Good morning. Here’s what happened overnight and what you need to know today.
1.
Rate debate: Federal Reserve governor Michelle Bowman warned the US central bank may need to raise interest rates again if inflation remains high. Speaking in London, Bowman said it was not appropriate to cut rates yet, stressing concerns that immigration and aggressive federal spending could boost demand and stall inflation progress. Despite inflation falling from over 7% in 2022 to 2.7% in April 2023, it still exceeds the Fed’s 2% target. Bowman, a voter on the Fed’s rate-setting committee known for her hawkish stance, suggested further rate hikes might be necessary if inflation sticks at its current level. “I remain willing to raise the target range for the federal funds rate at a future meeting should progress on inflation stall.” Her comments underscore the diverse opinions within the Federal Open Market Committee about the possibility of rate cuts this year. Investors are currently betting on a quarter-point cut in mid-September, the last chance before the November election. (Federal Reserve)(Financial Times)
2.
Orthodox drafted: Israel’s Supreme Court has unanimously ruled that Ultra-Orthodox Jewish seminary students must be drafted into the military, creating new political challenges for Prime Minister Benjamin Netanyahu. The court ruled that Israel’s compulsory military service applies to the ultra-Orthodox like any other citizen. The landmark decision ends decades of exemptions that allowed Ultra-Orthodox men to avoid conscription, a point of contention amidst Israel’s ongoing conflicts with Hamas and Hezbollah. Netanyahu’s already fragile coalition, reliant on two Ultra-Orthodox parties, now faces increased strain because of the ruling. The court’s decision also ends state subsidies for seminaries avoiding military service. While opposition parties welcome the ruling, viewing it as a step towards equality, Ultra-Orthodox leaders argued it threatens their traditions. (Reuters)(Associated Press)
3.
Kenya’s tax rage: Police opened fire on protesters outside Kenya’s parliament on Tuesday, killing at least five people and wounding dozens, as legislators passed a controversial finance bill to raise taxes. Demonstrators, opposing the new taxes amidst economic hardships, overwhelmed police and set parts of the parliament building ablaze. Internet services were disrupted nationwide during the protests, which had begun peacefully but turned violent as crowds swelled, leading to clashes in several cities, including Eldoret, Mombasa, and Kisumu. Opposition leader Raila Odinga called for the immediate withdrawal of the bill and condemned the harsh response from police. Despite some concessions from the government, the bill aims to raise an additional US$2.7 billion ($4 billion) in taxes to address Kenya’s debt. President William Ruto, who was away at an African Union retreat, faced growing demands for his resignation. (Reuters)(Associated Press)
4.
Teams trouble: The EU has accused Microsoft of anti-competitive behaviour for bundling its Teams app with its Office suite, in the first such antitrust action against the tech giant in over a decade. The European Commission’s list of formal concerns claims that Microsoft’s integration of Teams gives it an “undue advantage,” harming competitors like Slack and Zoom. Microsoft introduced changes earlier this year to sell some applications without Teams, but EU officials deemed them insufficient. Microsoft President Brad Smith said in a statement the company would “work to find solutions to address the commission’s remaining concerns.” Sabastian Niles, president of Slack owner Salesforce, which lodged the original complaint against Microsoft said the proceedings are “a win for customer choice.” Microsoft has the right to defend itself against the allegations. If an infringement is confirmed, it faces fines of up to 10% of its annual worldwide turnover. Brussels’ case comes as the tech giant also deals with regulatory scrutiny of its partnership with OpenAI and of rivals’ complaints about allegedly unfair cloud computing licensing agreements. (European Commission)(Capital Brief)(Financial Times)
5.
Genuine gap: The US ambassador to China, Nicholas Burns, says Beijing is undermining diplomatic efforts to enhance engagement between Americans and Chinese citizens, contrary to an agreement made by Presidents Joe Biden and Xi Jinping last November. In an interview with the Wall Street Journal, Burns said Chinese authorities are intimidating citizens who attend US-organised events in China and stirring anti-American sentiment. “They say they’re in favor of reconnecting our two populations, but they’re taking dramatic steps to make it impossible,” Burns told the paper. He tallied 61 public diplomatic events – including documentary screenings, cultural performances and panel talks on mental health and women’s entrepreneurship – where Chinese government bodies pressured Chinese citizens not to go or attempted to intimidate those who attended. The remarks show that, behind the fragile détente reached last year, US officials are increasingly concerned about Beijing’s sincerity in improving relations. (Wall Street Journal)
6.
AI race: Chinese AI companies are rushing to attract users from OpenAI following reports that the US firm plans to restrict access to its API in China and other countries. OpenAI’s ChatGPT is not available in mainland China, but many Chinese startups have managed to use its API to develop their own applications. In a statement to Reuters, OpenAI confirmed it will block API traffic from unsupported regions starting July 9, leading Chinese users to receive warnings about the upcoming restrictions. In response, Chinese AI developers like Baidu, Alibaba Cloud and Zhipu AI are offering migration services and free tokens, or processing capacity, to OpenAI users, the news agency reported. (Reuters)
7.
Inflation uptick: Canadian inflation unexpectedly rose to 2.9% in May from 2.7% in April, defying economists’ expectations of a slowdown to 2.6%. The surprise increase, driven by higher prices for services like cellular services, travel tours, rent and air transportation, led traders to reduce the probability of a July rate cut by the Bank of Canada (BoC) to a below 50% chance. “(The) Governing Council continues to be heavily data dependent, and this reversal will support their restrictive bias,” Andrew DiCapua, senior economist at the Canadian Chamber of Commerce, told Reuters. CPI-median and CPI-trim, the Bank of Canada’s preferred measures of underlying inflation, rose for the first time since December. The BoC, which cut interest rates for the first time in four years to 4.75% earlier this month, will have its next policy meeting on 24 July. Following the Statistics Canada release on Tuesday, money markets trimmed their bets for a July cut to 46%, from 70% on Monday. (Reuters)
8.
Steel standoff: Nippon Steel’s bid to acquire US Steel for US$14.9 billion ($22.5 billion) is in jeopardy due to concerns over potential job losses and plant closures, The Washington Post reported, citing labour officials and previously unreported correspondence. The United Steel workers union, supported by President Biden, has opposed the deal from the start, fearing it could harm American workers. Former President Donald Trump also opposes the deal. The paper reported that although Nippon Steel offered no layoffs or closures under the contract and a US$1.4 billion investment in union facilities, the union remains sceptical due to conditional clauses in the proposal. The merger would make Nippon Steel the world’s third-largest steel producer, enhancing its competitiveness against Chinese rivals. The company and the union will enter arbitration in August. The outcome is crucial for Biden and Trump, who are vying for union support in key states. The deal also faces scrutiny from the Justice Department and the Committee on Foreign Investment. (The Washington Post)