Economy

This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to receive the newsletter every weekday. Explore all of our newsletters hereIn today’s newsletter: Trump’s foreign policy team takes shapeA deadly car-ramming attack in ChinaHow Big Oil disguises its methane emissionsGood morning. Donald Trump has signalled a tough new stance on China with hawkish appointments to top foreign policy roles, according to experts in Washington, as the president-elect’s cabinet begins to take shape.Trump yesterday named Mike Waltz, a Florida congressman and former Green Beret who has called China an “existential” threat, as his security adviser, and is expected to nominate Senator Marco Rubio, another leading China hawk, as his secretary of state.The president-elect’s pick for ambassador to the UN, representative Elise Stefanik, has also been extremely critical of Beijing.Foreign policy experts who believe the US should take a tougher line on China than that pursued by Democratic President Joe Biden welcomed the personnel moves.“This is like Christmas morning for China hawks,” said Eric Sayers, managing director at the Beacon Global Strategies consultancy. Read more about the Trump appointees and their views on China.We have more recommended reads on US-China relations:Zhuhai air show: China unveiled its latest stealth fighter, as Beijing competes with Washington for air superiority amid growing tensions in the region. Climate diplomacy: China has called for the US to engage in “constructive dialogue” to tackle climate change in future, in a thinly veiled swipe at the incoming Trump administration during the UN COP29 summit in Baku.Here’s what else we’re keeping tabs on today:Economic data: The US reports CPI inflation data for October.Xi Jinping: The Chinese leader travels to Peru for a summit of the Asia-Pacific Economic Cooperation forum. During his visit Xi is expected to inaugurate a Chinese-built megaport on the Latin American country’s Pacific coast.Results: Chinese internet giant Tencent reports third-quarter earnings.Five more top stories1. Police in southern China’s Zhuhai city have arrested a driver accused of ramming his vehicle into people in a busy pedestrian zone, killing 35 and injuring 43. The incident on Monday evening is the latest in a series of cases of apparently random attacks that analysts have said hint at rising social tensions in China.2. Shares in Nissan jumped as much as 20 per cent yesterday after a fund managed by activist investor Effissimo Capital Management was revealed to have taken a stake in the struggling Japanese automaker. Singapore-based Effissimo, a secretive hedge fund run by Japanese managers, is known for its high-profile campaigns against some of the biggest names in corporate Japan.3. The chief executive of Neom, Saudi Arabia’s $500bn futuristic development in the desert, has been abruptly replaced after six years in charge of Crown Prince Mohammed bin Salman’s flagship project. The company gave no reason for the departure of Nadhmi al-Nasr, whose tenure was often marked by controversy as he oversaw the highly ambitious development.4. Baidu has unveiled artificial intelligence-powered smart glasses as Chinese tech groups race with global rivals to capitalise on AI-integrated hardware. The company said the glass, which run Baidu’s large language model Ernie, would “become a private assistant” for wearers.5. Wall Street bonuses are on course to rise by as much as 35 per cent this year, according to pay consultancy Johnson Associates. Activity levels for corporate deals, stock sales and debt transactions have gradually recovered in 2024, following two fallow years. Here are the investment bankers most likely to make the biggest gains. More US news: Wall Street investors Scott Bessent and Howard Lutnick are the leading contenders to be Trump’s Treasury secretary after hedge fund billionaire John Paulson dropped out of the race for the job.The Big ReadMethane is responsible for an estimated 30 per cent of the world’s warming since the industrial revolution. Some methane comes from natural sources, such as volcanic gas. But the bulk of emissions are caused by human activity. An FT analysis found that oil and gas companies regularly hide leakages of the deadly greenhouse gas, despite being one of the easiest climate fixes there is.We’re also reading . . . Trump’s mandate for retribution: There are few theoretical limits on what the president-elect can do to carry out his vows of revenge against perceived enemies, writes Edward Luce.Emerging markets: Big changes are coming for the US dollar and currencies across Asia if Trump imposes larger tariffs.The problem with self-driving cars: The better an automated system performs, the more complacent — and dangerous — we become, writes Sarah O’Connor.Chart of the dayIt is so much easier to blame the disappearance of US manufacturing jobs on China than on domestic consumers and automation, writes Martin Wolf. But fetishising manufacturing will not restore the old labour force, and Trump’s threatened tariffs on Beijing will cause further malign side-effects. Some content could not load. Check your internet connection or browser settings.Take a break from the newsGeorgina Adam reports on Art Week Tokyo and why foreign gallerists are saying there is a “new obsession with Japan.”Installation view of the AWT Focus show at Okura Museum of Art, Tokyo More

(Reuters) -Commonwealth Bank of Australia’s first-quarter cash earnings came in slightly better than market expectations on the back of improved volumes in its home lending and household deposits portfolio and buoyant margins amid high interest rates. Despite deposit price competition and temporary volatility from preparing to repay a large loan from the Reserve Bank of Australia in the second half, CBA’s retail bank saw growth in transaction accounts, up by 121,000, while home loans grew by A$8.6 billion.CBA, which holds a quarter of the country’s A$2.2 trillion ($1.46 trillion) mortgage market, logged common equity tier 1 ratio, a measure of spare cash, of 11.8% as at September-end.CBA cautioned that Australia’s economic growth remains sluggish due to a 12-year high interest rate of 4.35%, which is dampening consumer spending.”Inflation is moderating, but at a slowing pace, and global geopolitical tensions are creating uncertainty … we remain optimistic on the overall outlook and the Australian economy remains fundamentally sound,” CEO Matt Comyn said in a statement.While the high interest rate environment helped Australian banks fill their coffers, a price war, fuelled by elevated interest rates and living costs, has forced the lenders to sacrifice their market share or margins to survive.The country’s biggest lender said its cash net profit after tax was A$2.50 billion ($1.63 billion) for the quarter ended Sept. 30, compared with A$2.50 billion a year earlier. That compares to a Visible Alpha consensus estimate of A$2.48 billion, as per Citi.Costs went up by 3% during the quarter, mainly because of higher wages, more spending on improvements, and one extra day in the quarter, CBA said. The bank set aside A$160 million for potential loan losses in the quarter, with a slight increase in overall provisions.The number of late payments on home loans stayed steady, while there was a small seasonal improvement in overdue unsecured consumer loans. The amount of problematic and non-performing loans saw a slight uptick.($1 = 1.5307 Australian dollars) More

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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldA frozen trade dispute over steel has become an early test of the EU’s relationship with the incoming Trump administration, with a senior US official saying Brussels should consider postponing plans for March to impose billions of dollars of extra tariffs on imports from the US.President Joe Biden had reached a truce with the EU in a conflict sparked when Donald Trump put tariffs on steel and aluminium in 2018, but each side is due to reimpose its duties on the other next year, the EU from the end of March and the US at the end of 2025. “The Commission really has to make a choice — March 2025 is not long after the inauguration,” said Rufino Hurtado, senior trade representative at the US mission to the EU. “It is entirely up to the EU to decide what happens in 2025 regarding these retaliatory tariffs — whether to again extend the suspension or allow them to snap back,” he said.The re-elected Trump has threatened tariffs of between 10 and 20 per cent on all EU imports and attacked the bloc for selling more to the US than it buys from it.Under the Biden deal, the US replaced the 2018 tariffs of 25 per cent on steel and 10 per cent on aluminium with a quota system, while the EU suspended its retaliatory duties on US goods. Hurtado told a conference in Brussels that although the EU and US “were closer than ever” on most issues Brussels had stalled progress in talks over the past three years. The two agreed to set up a “green steel club” in 2021 when pausing the dispute. The idea was to agree environmental standards so as to prevent cheap Chinese metal made with fossil fuels from flooding the US and EU markets.Hurtado said the US had put forward “ambitious” proposals but they “were not aligned with EU objectives”.EU trade commissioner Valdis Dombrovskis has said the proposed Arrangement on Sustainable Steel and Aluminium (GSA) must be in line with multilateral trade rules, and EU officials said the US plan, which favours domestic producers, would probably break WTO rules. Brussels wants to base the green steel club on its own carbon border adjustment mechanism (CBAM), which will levy tariffs on imports according to how much carbon they emit from 2026. That will hit US steel too, as the country has no national carbon pricing system.Meanwhile EU producers are still paying around $300mn annually for metals exports in excess of the US quotas introduced to solve the stand-off. The EU is scheduled to reimpose tariffs on €4.8bn of US imports from March 31, including 50 per cent on bourbon whiskey, Harley-Davidson motorcycles and motor boats, if there is no further postponement. Lower levies would cover a range of goods including some steel, aluminium and agricultural products and playing cards. “We are aiming to find a solution to this issue,” said an EU official, who declined to be named. “But the situation is unbalanced as our exporters are still paying some tariffs. We want to resolve it in the interests of both sides.”The Commission declined to comment.This story has been updated to correct the categories of goods to be subjected to EU tariffs at lower rates More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.To think that two and two are four / And neither five nor three / The heart of man has long been sore / And long ‘tis like to be. A.E. Housman.In 1810, 81 per cent of the US labour force worked in agriculture, 3 per cent worked in manufacturing and 16 per cent worked in services. By 1950, the share of agriculture had fallen to 12 per cent, the share of manufacturing had peaked, at 24 per cent, and the share of services had reached 64 per cent. By 2020, the employment shares of these three sectors reached under 2 per cent, 8 per cent and 91 per cent, respectively. The evolution of these shares describes the employment pattern of modern economic growth. It is broadly what happens as countries become richer, whether they are big or small or run trade surpluses or deficits. It is an iron economic law. Some content could not load. Check your internet connection or browser settings.What drives this evolution? In Behind the Curve — Can Manufacturing Still Provide Inclusive Growth?, Robert Lawrence of Harvard’s Kennedy School and the Peterson Institute for International Economics (PIIE) explains it in terms of a few numbers — the initial shares of employment in each of the three sectors, “income elasticities of demand” for their products, their “elasticities of substitution” and relative rates of growth of productivity. Income elasticities measure the proportional increase in demand for a category of goods or services relative to income. Elasticities of substitution measure the impact of changes in price on demand. A crucial consequence of the simple model that emerges is “spillovers”: what happens to a sector also depends hugely on what happens in the other sectors.Some content could not load. Check your internet connection or browser settings.Now make the following simple and empirically-based assumptions. First, productivity grows fastest in agriculture, followed by manufacturing and then services. Second, income elasticities of demand are below one for agriculture, but above one for manufactures and still higher for services. Third, elasticities of substitution are all below one. This means that the proportion of income spent on a given broad category declines as it becomes relatively cheaper. Assume, too, that economies have all started with similar proportions of workers in the three sectors to those of the US in the early 19th century.Some content could not load. Check your internet connection or browser settings.What happens is the pattern seen in the US and other contemporary high-income countries (except city-states, where food was partly imported from outside). Initially, two positive forces — cheaper food and higher incomes — shift spending towards manufactures and drive up the share of manufacturing in employment. But two negative forces — the decline in prices of manufactures relative to services and the higher income elasticity of demand for the latter — do the reverse. Initially, the positive effects on manufacturing dominate, because the agricultural revolution is so huge. Yet there comes a time when agriculture is too small to provide a positive impulse to manufacturing. Then forces operating within manufacturing and the service sector dominate. Employment shares in manufacturing start to fall. In the US, these have been falling for seven decades. The idea that this process is reversible is ridiculous. Water flows downhill for a good reason.In manufacturing, tasks are repetitive and must be done precisely in a controlled environment. This is perfect for robots. The overwhelming probability then is that in a few decades nobody will work on a production line. In some ways, that is a pity. But the work was also dehumanising. Surely, we can do better than hanker nostalgically for this inescapably vanishing past.Some content could not load. Check your internet connection or browser settings.Humans seek to blame someone for events beyond anybody’s control. It is so much easier to blame the disappearance of US manufacturing jobs on China than on domestic consumers and automation. The bilateral US trade deficit in goods with China is only 1 per cent of GDP. The overall US deficit in goods has been around 4 per cent of GDP since just after the 2008 financial crisis. If that were eliminated (probably impossible, given US competitiveness in services and the macroeconomic forces causing US trade deficits), it would indeed increase domestic output of goods (presumably at the expense of services). But the very most it is likely to do is to bring employment shares to the levels of a decade or two ago.Some content could not load. Check your internet connection or browser settings.In fact, as Lawrence shows in another paper for the PIIE, “Is the United States undergoing a manufacturing renaissance that will boost the middle class?”, even Biden’s Inflation Reduction Act merely delivered a further “steady decline in the manufacturing employment share of non-farm employment”. Trump’s tariffs will probably deliver no more than this. After all, rich Asian countries with trade surpluses in manufactures also have falling shares of jobs in that sector.This is not to argue that there are no important issues in production and trade in manufactures. Some manufactures are indeed vital to national security. The ability to produce some manufactures may also generate important externalities for the economy. Even so, the idea that these are manifestly more important than in other sectors — software, for example — is nonsense. Equally, as the structure of the economy shifts, people need help in developing new skills. The absence of a market in the creation of human capital is a market failure that justifies intervention.Fetishising manufacturing cannot restore the old labour force. Worse, the Trump tariffs will not only fail to achieve that goal, but will cause further malign side-effects. Not least, they will create a clash between the effects of the tariffs, the intended expulsion of millions of illegal immigrants and the planned tax cuts. The consequences for political and economic stability will be the subject of next week’s column.martin.wolf@ft.comFollow Martin Wolf with myFT and on Twitter More

Retail sales volumes rose 0.5% in September from August, statistics agency IBGE said on Tuesday, below the 1.10% increase forecast by economists in a Reuters poll, but above August’s 0.2% decrease.Sales grew 2.1% from the year-earlier period, compared to expectations for a 3.70% increase in the Reuters poll.The rise in sales volumes in September was driven by the personal use and domestic products segment, which rose 3.5%, IBGE said.”These results indicate that retail sales have resumed their growth trend, after a momentary drop in August,” said PicPay economist Igor Cadilhac, adding that a heated job market and good credit conditions will keep supporting consumption.Brazil’s central bank accelerated its monetary tightening pace at its meeting last week, going for a 50 basis-point hike that pushed rates to 11.25%.Strong economic activity throughout the year, a tight labor market, fiscal concerns and a weakening Brazilian real against the U.S. dollar have been pushing up inflation expectations in Brazil. More

ROME (Reuters) – Italy’s record on spending its bumper share of the EU’s post-COVID funds is patchy at best, data showed, as the minister in charge of the matter faced a European Parliament hearing on Tuesday over his prospective new job at the European Commission.EU Affairs Minister Raffaele Fitto is in line to become the EU Commission’s vice-president for Cohesion and Reforms, a position that would give him responsibility of overseeing EU funds spending by member states, including Italy itself.If confirmed, Fitto would leave his as-yet unnamed successor in Prime Minister Giorgia Meloni’s government with a tough task.Italy is due to receive 194.4 billion euros ($206.6 billion) in cheap loans and grants from the bloc’s Recovery and Resilience Facility (RRF) by 2026, more than any other state in absolute terms.Since the investment programme began in 2021, successive governments in Rome have presented the RRF cash as the key to unlocking the country’s growth potential and modernising its sluggish economy.However, Italy is behind schedule in using the 113.5 billion euros it has already secured, and also expects the funds to provide less of an economic boost than it had hoped.Data from the anti-corruption watchdog ANAC seen by Reuters on Tuesday showed that more than 60% of tenders in 2023 and 2024 were still incomplete.As of Oct. 2, Rome had spent 53.5 billion euros on projects to make Italy’s economy greener, ultra-fast broadband networks and rail infrastructure, the latest available data showed.This spending represents less than 30% of the total resources to which Italy is entitled, and is below previous government goals, already revised downwards several times.Tardy implementation puts Italy at risk of losing money unless it renegotiates commitments agreed with Europe.Delays already come at a cost with the Treasury saying in its multi-year budget plan that the recovery funds were expected to boost GDP growth by just 0.7 percentage points in 2024, one third of the 2.1 points it had originally forecast in April 2022 for the current year.Complicating matters, the Italian economy is seen as losing traction despite the EU funds and a deficit-to-GDP ratio targeted to fall below the EU’s 3% ceiling only in 2027.Most analysts and forecasting bodies see growth below 1% both this year, broadly in line with last year’s 0.7% rate and far below the 4.7% reported in 2022.($1 = 0.9409 euros) More