Rates, rates, rates
Even with economic indicators flashing signs of slowdown, major central banks are still sounding hawkish notes.
The US Federal Reserve announced its 10th consecutive increase of its benchmark interest rate this week, to a range of 5% to 5.25%. Fed chair Jerome Powell hinted that a pause on hiking might now be on the horizon, but wouldn’t be pinned down on an answer.
The jobs market will, as always, be an important consideration for central bankers. Data earlier in the week showed job openings falling to their lowest levels in two years, while layoffs rose sharply.
But Friday’s stellar jobs report blew economists’ expectations out of the water with 253,000 newly added jobs in April and unemployment ticking down to 3.4%, the lowest since 1969. Markets liked the news, but the Goldilocks jobs report will likely complicate Fed discussions.
Across the Atlantic, the European Central Bank followed the Fed with its own quarter percentage point hike to 3.25%, and signaled that more is still to come. And over in Australia, the Reserve Bank of Australia surprised markets with a 25 basis points raise, foiling traders’ expectations of a pause.
US EV startups struggle, China’s EV leapfrog
The rapid departure from years of near-zero interest rates has rattled businesses, with Big Tech and Silicon Valley Bank being prime examples. Electric vehicle startups haven’t been spared the pain.
Over the past two years, shares in companies like Canoo, Nikola, Rivian, and Faraday Future have plunged by high double-digit percentages – a function first of supply chain snags and production challenges, then rate hikes. Ohio-based electric truck maker Lordstown even warned this week that it’s at risk of bankruptcy after its investment partner Foxconn accused it of breaching their contract by letting its stock price fall too much.
All the while, China EV Inc. and China Battery Inc. are expanding at home and abroad. Last week, Beijing published measures aimed at supporting Chinese EV exports. Those measures include directing state banks to offer financial support to Chinese carmakers overseas, having local governments provide direct marketing support, and brokering preferential deals between car companies and shipping firms. As the auto sector embraces EVs, Beijing is positioned to leapfrog.
Percentage change in share prices of US EV startups, May 2021 – May 2023
Slowing down less quickly
South Korean exports in April fell for the seventh straight month, the longest losing streak in three years. The decline was driven largely by falling sales to China, where factory activity fell unexpectedly in April to 49.5 on the official PMI. Together, those numbers indicate persistently weak global demand. That’s especially so given that South Korea’s exports of semiconductors, displays, and refined oil underpin much of the world’s economy.
But here’s the silver lining: If the numbers are adjusted for working day differences, South Korea’s exports decline of 10.4% from a year earlier is actually the smallest drop since December.