Economy

From a property crisis to strict Covid controls to its lowest growth target in three decades, the Chinese economy is facing many problems. But inflation is not among them.Data released last week showed that consumer prices added 2.1 per cent year on year in October — the kind of moderated gain that western policymakers can only dream of. Producer prices, a measure of prices for goods as they leave factory gates, entered negative territory for the first time since 2020.There are caveats. Producer prices fell against a high base last year, China’s National Bureau of Statistics noted, with prices in the metals and coal mining industry falling significantly. But without food and energy, core inflation was 0.6 per cent: consumer prices heavily rely on pork, which makes up a tenth of the basket and whose price rose 52 per cent in October after swine fever-related decimations of herds.While other big economies have been struggling to tame inflation during the pandemic, China, where Covid-19 still dominates a languid economy and authorities continue to enforce lockdowns and mass testing, is grappling with the threat of deflation. As well as encouraging consumers to delay purchases in the hope of prices falling further, deflation is a problem for borrowers because it increases the real value of their debts, making them harder to repay compared with present-day incomes.“Deflation is worse than inflation in China for sure because it drives up the cost of borrowing for both consumers and corporates,” said Dan Wang, chief China economist at Hang Seng Bank China. Debts for corporates and local governments were still the country’s “highest financial risks”, she added.The risk of high debt in China is encapsulated in its property crisis, which has in the past year seen waves of defaults across highly leveraged real estate developers and a fall in transactions. Deflation stood to increase pressure on households’ mortgage payments, Wang added, and a slower property market was indirectly putting “downward pressure” on consumption.“If people don’t buy an apartment, there will be pretty much no durable goods consumption.”The future of inflation in China is bound up with its zero-Covid policies. Although cases this week reached a six-month high, the government’s approach has for now meant that only a tiny fraction of the population has been infected almost three years after it emerged. The government slightly eased rules for inbound quarantine and contact tracing last week, but the timeline for any reopening remains uncertain.Erin Xin, an economist for greater China at HSBC, notes that the government has been “fine tuning” its Covid policies and that a potential “gradual consumption recovery” could help with the demand side of inflation.One of the few signs of inflation in China is food prices in big cities, which Wang suggests may be a result of the higher cost of transporting food between provinces, given strict travel restrictions under zero-Covid. Otherwise, she notes household savings have been rising rapidly this year. This has a faint echo of what happened in western economies, which in 2020 also grappled with the threat of deflation and saw higher savings, before prices began to rise sharply in 2021.In China, the government has over the past year sought to gently ease monetary policy rather than unleashing vast stimulus of the kind seen in the US and Europe. But Beijing may be forced to provide such stimulus to its local governments, which shoulder many of the costs for zero-Covid and can no longer rely on land sales to developers.A rapid reopening in China combined with a shift in the government’s approach to stimulus could swing the pendulum on inflation, with profound implications for the world given the country’s demand for energy and its production of goods.But for now, this is not a central scenario. China, under its Covid policy framework, is edging closer to deflation. For the rest of the world, this might provide an unexpected source of relief. More

TOKYO (Reuters) -Japan’s economy unexpectedly shrank in the third quarter, the first contraction in a year as cooling global growth and higher import costs took a toll on household consumption and business activity.Soaring global inflation and recession risks as well as a weak Japanese yen and sweeping interest rate increases worldwide have undermined the post-COVID recovery in the world’s third-biggest economy.Gross domestic product fell an annualised 1.2% in July-September, official data showed, compared with economists’ median estimate for a 1.1% expansion and a revised 4.6% rise in the second quarter.It translated into a quarterly decline of 0.3%, versus a forecast 0.3% growth.On top of the pressures from slowing global growth and the Ukraine war, Japan has been dealing with the challenge of the yen’s slide to 32-year lows against the dollar, which has magnified cost-of-living strains by further lifting the price of everything from fuel to food items.Prime Minister Fumio Kishida’s government is stepping up support for households to try to ease the effects of cost-push inflation, with 29 trillion yen ($196 billion) in extra spending in the budget. Private consumption, which makes up more than half of the Japanese economy grew 0.3%, against a consensus estimate for 0.2% growth and slowing sharply from the previous period’s 1.2% gain.Exports grew by 1.9% but were overwhelmed by hefty gains in imports, meaning external demand subtracted 0.7 percentage points from GDP. More

WASHINGTON (Reuters) – Ukraine has made a new appeal for the United States to supply it with powerful drones and anti-drone missiles, hoping Washington will reverse its previous rejection as Russia increasingly turns to kamikaze drones and attacks civilian infrastructure.With Moscow’s invasion in its ninth month, Ukrainian Defense Minister Oleksii Reznikov in a Nov. 2 letter requested four MQ-1C Gray Eagle unmanned aerial systems or drones, and in a separate document, asked for the first time for a counter-drone missile, according to a document seen by Reuters and people familiar with the request said. The drones, which cost about $10 million each, and the counter-drone AGM-114L or LONGBOW would bolster Ukraine’s civilian air defenses and help counter Russia’s growing use of Iranian-made kamikaze drones far from the front lines. The United States rejected Kyiv’s prior request for the drones, concerned they could be shot down, were not essential to Ukraine’s war effort and could escalate the conflict. But Ukraine is hoping that its latest pitch will change minds in Washington since it was coupled with the LONGBOW request and explicitly aimed at protecting civilians and infrastructure. As its forces were pushed back by Ukrainian troops in some areas, Russia ramped up attacks last month on civilian infrastructure such as the power grid and water systems, causing outages. Kyiv has said that the attacks destroyed more than a third of its energy infrastructure.Moscow has acknowledged targeting energy infrastructure but denies targeting civilians.The United States has extended about $17.9 billion of military aid to Ukraine since Russia launched what it calls a “special military operation” on Feb. 24. Lieutenant Colonel Garron Garn, a Pentagon spokesman, declined to comment on specific Ukrainian requests. “Our support focuses on equipment that is relevant for the current fight,” Garn said in a statement.TECHNOLOGY ADVANCE In the letter, Reznikov acknowledged the transfer of the MQ-1C Gray Eagle, made by General Atomics, was “complicated”, but said the large unmanned aerial system would frustrate Russia’s ability to strike deep into Ukrainian territory and potentially deny Russia the ability to attack from Belarus.If paired with a counter-drone Hellfire missile variant, the Gray Eagles could patrol civilian air space far from front-line areas defended by Russian anti-air systems and possibly avoid antagonizing Moscow, people familiar with the request said. Strikes behind the front lines pose a big challenge for current air defense systems, Reznikov added in his letter.Kyiv has so far relied on a mix of Soviet-era technology and weapons sent by Western allies, but does not have an integrated system of air defenses to coordinate shootdowns across platforms, leaving civilian infrastructure vulnerable.In the early days of the invasion, Ukraine requested the MQ-1C Gray Eagle system to employ Hellfire missiles to shoot down Russian planes and cruise missiles.But the Pentagon rejected the plan earlier this autumn, sources said, as U.S. officials worried the Russians might capture the drone and steal the technology. Defense officials briefed lawmakers privately about that decision last week, making similar arguments and stressing that Russia could view the drones as a provocation, according to people familiar with the matter.The Gray Eagle, the Army’s version of the more widely known Predator drone, has an operational ceiling of 25,000 feet and would represent a great technological leap forward for Ukraine.It can fly up to 30 or more hours, gather huge amounts of intelligence data and carry up to eight powerful Hellfire missiles. More

Minutes of the Nov. 1 policy meeting out on Tuesday showed the Reserve Bank of Australia’s (RBA) Board again considered hiking either by 25 basis points or 50 bps to return inflation to its 2-3% target range, but the arguments for a smaller hike prevailed.The RBA Board noted rates had already risen by 275 basis points since May to a nine-year high of 2.85% and much of that had yet to feed through into mortgage payments. While consumption had held up so far, the tightening has hit housing prices, which according to previous experience would likely have a large effect in consumer spending, according to the bank. Other arguments for a smaller hike include still soft wage growth, some easing in global supply chain issues, a decline in commodity prices and the impact from synchronised global tightening reducing inflationary pressures over the period ahead.”The Board agreed that acting consistently would support confidence in the montary policy framework among financial market participants and the community more broadly,” the minutes showed. However, the Board, determined to return inflation to its target, did not rule out a return to larger increases if the situation warranted, and conversely, it is prepared to keep rates unchanged for a period while accessing the state of the economy if needed. “Interest rates are not on a pre-set path,” the minutes showed. The central bank is mindful that a risk to inflation outlook was the possibility that price- and wage-setting behaviour would shift, with wage growth likely picking up further as unemployment rates hovered around the lowest level in nearly 50 years. Australia will report its wage growth figures for the third quarter on Wednesday, with analysts expecting wages likely rose by 3% from a year ago, up from 2.6% in the previous quarter, due to an increase in minimum wage.Markets are learning towards a further quarter-point hike at the next policy meeting on December, but imply an around 25% chance the RBA might hold steady. Rates are seen peaking around 3.7% by July next year. The Board also expects to increase interest rates further over the period ahead in its effort to establish a more sustainable balance of demand and supply in the Australian economy. RBA Deputy Governor Michele Bullock said on Thursday it might be getting nearer to the point when it might be able to “sit and wait” on raising interest rates, but more evidence was needed that demand was slowing as desired. More

In a report published on Tuesday, the Reserve Bank of Australia (RBA) said forward guidance would now be more qualitative in nature and would not always contain an outlook for interest rates.Guidance would be flexible and conditional on meeting the RBA’s targets for unemployment and inflation, and would not include other factors such as wages.The RBA Board would continue to publish forecasts on the economy but would not provide its own forecasts for interest rates.The changes follow much criticism in the last couple of years as RBA Governor Philip Lowe repeatedly said rates were not expected to rise until 2024, only to start hiking in the middle of this year when inflation blew past forecasts. More

BRASILIA (Reuters) – A dust-up among aides to Brazil’s president-elect over the country’s choice to lead the Inter-American Development Bank (IDB) is fueling concern that hardcore leftists on his team are eclipsing the influence of more market-friendly moderates.Luiz Inacio Lula da Silva eked out a narrow election victory last month after assembling a coalition of pro-business center-right politicians and long-standing members of his leftist Workers Party (PT). As his transition team begins its work ahead of the Jan. 1 inauguration, investors are wondering which group will be more influential in steering the two-term former president’s economic policy. Lula has been silent on whether or not he supports the candidacy of Ilan Goldfajn, a respected former central bank governor nominated for the IDB presidency by outgoing President Jair Bolsonaro’s administration.And in a sign that the incoming government hoped to replace Goldfajn with a closer ally, he authorized his leftist former Finance Minister Guido Mantega, a close adviser for years, to write to the United States and IDB governors to seek support to delay the Nov. 20 election. Lula’s stance on the presidency of the IDB, Latin America’s biggest development bank, coupled with recent comments focusing on social spending over fiscal discipline and questions about his economic team, suggest his leftist aides hold more sway, insiders and experts said.”Lula has a vast array of people around him, but judging from his speeches and the recent noise around the IDB appointment, it seems he is listening more to the old-school PT advisors for now,” said Arthur Carvalho, chief economist at TRUXT Investimentos in Rio de Janeiro.That was “worrying,” Carvalho added, “because previously he surrounded himself with a more diverse set of advisors.”DASHED HOPES Lula gave the green light for Mantega’s letter despite support for Goldfajn’s candidacy from Vice President-elect Geraldo Alckmin, two sources told Reuters.Alckmin, a former presidential candidate for the center-right Brazilian Social Democracy Party, has been a key interlocutor between Lula and the business community. His appointment as coordinator of Lula’s transition team was seen as good news for those hoping for market-friendly policies.”It’s possible there is lobbying for Ilan from liberal economists and that it has the sympathy of the vice president,” a third source with direct knowledge of discussions said. “But Alckmin does not decide anything in this area.”Mantega’s plan looks unlikely to succeed after the U.S. Treasury said on Friday it supports holding the IDB elections next Sunday. Yet Lula’s advisors are still working behind the scenes to try to convince Latin American countries to support postponement, the third source said.The tension over the IDB nomination comes after Brazil’s currency and stocks tanked last week after Lula pledged to prioritize social spending ahead of fiscal rectitude, and investors fretted about delays to naming his finance minister.Brazilian assets have recovered some of those losses since then, but investors are now awaiting Lula’s bill to secure higher social spending in 2023, with a final draft expected to be announced on Wednesday.Headquartered in Washington, the IDB is a key investor in Latin America and the Caribbean, behind nearly 600 ongoing infrastructure, health, tourism and other projects. It was responsible for $23.4 billion in financing and other commitments in 2021.Brazil is an influential IDB member but without signs of the president-elect’s full-throated endorsement of his country’s own nominee, the United States and other key voters could look for another solution, sources said.”Only Brazil can take the presidency away from itself,” said one IDB source close to the matter. “We have the ball in front of the goal.” SEEKING TO PLEASEInvestor concern about Lula’s economic plans has been growing since last week.On Thursday, Henrique Meirelles, another former central bank chief who served under Lula, said during a private meeting with bankers that the president elect was seeking to please his leftist allies, while adding that Alckmin “has an important role, but not in defining economic policy.”He also gave Lula a 35% chance of “correcting course” and listening to people with “more common sense.””I’m pessimistic, no doubt,” he said in leaked comments to the media. “I can only say one thing to all of you: good luck.” More

(Reuters) -U.S. prosecutors in New York are probing FTX’s collapse, a source with knowledge of the investigations said, after the crypto exchange filed for bankruptcy protection last week following a rush of customer withdrawals.The Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission are now all investigating how FTX handled customer funds as Alameda Research, the proprietary trading firm of FTX Chief Executive Sam Bankman-Fried, unraveled, the source said. FTX had been confronted with an apparent liquidity crunch after using customer funds to prop up Alameda.The SEC’s probe also targets FTX executives in the firm’s handling of customer funds and any potential breaking of securities laws, a second source said.The U.S. Attorney’s Office in Manhattan, the SEC and the CFTC declined to comment. FTX did not immediately respond to a request for comment.FTX’s bankruptcy followed a failed rescue deal with rival exchange Binance, with FTX now facing scrutiny from U.S. regulators over its handling of customer funds, as well as its crypto-lending activities. Reuters reported last week that at least $1 billion of customer funds have vanished from FTX, citing sources.FTX’s demise marks the latest turmoil for the cryptocurrency industry this year. The overall crypto market has slumped amid a string of meltdowns that have taken down other key players including Voyager Digital and Celsius Network. More

The stakes disclosed in the so-called 13-F quarterly filing are as of Sept. 30. The filings are one of the few ways that funds are required to disclose their long positions, but may not reflect current holdings.The filings are closely watched for possible investment trends and potential future performance.Elliott had disclosed a stake in Pinterest in August, citing “significant potential for growth”. Rival investment firm Tiger Global Management also added to its stakes in several tech firms in the third quarter, including tech giant Microsoft Corp (NASDAQ:MSFT), and Jack Dorsey’s payments firm Block Inc. (This story has been refiled to add story keyword used by media customers) More