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US chipmaking curbs hit Samsung and SK Hynix

Shares fall after Washington revokes waivers that allowed South Korean companies to send equipment to China without licence

Shares in South Korea’s top chipmakers fell on Monday after Washington revoked waivers that had allowed them to send US manufacturing equipment to their facilities in China without a licence.

SK Hynix shares declined almost 5 per cent, while Samsung Electronics shares shed more than 2 per cent after the US government said it was removing the companies’ “validated end user” status.

Former president Joe Biden had allowed the world’s two largest producers of memory chips to send US chipmaking tools to their Chinese plants without having to apply for a licence for each transfer, amid concerns that hobbling the South Korean companies’ operations would benefit Chinese rivals.

The commerce department on Friday said it had closed the “Biden-era loophole” and that companies would now need to obtain licences to export US equipment to chip factories, known as “fabs”, in China.

The department added that it “intends to grant export license applications to allow former VEU participants to operate their existing fabs in China” but “does not intend to grant licenses to expand capacity or upgrade technology at fabs in China”.

The operations affected include Samsung’s plant in the city of Xi’an, which accounts for about 30 per cent of its Nand flash memory production, according to analysts at Bernstein.

SK Hynix’s plant in the city of Wuxi accounts for 35 per cent of its total Dram output, while its facility in Dalian — recently acquired from ailing US chip giant Intel — accounts for 37 per cent of Nand production.

CW Chung, joint head of Asia-Pacific equity research at Nomura, said Samsung and SK Hynix “had continued to upgrade their Chinese facilities, hoping that the US waiver would be kept in place”.

While the “short-term impact on their production in China is limited” from the waiver revocation, the South Korean chipmakers “will have to think hard now whether to continue their operations there”, said Chung.

Kim Yang-paeng, a researcher at the Korea Institute for Industrial Economics and Trade, said preventing the companies from upgrading their Chinese plants would increase the technological gap between the less sophisticated “legacy” chips they produce in China and the advanced memory chips they produce in South Korea.

But the “strong demand for legacy memory chips” will allow them to maintain profitability at their Chinese operations for the time being, said Kim.

Stacy Rasgon, a senior analyst at Bernstein, said US authorities were likely to continue granting licences to South Korean companies to maintain their Chinese fabs’ existing capabilities because “suddenly removing them from the global market would create shortages and price surges”.

South Korean chipmakers operating in China are also coming under intensifying pressure from Chinese rival CXMT, which increased its share of the $90bn global Dram memory market from close to zero in 2020 to 5 per cent last year, according to Shenzhen-based consultancy Qianzhan, and is aggressively expanding production.

SK Hynix said it would “maintain close communication with both the South Korean and US governments and take necessary measures to minimise the impact on our business”. Samsung declined to comment.

Ohio-based First Brands Group has appointed Deloitte to review its invoice factoring

Jefferies is among the private credit investors that have amassed exposure linked to a US automotive parts supplier that has come under scrutiny for its use of off-balance sheet financing techniques.

Chicago-based UBS O’Connor and a hedge fund owned by Jefferies have provided invoice financing to First Brands Group, which last month shelved a $6bn loan deal after investors expressed concerns about its financial disclosures, according to people familiar with the matter.

Ohio-based FBG, a privately held company owned by little-known businessman Patrick James, has appointed Deloitte to carry out a “quality of earnings” review in a bid to assuage these concerns, according to people familiar with the matter.

The review is partly focused on the use by FBG, which sells parts such as windscreen wipers and fuel pumps, of factoring — a financing technique that allows companies to sell outstanding customer invoices to banks or investors in return for upfront cash.

Private credit firms have amassed trillions of dollars in assets and become the lender of choice for mid-size, highly leveraged companies, filling in a crucial gap in financing left by banks after the financial crisis. However, the funding terms and health of the businesses they lend to are largely kept out of the public domain.

The firms have in recent years pushed deeper into asset-backed lending, such as invoice finance, to meet demand from yield-hungry investors. 

As well as factoring, FBG has also made use of supply-chain finance, according to rating agency reports. This financing technique, sometimes called “reverse factoring”, allows a company’s lenders to pay its suppliers upfront and then collect the money from the company later.

These financing techniques are generally not included in a company’s debt figures and are sometimes treated as “off balance sheet”. Fitch said in a ratings report last month that the agency “includes off-balance sheet factoring and a portion of FBG’s outstanding supply-chain financing” when making its own “debt calculations”.

FBG has also attracted scrutiny from investors for its frenetic pace of debt-funded acquisitions and the dearth of public information around James. 

FBG, which is not required to publish its accounts, carries junk-level credit ratings from the three major agencies: S&P, Moody’s and Fitch.

While rating agencies have not publicly disclosed the amount of factoring the auto parts supplier has outstanding, several invoice finance specialists said there could be billions of dollars in financing facilities outstanding linked to FBG’s suppliers and customers, leaving investors exposed to the risk of losses if the invoices are not paid. 

S&P said in May: “FBG’s factoring has increased significantly over the past couple of years.” The rating agency added it had “received additional disclosure” on its use of these facilities “exceeding” previous adjustments S&P had made to account for factoring.

UBS O’Connor, which the Swiss group has agreed to sell to Cantor Fitzgerald, and Jefferies’ trade finance focused fund Point Bonita Capital have exposure to debt linked to FBG’s invoices, according to two people familiar with the matter. They said London-based private credit firm Pemberton and Katsumi Global, a Michigan-based invoice finance group, also had exposure. 

Katsumi is owned by a joint venture between Japanese financial institutions Mitsui & Co and Norinchukin Bank.

The size of the investors’ exposure could not be established.

Jefferies’ investment banking division was also in charge of marketing the delayed $6bn loan deal last month. 

The auto parts sector has come under pressure due to US President Donald Trump’s tariff policies.

FBG has grown rapidly through a run of deals spearheaded by James, with Moody’s writing earlier this year that FBG “has an aggressive financial policy of pursuing fully debt financed acquisitions”.

James, who owns FBG through his holding company Crowne Group, was born in Kuala Lumpur, Malaysia and moved to the US to attend college in Ohio, according to a notice announcing a board appointment.

Several credit investors who considered participating in the now-delayed $6bn loan deal said the lack of public information on James and his business record had also prompted concerns.

James and other companies linked to him were sued over a decade ago by two lenders that alleged he had committed fraud. 

Fortress Investment Group alleged in a 2011 lawsuit that several seemingly independent companies owned by James did not “have separate books and records”, while accusing the businessman of creating a “web of companies” to transfer out funds “in an attempt to defraud” creditors.

Pennsylvania’s Tristate Capital Bank sued James and his companies in 2009, accusing them of making “misrepresentations and omissions relating to the accounts receivable and inventory”, which gave the lender “a false understanding of those companies’ financial strength”.

James denied these allegations of fraud in the two cases, which were both ultimately dismissed after settlements were reached.

FBG has previously offered yields of more than 10 per cent on financing linked to its invoices, according to three invoice finance specialists. They added that these interest rates were high given that the group’s customers — which include automotive retailers — are often investment-grade rated.

While this form of financing is typically short-term in nature, some of FBG’s factoring programmes have “very extended terms”, according to S&P.

FBG has told investors it intends to relaunch its loan deal after Deloitte has completed its review. BDO has also audited its prior financial statements, according to people familiar with the matter.

Moody’s announced last month that the delay to the refinancing deal was “credit negative” for FBG, noting it had “almost $5bn” in first-ranking debt set to mature in March 2027. FBG held $972mn of “unrestricted cash” as of March, according to Fitch.

UBS O’Connor, Jefferies and Pemberton declined to comment. FBG, Katsumi, Deloitte and BDO did not respond to requests for comment.

The billionaire’s lawsuit against the tech giant shows the iPhone still holds sway in AI’s future

For all of the talk in Silicon Valley about how screwed Apple AAPL -0.18%decrease; red down pointing triangle is in the AI race, the iPhone maker got a glowing endorsement of its staying power this past week from an unlikely source: Elon Musk.

The billionaire’s artificial-intelligence company and his social-media platform sued the iPhone maker, claiming it was violating antitrust laws by giving preferential treatment to its own AI partner (and Musk enemy), OpenAI and ChatGPT.

“This makes it hard for competitors of ChatGPT’s generative AI chatbot and super apps powered by generative AI chatbots to scale and innovate,” said the lawsuit, filed by Musk’s xAI and X in a Texas federal court.

That is at odds with a prevailing view in Silicon Valley. Meta Platforms chief Mark Zuckerberg and others believe that advanced AI will usher in a new computing paradigm that basically relegates the iPhone to something akin to a Computer History Museum exhibit. They see it as a rare generational opening to unseat Apple’s hold as the gateway to the digital world.

A one-sided cold war has been brewing between Musk and Apple chief Tim Cook ever since the Tesla and SpaceX CEO acquired Twitter in late 2022. Musk quickly realized how powerful App Store rules are for companies like his.

If Musk thought the paperwork to launch Starship was frustrating, he had obviously never waded through Apple’s app-review process.

Opponents of Apple’s control of the App Economy watched with glee as Musk lashed out at Apple and Cook personally. They quietly hoped Elon’s megaphone and megabucks might help their cause in fighting the tech giant.

His entry into the antitrust battle against Apple held the promise of fueling new excitement in legislation that was then stalled before Congress. Republican Sen. Marsha Blackburn of Tennessee, in particular, seemed eager to make hay of his interest.

But Cook quickly dispatched Musk, essentially patting him on the head with a VIP tour of Apple Park and apparent promises of continuing to advertise on his struggling social-media platform. Soon enough, Musk raced off to the next shiny objects, such as messing with Sam Altman’s AI ambitions.

Frankly, it’s hard to tell these days how much fire is in Musk’s belly to fight Apple’s perceived injustices. Or if Apple is receiving the incoming attacks simply because of the animosity Musk has for Altman.

The two billionaires teamed up almost a decade ago to create OpenAI. Eventually, Musk left in a huff over their differing visions for the future. OpenAI’s sudden and, perhaps, unexpected success has turned the company into Musk’s own personal “Rosebud” obsession. He since founded xAI as a rival to OpenAI, and merged it with Twitter, now known as X.

His companies’ lawsuit against Apple and OpenAI this past week came just days after a federal judge in the San Francisco area rejected Musk’s efforts to dismiss OpenAI’s claims that he is trying to harass the startup.

“OpenAI puts Musk on notice that it alleges the media campaign ‘significantly threaten[ed] or harm[ed] competition,’ was either untrue or misleading and deceiving to an actual customer, and was designed to—and ultimately did—disrupt a business relationship leading to economic harm,” Judge Yvonne Gonzalez Rogers wrote. “At this stage, the allegations are sufficient.”

A trial is scheduled for March.

It’s hard not to see Musk’s continued legal campaigns against Altman as anything but a sign of how far behind his own efforts to develop AI are—despite all of his bravado.

In the Apple-OpenAI case, his side essentially admits as much. The Musk lawsuit notes that his AI chatbot, Grok, has gained little market share “despite accolades about its superior features,” while OpenAI has quickly become the dominant player.

The arguments against Apple draw similarities to an antitrust case brought last year by the Justice Department. That case includes allegations that Apple has taken steps to suppress so-called superapps from taking hold. This was supposedly done out of fear that such third-party offerings make it easier for iPhone users to switch to rival smartphones, diminishing the value of the Apple ecosystem.

Musk has said his broader vision for X is to remake it as a superapp, similar to China’s powerful WeChat, where users conduct much of their digital lives.

In the latest lawsuit, Musk’s team argues that AI supercharges those superapp efforts. Essentially, Musk’s claim is that the Apple-OpenAI partnership hinders rivals from gathering important user data from iPhone customers.

This hurts AI development, which in turn prevents superapps from effectively rising up to threaten the iPhone’s supremacy. “This is a tale of two monopolists joining forces to ensure their continued dominance in a world rapidly driven by the most powerful technology humanity has ever created: artificial intelligence,” the lawsuit said.

Apple hasn’t yet officially responded to Musk’s lawsuit, although it has previously said its App Store is “designed to be fair and bias free.” It is defending itself against the government’s antitrust case and said the government lacks evidence of wrongdoing and “fundamentally misunderstands” its business.

“DOJ says Apple stifles the success of ‘super apps,’ despite the fact that Apple’s rules allow and support such apps, and indeed a multitude of ‘super apps’ exist on the App Store today,” Apple said in a July court filing.

Even if Apple agrees with OpenAI that Musk’s claims are without merit, his escalation comes with new risks for the iPhone maker outside the courtroom—political risks.

The idea of legislation targeting Apple has returned to Congress. Blackburn, the Republican senator, has joined with her Democratic colleagues to reintroduce the Open App Markets Act.

She told me in a statement that Musk’s claims about Apple’s AI interference are why Congress needs to act. “Big Tech should not be allowed to play kingmaker in the mobile app economy,” she said. “This kind of control allows companies to use their app stores to favor certain businesses and partnerships while stifling competition, limiting innovation, and ultimately hurting the consumer.”

For Musk, the friend of his enemy has become his enemy.

Proposal comes as president also pushes for congressional redistricting and restrictions on mail-in balloting

President Trump pledged to sign an executive order mandating that voters be required to present identification before casting ballots, widening his push to alter voting requirements head of next year’s midterm elections.

“Voter ID must be part of every single vote. NO EXCEPTIONS!” he wrote on Truth Social, adding that he wanted states to use paper ballots and that exceptions would only be given to sick people or those serving in the military.

Trump has regularly attacked the election process since losing the 2020 election, blaming his defeat, without evidence, on mail-in ballots and voter fraud. On Aug. 18, he promised to lead a campaign to get rid of mail-in ballots and said states must do what the federal government and president tell them. At the time, he promised an executive order to help bring honesty to next year’s midterm elections.

If he seeks to change voting requirements, he would likely be challenged in court because elections are administered by states. The Constitution gives Congress the power to change those rules.

In June, a federal judge blocked most of Trump’s March executive order that required proof-of-citizenship documentation for those registering to vote using federal forms and tapped government agencies to crack down on ineligible voters. Most people register to vote through their states.

The order threatened to pull the small amount of money earmarked by Congress for elections from states that fail to comply.

The judge ruled that the order went beyond Trump’s authority.

Trump has asked the Department of Government Efficiency, created by Tesla Chief Executive Elon Musk, to identify inaccuracies in voter-registration data.

The president is also pushing for Republicans to redraw congressional maps in states such as Texas ahead of congressional midterm elections next year. Republicans currently hold a slim 219 to 212 majority in the House.

In calling for reform, Republicans have repeatedly cited misleading or false claims that large numbers of noncitizens have voted in recent elections. Many studies have found no evidence of large-scale voting by ineligible immigrants. It is illegal for noncitizens to vote in federal elections, and states have measures in place to verify that voters casting ballots are eligible.

Thirty-six states have laws requesting or requiring voters to show some form of identification at the polls, according to the National Conference of State Legislatures. In Congress, lawmakers have introduced a bill to require voters to show identification to vote.

Critics of such laws say they could block U.S. citizens who have changed their names or not updated identification documents from voting. They could also challenge states that don’t have the resources to overhaul their procedures and manage databases with sensitive information.

Confusion over power vs electricity, energy input vs output and net zero vs zero emission does not help the already complex climate conversation

Reading recent media coverage about climate action means lurching between apparent victory and defeat. It’s triumph one day as another decarbonisation milestone is heralded. Then disaster the next as countries and companies alike walk back on climate commitments or veer perilously close to denying climate change altogether.

We can expect more such whiplash: Hong Kong Green Week takes place next month, the UN General Assembly and Climate Week NYC are also due to begin in September, followed by the Cop30 climate change summit in Brazil in November.

If the year so far is any guide, discourse at these events will be laced with three common misunderstandings (promoted deliberately or otherwise). They are simple and beguiling misconceptions that impede our understanding as an increasingly noisy debate rages.

The first is the tendency to conflate electricity with energy. The second: confusing energy input with energy output. And the third? Mistaking net-zero emissions for zero emissions.

This isn’t just splitting semantic hairs. In the race to decarbonise, headlines like “Renewables now supply 50 per cent of China’s power” frequently trumpet dramatic progress. They sound transformative – until you realise “power” usually means electricity, not total energy.

And therein lies a problem.

Electricity accounts for only about 20 per cent of final global energy use. The rest – transport fuels, industrial and residential heating – is still overwhelmingly fossil-based. Yet the word power blurs this distinction. Phrases like “solar power”, “power plants” and “clean power” reinforce the illusion that electricity is synonymous with energy.

This has consequences. Policymakers and the public often overestimate how far we’ve come. Electrifying cars, homes and factories is vital but not the whole picture. Aviation, shipping, steel and cement remain stubbornly carbon-intensive sectors.

By focusing on electricity, we highlight the sectors where progress is easiest and downplay the harder, messier parts of the energy system. The word “power” becomes a rhetorical short cut, masking the complexity of full decarbonisation. We should celebrate the strides that renewables have made but remember not to conflate electricity with total energy demand.

We also frequently confuse energy input with energy output. In other words, energy supply is not the same as the energy we use.

Commentator Michael Liebreich calls this the “primary energy demand fallacy”. It arises from a key metric the International Energy Agency (IEA) calls “primary energy demand” – which doesn’t represent the energy we use. It’s more like supply.

This is important because fossil fuels are significantly less efficient than clean energy technologies in converting primary energy inputs like oil or coal into energy outputs – like light from a bulb, motion from a car or heat from a radiator.

This efficiency gap is huge. Many coal-fired power stations, for example, convert no more than 35 per cent of their fuel into usable power like electricity, with the rest mostly lost to heat. Oil and gas are not much better. An electric motor, by contrast, converts around 90 per cent of its electricity into motion.

By implying clean energy needs to replace fossil fuels on a one-to-one basis, proponents of the primary energy demand fallacy ignore the efficiency gains of electrification, perpetuate the idea that clean energy can’t meet global energy needs and make the transition look more challenging than it is.

So the next time you read a climate sceptic decrying renewables’ small share of the world’s energy demand, remember that around two-thirds of fossil fuels’ share of this “demand” is waste heat. The transition is difficult, but not nearly as difficult as some would have you believe.

And it should be obvious, but net zero doesn’t mean zero emissions. It means all emissions are balanced by equivalent carbon removals.

It’s a term that’s come in for a lot of flak. A long-standing criticism is that the “net” in net zero gives countries and companies a licence to soft-pedal decarbonisation: enabling them to continue emitting on the basis they can cancel it out later. In other words: burn now, pay later. It leads to an overdependence on carbon offsets, which sparks questions about the integrity of carbon credits and their susceptibility to double counting.

Yet tightening regulatory compliance, increased scrutiny of voluntary carbon markets, and recent progress with international carbon markets under Article 6 of the Paris Agreement have gone some way towards addressing these concerns.

A more challenging, yet often overlooked, problem with net zero is with “zero”.

Focusing on “zero” tends to have unhelpful implications. “Zero” is psychologically satisfying: it feels clear, clean and complete. But it also encourages an overly binary framing of the climate problem, i.e. renewables = good, while fossil fuels = bad. This gets in the way of a reasoned discussion of the transition.

A bias towards “zero” also tends to promote techno-centricity, emphasising electrification, hydrogen and carbon capture, often to the detriment of powerful nature-based solutions like reforestation, wetland restoration and regenerative agriculture.

Net zero is an essential idea in understanding the pros and cons of climate action and solutions. But absolutism, whether from a “net” or “zero” angle, gets in the way of that understanding.

Climate is hard, complicated and contentious enough already. Puncturing sweeping yet erroneous generalisations and recognising the nuance of the debate on either side of the argument are essential to making continued progress. Keeping these three common misconceptions in mind can go a long way to staying grounded in the process.

Multipolar arms race takes ballistic missile threat to new levels

Cold War-era bilateral arms control treaties simply won’t work as more states emerge with deterrent capabilities, complicating calculations

War is just one press of a button away, and the likelihood of that happening – even if accidental – is not insignificant. The advancement of ballistic missile capabilities has opened up new battle spaces. Just as during the Cold War, today’s adversaries can hold each other’s populations hostage under the threat of nuclear war.

As we mark 80 years since the second world war ended, it is becoming easier to fathom our world at war again. However, while it may be true the “long peace” was more an exception than the norm, the current trajectory of returning to a historical norm of perpetual conflict can be reversed.

The logic of war remains the same but the nature of war – and the scale of suffering we can inflict – has radically changed.

The ballistic missile threat is very much alive. Russia recently lifted a self-imposed ban on the deployment of nuclear-capable intermediate-range missiles. Washington is developing missile delivery systems in the Asia-Pacific through the Aukus pact with Australia and Britain. China tested its DF-31AG intercontinental ballistic missile over the Pacific Ocean in September last year. North and South Korea continue to test-launch ballistic missiles, with Seoul firing its first submarine-launched missile in 2021.

These do not bode well for the global strategic environment.

An absence of direct confrontation between the great powers does not mean we are at peace. Since the atomic bomb and the adoption of ballistic missiles as a means of delivering destruction, the nine nuclear-weapon states have relied on instilling fear to avoid confrontation. We call this “deterrence” and we believe it will hold. But we forget that it only takes one mistake or misperception of intentions for deterrence to fail.

During the Cold War, intermediate and short-range missiles destabilised the US-Soviet strategic relationship, easily risking escalation. The Soviet Union feared a “decapitation strike” on Moscow from the West, especially after Nato’s deployment of intermediate-range Pershing II missiles in western Europe.

Coupled with president Ronald Reagan’s Strategic Defence Initiative – also known as the “Star Wars” programme, which touted the ability to intercept any missile threats – the Soviets increasingly realised their nuclear deterrent could be rendered ineffective. Both sides eventually recognised that such a relationship was unsustainable.

In 1987, the United States and the Soviet Union signed the Intermediate-Range Nuclear Forces (INF) Treaty, a breakthrough after close calls including the 1962 Cuban missile crisis and in 1983 during the Euromissiles Crisis. But in 2018, President Donald Trump announced he would withdraw the US from the treaty, citing Russian noncompliance after its development and deployment of the SSC-8 intermediate-range cruise missile.

Following Moscow’s invasion of Ukraine and the breakdown of US-Russia relations, President Vladimir Putin has also abandoned the treaty. The US is unlikely to ever come to a similar arrangement again with Moscow – or even Beijing.

Today’s multipolar world order creates challenges for bilateral arms control arrangements. Any limitations imposed between the US and Russia would be subject to Washington’s considerations of China’s missile deployments. While this logically supposes the three powers could formulate a trilateral arrangement, it would subsequently be subject to Beijing’s strategic considerations of India’s missile developments.

Germany's Merz expects Ukraine war to last a long time

BERLIN, Aug 31 (Reuters) - German Chancellor Friedrich Merz said on Sunday he was braced for the Ukraine war to last a long time given that wars usually end in military defeat or economic exhaustion, scenarios he does not see on the horizon for either Kyiv or Moscow.

Merz's comments come a day before the expiry of a deadline set by U.S. President Donald Trump for a meeting between the presidents of Russia and Ukraine with a view to paving the way for peace talks. Trump has threatened "consequences" if the meeting does not take place.

Merz and French President Emmanuel Macron have said the fault lies with Russian President Vladimir Putin, and have urged the U.S. to impose tougher sanctions on Moscow.

"I am preparing myself inwardly for this war to last a long time," Merz said in an interview with public broadcaster ZDF.

Efforts are being made through intensive diplomatic initiatives to end the war as quickly as possible, but this cannot be "at the price of Ukraine's capitulation" because Russia would then simply target another country, he said.

"And then the day after tomorrow it will be us," Merz added. "That is not an option."

He refused to be drawn in the interview on the issue of a possible deployment of German troops to Ukraine as part of security guarantees in the event of a peace deal.

Britain and France are spearheading a proposal for a "reassurance force" to deter potential future Russian aggression within that context, but the prospect of Germany joining them has sparked unease in a country scarred by its Nazi past.

The Kremlin said on Sunday that European powers were hindering Trump's peace efforts, and that Russia would continue its operation in Ukraine until Moscow saw real signs that Kyiv was ready for peace.

Will the next US jobs report make a Fed rate cut more likely?

Investors are squarely focused on Friday’s US non-farm payrolls after a troubling set of July jobs numbers.

The data, out in early August, showed that only 73,000 jobs were added, while the previous two months’ numbers were revised down by 258,000, bringing monthly average payroll growth between May and July to just over 35,000.

The concern over the labour market that followed prompted rate markets to start pricing in a greater chance of an interest rate cut as soon as September. It also prompted President Donald Trump to fire Erika McEntarfer, head of the Bureau of Labor Statistics — a controversial move that panicked some investors.

Although Fed chair Jay Powell hinted that the central bank would go ahead with a September cut in his Jackson Hole speech, investors understand that this will be conditional on the August jobs report. Should it come in above expectations and show that the labour market is not under immediate pressure, other signs in the economy suggest that the Fed could stay put. Inflation is lingering and growth is still reasonably strong, as shown by last Thursday’s upward revision to second-quarter GDP.

Economists polled by Reuters expect 70,000 jobs to have been added in August. A downward miss, and a potentially large downwards revision, could firm up the market’s current interest rate expectations, or potentially push traders to price an even bigger cut in September. But stronger numbers may put a damper on markets’ enthusiasm — and frustrate the president’s unorthodox push for a cut. Aiden Reiter

Will August inflation quash lingering hopes of another ECB cut?

Since the European Central Bank’s decision in July to keep interest rates unchanged — ending a series of quarter-point cuts that halved its policy rate to 2 per cent — traders have dialled back their expectations of another cut before the end of the year.

August inflation data, to be released on Tuesday, will be the “last chance saloon for ECB doves”, said advisory firm Pantheon Macroeconomics, arguing that a softer than expected print could bolster the case for another cut.

Financial markets are pricing in a less than 3 per cent probability of a quarter percentage point reduction at the ECB’s next meeting on September 11. Any further cuts at all this year are seen as unlikely.

Economists polled by Reuters expect August inflation to come in bang in line with the ECB’s medium-term 2 per cent a year target for the third month in a row, while economic activity on balance has been slightly better than expected.

In Germany, the Eurozone’s largest economy, annual inflation rose to 2.1 per cent in August, up from 1.8 per cent in July and just above the 2 per cent expected by economists.

Analysts at Goldman Sachs said on Thursday that inflation expectations in the euro area “appear well-anchored” as a post-pandemic surge in prices has petered out. “This is consistent with our expectation that inflation will converge back to 2 per cent,” they said.

Will Swiss inflation prompt bets on negative rates?

Investors will be watching Swiss inflation data for clues about whether policymakers will be forced to resort to negative interest rates to support the economy, as Switzerland grapples with the impact of steep US tariffs.

Economists polled by Reuters expect 0.2 per cent year on year inflation in August, which would be unchanged from July’s figure.

Switzerland has faced stubbornly low inflation this year, prompting the central bank to cut its policy rate to zero in June. Markets are pricing in a 90 per cent chance that policymakers will hold rates steady in September — although a minority of traders are betting on a fall into negative rates. 

Inflation briefly turned negative in May, with a reading of minus 0.1 per cent year on year.

A 39 per cent “reciprocal” tariff on its exports to the US came into effect in August, while economic growth has slowed sharply. At the same time, the Swiss franc has surged this year, as investors have sought haven currencies amid global market volatility, putting further downward pressure on Swiss inflation.

“There is a risk that Swiss inflation turns out below consensus estimates,” said Tomasz Wieladek, chief European macro strategist at T Rowe Price. 

He added that the Swiss purchasing managers’ index, a closely watched indicator of economic activity, showed tumbling sentiment in the services sector after the latest US tariff announcement.

“If this sentiment is reflected in actual demand, core inflation may weaken again,” Wieladek said. If so, the central bank could be forced to consider a return to the world of negative rates, he added

Targeting expensive houses and non-residential land would leave the vast majority of homeowners and farmers untouched

As the UK government faces fiscal challenges, it is considering options to raise tax revenue that were previously off the table.

Proposals such as a 2 per cent tax on wealth over £10mn have made headlines. However, many expensive assets — such as paintings and yachts — are mobile, unlike fixed property and land.

Instead, the government should replace the top two bands of council tax, covering around 1.1mn properties in England and Wales, with an annual wealth tax of 0.5 per cent as well as a 1 per cent tax on all agricultural and unoccupied land valued above £40,000 per hectare. For non-UK taxpayers and owners of second homes, the rate would be 1 per cent, lower than typical US property tax rates. Crucially, the great majority of homeowners and farmers would be untouched by these reforms.

UK council tax is based on 1991 property valuations, grouped into eight price bands and paid by tenants. It is probably the world’s most unfair property tax: the poorest pay the highest tax as a percentage of property value and the richest the least. It is also unfair regionally. The tax revenue raised by a home in the top band is around £4,500 in Nottingham but just £1,060 in Westminster.

Governments tend to balk at wholesale reforms, even when winners outnumber losers. This is why stamp duty land tax, at high and progressive rates, affecting only a small number of property owners in a given year, has endured, despite its consequences for social mobility and economic efficiency. Losers, especially the wealthy, shout louder than winners. The outdated nature of property valuations creates additional problems. But politicians are fearful of the upheaval created by revaluation. By confining revaluation and reform to the top two council tax bands, the costs and political pushback would be limited. To protect cash-poor pensioners, payment deferral should be permitted until the property was sold, with a 0.6 per cent tax rate instead of 0.5 per cent for cash payers. For every year deferred, the tax authority’s equity stake in the property would rise by 0.6 per cent.

Estimates suggest such a tax could increase revenue from the two top council tax bands by as much as £9bn. Only revenue in excess of what council tax would have raised would accrue to the central government, ensuring that no local authority loses out. Tax collection, based on owners rather than occupiers, would be run by HMRC, not local authorities.

A fall in top-end property prices in London and south-east England would be likely to follow as the holding cost of ownership rises. However, a reduction in the highest stamp duty rates for expensive property, to a top rate of 5 per cent, would stabilise the market. (Those who have recently paid high rates of stamp duty will need reductions in future property tax liabilities.)

Several benefits would follow. Fewer luxury homes bought by foreign investors to park money will sit empty. With lower deposits needed to access a mortgage and lower stamp duty rates, housing affordability will improve for high earners — boosting future employment and income tax revenue. A shift in developer incentives away from luxury housing and lower local land prices in high-value areas should improve housing affordability more broadly.

A tax on current market values of non-residential land in expensive locations would also have widespread benefits. It would lower farmland prices potentially relevant for development, especially for projected new towns. Introducing holding costs on undeveloped land would facilitate land value capture — a crucial tool in supporting the government’s affordable housing plans — so that surrounding communities and society more broadly benefit from gains rather than letting existing landowners reap so much of the profits.

Many voters, as well as Labour backbenchers, feel that the new government has neglected issues of fairness. The proposed reform asserts fiscal probity while addressing this concern.