ECB Likely to Hold Interest Rates Steady Until Autumn 2025, Says Governing Council Member

Economic

Summary:

ECB's Robert Holzmann warns against premature rate cuts, suggesting the central bank may maintain current rates through summer 2025 to prevent inflation resurgence amid lingering economic uncertainty...

Tightening Voice Within ECB Warns Against Early Easing

European Central Bank (ECB) Governing Council member Robert Holzmann has signaled that the ECB may refrain from further interest rate cuts until at least autumn 2025, despite mounting speculation over the bank’s next policy move. Speaking in a live interview with Austria’s ORF broadcaster, Holzmann emphasized that inflation targets are within reach, but premature easing could trigger a resurgence in inflation during a period of ongoing economic fragility.

Holzmann, who also serves as the Governor of Austria’s central bank, stood out as the lone dissenter during the ECB’s June 5 meeting, where the deposit rate was cut to 2%—the eighth reduction in the current easing cycle. His hawkish stance reflects broader internal divisions at the ECB as policymakers weigh the risks of undercutting inflation control versus supporting sluggish growth.

Summer Pause or Longer? ECB Adopts Data-Dependent Approach

Holzmann reiterated that all ECB decisions remain contingent on evolving economic data. While a rate pause through the summer appears likely, he did not rule out a prolonged freeze or even resumed cuts if macroeconomic conditions deteriorate further. This conditionality echoes the ECB’s shift toward a meeting-by-meeting strategy, aligning future decisions with real-time inflation, employment, and growth indicators.

The Austrian policymaker is set to retire at the end of August, with the July 24 monetary policy meeting expected to be his final one. His successor, Austrian Economy Minister Martin Kocher, will attend the subsequent meeting in early September. The transition may also influence the balance of views within the ECB Governing Council going forward.

Lagarde Hints at End of Easing Cycle

While Holzmann adopts a cautious stance, ECB President Christine Lagarde recently suggested that the rate-cutting campaign may be nearing its end. At the same June 5 meeting, Lagarde stated that the central bank was approaching the conclusion of its monetary easing cycle. Some ECB officials have gone further, hinting that no more cuts may be necessary barring a substantial downturn in economic activity or inflation expectations.

This suggests a growing consensus within the ECB for a “wait-and-see” period, consolidating the impact of prior cuts before moving further. It also reflects a strategic effort to avoid missteps that could reignite inflationary pressures at a time when core inflation remains sticky and wage growth has yet to moderate meaningfully in several eurozone economies.

While inflation in the eurozone appears to be stabilizing, economic uncertainties—ranging from geopolitical risks to weak consumer demand and sluggish investment—continue to cloud the ECB’s policy path. Holzmann’s remarks serve as a reminder that any further loosening will be highly conditional and measured. As the ECB approaches its July and September meetings, it is increasingly clear that maintaining credibility and ensuring price stability will take precedence over aggressive rate adjustments. The summer may bring a pause, but not yet a pivot.

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Economic

Beijing Turns to Provident Fund as Mortgage Alternative

Facing mounting pressure from a prolonged property downturn, Beijing has turned to its massive 10.9 trillion yuan ($1.5 trillion) housing provident fund as a key tool to support the domestic housing market. As banks tighten mortgage issuance amid shrinking profit margins and rising defaults, the fund is emerging as a primary source of low-interest financing, offering a state-backed alternative to increasingly cautious commercial lenders.

Originally modeled on Singapore’s system, China’s housing provident fund is a compulsory savings scheme to which both employees and employers contribute monthly. These pooled savings can then be used to issue mortgages—typically at below-market interest rates. With the banking sector constrained, the fund’s role has become more prominent: it now accounts for a growing share of mortgage lending, financing over 8.1 trillion yuan in outstanding home loans by 2024.

Policy Response to a Demand Crisis, Not a Credit Shortage

While the provident fund gives homebuyers a more affordable path to ownership, analysts argue it is addressing a symptom, not the root cause of the property crisis. Demand remains weak. Residential transactions fell again in May, with major developers like Country Garden reporting a 28% monthly drop in sales—underscoring persistent buyer hesitation amid economic uncertainty and developer distress.

Bloomberg Intelligence analysts Kristy Hung and Monica Si noted that while the expansion of the provident fund offers an alternative to bank financing, it does little to revive buyer confidence or address the structural oversupply weighing down the market. The underlying issue remains a chronic demand shortfall, not a lack of credit.

Fund Usage Expands Through Policy Easing

To stimulate housing activity, local governments are relaxing long-standing restrictions on the fund’s usage. In the past, the amount one could borrow was capped based on income, marital status, and fund contributions. Furthermore, many cities prohibited using fund savings for down payments.

That is now changing. At least 50 municipalities have eased these rules in 2024 alone. For example, Shenzhen—China’s most unaffordable city—recently allowed fund withdrawals for down payments, while in March the city doubled its annual mortgage loan quota. In Beijing, the fund now covers 33% of all residential mortgages, up from less than 30% just four years ago.

Cheaper Mortgages Offer Modest Relief

The central bank has also reduced interest rates on fund-backed mortgages, which now sit roughly 0.9 percentage points below bank rates. This lowers borrowing costs by around 3% for borrowers, a marginal gain that nevertheless reflects official efforts to revive the market.

While this rate cut may ease the burden for current borrowers like Eli Zhang, a 30-year-old Beijing resident paying just 2.85% interest on her mortgage, analysts caution that these incentives alone are insufficient to reverse the market’s trajectory. According to UOB Kay Hian analyst Liu Jieqi, the initiatives are symbolic of government commitment, but “a broad property recovery hinges on effective implementation and stronger economic fundamentals.”

Liquidity Advantage Gives the Fund Flexibility

Unlike commercial banks, which are now retrenching under pressure from bad loans and profit erosion, the provident fund remains well-capitalized and capable of expanding lending. With contributions from roughly 180 million employees and employers nationwide, the fund has a deep financial buffer. It currently holds more in contributions than it has lent out—indicating potential for further deployment.

In 2024, loans from the fund rose 3.4%, while mortgage issuance from banks declined 1.3%. This divergence illustrates the fund’s growing importance in stabilizing housing finance, even as broader indicators such as residential sales and developer revenues continue to fall.

China’s use of the $1.5 trillion housing provident fund marks a significant shift in its housing policy toolkit, offering targeted relief to homebuyers in a deteriorating credit environment. However, while this mechanism alleviates borrowing costs, it does not restore demand or resolve the confidence crisis plaguing China’s real estate sector. Without stronger macroeconomic support, job security, and regulatory reform, the current measures may ease the fall but not reverse it.

Source: Bloomberg

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Economic

Business Leaders Call for Strategic Partnership, Not Punishment

In a firm message to Washington, the American Chamber of Commerce in Taiwan (AmCham) has urged the U.S. government to shift its posture toward Taiwan from one of punitive trade measures to strategic economic partnership. Speaking in Taipei on Tuesday during the release of AmCham’s 2025 White Paper, President Carl Wegner criticized recent tariff proposals and pressed for deeper bilateral engagement through diplomatic and fiscal reforms.

The call follows U.S. President Donald Trump's April proposal to impose a 32% tariff on Taiwanese imports as part of a wider global tariff campaign. Although implementation was delayed by 90 days to allow for negotiations, the threat remains unresolved, casting a shadow over Taiwan-U.S. economic relations. No major developments have been announced since the talks began.

Tariffs Designed for Rivals Now Target Allies

Wegner emphasized that trade measures originally designed to confront strategic adversaries like China are now harming key democratic allies. “Taiwan is a reliable friend of the United States, an essential democratic partner in the Indo-Pacific,” he stated, highlighting Taiwan's role in bolstering American industry and global supply chain resilience.

This misapplication of trade enforcement, he warned, risks eroding trust and damaging investor confidence in both economies. Taiwan’s technology sector—especially its dominance in semiconductor manufacturing—plays a crucial role in U.S. supply chains and national security. Framing Taiwan as a competitor in the tariff regime undermines decades of bilateral cooperation.

Policy Recommendations: Restore High-Level Diplomacy and Finalize Tax Treaty

AmCham’s White Paper laid out several policy recommendations aimed at rebuilding mutual trust. First, it urged the immediate resumption of high-level cabinet visits from Washington to Taipei. These diplomatic engagements were normalized under Trump's previous term and continued under Biden but have recently stagnated. Their revival would send a strong signal of strategic alignment at a time of regional uncertainty.

Second, AmCham called on the U.S. Senate to pass the long-delayed double taxation agreement between the two sides. The absence of such a treaty complicates investment flows and adds administrative burdens to cross-border operations. With growing demand for nearshoring and secure supply chains, resolving this tax issue could unlock new channels of bilateral growth.

Strategic Implications for U.S. Indo-Pacific Policy

The Chamber’s appeal also touches a broader strategic nerve. Taiwan's position as a stable democracy with advanced industrial capacity gives it a unique role in the Indo-Pacific, especially as U.S.-China tensions escalate. Treating Taiwan under the same lens as economic adversaries could alienate one of Washington’s most important regional partners and send mixed signals to other allies in Asia.

Carl Wegner is set to lead a delegation to Washington for “door knock” meetings with policymakers to personally advocate for Taiwan’s case. The aim is to realign U.S. trade and economic policy with its strategic rhetoric—a shift that many in the business community believe is overdue.

AmCham’s message is clear: U.S. policy toward Taiwan must reflect its role not only as a trading partner but as a democratic bulwark in Asia. As the tariff pause nears expiration and diplomatic engagement remains subdued, the Biden administration—or any incoming leadership—faces a test of strategic consistency. Removing trade barriers, finalizing investment protections, and restoring high-level dialogue are not just economic priorities but necessary steps to reinforce a partnership central to U.S. interests in the Indo-Pacific.

Source: Reuters

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Economic

China’s Smart-EV Surge Threatens Tesla’s Autonomy Strategy

Tesla, once seen as the unchallenged leader in the electric vehicle (EV) and self-driving space, is now confronting a critical threat from Chinese competitors that are rapidly scaling advanced autonomous technology at lower costs. Firms like BYD, Xpeng, and Huawei have not only disrupted the EV affordability narrative but are now aggressively encroaching on the technological front, offering sophisticated driver-assistance systems that rival or exceed Tesla’s Full Self-Driving (FSD) package—at a fraction of the price.

BYD's “God’s Eye” system exemplifies this challenge. Offered for free in some models, it provides real-world functionality comparable to Tesla’s FSD, which costs nearly $9,000 in China. Tesla’s reliance on camera-only systems is being directly contrasted with China’s sensor-rich approaches incorporating lidar, radar, and ultrasonic technologies—an approach now gaining traction as both more effective and cost-efficient.

Price, Scale, and Policy: The Three-Pronged Advantage

Chinese automakers' advantage in autonomy stems from three converging forces: competitive pricing, manufacturing scale, and state-backed policy support. BYD, which sold over 4.2 million vehicles last year, benefits from economies of scale that allow it to produce and integrate driver-assistance hardware at costs comparable to Tesla, even though its systems include more expensive sensor arrays. For example, BYD’s comparable God’s Eye hardware setup is estimated to cost $2,105—just under Tesla’s $2,360 FSD hardware cost, despite including lidar and radar that Tesla omits.

Chinese manufacturers also benefit from local supply chains where sensors and components are significantly cheaper—up to 40% lower for cameras, radar, and ultrasonic sensors, and around 20% for lidar, according to A2MAC1, a Paris-based teardown analysis firm. The aggressive competition within China’s smart-EV sector has further compressed margins, forcing suppliers and OEMs to drive costs down while broadening adoption.

Meanwhile, Tesla’s autonomy-first strategy, centered around its upcoming robotaxi launch in Austin, is encountering mounting geopolitical friction. China’s regulations prevent Tesla from transferring locally gathered vehicle data abroad, blocking its ability to train AI models using Chinese driving behavior. This regulatory roadblock significantly slows Tesla’s development cycle, especially when Chinese firms benefit from real-time, localized data and regulatory alignment.

From Competitive Threat to Strategic Disadvantage

Elon Musk’s pivot away from affordable EVs toward robotaxis is now being tested. Tesla’s robotaxi pilot in Austin—featuring just 10 to 20 vehicles—is a modest effort by comparison, especially as Chinese firms deploy driver-assistance technologies at scale in high-density cities like Shenzhen. Huawei’s partnership ecosystem, which spans over a dozen automakers, further exemplifies this shift, as its Level 3-capable systems already navigate urban congestion with confidence.

BYD’s sales strategy of offering God’s Eye for free may temporarily compress margins, but it is expected to enhance vehicle sales and training data collection—both of which are essential for improving autonomy. The more cars on the road equipped with these systems, the more real-world driving data companies like BYD and Huawei gather, thus fueling AI advancement at scale. This self-reinforcing loop puts Tesla at risk of falling behind in both technological precision and market adoption.

Tesla’s Constraints in a Shifting Landscape

Tesla’s autonomy ambitions are further constrained by its limited sensor suite. Musk’s insistence on camera-only systems—while cost-saving—faces practical limitations in dynamic driving environments, particularly where depth perception and object identification are critical. In contrast, Chinese brands are gaining regulatory approval for Level 3 autonomy—systems where drivers can divert attention from the road—while Tesla’s FSD still requires hands-on supervision.

Moreover, Tesla’s supply chain lacks the same price leverage seen in BYD’s operations. In a letter to suppliers, BYD demanded a 10% cost cut across all systems to start 2025, signaling its confidence in cost leadership and supplier discipline. The result is a formidable structural advantage that Tesla, operating in higher-cost regions and battling political fallout from Musk’s disengagement with the Trump administration, may struggle to replicate.

Tesla’s Market Dominance Under Pressure

Tesla’s strategic bet on robotaxis and vision-only autonomy is facing its stiffest test yet. As Chinese smart-EV players rapidly converge advanced technology, affordability, and data at scale, Tesla’s position is increasingly squeezed—especially in China, the world’s largest and most competitive auto market. Without access to local data, lower component costs, or policy support, Tesla may find itself playing catch-up in the very domain it helped define.

The coming quarters will determine whether Tesla can adapt and compete on these evolving terms—or whether the future of self-driving belongs to a new generation of sensor-heavy, cost-efficient challengers from China.

Source: Reuters

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James Whitman

Political

US President Donald Trump said Iran was pressing to be allowed to enrich uranium in a potential nuclear deal with the US, expressing worry that Tehran was seeking too much.

“They’re just asking for things that you can’t do. They don’t want to give up what they have to give up. You know what that is. They seek enrichment. We can’t have enrichment,” Trump said on Monday at a White House event.

The president said there would be another meeting on Thursday (June 12) with Iranian negotiators. A spokesman for Iran’s foreign ministry during a press conference earlier Monday, said Tehran would send a counteroffer in the “coming days” via Oman, in response to a US proposal on its nuclear programme.

“They are good negotiators, but they’re tough. Sometimes, they can be too tough, that’s the problem,” Trump added. “So we’re trying to make a deal, so that there’s no destruction and death.”

Trump has previously said that he would not allow Iran to continue producing the material, while Tehran in the past has characterised that demand as a sticking point.

Trump’s comments followed a call earlier Monday with Israeli Prime Minister Benjamin Netanyahu, where he said the two discussed the nuclear talks, as well as the war in Gaza.

Trump has vowed to stop Tehran from acquiring nuclear weapons but Netanyahu has been skeptical of diplomatic efforts to curb Iran’s nuclear ambitions.

Trump in May said he told Netanyahu that a military strike against Iran would be “inappropriate to do right now” because it could jeopardise negotiations he said were close to an agreement. The New York Times had reported that Israel was weighing potential strikes on Iranian nuclear sites, a move officials in Tehran have warned could trigger a response and derail the talks.

Tensions are already high between Israel and Iran since the start of the war in Gaza, and amid Israeli strikes on Iran-backed groups.

The war in Gaza is also another flash point that is high on the agenda, following Israel’s move to intensify military operations against Hamas. Israel has been at war with Hamas since Oct 7, 2023, when the group — declared a terrorist organisation by the US and European Union — launched a surprise attack that killed about 1,200 people and resulted in 250 hostages being taken. More than 50 of those captives remain in Gaza, and Israel believes about 20 are alive.

Trump said the situation in Gaza was among the discussion points on the call.

“We discussed a lot of things, and it went very well, very smooth,” Trump said.

Israel’s response, aimed at rooting out Hamas from Gaza, has destroyed much of the territory and sparked a humanitarian crisis. Israel controls limited deliveries of aid assistance to Gaza’s population, which numbers about two million, and has blamed Hamas for diverting needed aid under a prior distribution system.

The war has also sparked a surge in antisemitic violence in the US, including an attack with Molotov cocktails, and a flamethrower on peaceful demonstrators in Colorado who were marching in support of Israeli hostages in Gaza.

Trump’s administration has seized on worries about antisemitism, including the wave of campus protests over the war, pressuring universities to overhaul their policies. And Trump last week unveiled a new travel ban, citing the terror attack in Boulder, Colorado, as justification for his administration’s hardline immigration policies and ramped-up deportations.

Source: Bloomberg

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Glendon

Economic

Forex

UK employment plunged by the most in five years and wage growth slowed more than forecast, as the labor market deteriorated after Chancellor of the Exchequer Rachel Reeves ramped up the cost of hiring.

Tax data showed the number of employees on payroll tumbled 109,000 in May, the biggest decline since May 2020, the Office for National Statistics said Tuesday. It was much worse than the 20,000 fall predicted by economists.

It took the number of jobs lost since Reeves’ first budget in October to 276,000 and suggested the labor market has worsened significantly since a £26 billion tax hike on businesses took effect in April. The payrolls number is often revised and the ONS said May should be treated with extra caution as the estimate is based on partial figures.

The figures suggest firms are seeking cost savings after Labour increased payroll taxes for businesses and hiked the minimum wage. That will likely ease concerns at the BOE that inflation will continue to be fueled by higher wage growth, as officials try to contain a fresh pick-up in price pressures.

The pound held losses after the data showed wages grew slightly less than expected in the period, down 0.2% on the day to around $1.35. Traders increased bets on a rate cut this year.

“There continues to be weakening in the labour market, with the number of people on payroll falling notably,” said ONS director of economic statistics Liz McKeown. “Feedback from our vacancies survey suggests some firms may be holding back from recruiting new workers or replacing people when they move on.”

The ONS also said pay growth excluding bonuses eased to 5.2%, the slowest pace in seven months. Economists had expected 5.3% on average. Private-sector wage growth — the measure watched most closely by the Bank of England — cooled to slowed to 5.1% from 5.5%. Vacancies fell in the three months through May.

Unemployment rose to 4.6%, the highest since the summer of 2021. However, policymakers do not trust the estimates after a plunge in responses to the survey underpinning the figure.

Sticky pay and price data have kept the BOE wary over cutting interest rates too quickly, adding to doubts over whether it will stick to a once-a-quarter pace to its reductions.

While wage growth is easing, it remains well above the 3% or so that the BOE deems compatible with keeping inflation at the 2% target.

Markets have all but ruled out another move at their meeting next week and put the odds of a cut to borrowing costs in August at around 60%, with officials expected to stick to their “gradual and careful” approach to cutting rates. Some including Governor Andrew Bailey said they considered skipping another cut at their meeting in May but were persuaded to back an easing by Donald Trump’s trade war.

“Today’s labour market data provides the Bank of England with tentative evidence that the rise in labour costs is unlikely to lead to a rebound in wage growth,” said Yael Selfin, chief economist at KPMG UK.

Energy bills and regulated prices boosted inflation in April to the highest level in over a year, though policymakers believe underlying pressures are gradually cooling.

Source: Bloomberg Europe

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Gerik

Economic

China–U.S. Trade War

Shrinking Incomes and Asset Values Reshape Spending Habits

The deflationary spiral gripping China’s economy is changing consumer behavior in dramatic ways, especially among the middle class. Once aspirational buyers of luxury goods, many are now turning to resale markets as declining incomes and collapsing property values force more frugal choices. Mandy Li, a 28-year-old energy sector employee in Beijing, exemplifies this shift. Her 10% wage cut and her family’s 50% property value loss pushed her from retail boutiques to second-hand shelves.

This new economic reality has spurred explosive growth in China's resale luxury market. Platforms such as Xianyu, Plum, Ponhu, and Feiyu—once niche—are now thriving, offering discounts of up to 90% off original retail prices. According to a Zhiyan Consulting report, the sector grew over 20% annually in 2023. But the surge in sellers has not been matched by a corresponding rise in buyers, intensifying competition and further driving down resale values.

Deflationary Dynamics and the Vicious Price Cycle

China’s consumer price index fell 0.1% year-on-year in May, reinforcing fears of entrenched deflation. Sectors from automobiles to coffee are locked in intense price wars, with firms slashing prices to attract increasingly cautious consumers. This behavior signals weakening demand fundamentals and raises concerns about sustainability. As companies compete to the bottom, profit margins erode, leading to business closures and job losses—pressures that feed back into the deflationary loop.

Capital Economics has warned that China’s overcapacity will likely keep deflation entrenched through 2026, compounding structural weaknesses. While flash sales and ultra-low-cost menus—some as cheap as $0.40—appeal to cost-conscious shoppers, they underscore the fragility of consumer confidence. These short-term gains in traffic may come at the long-term cost of market instability and job erosion.

Second-Hand Luxury: Growth Meets Saturation

Although consumer caution has driven growth in second-hand luxury, that momentum may now be peaking. Super Zhuanzhuan, a prominent new entrant in Beijing, offers Coach handbags for $30—down from an original price of $454. Even more striking, Givenchy jewelry once retailing for over 2,000 yuan now sells for under 200 yuan. The dramatic markdowns are not just a reflection of consumer demand, but of fierce seller competition.

Lisa Zhang of Daxue Consulting points to the shifting demographics of luxury resale: “More existing luxury consumers are moving to the second-hand market,” but sellers are undercutting one another, eroding profitability. Founder commentary from another platform echoes this, noting a 20% annual rise in sellers but stagnation in buyer numbers—especially outside top-tier cities. This seller-buyer imbalance suggests saturation risks and foreshadows a wave of closures among recently launched stores.

Wealth Compression and the Middle-Class Dilemma

The transformation in China’s consumer culture is rooted in deeper macroeconomic shifts. A prolonged property crisis, falling wages in key state sectors, and minimal wage growth have diminished perceived wealth. For the urban middle class, once the engine of consumption, this means cutting back on aspirational purchases and, in many cases, liquidating personal assets.

University professor Riley Chang illustrates the market’s deflationary effect on sellers as well. Visiting Super Zhuanzhuan to assess her resale options, she expressed frustration: “They all try to push your price as low as possible.” The imbalance between rising seller supply and plateauing demand exerts downward pressure not only on resale margins but also on consumer confidence.

What began as an economic challenge has become a cultural shift. China's middle class, long a pillar of luxury demand and economic expansion, is now emblematic of broader deflationary malaise. The second-hand luxury boom, while offering short-term relief for consumers and platforms, reflects deeper cracks in household balance sheets and economic sentiment. Unless China’s policymakers can restore income confidence and housing market stability, these shifts may not only persist but deepen—embedding deflationary behavior across generations.

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