China to export deflation to the world

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Good morning. Global investors expect falling prices in China to push down inflation rates worldwide this year, as excess capacity in its slowing economy prompts Chinese exporters to cut prices on goods they sell abroad.

Prices of Chinese exports have been falling at their fastest rate since the 2008 financial crisis, indicating the world’s largest exporter is starting to send deflation outward to developed economies that have been battling high inflation.

“China will be exporting deflation to the rest of the world, and you will find various countries dealing with the fact that China has built up overcapacity,” said Chetan Sehgal, lead portfolio manager at Templeton Emerging Markets Investment Trust, a UK-listed fund.

China’s consumer prices fell at the fastest annual rate in 15 years in January, losing 0.8 per cent, while the country’s producer price index dropped 2.5 per cent year on year, according to official statistics released yesterday.

Here’s the full story — it’s full of insights from economists on how the deflationary forces coming out of China will impact global prices.

• Chinese equities: Equity purchases by Chinese banks and brokers’ international arms have helped push net flows to the country’s stock market in to positive territory for the first time this year.

• China-Russia relations: In a call yesterday, Xi Jinping and Vladimir Putin rejected US “interference” in their affairs and pledged to “maintain the stability” of industrial supply chains after trade between the two countries soared last year.

And here’s what I’m keeping tabs on today and over the weekend:

• Pakistan election: Vote counting is under way in an election marred by violence and a suspension of mobile phone services. Our live blog will report on developments throughout the day and this Big Read gives you all the background you need to know.

• Lunar new year: Financial markets are closed in China today for lunar new year’s eve. The year of the dragon begins on Saturday, celebrated across different Asian countries, including China, South Korea, North Korea, Singapore and Cambodia.

• American football: Super Bowl LVIII sees the San Francisco 49ers play defending champions the Kansas City Chiefs in Las Vegas on Sunday night (local time).

How well did you keep up with the news this week? Take our quiz.

Five more top stories

1. Ukrainian President Volodymyr Zelenskyy has dismissed Valeriy Zaluzhny as his top military commander, saying it was time for “renewal” of the country’s armed forces. Zaluzhny will be replaced by Oleksandr Syrsky, the experienced commander of Ukraine’s ground forces and close ally of Zelenskyy. However, Syrsky is widely disliked among Ukraine’s rank-and-file soldiers. Read more on the military upheaval in Kyiv.

• Who is Oleksandr Syrsky?: Ukraine’s new top military commander is credited with some of the most important battlefield successes since Russia’s full-scale invasion began, but is also associated with perhaps its biggest mistake.

• Ukraine aid: the US Senate voted to move forward with more debate over a new bill to send $60bn in additional funds to Ukraine, raising hopes that a compromise was in sight to increase American support for Kyiv’s war effort.

2. A US congressional panel has accused five venture capital firms, including Sequoia Capital China and Qualcomm Ventures, of investing more than $3bn in Chinese groups that support China’s military and of facilitating genocide and other human rights abuses. The committee said decades of investment, and other intangible benefits such as knowledge transfers, from American VC firms had helped China strengthen its priority sectors.

3. Japan’s SoftBank Group smashed through analyst expectations and reported a quarterly profit for the first time in more than a year, providing a badly needed boost for the volatile tech conglomerate and its founder Masayoshi Son. Here’s what fuelled the windfall.

4. The US Supreme Court yesterday expressed doubts about a decision by Colorado’s highest court excluding Donald Trump from the state’s primary ballot, in a high-stakes election case with consequences for the 2024 presidential race. The state’s high court in December disqualified Trump from its ballots on the basis that he had engaged in insurrection after the 2020 contest.

• More US news: Joe Biden “wilfully retained and disclosed” classified documents after serving as Barack Obama’s vice-president but will not face criminal charges, according to a report released by the US Department of Justice.

5. The S&P 500 stock index has touched the milestone of 5,000 for the first time, setting a record high as a narrow group of companies continued to drive the benchmark upwards. Strong gains for the largest companies — including chipmaker Nvidia and Facebook owner Meta — have more than offset the concerns of investors about how quickly the Federal Reserve plans to reduce US interest rates this year.

Visual analysis

Israel has said it will next target the city of Rafah in its military campaign against Hamas, whose senior leaders in Gaza have evaded capture. The estimated 1.4mn people crammed into the territory’s southern border city, already enduring dire conditions and intermittent bombings, have nowhere further to flee. In this FT visual analysis, recent satellite images, radar data on building damage and interviews with displaced people reveal what is at stake in the last refuge for Gazans.

We’re also reading . . . 

Chart of the day

Shares in SoftBank-backed Arm rocketed by more than 60 per cent yesterday after the UK chip designer reported higher revenues boosted by strong demand for artificial intelligence.

Take a break from the news

. . . and read this interview with Michelle Yeoh, the Oscar-winning actor and star of Everything Everywhere All at Once, on the quiet power of martial arts. “It’s a daily ritual I would not miss. Even if we have early call times on set, I will still commit to waking up earlier, to activate my mind and body.”

Additional reporting by Tee Zhuo and Gordon Smith