Singapore’s rich face more taxes. Chinese households cut spending. Global economic risks are increasing. Here’s what you need to know today.
More Taxes
Singapore’s next prime minister signaled that the rich may face more taxes. The government looks for ways to protect the most vulnerable groups from the impact of high inflation. Deputy Prime Minister Lawrence Wong told Bloomberg that the government needs to “lean a little more in the direction of more inclusive growth”. People with higher incomes would have to pay more taxes. The city-state, which before raised taxes on its richest 1% and imposed other levies. It needs more cash to sustain its fight against inflation given an expected budget deficit of $3 billion this fiscal year. Wong also warned that the United States and China could “enter into conflict” if they do not reduce tensions over Taiwan.
Slowdown Signs
Stocks in Asia are bracing for a cautious opening as growing signs of a sharp economic slowdown seep into global markets. Futures pointed to subdued starts in Japan, Australia, and Hong Kong after tech firms such as Tesla and Apple helped the S&P 500 close on Monday. U.S. data indicated a rapid cooling of manufacturing and falling sentiment from homebuilders, adding to economic risks after weak Chinese figures. The dollar rallied as Treasuries rose, lowering the 10-year U.S. yield to 2.79%.
Thrift Pains
Chinese households are cutting spending and bolstering their savings, in a trend that could depress economic growth in the coming years. While bank deposits are growing, indebtedness is increasing at the slowest pace since 2007. People have many reasons to feel depressed. The economy is slowing due to Beijing’s draconian Covid-zero stance and a deep slump in the real estate sector. Household wealth has been hit by falling house prices, and youth unemployment has reached an all-time high. Savings are having a big impact on multinationals and stoking concerns that China is caught in a downward spiral.
Must Read: Hong Kong stock market sees uncertain future as China grows
Fresh Patrols
China’s military said it conducted new patrols around Taiwan to “defend itself” against another visit by the U.S. Congress, less than two weeks after House Speaker Nancy Pelosi traveled to Taipei. The move came as a delegation led by Sen. Ed Markey, a Democrat from Massachusetts, continued a two-day visit to the democratically governed island. Thirty-three U.S. lawmakers have visited Taiwan so far under The Joe Biden administration, forcing the president to test Beijing’s red lines, whether he wants to or not.
New Expat Hotspots
As Covid lockdowns, political turmoil, and rising costs drive Hong Kong’s expats, and rival Singapore raises the bar for imported labor, young professionals seeking adventures and careers abroad face a dilemma. Where does it continue? In a bid to identify the cosmopolitan hot spots of the future, we spoke to six workers who, from the beaches of Rio to the tech hub of Bangalore, are taking the road less traveled.
What we’ve been reading
- Ikea shoppers panic after security closes the store due to Covid risk.
- The Fed’s past crises hold secrets to address future recessions.
- Why isn’t the new “Langya” virus worrying me (yet)?
- A full-scale nuclear war could kill 5 billion people, a study shows.
- Protests against rising energy bills spread across the UK.
- Michael Burry’s hedge fund added one stock and got rid of the rest.
Must Read: Global Investors Sell Most of China Government Bonds in June
And finally, this is what Garfield is interested in this morning
The impressive rally in the U.S. dollar this year was accompanied by a pullback in Asian central banks’ currency holdings. That’s a big deal because the region has more than half of the world’s foreign exchange reserves, including seven of the largest foreign exchange reserves of this type.
The drop in Asia’s reserves has been striking (hat to CBA’s Martin Whetton on a recent note), with China only cutting $179 billion as of June 30 and the rest of Asia cutting by $328 billion for the same date, before adding some in July. Part of this is because non-dollar holdings are worth less when reported in the U.S. currency and because bonds are worth less after the first-half collapse. There have also been several interventions and the feeling that some central banks are finding that US dollars are expensive to keep holding. Active reductions in reserves could also help exacerbate bond declines by weakening demand, creating a feedback loop as higher U.S. yields fuel dollar buying. Any further rise in the dollar could put these forces back into play.
Garfield Reynolds is Bloomberg News’ chief rates correspondent in Asia, based in Sydney.
— Assisted by Garfield Clinton Reynolds
