Economy

Military exercises in the Taiwan Strait do not bode well for global supply chains. Yet, aside from the potential for tensions between Beijing and Taipei to spark disruptions, the logistics snafus that became hallmark of the pandemic-era economy are abating. After a turbulent 18 months — triggered by what industry specialists describe as a “perfect storm” of factors ranging from chronic under-investment and Covid-19-induced closures to a giant container ship getting stuck in the Suez Canal — recent data point to a return to relative calm. The average cost of taking the standard 40-foot metal box across the world’s oceans is down by about 45 per cent from its peak in the autumn of last year, according to data from international freight company Freightos.The number of vessels queueing outside the port of Los Angeles has dropped 75 per cent from the start of the year despite the port recording its busiest June in a century. Delivery times for air cargo, tracked by supply chain portal Flexport, are improving too. The global supply chain pressure index, set up by the Federal Reserve Bank of New York, is down 57 per cent in July from its peak.Businesses in most large economies reported an easing in delivery times of inputs and materials in July, according to the latest S&P Global monthly survey of purchasing managers. A lack of materials and equipment is no longer a factor limiting production for Europe-based manufacturers, according to surveys led by the European Commission.

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“The supply chain pressures were so serious that businesses were stopping production and shortages meant prices were shooting up,” said Joanna Konings, a senior economist at ING Bank. “Now we are starting to see once again that goods can get to where they need to go. And that the system of international trade is dynamic and can recover.”Many expect pressures to ease further in the coming months. More than 40 per cent of US manufacturers polled by the Philadelphia Fed expect improvements in delivery times over the next six months. On the face of it, this spot of calm amid wave after wave of geopolitical turmoil should be a good thing for the world economy. However, the trend may reflect weakening demand for goods, as high inflation — which was, in part, owing to the surge in the cost of shipping and materials over 2021 — dents purchasing power. The closely watched purchasing managers’ index polls for July reported falling orders and a drop in backlogs. That was, according to Jennifer McKeown, of Capital Economics, “further evidence that weaker demand is opening up some spare capacity and allowing supply conditions to improve.”Logistics hubs, meanwhile, have adapted to the strains placed on them and their workers since the spring of 2021. “We’ve been able to process cargo [more] efficiently,” said a spokesperson at the Port of LA. “Dockworkers are on [top of] the job, we’re using data to help manage cargo.”Emile Naus, who leads operations team at the consultancy BearingPoint, says logistics and warehousing companies have become better at managing the capacity they do have. “The uptake in automation is much higher than I’ve ever seen,” he said. However, the road to pre-pandemic conditions, where just-in-time delivery had become the norm, is paved with risks. The late-summer Christmas rush is just around the corner. “What worries me is that we go into peak season and [carriers] can’t handle anymore, then we’re going start seeing congestion again,” said Josh Brazil, vice-president of supply chain insights at project44, a data platform.Inflation has also heightened the risk of industrial action. And, while waiting times outside Los Angeles have almost disappeared, there is congestion on the US east coast and in northern Europe. Nor is it just China’s wrangling with Taiwan and the US that’s a cause for concern. There’s also Beijing’s insistence that its zero Covid stance remains the best way to tackle fresh outbreaks of the disease — a policy that’s led to port and factory closures galore. Nathan Sheets, global chief economist at Citi, said: “What we’ve seen so far is only a step in that direction, but [some] disruptions are likely to be with us, for months ahead, maybe years.” More

TOKYO (Reuters) -Japanese wholesale prices rose 8.6% in July from a year earlier, data showed on Wednesday, slowing from the previous month’s pace in a sign inflationary pressure from higher fuel and raw material costs was easing.But price growth accelerated for some goods, such as food and machinery, Bank of Japan (BOJ) data showed, suggesting companies continued to pass on rising commodity costs blamed on the Ukraine war and the weak yen.The increase in the corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, marked the 17th straight month of gains but slowed from a revised 9.4% rise in June, the data showed.”Cost-push inflationary pressure will gradually weaken,” said Toru Suehiro, an economist at Daiwa Securities. “Inflation may soon peak out,” given recent declines in energy costs that affect prices for a wide range of goods, he said.Petroleum and coal goods prices rose 14.7% in July from a year earlier, slowing from a 21.8% spike in June. Other products directly affected by global commodity prices, such as lumber and chemicals, also saw the pace of price increase moderate, the data showed.By contrast, prices of beverages and foods rose 5.5% in July from a year earlier, accelerating from a 4.6% gain in June, highlighting the lingering impact of higher input costs.The yen-based import price index spiked 48.0% in July, bigger than a revised 47.6% gain in June, a sign the yen’s decline was playing a major role in pushing up inflation.Japan’s core consumer inflation remained above the central bank’s 2% target for a third straight month in June, as the economy faced pressure from high global raw material prices that have pushed up the cost of the country’s imports.But the BOJ has repeatedly said it was in no rush to withdraw its massive stimulus, describing recent inflation as driven largely by external factors and unsustainable unless accompanied by stronger wage growth. More

Taiwanese national security officials want to force Apple supplier Foxconn to unwind an $800mn investment in Chinese chip company Tsinghua Unigroup, as Taipei seeks to align itself more closely with the US in the face of escalating threats from Beijing.The investment by Foxconn, the world’s largest contract electronics manufacturer and the biggest private-sector employer in China, was announced last month and made the group the second-largest shareholder in Tsinghua. But the deal put one of Taiwan’s biggest companies at the centre of Beijing’s growing technology competition with the west. “This will definitely not go through,” said a senior Taiwanese government official involved in national security issues. The cabinet’s investment commission has yet to formally review the case, but officials from the president’s National Security Council and the Mainland Affairs Council, which implements China policy, believe the deal needs to be blocked, according to another person briefed on the matter.Hon Hai, Foxconn’s Taiwan-listed entity, said on July 14 that it had acquired an indirect stake in Beijing Zhiguangxin Holding, the controlling shareholder of Tsinghua Unigroup. The deal triggered warnings from the Taiwanese economy ministry’s investment commission that Foxconn could be fined up to NT$25mn ($832,000) because it had not submitted the transaction for prior approval.Officials said the group was not believed to have violated other regulations, as the deal was below the ceiling for China investments that Taipei set for Foxconn Industrial Internet, the company’s mainland-based subsidiary.But national security officials have been brought in to review the case, according to officials familiar with the matter and people close to Foxconn — a procedure applied only to controversial investments with political or security implications. “It is clear that now they have elevated this to the national security level, prospects are getting dim,” said one person close to the company. “With the soaring tension in the Taiwan Strait, this is looking even more difficult.”Foxconn did not respond to a request for comment.China claims Taiwan as its territory and has threatened to take it by force if Taipei resists unification indefinitely. Beijing has driven home this threat over the past week with a series of unprecedented military exercises.Analysts said the investment in Tsinghua Unigroup made sense for Foxconn, which has traditionally focused on the low-margin, labour-intensive assembly of electronics products such as smartphones and manufacturing, but is trying to strengthen its semiconductor business.Young Liu, head of the semiconductor division who took over as Foxconn chair three years ago, has pledged to expand the unit to increase profit margins and secure chip supplies, especially for the group’s electronic vehicle business.Although Tsinghua Unigroup had to let go of some manufacturing assets in a year-long debt restructuring process, the group is seen as a crucial asset in Beijing’s plan to wean itself off its dependency on chip imports. “I think Tsinghua Unigroup is still very important,” said Douglas Fuller, an expert on Chinese industrial policy in the chip sector.Unisoc, Tsinghua Unigroup’s chip design arm, is a crucial part of that endeavour. “Obviously, this asset would bring to the table for Hon Hai some of the incremental capabilities that they do not possess,” said Patrick Chen, head of Taiwan research at CLSA, the brokerage.But Taipei is concerned that the deal could lead to Foxconn bankrolling an acceleration in Beijing’s tech ambitions. Although the group is gradually diversifying its production lines beyond China, 75 per cent of its capacity is on the mainland and analysts said it would be extremely difficult for the company to divest.

“The solution is, therefore, that their China-based affiliates localise more and put the money they can’t get out into new assets on the mainland,” said a Taiwanese technology industry executive in China.Officials believe such a development could weaken Taiwan economically and give China more leverage to pressure it into submitting to Beijing’s control. “How can we have one of our largest enterprises become a key backer of a policy which aims to reduce our position in global markets?” said one official. The Taiwanese government is particularly concerned that Foxconn’s partner in the deal, the Chinese investment firm WiseRoad Capital, has close links to the government in Beijing. Moreover, officials said Taiwan must be particularly careful not to be seen as helping China in its technology rivalry with the US.“Especially now, as the Chips Act has been adopted, Washington is stepping up initiatives to strengthen semiconductor manufacturing onshore, and working with allies and partners to control the flow of technology to China, we have to be careful about where we stand,” one said, referring to a move by the Biden administration to boost the US’s chipmaking industry. More

BENGALURU (Reuters) – Malaysia’s economy grew at its fastest pace in a year last quarter, thanks to a strong rebound in private consumption and buoyant exports, but a global economic slowdown poses a significant risk to the outlook, a Reuters poll found.The Aug. 3-9 poll of 18 economists predicted southeast Asia’s third-largest economy expanded 6.7% in the April-June quarter compared with the same period a year earlier.That would be the fastest growth since the same quarter last year.Forecasts for annual gross domestic product (GDP) growth, due to be released on Aug. 12, ranged from 5.2% to 9.2%, higher than the 5.0% increase in the preceding quarter. “Private consumption was likely the main growth driver … Furthermore, a sharp jump of 30% YoY (year-on-year) in Q2 export growth would have contributed to the faster Q2 GDP print,” said Vincent Loo of KAF Investment Bank. Export growth was 22% in the first quarter, Loo said.”We expect GDP growth to accelerate further in Q3, mainly due to base effects (nationwide lockdown in Q3 2021) before normalising in Q4 and into next year on the back of slowing global trade, rising inflationary pressure and tighter monetary conditions.”Malaysia’s economic recovery from the pandemic has been strong since reopening its borders in April, but an expected global economic slowdown is likely to have an impact on the economy. [ECILT/WRAP]”While overall export growth performed well … its open economy is exposed to growing global economic headwinds and slowdown driven by U.S. Fed tightening and European energy insecurity from the Russia-Ukraine war, even as China tries to recover from the pandemic lockdown-induced weakness,” said Chua Han Teng of DBS.A separate Reuters poll showed Malaysia’s economic growth for this year would be 6.5%, higher than Bank Negara Malaysia’s (BNM) forecast of 5.3%-6.3%, though then slow to 4.6% in 2023.But Malaysia’s central bank was expected to follow its global peers and continue on its rate hiking path to tame rising inflation.Last month, BNM raised its benchmark interest rate for a second straight meeting by 25 basis points to 2.25%. More

New York City said Tuesday that it had reached a settlement potentially worth more than $20 million with the fast-food chain Chipotle Mexican Grill over violations of worker protection laws, the largest settlement of its kind in the city’s history.The action, affecting about 13,000 workers, sends a message “that we won’t stand by when workers’ rights are violated,” Mayor Eric Adams said in a statement.The city said the settlement covered violations of scheduling and sick leave laws from late November 2017 to late April of this year. Under the settlement, hourly employees of Chipotle in New York City will receive $50 for each week that they worked during that period. Employees who left the company before April 30 will have to file a claim to receive their compensation.The Fair Workweek Law enacted by the city in 2017 requires fast-food employers to provide workers with their schedules at least two weeks in advance or pay a bonus for the shifts.The employers must also give workers at least 11 hours off between shifts on consecutive days or get written consent and pay them an extra $100. And the employers must offer workers more shifts before hiring additional employees, to make it easier for them to earn a sustainable income.Under a separate city law, large employers like Chipotle must provide up to 56 hours of paid sick leave per year.The city accused Chipotle of violating all these policies.“We’re pleased to be able to resolve these issues,” Scott Boatwright, the company’s chief restaurant officer, said in a statement. Mr. Boatwright added that the company had carried out a number of changes to ensure compliance with the law, such as new time-keeping technology, and that Chipotle looked forward to “continuing to promote the goals of predictable scheduling and access to work hours for those who want them.”The city filed an initial legal complaint in the case, involving a handful of Chipotle stores, in September 2019, then expanded the case last year to include locations across the city. At the time, the city said the company owed workers over $150 million for the scheduling violations alone. Advocates for the workers said civil penalties could far exceed that amount.In addition to as much as $20 million in compensation, Chipotle will pay $1 million in civil penalties. A city spokeswoman said the settlement was the fastest way to win relief for workers.The city said in its statement that it had closed more than 220 investigations and obtained nearly $3.4 million in fines and restitution under the scheduling law, and that it had closed more than 2,300 investigations and obtained nearly $17 million in fines and restitution under the sick leave law. Neither figure includes the settlement announced Tuesday.The city spokeswoman said the city had filed more than 135 formal complaints under the two laws, and that many employers settle before the city can file a case.Chipotle faces pressure over its labor practice on other fronts. Local 32BJ of the Service Employees International Union, which helped prompt the investigation at Chipotle by filing initial complaints in the case, is seeking to unionize Chipotle workers in the city.Chipotle employees at stores in Maine and Michigan have filed petitions for union elections. The Maine store has been closed, a move that the employees assert was retaliation for the organizing effort. Chipotle has said the closing was a result of staffing issues and had “nothing to do with union activity.” More

Liz Truss, frontrunner in the Conservative leadership contest, has rejected business pleas for her to meet prime minister Boris Johnson and rival Rishi Sunak to “agree a common pledge” on tackling the cost of living crisis. Speaking in Darlington on Tuesday during the latest hustings in front of party members, the foreign secretary pushed back against the suggestion this week from Tony Danker, CBI director-general, that the severity of the economic crisis required “all hands at the pump”. The head of the UK employers’ group warned that the public and businesses across the country could not face a “summer of government inactivity” while the Conservative party choses its new leader. But Truss argued that Johnson and current chancellor Nadhim Zahawi were “capable people, capable of making these decisions” on the economy.“I think it would be constitutionally deeply undesirable to try and over-rule them with a sort of made-up committee of the CBI, me and Rishi Sunak,” she said, adding: “This kangaroo committee you’re proposing sounds bizarre.”Her comments were made as figures published by the consultancy Cornwall Insight revealed that the UK’s energy price cap on household bills is expected to increase from £1,971 a year on average to £4,266 in January and £4,427 in April, a move set to exacerbate the cost of living crisis for millions. In recent days, business and political leaders have called on the government to introduce emergency financial measures before the autumn. The CBI has urged Johnson to bring together both Truss and Sunak ahead of the Ofgem price cap announcement due on August 26 in order to find a consensus on how to tackle rising fuel bills. It called on the government to put the Office for Budget Responsibility on notice that an emergency Budget is likely.

And in a rare intervention over the weekend, former prime minister Gordon Brown called on Truss, Johnson and Sunak to convene to agree on an emergency Budget this week, arguing in the Observer newspaper that looming energy price hikes would be a “financial time-bomb” for families in October.However, Downing Street has argued that any “major fiscal interventions” would be for a future prime minister to make in the coming weeks. Speaking on Tuesday, Johnson said he was “absolutely confident” his successor would have “fiscal firepower and the headroom” to support the public through the cost of living crisis. Truss, who according to the latest YouGov polling leads the former chancellor by 38 percentage points, has rejected the notion of tax rises and additional government grants, describing it as “Gordon Brown economics”. “I understand people are struggling with their bills on fuel and food but the first thing we should do as Conservatives is help people have more of their own money,” she told Tory party members on Tuesday evening. “What I don’t support is taking money off people in tax and then giving it back to them in handouts.” However, when questioned on whether she was prepared to issue grants or handouts at “any stage” in her premiership, she refused to fully rule it out: “I am not going to say in the middle of August what is going to be in the Budget later this year, but what I am saying philosophically is I always favour people keeping more of their own money first.”Sunak argued that government packages would be the most effective way of giving assistance to society’s most vulnerable. “The only way to help them is with direct support because tax cuts alone are not much good if you’re a pensioner who is not earning any extra money,” he told the audience members in Darlington. More

WASHINGTON (Reuters) -Surging inflation will prompt the U.S. Postal Service to seek higher prices for stamps and other services in January, just five months after its recent hike, as it continues to lose money.USPS raised prices in July by about 6.5%, including increasing the price of a first-class stamp from 58 cents to 60 cents after hiking stamps by 3 cents in August 2021.U.S. Postmaster General Louis DeJoy said Tuesday inflation would cause costs to exceed its 2022 budget plan “by well over $1 billion.” DeJoy said he plans to recommend to the Postal Board of Governors that USPS raise prices again in January.DeJoy has said USPS for years had failed to charge enough for package and mail delivery.USPS on Tuesday booked a onetime, non-cash benefit of $59.6 billion after President Joe Biden signed financial relief legislation into law. It reported an adjusted loss of $459 million for the quarter, compared to an adjusted loss of $41 million for the same quarter last year. DeJoy said the Postal Service is working to address some hiring issues but is having success in most areas as it has boosted full-time permanent staff.”This will enable us to rely less on seasonal employees, which we believe will prove difficult to hire this season,” DeJoy said. “We are still having trouble in hiring new letter carriers, especially in rural communities. We are employing new recruiting tactics.”Struggling with diminishing mail volumes despite having to deliver to a growing number of addresses, the USPS before Tuesday had reported net losses of more than $90 billion since 2007. The bill Biden signed in April repealed the USPS’s requirement that it annually prepay future retiree health benefits and canceled all past due prefunding obligations.DeJoy released a March 2021 reform plan that aims to eliminate $160 billion in predicted losses over the next decade.DeJoy said despite reforms losses would still reach $60 billion to $70 billion over the next 10 years — and USPS must address those losses.USPS is also set to receive $3 billion from Congress to boost electric vehicle and charging purchases. Last month, USPS said it plans to buy at least 25,000 EVs – more than twice its prior estimate. More

WASHINGTON (Reuters) -The U.S. Securities and Exchange Commission (SEC) will propose a new rule on Wednesday aimed at boosting hedge and private fund leverage disclosures, among other details, according to a source familiar with the agency’s thinking.The proposal by the Wall Street regulator would require funds to provide more information on leverage as part of their confidential “Form-PF” disclosures, the person said, adding that the measure would also apply to fund advisers who operate as commodity investors and traders under Commodity Futures Trading Commission rules, the person said. The proposal is part of a broader effort by the SEC to boost transparency of the private fund industry amid worries the industry is a growing source of systemic risk, and follows a January draft rule that boosted other Form PF disclosures.Form PF, which was introduced following the 2007-2009 global financial crisis, is the primary way private funds disclose purchases and sales of securities to the SEC. Regulators have grown concerned over risk in the private industry after hedge fund de-leveraging contributed toward turmoil in the U.S. Treasuries market in March 2020 and hedge funds were again at the center of last year’s GameStop (NYSE:GME) “meme-stock” saga, analysts say.Critics argue that while the sector has ballooned following the 2007-2009 financial crisis, regulatory scrutiny of private funds — which are heavy users of leverage — has not kept up. Wednesday’s rule is expected to boost the level of detail large private-fund and hedge advisors must spell out around their use of leverage, the same source said. The SEC declined to comment. Reuters could not immediately determine what further changes the SEC rule would include.Leverage is a financial technique generally used to increase investment exposure and ramp up returns, but it can also exacerbate losses.The International Organization of Securities Commissions, which comprises regulators across the world, said in a January report that some private fund leverage is being hidden from view. More