Tag: global trade war

Airbus revises up jet demand, warns of ‘lose-lose’ tariff war

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Airbus warned of the risks of a ‘lose-lose’ transatlantic tariff war on Wednesday as it raised forecasts for jetliner demand over the next 20 years, led by the new industrial hubs of Asia.

The European planemaker confirmed a continued boom in demand due to the growth of cities and a burgeoning Asian middle class.

But the industry faces a squall of new pressures from global trade tensions, the partial unwinding of globalisation and an anti-flying campaign from climate activists, notably in Europe.

Adding fresh anxieties are tensions within aviation itself after the World Trade Organization tentatively approved US sanctions against European products including Airbus jets, in a long-running dispute over aircraft subsidies.

Airbus chief commercial officer Christian Scherer voiced alarm about the prospect of a tit-for-tat tariff war on new jets.

“Ultimately they will have an impact on airplanes and therefore the price of tickets and that is not good. If there is an impact, the same impact will happen here in Europe,” he said, referring to the prospect of European reprisals against Boeing.

“It is a lose-lose impact,” Scherer told reporters.

Airline traffic growth has slowed this year amid broader trade friction between the United States and China. Airbus said protectionism and other geopolitical risks “remain a concern”.

The planemaker shaved 0.1 percentage points off its average annual growth forecast to 4.3 percent over the next two decades, but said demand for air travel essentially remains strong.

Domestic travel in China is expected to leapfrog the United States and Western Europe within a decade, while India and fast-rising manufacturers like Vietnam are growing the fastest.

Airbus predicted the world’s fleet would more than double to 47,680 jets by 2038. That is slightly smaller than the fleet it was forecasting a year ago, because planes are flying with more seats and working for longer each day, pushing up productivity.

But the demand for new jets needed to reach that target has been revised upwards because Airbus believes airlines will also replace existing jets more quickly to tap improved fuel savings.

Airbus said it now expects airlines and leasing companies to take delivery of 39,210 new passenger jets and freighters over the next two decades compared to 37,389 previously forecast.

Shares in Airbus edged up 0.7 percent, outpacing a flat market.

Call for Biofuels

Touting the industry’s record in cutting emissions, in a week that Swedish teenage climate change activist Greta Thunberg pressed the US Congress for action on climate change, Airbus said the industry could achieve its carbon-reduction goals even while meeting strong travel demand, because of new technology.

Environmental groups backing a global “climate strike” say more radical steps are needed to avert a disaster.

“We are on a path to de-carbonise but we can’t do it alone,” Scherer said, calling for investment in sustainable biofuels.

Airbus revised up its demand forecast for the industry’s most-sold single-aisle jets by 4 percent to 29,720 planes but cut the medium segment including its A330neo by 2 percent to 5,370.

It followed US rival Boeing in scrapping separate forecasts for the world’s largest aircraft after deciding to halt production of the Airbus A380 due to weak demand.

It now includes these aircraft with the largest twin-engined jets, with the resulting combined category up 22 percent to 4,120 jets.

Airbus raised a 20-year forecast for services like repairs, training and cabin upgrades to $4.9 trillion from $4.6 trillion.

Once focussed mainly on building their jets, Airbus, Boeing and other manufacturers are stepping up competition for a slice of this market to gain access to lucrative recurring revenues.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Taiwan drags India to WTO on trade tariffs on electronic items

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Chinese Taipei has dragged India to the World Trade Organization (WTO) on the customs duty imposed by India on information technology and electronics items.

This is the second trade dispute initiated against India at the WTO on tariff hikes up to 20 percent imposed on 60 items used by the Information and Communications Technology (ICT) sector through a series of notifications between March 2016 and January 2019.

The items on which India imposed duties include base stations, machinery and accessories needed for electronic chip wafer manufacturing, digital cameras, headphones, microphones, loud speakers and items used by telecom industry.

In a press release the WTO said: “Chinese Taipei has requested dispute consultations with India regarding duties imposed by India on imports of certain information and communications technology (ICT) goods. The request was circulated to WTO members on 9 September.”

As per the complaint, India’s duties on ICT products are not consistent with IT agreement of the WTO, which mandates duty free imports. But India maintains that the list of items in the IT agreement of WTO that it signed in 1996 is not the same as the items on which it has imposed duties.

In May this year, Japan was the first country to raise red flags on Indian tariffs on ICT products. Subsequently Chinese Taipei, the United States, European Union, China, Canada, Thailand and Singapore sought permission from the Geneva based global trade body to associate with the Japanese complaint against Indian tariffs. It now seems that Chinese Taipei decided to file its own independent complaint at the WTO.

Meanwhile, countries like the US have strongly taken up the issue of tariff hikes made by India on ICT products in bilateral trade talks.

Seeking consultations is the first step in initiating a dispute. Once consultations are sought, both parties engage in parleys for a period of 60 days. In the absence of an amicable resolution, the complainant country can seek adjudication of the issue through a dispute settlement panel of the WTO. Rulings of the WTO dispute settlement panel are binding on member countries.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US president says China wants to negotiate over trade war

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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President Donald Trump said on Monday he believed China wanted to make a trade deal after contacting US trade officials overnight to say it wanted to return to the negotiating table.

China’s lead negotiator in the US trade talks earlier on Monday said Beijing was willing to resolve its trade dispute with the United States through ‘calm negotiations’ and resolutely opposed the escalation of the conflict.

Speaking on the sidelines of a G7 summit in Biarritz, Trump hailed Chinese President Xi Jinping as a great leader and said the prospect of talks was a very positive development for the world.

“China called last night our top trade people and said, ‘let’s get back to the table’, so we’ll be getting back to the table, and I think they want to do something,” Trump said on the sidelines of the G7 meeting.

“They’ve been hurt very badly but they understand this is the right thing to do,” he said.

An increasingly bitter trade war between the world’s two largest economies sharply escalated on Friday, with both sides levelling more tariffs on each other’s exports.

Before Trump spoke, global stock markets reeled, while China’s yuan currency fell to a fresh 11-year low. Investors streamed into the safe harbours of sovereign bonds and gold.

Negotiations would start very soon, Trump said.

“I think we are going to have a deal,” he added. “They have supply chains that are unbelievably intricate and people are all leaving and they are going to other countries, including the United States by the way, we are going to get a lot of them too”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Donald Trump regrets not raising tariffs on China higher, says White House

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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President Donald Trump wishes he had raised tariffs on Chinese goods even higher last week, the White House said on Sunday, even as Trump signaled he did not plan to follow through with a demand that US firms find ways to close operations in China.

Trump raised eyebrows on the sidelines of a G7 summit when he responded in the affirmative to questions from reporters on whether he had any second thoughts about raising tariffs on Chinese goods by 5 percent.

“President Trump responded in the affirmative – because he regrets not raising the tariffs higher,” White House spokeswoman Stephanie Grisham said in a statement afterward that sought to clarify the president’s remarks.

Trump announced the additional duty on some $550 billion in targeted Chinese goods on Friday, hours after China unveiled retaliatory tariffs on $75 billion worth of US goods.

The move was the latest round in a tit-for-tat trade war between the world’s two largest economies that has damaged global growth, upset allies, and raised market fears that the world economy will tip into a recession.

It came just hours after Trump said he was ordering US companies to find “alternatives” to China, including closing operations there and moving production to the United States.

US Treasury Secretary Steven Mnuchin said Trump could order companies out of China under the International Emergency Economic Powers Act if he declared a national emergency.

Trump indicated on Sunday that he was not planning such a step at this time, however.

“I could declare a national emergency. I think when they steal and take out, and — intellectual property theft, anywhere from $300 billion to $500 billion a year, and where we have a total loss of almost a trillion dollars a year … in many ways, that’s an emergency,” he said.

“I have no plan right now. Actually, we’re getting along very well with China right now. We’re talking,” Trump said.

Mnuchin said the president did want US businesses to start looking to shift investments away from China, saying they would be better off in the event the US-China trade war lasted for a long time.

“We want them to be in places where they’re trading partners that respect us and trade with us fairly,” he said on the “Fox News Sunday” program.

‘Second Thoughts About Everything’

During his meeting with Johnson on Sunday in France, Trump was asked if he had second thoughts about his latest escalation.

“Yeah, sure. Why not?” he said.

The reporter repeated the question and Trump replied: “Might as well. Might as well.”

A second reporter followed up again, asking if he had second thoughts about escalating the trade war with China.

“I have second thoughts about everything,” Trump responded.

Asked to clarify Trump’s remarks, Mnuchin, who is one of the lead US negotiators in trade talks with Beijing, said Trump remained resolute in trying to force concessions from China.

Another top official said he did not think Beijing would retaliate for the latest increase in tariffs.

“I think his was an action to respond to their action. So I doubt whether they’re going to take another step,” White House economic adviser Larry Kudlow said on CBS’ “Face the Nation” program. “We’ll have to wait and see.”

Mnuchin said Trump and Chinese President Xi Jinping were now “enemies” on trade, despite an otherwise good relationship.

“President Xi is still his friend,” he said. “But as it relates to financial issues and trade, we have become enemies. We’re not making progress.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India, China no longer ‘developing nations’, won’t let them take ‘advantage’ from WTO, says Donald Trump

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US President Donald Trump has said that India and China are no longer “developing nations” and were “taking advantage” of the tag from the WTO and asserted that he will not let it happen anymore.

Trump, championing his ‘America First’ policy, has been a vocal critic of India for levying “tremendously high” duties on US products and has described the country as a “tariff king”.

The US and China are currently engaged in a bruising trade war after Trump imposed punitive tariffs on Chinese goods and Beijing retaliated.

Earlier in July, Trump asked the World Trade Organisation to define how it designates developing-country status, a move apparently aimed at singling out countries like China, Turkey and India which are getting lenient treatment under the global trade rules.

In a memorandum, Trump had empowered the US Trade Representative (USTR) to start taking punitive actions if any advanced economies are inappropriately taking benefits of the WTO loopholes.

Addressing a gathering at Pennsylvania on Tuesday, Trump said India and China – the two economic giants from Asia – are no longer developing nations and as such they cannot taken the benefit from the WTO.

However, they are taking the advantage of a developing nation tag from the WTO, putting the US to disadvantage, he said.

“They (India and China) were taking advantage of us for years and years,” Trump said.

The Geneva-based WTO is an intergovernmental organisation that regulates international trade between nations.

Under the global trade rules, developing countries claim entitlement to longer timeframe for the imposition of safeguards, generous transition periods, softer tariff cuts, procedural advantages for WTO disputes and the ability to avail themselves of certain export subsidies.

Trump expressed hope that the WTO will treat the US “fairly”.
He said the WTO views certain countries like China and India as “they’re growing”.

“Well, they’ve grown,” he said and warned that the US will not let such countries to take advantage of the WTO.

“We’re not letting that happen anymore…Everybody is growing but us,” he said.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

How a ‘currency war’ could weaken US economy, explained

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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President Donald Trump’s trade conflict with China escalated this week when Beijing let its currency fall to its lowest level against the dollar in 11 years and suspended its purchases of US farm goods — and the Trump administration promptly branded China a “currency manipulator.”

Trump’s response has little immediate practical impact. But together, the new developments raised the dangerous threat of a destabilizing currency war that could infect the global financial system. The stock market responded Monday with its steepest plunge of the year.

Things cooled a bit Tuesday when China appeared to stabilize its currency, and the Dow Jones Industrial Average rebounded 311 points. But that was still less than half its loss Monday.

What Is A ‘Currency War’?

It occurs when two countries take steps to lower the value of their currencies to try to gain a competitive edge over each other. A cheaper currency typically makes a nation’s exports more affordable for foreigners — and makes imports more expensive. This action tends to protect a country’s manufacturers, in particular, from foreign competition.

Are The US And China In A Currency War?

For now, no. The Trump administration has yet to respond to China’s allowing its currency to fall by taking its own steps to lower the dollar’s value to the yuan. Still, this could happen: The option was raised in the White House late last month, according to media reports, and Trump said July 26 that he could take steps to devalue the dollar “in two seconds if I want to.”

And earlier that month, Trump had tweeted that China and Europe were “playing (a) big currency manipulation game” and the US either “should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games.”

Megan Greene, an economist and senior fellow at Harvard’s Kennedy School of Government, suggested that the Trump administration might decide to lower the dollar’s value to retaliate against China simply because it has few other options. Still, she doesn’t think the move would prove effective, partly because the yuan isn’t widely available on currency markets. It would be hard for the US to buy enough yuan to drive up its value against the dollar.

“It seems like some kind of currency intervention is on the table, just not an effective one,” Greene said.

What Might A Trump Intervention Look Like?

The Treasury Department maintains what it calls an Exchange Stabilization Fund. It could use this fund to sell dollars and buy yuan, thereby reducing the dollar’s value against the Chinese currency. But the fund contains about $100 billion — not a large sum if your goal is to influence foreign exchange markets, which measure in the trillions of dollars.

And taking such steps would violate the international agreements that the United States has signed not to manipulate the dollar’s value to gain trade advantages.

Trump also wants the Federal Reserve to cut short-term interest rates repeatedly and aggressively. Doing so would make the dollar less valuable for investors to hold.

The Fed cut its benchmark rate last week, and investors expect further reductions in the fall. But on Tuesday, James Bullard, president of the Federal Reserve Bank of St. Louis, who voted for last week’s rate cut, said the central bank has “done a lot” and argued that it shouldn’t respond to every fluctuation in trade tensions.

What Damage Could A Currency War Cause?

Over time, it would be significant. For China, driving the yuan lower would make it harder for its companies to pay off their dollar-denominated debts, because each yuan they earn would translate into fewer dollars. In both countries, cheaper currencies generally raise the price of imports, which could spur inflation. That would also make Chinese imports costlier for American consumers.

“For the US to intervene to try to weaken the dollar would be a terrible mistake,” said Sung Won Sohn, a business economist at Loyola Marymount University in Los Angeles.

Have There Been Currency Wars Before?

The most notorious example occurred during the Great Depression of the 1930s when the US and several European countries sought to devalue their currencies. Jeffrey Bergstrand, a finance professor at Notre Dame and former Fed economist, said that such moves, along with rising tariffs, worsened the depression. After World War II, the US, leading European economies, Japan, and others signed onto the Bretton Woods agreement. This accord established a system of fixed exchange rates with the idea of forestalling future currency fights.

Otherwise, the United States has intervened in currency markets only as part of coordinated international efforts to boost the global economy. In September 2000, the United States, along with central banks in Europe and Japan, bought euros to drive the new currency off its record lows.

And in 1985, the G-7 countries agreed to the Plaza Accord. This was a landmark agreement that launched coordinated currency market interventions to sell dollars, which had risen so much in value that it hurt America’s exports.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Factbox: From phone makers to farmers, the toll of Trump’s trade wars

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US President Donald Trump on Thursday said he would impose a 10 percent tariff on the remaining $300 billion of Chinese imports as tensions with China spiked again, the latest salvo in a yearlong trade war between the world’s two largest economies.

The levies, due to begin on September 1, would hit a wide range of consumer goods and came the day after trade talks wrapped up in Shanghai, yielding little progress. Trump’s statements on Thursday sent the benchmark S&P 500 lower and crude oil tumbling.

Washington has pressed Beijing for wide-ranging economic reforms, including providing better protection for American intellectual property, ending subsidies that favour Chinese state-owned enterprises, and improving access to China’s markets for US companies.

Trump has imposed tariffs on $250 billion of Chinese imports and is threatening to extend those to cover effectively everything China exports to the United States. China has retaliated with tariffs on US imports.

Trump has said bad trade deals with China and others have cost millions of American jobs. Below are some of the costs of Trump’s push to rewrite the terms of global trade, with China and other top trade partners:

Global Economy

Tariffs have disrupted international supply lines, roiled global financial markets and encouraged manufacturers to invest in plants outside China.

It is impossible to calculate the precise costs, as many companies do not detail the reasons for changes in their business models or manufacturing locations, nor disclose the financial costs of the trade war.

Fitch Ratings estimates that extending tariffs to cover another $300 billion in Chinese goods would chop 0.4 percent from world economic output.

The International Monetary Fund said last month that global trade in the first quarter of 2019 was the slowest since 2012, noting big downside risks for world growth moving forward.

Trump has said China pays the tariffs he has imposed on Chinese goods, but tariffs are paid by US-registered firms when the products enter the United States. Importers often pass that cost onto consumers in the form of price hikes.

Farming

American farmers have been among the hardest hit so far. China is the top market for many of their biggest crops and Beijing hit those crops with retaliatory tariffs. The Chinese tariffs targeted US farmers because they helped vote Trump into power.

The trade war has hurt sales of a wide range of agricultural produce, including fresh fruit, meat and grains. The single biggest agricultural export from the US are soybeans, most of which went to China before the trade war.

To compensate for lost sales to China, the US government has rolled out two rounds of trade aid for farmers, expected to total $28 billion by the time they are done. The US had doled out about $8.6 billion of that as of the end of June.

US soybean exports to all countries fell to about $15 billion in the period from July 2018 to May 2019, down 27 percent from $20.6 billion in the same period a year earlier, the most recent US Department of Agriculture data show. Exports to China alone were down 77 percent at just $2.5 billion, versus $11.2 billion from July to May a year earlier.

Tech 

Chinese telecommunications giant Huawei warned US restrictions on its business will impact short-term revenue growth, even as its half-year revenue surged. Previously, the company’s founder said the restrictions would cost the company around $30 billion.

Tariffs are costing the US tech sector $1.3 billion a month, the Consumer Technology Association said in a written statement to the United States Trade Representative in June.

Products for 5G mobile technology were hit by $122 million of tariffs in the month of October 2018 alone, surging from just $65,000 a year earlier, the trade group said.

Shares of Apple Inc and chipmakers including Qualcomm Inc, Nvidia Corp and Micron Technology slid after Trump’s vow on Thursday.

Concerns about a slowdown in China, where iPhone sales continue to decline, have helped keep Apple’s share price below last year’s highs. The company said in June Trump’s proposed tariffs would reduce its competitiveness and cut its contribution to the US Treasury.

The U.S. plan for more tariffs would raise the retail price of cellphones by an average of $70, the price of laptop computers by $120 and video game consoles by $56, a representative for the Consumer Technology Association has said.

Vehicles, Equipment

Trump’s steel and aluminium tariffs have added billions of dollars to the cost of assembling US vehicles, and tariffs on Chinese-made parts have also hiked costs.

General Motors Co, the largest automaker in the US, has projected it will incur $1 billion in extra costs for tariffs and raw materials.

Fiat Chrysler Automobiles NV has said it expects dramatically increased costs for commodities due to tariffs, costing the automaker 750 million euros.

Motorcycle manufacturer Harley-Davidson was hit by retaliatory tariffs from the European Union for the metals tariffs. The company calculates spending $100 million on tariff costs in 2019.

The recreational vehicle industry has also taken a hit. Motor homemaker Winnebago Industries Inc said it expected at least $10 million in added cost pressures in fiscal 2020 from the latest tariffs and proposed duties.

Equipment manufacturers Deere & Co and Case New Holland have passed on higher costs from metals tariffs to customers, further lifting farm costs.

In May, Deere said it missed quarterly profit estimates for the fifth straight quarter and cut its full-year outlook, as the escalating US-China trade war threatens to further hit farm incomes and demand for the company’s equipment.

Other Rising Costs

Steel and aluminium tariffs were among the first to be levied by the US in early 2018 and included imports from almost the entire world.

The move benefited US steel producers, but not the manufacturers that process the metal.

The tariff burden on US steel and aluminium buyers was almost $5 billion last year, according to the American Action Forum.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Asian Stocks: Trump’s tariffs jolt global shares, lift safe-haven assets

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Global stocks took another beating on Friday while investors piled on to safe-haven assets after US President Donald Trump said he would slap a 10 percent tariff on the remaining $300 billion of Chinese imports from next month.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.51 percent to its lowest level since mid-June while Japan’s Nikkei tumbled 1.91 percent.

US stock futures lost 0.20 percent in early Asian trade after the S&P 500 skidded 0.90 percent to hit one-month lows overnight, while Pan-European Euro Stoxx 50 futures fell 1.5 percent.

Trump’s move breaks a truce in the trade war struck in June and could further disrupt global supply chains.

“After US-China summit meeting, people had expected there would be a lull for quite some time,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

“And the market was also relieved by signs of recovery in the semi-conductor sector. But now investors and companies will have to revise their such scenarios.”

China’s state media quickly denounced the move, with the editor in chief of the Global Times saying on Friday that a trade deal between the United States and China was now “further away.”

The proposed levies triggered a stampede for safe-haven assets, including US bonds, the yen and gold while the yuan and the Australian dollar hit multi-month lows.

Gold held firm at $1,438.9 per ounce, down 0.4 percent in Asia after having risen 2.4 percent on Thursday, staying near a six-year high of $1,453 touched two weeks ago.

The yen edged up to 107.25 on the dollar after rising 1.3 percent overnight, its biggest daily gain in more than two years.

The euro also recovered to $1.1090, from a two-year low of $1.1027 hit in US trade.

In contrast, the risk-sensitive Australian dollar dropped to a seven-month low of $0.6795 while the offshore yuan hit a nine-month low of 6.9731 to the dollar.

The 10-year US bond yield fell almost 12 basis points on Thursday to 1.902 percent, hitting the lowest level since Nov. 8, 2016, when Trump won a surprise victory in the presidential election.

Trump’s decision has thrown the Federal Reserve another curveball that may force it to again cut interest rates to protect the US economy from trade-policy risks after its first rate cut in more than a decade on Wednesday.

Although Fed Chairman Jerome Powell said the rate cut was a “mid-cycle adjustment” and not a start to a full-blown rate-cutting cycle, markets aren’t fully convinced.

The October Fed funds rate futures FFV9 have jumped to now fully price in a rate cut in September, compared with only around 60 percent before the tariff announcement. Another 25 basis point move is priced in by December.

“In the grand scheme of things, it will become clearer and clearer that the Federal Reserve has started an easing cycle and will have no choice but to cut rates further,” said Akira Takei, fund manager at Asset Management One.

The new tariffs would hit a wide swathe of consumer goods from cell phones and laptop computers to toys and footwear, at a time when the manufacturing sector is already reeling from the accumulative impact of the trade war.

The US Institute for Supply Management said on Thursday its index of national factory activity fell to 51.2 last month, the lowest reading since August 2016. That came on the heels of surveys in Europe and Asia showing factories under the pump, with manufacturing activity in many countries shrinking in the face of intensifying trade frictions.

Oil prices bounced back a tad after suffering sharp falls the previous day.

US West Texas Intermediate (WTI) crude rose 1.1 percent to $54.52, having shed 7.9 percent on Thursday.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Apple’s services, wearables shore up results as iPhone drops below half of sales

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Apple Inc iPhone sales dropped to less than half of quarterly revenue for the first time in seven years, but CEO Tim Cook on Tuesday described the change as successfully diversifying away from a single product and forecast results above Wall Street targets.

That strategy proved especially useful in China, the world’s largest smartphone market. Investors feared a drumbeat of negative shipment data from the Chinese government and analysts meant problems for the iPhone maker.

Apple’s greater China sales, which had gone into a near free-fall earlier this year, dipped only slightly, assuaging concerns that trade tension were undermining Apple’s standing in one of its most important markets. Shares rose 4.25 percent after hours.

Moribund global mobile phone sales have led Apple to focus on accessories like the Apple Watch and growth in music, apps, gaming, video and a credit card coming in August. In mainland China, Cook said the overall number of Apple device users had grown in the fiscal third quarter, helping to increase the market for its services, whose sales were up by more than 10 percent there.

“We actually grew in mainland China,” Cook told Reuters. “Non-iPhone revenue grew 17 percent. We grew in every category outside of iPhone.”

But globally, iPhone sales fell 12 percent to $25.99 billion, after dropping 17 percent in the previous quarter, and matched Wall Street targets. Wearables and other accessories revenue rose nearly 50 percent, topping expectations.

Services revenue rose 12.6 percent to $11.46 billion, slowing and slightly missing expectations but setting a new record.

Apple said it expects revenue for the current fiscal fourth quarter of between $61 billion and $64 billion, compared with analyst estimates of $61.02 billion. At the high end of Apple’s forecasted range, sales would beat the prior year’s $62.90 billion in sales, despite the fact that analysts expected continued lackluster iPhone sales until 5G models arrive in 2020.

For the fiscal third quarter ended in June, Apple reported a 1% rise in revenue to $53.8 billion and a 7 percent drop in earnings per share to $2.18, compared with expectations of $53.39 billion and $2.10 per share, according to Refinitiv data.

Hal Eddins, chief economist for Apple shareholder Capital Investment Counsel, said he was pleasantly surprised to see iPhone sales declines slow down versus the prior quarter.

“You really don’t hear people talk about their phones like they did several years ago,” Eddins said. But, “the key is that when people want to splurge on a phone, they do it with an Apple product.”

Apple did not give the number of active Apple devices, but in January it said it was 1.4 billion, with 900 million of those being iPhones. Investors used the number, called the installed base, as a proxy for how many subscribers it can gain for its services business. Cook told investors on a conference call Tuesday that Apple has 420 million paid subscribers to its own services and third-party apps. The company has set a goal of 500 million by 2020.

Trip Miller, managing partner at Apple shareholder Gullane Capital Partners, said he wants to see services growth return to the 20 percent range and thinks Apple needs to use its billions in cash to buy media properties to fuel its forthcoming television service.

“You have to have a bigger installed base and have services that people get value from,” Miller said.

Trade Tension Still Looms Large

Apple reported results as US and Chinese trade negotiators resumed off-and-on talks. US President Donald Trump has suspended new tariffs on a final $300 billion of Chinese imports, which would include iPhones.

Trade tension has slowed down economic growth in China, a major market for Apple, which effectively cut iPhone prices in China earlier this year after currency exchange rates had made its phones too expensive for many Chinese consumers.

Apple’s market share in China declined to 5.8 percent from 6.4 percent, according to market research firm Canalys, in part because smartphone rival Huawei Technologies Co Ltd gained market share to become the top handset seller in the country.

But Apple experienced a smaller market share loss than competitors such as Xiaomi Corp, Oppo and Vivo, according to Canalys data. Cook said that iPhone price adjustments, plus the Chinese government’s move to cut phone taxes, helped keep iPhone sales in China from eroding further.

“Our trade-in and financing programs are doing extremely well in China,” Cook told Reuters. “Because of the active installed base is growing in China, our services business is doing very well, growing double digits.”

Apple shares have gained more than 20 percent since early June, when shares dropped on news that the U.S. Department of Justice had jurisdiction over the company in a potential probe as part of a broader review of whether technology giants engage in anticompetitive practices.

Apple said revenue for its “Wearables, home and accessories” segment that contains devices like the Apple Watch and AirPods was $5.53 billion, compared with analyst estimates of $4.81 billion.

Apple said it returned more than $21 billion to shareholders during the fiscal third quarter, including $17 billion in share repurchases. It declared a dividend of 77 cents per share.

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US Fed to cut rates for first time in a decade this month, says poll

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A quarter-point Federal Reserve interest rate cut in July is almost a done deal, according to economists in a Reuters poll, who expects another later in the year amid rising economic risks from the ongoing US-China trade war.

Expectations in the July 16-24 poll for the first-rate cut in more than a decade have firmed this month after several Fed members have strongly hinted policy easing is coming soon, pushing US stocks to new record highs.

While that lines up with most major central banks, which have turned dovish in recent months, the latest poll shows economists, like financial markets, have settled on a 25 basis point cut in the federal funds rate to 2.00-2.25 percent rather than a half-point reduction.

Over 95 percent of 111 economists now predict a 25 basis point cut at the July 30-31 meeting. Only two economists polled expected a 50 basis point reduction and a further two said the Fed would hold steady.

“The biggest reason for the Fed to cut rates is because it has been priced into the markets for a while now. If they didn’t follow through and cut, it would cause a bit of a shock,” said Andrew Hunter, senior US economist at Capital Economics.

“I think the recent general message from the Fed seems to be that it’s more about downside risks to growth rather than the economy being already weak.”

Indeed, while some forward-looking indicators on activity in the US economy have dipped, the unemployment rate is the lowest in 50 years and Wall Street is at a record high – not normally the environment for a change in the interest rate cycle.

Fed rate expectations have taken a U-turn this year, going to a holding pattern earlier in the year from a steady tightening path expected beforehand to a series of cuts. Indeed, just a month ago, the US central bank was still forecast to keep policy on hold for now and ease next year.

But since then, concerns about the impact from the trade war on already-slowing growth as well as weak inflation pressure have got policymakers increasingly concerned.

“Our reasoning for policy easing – slowing growth against a backdrop of subdued inflation and elevated uncertainty – is consistent with the Fed’s reasoning for insurance cuts,” noted economists at Goldman Sachs.

“By contrast, market-implied odds are consistent with a turn in the cycle, which we do not foresee in the near-term.”

The US economy likely lost momentum last quarter and is now forecast to have expanded at an annualised pace of 1.8 percent in the April-June period, down from 3.1 percent reported for the first quarter, according to the poll. Growth is expected to hover around that rate in each quarter through to end-2020.

More than 75 percent of common contributors from last month either downgraded their growth outlook or kept it unchanged.

The latest consensus points to another rate cut in the final quarter and nearly 40 percent of respondents predicted a follow-up cut was likely to come as early as September.

But interest rate futures are pricing in three rate cuts this year – in July, September and December.

Beyond this year, the US central bank is forecast to keep policy on hold until 2021, the poll showed.

“We don’t think this is the start of a full-on easing cycle; rather, these cuts are about providing a bit more accommodation to offset trade headwinds,” said Josh Nye, a senior economist at RBC.

“Fifty basis points of easing would fall short of what markets are currently pricing in over the next year, but should be enough to placate investors that are concerned monetary policy has become a bit too restrictive.”

The Fed’s preferred measure of inflation – the change in the core personal consumption expenditures price index – has remained below the 2 percent target since the start of 2019 and is not expected shoot significantly higher anytime soon.

With the economy still growing and inflation on an even keel, there was a clear gap between what the economists say the Fed is likely to do and what they recommend.

Asked what the Fed should do at this month’s meeting, nearly two-thirds of over 75 respondents said cut rates by 25 basis points. Five said policymakers should cut by 50, while the remaining – over 25 percent of economists – said they should do nothing.

“The issues that are affecting the US economy right now and the inflation environment won’t be helped by lower rates,” said Thomas Simons, senior economist at Jefferies.

“What is weakening economic forecasts going forward is trade tensions. Lowering rates 25 or 50 basis points is not going to change that situation. From a fundamental point of view, it doesn’t make sense to us.”

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow