as restrictive.Lane implied that the ECB might not completely dump its focus on the short-term data. While the “data dependence falls down in priority”, the new challenge would be “assessing the incoming risks” on a “meeting by meeting basis”, he said.The governor of the Bank of Italy, Fabio Panetta, in November called for an end of the meeting-by-meeting data-driven approach, urging the ECB to commit to future interest rate cuts in advance to avoid falling back into an era of subpar inflation. More

Data from the Australian Bureau of Statistics (ABS) on Monday showed retail sales firmed 0.6% in October from September, when they rose a meagre 0.1%. Analysts had looked for a gain of 0.4% in October. Sales were up 3.4% on a year earlier at A$36.7 billion ($23.9 billion), with the ABS noting some retailers had taken to discounting early ahead of the November Black Friday events.”After a steady result last month retailers told us that sales activity grew in October ahead of the Black Friday sales,” said Robert Ewing, head of business statistics at the ABS. “The rise in discretionary spending was driven by online discounting events while people also spent more on electrical goods, particularly televisions and other audio-visual equipment.” The outlook for sales has been helped in part by a slowdown in inflation and the large cuts to income taxes. Consumer sentiment jumped for a second straight month in November and reached a 2-1/2-year high.The Reserve Bank of Australia (RBA) had expected household spending to rebound this year given the billions in tax cuts delivered from July. It has kept interest rates at 4.35% for an entire year now.Markets imply almost no chance of a cut in the 4.35% cash rate at the RBA’s next meeting on Dec. 10, and only a 24% chance of a move in February. A rate cut is not fully priced in until May next year, in part due to the remarkable resilience of Australia’s labour market. ($1 = 1.5387 Australian dollars) More

BENGALURU (Reuters) – The Bank of Korea will take a pass in January but cut interest rates by a quarter-point in February following an unexpected reduction on Thursday to support a weakening economy, according to economists in a Reuters snap poll.To boost activity in Asia’s fourth-largest economy, which narrowly avoided a recession last quarter, the BOK cut rates for a second meeting in a row on Nov. 28 – the first back-to-back reductions since early 2009. Inflation has largely stayed under control.However, BOK Governor Rhee Chang-yong said the future remains uncertain given President-elect Donald Trump’s plans to hike tariffs. The U.S. is one of South Korea’s largest export destinations.A strong majority of economists, 16 of 22 in a snap poll conducted Nov. 28-29, forecast the BOK would cut its base rate by 25 basis points to 2.75% in February.The other six predicted the next quarter-point cut would come in January.”We now expect one more cut as early as February 2025 and a faster recalibration of policy stance to neutral … while acknowledging uncertainties related to U.S. trade policy – the timing of the tariffs, their coverage, and their magnitude – could alter the path,” Bum Ki Son, economist at Barclays (LON:BARC), said.He was one of the few economists to correctly predict the surprise November cut.”With the BOK’s concern on growth also becoming structural, given intensified competition and China’s aggressive investment, we believe the speed of policy normalisation to neutral could be faster than we expected,” Bum Ki Son added.Median forecasts indicated a cumulative 75 basis-point cut next year, bringing the policy rate to 2.25% by end-September, compared with 2.50% expected in a poll taken before Thursday’s central bank meeting.But there was no clear consensus on the rate at end-September, with 11 of 22 economists forecasting 2.25%, 10 saying 2.50% and one 2.00%.”The tone of the statement and Governor Rhee’s press conference makes clear that further easing is on the way and that supporting economic growth was now the central bank’s main priority,” Gareth Leather, senior Asia economist at Capital Economics, said.”We expect growth to struggle over the coming year. Although exports should continue to perform strongly, this is likely to be offset by further weakness in the labour market and the continued struggles of the property sector.”The BOK downgraded its forecast for economic growth in 2025 to 1.9%, weaker than the previous forecast of 2.1%.(Other stories from the November Reuters global economic poll) More

TOKYO (Reuters) – Japanese corporate spending on plant and equipment rose 8.1% year-on-year in the third quarter, Ministry of Finance data showed on Monday, signalling that solid domestic demand was underpinning the country’s fragile economic recovery.The solid expenditure data, which will be used to calculate revised gross domestic product figures due on Dec. 9, could support the case for the central bank to raise interest rates further.Preliminary data last month showed Japan’s economy expanded by an annualised 0.9% in the third quarter, slowing from the previous three months. The third-quarter capital spending figures compared with the previous quarter’s 7.4% gain. It grew 1.7% on a seasonally adjusted quarterly basis.Monday’s capex data also showed corporate sales rose 2.6% in the third quarter from a year earlier, while recurring profits decreased 3.3%.Capital expenditure is one of the key gauges of domestic demand-led economic growth.Business spending remained generally solid in recent years due to strong appetite for investment in information technology. However, an unstable political situation at home and further weakness in China’s economy could lead Japanese firms to postpone capital investment decisions, economists said.Moreover, U.S. President-elect Donald Trump has pledged tariffs on the nation’s three largest trading partners – Canada, Mexico and China, potentially affecting global supply chains in a wide range of industries. More

The plans, which have not been previously reported, will make autonomous-driving developer Momenta the first Chinese supplier picked by Mercedes to be a primary provider of a key technology and selling point for its products, as intense competition and technological innovation in China force Western automakers to rethink their supply-chain strategies.  The German premium automaker has since 2017 had an investment in Momenta but the two companies have yet to publicly announce jointly developed products.In the years since, the Chinese firm has emerged as one of China’s leading suppliers of advanced driving assisted system (ADAS) features similar to Tesla (NASDAQ:TSLA)’s full self driving that can navigate urban traffic with human drivers’ supervision. Mercedes intends to make a fresh $75-million investment in Momenta and may invest more as a cornerstone investor in Momenta’s initial public offering scheduled in the first quarter of 2025, the sources said. It has chosen Momenta as its ADAS supplier in four models to be launched in China from 2025 to 2027 and is discussing internally whether to use Momenta software in more Chinese models beyond 2027, one of the people said.  It is also working with Momenta on preliminary plans to use the Chinese supplier’s technology in Mercedes models outside China, two of the people said.Mercedes and Momenta declined to comment.  Mercedes has also been exploring ADAS options with U.S. artificial-intelligence chipmaker Nvidia (NASDAQ:NVDA) as part of a partnership announced in 2020, when they said they would develop Mercedes-Benz (OTC:MBGAF) vehicles with upgradable automated-driving functions. However, the firms have yet to unveil any products. BEHIND IN CHINAMercedes is playing catch-up in China on both electric vehicles and smart-driving software, which is led by Tesla, Nio (NYSE:NIO) and Xiaomi (OTC:XIACF). Only 3% of Mercedes’ 443,764 cars sold in China this year were EVs, according to the China Association of Automobile Manufacturers, fewer than one-tenth of Nio’s sales.Automakers in China are locked in an autonomous-driving race, with BYD (SZ:002594) hiring thousands of engineers to ramp up its in-house development of such software. Nio, Xpeng (NYSE:XPEV) and Xiaomi are developing their own ADAS chips that could achieve better smart-driving performance with their EVs. The trend has also helped Chinese ADAS suppliers Momenta, Huawei and DeepRoute.ai quickly amass automaker clients and embed several vehicle models within their systems.  Momenta’s clients include BYD, SAIC and Audi in China. Momenta’s largest automaker investor is China’s SAIC while other backers include General Motors (NYSE:GM) and Toyota (NYSE:TM).  More

(Reuters) – A look at the day ahead in Asian markets. The global market spotlight on Monday looks set to zoom in on the dollar, especially its performance against emerging market currencies, after U.S. President-elect Donald Trump’s weekend warning against the so-called ‘BRICS’ nations.In a social media post on Saturday, Trump demanded that the ‘BRICS’ countries – Brazil, Russia, India, China and South Africa – commit to not creating a new currency or supporting another currency that would replace the U.S. dollar, or face 100% tariffs.This comes after Trump had already injected additional volatility into world currency markets last week by proposing big tariffs against China, Mexico, and Canada – countries the US has some of its largest trade deficits with. The dollar’s path on Monday will be fascinating to observe. It snapped an eight-week winning streak last week with its steepest weekly fall since mid-August, as U.S. rate cut expectations cooled and Treasury yields fell.But much of the dollar’s downward momentum last week was down to its weakness against the euro and yen. It has been much firmer against other G10 currencies – not least the Canadian dollar – and especially emerging and Asian currencies.Sentiment toward emerging markets as the final month of the year begins is still mostly downbeat. Outflows from EM bond funds remain heavy, and according to analysts at Barclays (LON:BARC) EM hard-currency bond funds last week registered their second-largest outflow so far this year.But there are more encouraging signs from China that the raft of stimulus and support measures from Beijing in recent months may be beginning to bear fruit. A private survey on Sunday showed that new home prices in China rose at a year-on-year rate of 2.40% in November versus 2.08% in October. And on Saturday, China’s official purchasing managers index data showed that factory activity expanded modestly for a second straight month in November, and at its fastest pace in seven months. Is there light at the end of the tunnel for China’s domestic economy? With Trump ramping up the trade threats ahead of his inauguration next month, policymakers in Beijing and China bulls will certainly be hoping so.Asia’s economic calendar on Monday sees the release of a raft of manufacturing PMI reports, including China’s ‘unofficial’ Caixin manufacturing PMI data for November. Will that reinforce the modestly encouraging signals from the ‘official’ figures over the weekend? Economists polled by Reuters expect a reading of 50.5, up from 50.3 in October, which would mark the fastest pace of expansion since June. Other regional highlights on Monday include the latest Australian retail sales data and inflation figures from Indonesia. According to a Reuters poll, consumer prices rose at an annual rate of 1.50% in November, cooling from 1.71% the previous month. That would be the lowest rate of annual inflation since June 2021.Here are key developments that could provide more direction to markets on Monday:- China Caixin manufacturing PMI (November)- Australia retail sales (November)- Indonesia inflation (November) More