For Brits, this mechanism has been taking a beating in recent months.

The Bank of England this week added to its emergency rescue package for British pension funds, while the government brought forward its medium-term fiscal policy plan, having plunged the markets into chaos with its widely-criticized announcements last month.

A number of pension funds were hours from collapse when the central bank intervened on Sep. 28, and policymakers continue to battle against market volatility with further expansions of the bond-buying scheme on Monday and Tuesday.

The spike in interest rate expectations following new Finance Minister Kwasi Kwarteng’s so-called “mini-budget” also caused mayhem in the mortgage market, leading banks to withdraw products and rates to surge for prospective homeowners.

Meanwhile the British pound
fell to an all-time low against the dollar in the aftermath of Kwarteng’s policy announcements, only regaining some ground when the government U-turned on some of its most radical policies, such as the abolition of the top rate of tax for the country’s highest earners.

The Bank of England needs to keep the gilt market operating properly, says economistWATCH NOW

BoE needs to keep the gilt market operating properly, says economist
Kwarteng on Monday announced that his scheduled expansion on last month’s controversial fiscal plans — and an independent assessment of their impact from the Office for Budget Responsibility — would be brought forward by three weeks to Oct. 31, as the Treasury and the Bank of England look to temper market concerns and restore credibility.

The same day, the central bank is expected to begin selling gilts (U.K. sovereign bonds), part of its delayed quantitative tightening efforts as it unwinds pandemic-era monetary stimulus in the hope of tackling runaway inflation.

Economists expect further volatility in the bond market, and peril for pension funds, in the coming weeks ahead of the full budget statement, while the Bank of England continues to walk a tightrope between ensuring fiscal stability and reining in inflation.

‘The recession has begun’
The U.K. is the only G-7 economy not to have re-attained its pre-pandemic GDP level by the second quarter of 2022, Citibank Chief U.K. Economist Benjamin Nabarro pointed out in an Institute for Fiscal Studies event on Tuesday.

The U.K. economy shrank by 0.3% in August, the Office for National Statistics estimated Wednesday, potentially beginning what economists expect will be a lengthy recession through the winter.

The ONS said GDP was only just returning to its pre-pandemic level, highlighting the challenge facing Prime Minister Liz Truss’ “growth, growth, growth” agenda. The prime minister has committed to a radical overhaul of the country’s economic policy, vowing to address anemic growth over the past decade or more, despite her party having been in power since 2010.

UK government’s U-turn on tax cut won’t placate markets, says analystW
ATCH NOW
UK government’s U-turn on tax cut won’t placate markets, says analyst
The government’s growth plan must also overcome the impact of Brexit, which most economists project will reduce real per capita GDP. The government’s independent Office for Budget Responsibility (OBR) calculated that Brexit would reduce the U.K.’s potential productivity by 4% over the long term, while the OECD projects that the U.K. will have the lowest growth in the G-20 in 2023, apart from heavily sanctioned Russia.

“Real GDP is likely to retreat again in September in line with double-digit inflation eroding household purchasing power and the resulting output loss from additional bank holiday to coincide with Queen Elizabeth’s funeral on Monday 19 September,” said Raj Badiani, economics director at S&P Global Market Intelligence.

Queen Elizabeth II, the world’s longest-reigning monarch, died on Sep. 8 after 70 years on the throne, ushering in 10 days of national morning and a public holiday on the day of her funeral.

“We now believe the recession in the U.K. has begun in the third quarter of 2022 and will likely last for three quarters. Our near-term GDP outlook anticipates a recession spilling into 2023 because of a tight and prolonged squeeze on household budget fueling a consumer-led recession,” Badiani added.

We’ll continue to see a hawkish Bank of England, chief economist saysWATCH NOW
VIDEO05:04
We’ll continue to see a hawkish Bank of England, chief economist says
S&P also expects the economy to contract over the full year of 2023, despite substantial fiscal stimulus such as the government’s energy price guarantee and income tax cuts, due to rising household borrowing costs, softer demand in critical export markets and persistent volatility in financial markets.

The latest labor market statistics showed U.K. unemployment falling to 3.5%, its lowest rate since 1974, fueled by a rise in the inactivity rate, which now stands at 21.7%.

From June to August, annual growth in average total pay (including bonuses) for employees was 6% while growth in regular pay (excluding bonuses) was 5.4%, representing a real terms decline of 2.4% and 2.9%, respectively.

U.K. inflation slipped slightly to 9.9% in August, with soaring food and energy prices having driven annual consumer price inflation to a 40-year high of 10.1% the previous month, but economists expect it to rise through the remainder of the year.

A worst-case scenario laid out by national electricity system operator the National Grid warned that households and businesses may face three-hour power outages over winter to prevent a collapse of the grid. However, senior cabinet minister Nadhim Zahawi told the BBC this week that this scenario is “extremely unlikely.”

Jamie Dimon says UK government deserves benefit of the doubt after sparking market turmoil
VIDEO00:44
Jamie Dimon says UK government deserves benefit of the doubt after sparking market turmoil
Prime Minister Liz Truss is also coming under pressure from lawmakers in her own party to guarantee an increase to welfare benefits in line with inflation, with reports suggesting she could opt for raising them in line with earnings instead, heaping further pain on the country’s lowest-income households.

New research by British investment house Charles Stanley found that 22% of U.K. adults said they were having sleepless nights over market volatility, soaring inflation and the rising cost of living, while one in 10 said they had experienced panic attacks.

“Even under ‘precedented’ circumstances, financial pressures can get the better of us, but we’re living in unprecedented times, and the term ‘financial stress’ has taken on a whole new meaning,” said Lisa Caplan, director of OneStep Financial Planning at Charles Stanley.

“The cost of living crisis is having a detrimental effect on individuals, not only financially, but physically and mentally too.”

Widespread strikes
Postal workers, rail workers, journalists and public barristers have all carried out strikes in recent months in protest over pay and conditions, as wages fail to keep up with inflation running at around 10%.

Rail strikes carried out by members of the RMT union, in protest over pay and conditions have brought the country to a standstill on multiple days throughout the summer and into fall.

Members of the CWU (Communication Workers Union) also continue to strike, including 115,000 postal employees of former state monopoly Royal Mail. CNBC reported Friday that CWU representatives had entered into talks with Royal Mail executives, but 19 days of further postal strikes are still set to go ahead in the runup to the festive period unless substantial progress is made in the coming days.

Meanwhile, the Royal College of Nursing (RCN) is currently holding its first industrial action ballot in its 106-year history for 300,000 members, demanding a pay rise in line with inflation. The RCN cited new analysis from London Economics, which found that nurses’ real earnings have fallen at twice the rate of the private sector over the last decade.

The reality is the UK is a low-growth economy: Fund manager
The government imposed a minimum pay rise to most NHS staff of 4.5% in July, representing a real terms pay cut of more than £1,000 per year when adjusted for inflation.

Waiting times for access to the country’s National Health Service are at an all-time high, with public hospitals beset by staff shortages and a lack of beds.

The GMB union is also holding ballots for ambulance staff in various regions of the country, with paramedics’ real pay down £1,500 per year. Junior doctors will ballot for industrial action in early January, after the government refused to meet the British Medical Association’s demand to restore pay increases to 2008/9 levels by the end of September.

Junior doctors were excluded from the 4.5% NHS uplift, with the government instead imposing an increase of just 2%, which the BMA said is “derisory” in the face of the ongoing cost of living crisis and in the aftermath of the Covid-19 pandemic.

Russian President Vladimir Putin speaks during a meeting on the military-industrial complex at the Kremlin, September 20, 2022, in Moscow, Russia.
Kamikaze drones and missiles hit north and south Ukraine; Kremlin denies Putin discussed war ‘settlement’

Social Security cost-of-living adjustment will be 8.7% in 2023, highest increase in 40 years
Traders work on the floor of the New York Stock Exchange (NYSE) in New York.
Dow drops 150 points, S&P 500 falls to the lowest since 2020 after another hot inflation report
A customer browses products at a Walmart store in Burbank, California
Inflation increased 0.4% in September, more than expected despite rate hikes
Pictured: Graham Cochrane
39-year-old millionaire shares why he ‘regrets’ paying off his 2 home mortgages: ‘I felt trapped’

The August consumer price index was reported up 8.3%, year-on-year, compared to forecasts for up 8.0%. On a monthly basis, the August CPI rose 0.1% from July. The July CPI report showed an 8.5% rise, annually. The food and energy component of the CPI report was up 0.6% in August, which is double the expectations for a rise of 0.3%. There had been some signs in the economy that inflation in the U.S. is cooling off a bit, but today’s data suggests inflation is still running hot and may get hotter. Today’s CPI data pretty much assures the Federal Reserve’s FOMC next week will raise the main U.S. interest rate, the Fed funds rate, by at least 0.75%. Fed funds rate futures are suggesting a 20% chance the FOMC could rase the Fed funds rate by 1.0% at next week’s FOMC meeting.

Global stock markets were mixed but mostly firmer overnight. U.S. stock indexes were pointed to higher openings when the New York day session begins, but then sold off sharply after the CPI report and are set for sharply lower openings. The major U.S. stock indexes have seen short-term price downtrends negated.

King dollar dominating gold, silver, but precious metals are ripe for a short squeeze
The key outside markets today see Nymex crude oil prices firmer and trading around $88.25 a barrel. The U.S. dollar index is higher in early U.S. trading and rebounded from lower levels overnight. The yield on the 10-year U.S. Treasury note rose after the CPI report and is fetching 3.418%.

Other U.S. economic data due for release Tuesday includes the weekly Johnson Redbook and chain store retail sales indexes, the NFIB small business index, real earnings, the IDB/TIPP economic optimism index, and the monthly Treasury budget statement.

Technically, the October gold futures bears have the overall near-term technical advantage. Prices are still in a downtrend on the daily bar chart. However, a bullish double-bottom reversal pattern could be forming on the daily bar chart. Bulls’ next upside price objective is to produce a close above solid resistance at $1,769.30. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at the July low of $1,686.30. First resistance is seen at $1,725.00 and then at this week’s high of $1,736.40. First support is seen at $1,700.00 and then at $1,686.30. Wyckoff’s Market Rating: 2.0

September silver futures bears have the overall near-term technical advantage but the bulls have gained momentum. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $21.00. The next downside price objective for the bears is closing prices below solid support at $18.00. First resistance is seen at $20.00 and then at $20.25. Next support is seen at the overnight low of $19.51 and then at $19.00. Wyckoff’s Market Rating: 3.5.

Global stock markets were mostly firmer overnight. U.S. stock indexes are pointed toward higher openings when the New York day session begins. The markets have brushed aside, for now, the hawkish tone of the U.S. Federal Reserve that was reinforced by comments from Chairman Powell on Thursday. Also, the European Central Bank on Thursday raise its main interest rate by 0.75%–the largest in over 20 years. It’s very likely traders and investors have already factored into markets’ prices the tighter monetary policies of most of the major central banks of the world.

Somewhat overshadowing the marketplace and crowding out other business/financial news is the death of Queen Elizabeth on Thursday.

Gold bears remain in control as short squeeze runs out of momentum
The key outside markets today see Nymex crude oil prices higher and trading around $85.00 a barrel. The U.S. dollar index is lower on a corrective pullback after hitting a 20-year high Wednesday. The yield on the 10-year U.S. Treasury note is fetching 3.260%.

U.S. economic data due for release Friday is light and includes monthly wholesale trade.

Technically, the October gold futures bears have the solid overall near-term technical advantage. Prices are trending down on the daily bar chart. Bulls’ next upside price objective is to produce a close above solid resistance at $1,769.30. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at the July low of $1,686.30. First resistance is seen at the overnight high of $1,730.50 and then at $1,740.00. First support is seen at the overnight low of $1,710.00 and then at $1,700.00. Wyckoff’s Market Rating: 2.5

September silver futures bears have the solid overall near-term technical advantage. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $20.00. The next downside price objective for the bears is closing prices below solid support at $17.00. First resistance is seen at the overnight high of $18.86 and then at $19.00. Next support is seen at Thursday’s low of $18.24 and then at $18.00. Wyckoff’s Market Rating: 2.5.

U.S. stock indexes are lower at midday hit five-week lows. Risk aversion is higher on this first day of September, a month that history has shown can be a rocky one for stock and financial markets. Gold and silver market bulls are hoping some safe-haven demand develops if September sees rough trading waters.

There are new reports of major Covid lockdowns in China, the world’s second-largest economy. Reports said 21 million people have been locked down in a major industrial region of the country. Economic data out of China Friday was also dour, with the purchasing managers indexes (PMIs) and housing/property indicators showing weakness. This has prompted concerns of slowing consumer and commercial demand in China, which have pressured raw commodity markets this week, with crude oil leading the way down. Other major economies are tightening their monetary policies, which will also work to slow their growth. Many market watchers fear U.S. and global economic recessions are setting in.

Traders are awaiting Friday morning’s employment situation report from the Labor Department. That report is expected to show the key non-farm payrolls growth number at up 325,000 in August versus the July report showing a gain of 528,000 non-farm jobs.

The key outside markets today see Nymex crude oil prices lower and trading around $87.00 a barrel. The U.S. dollar index is solidly higher and hit another 20-year high today. Meantime, the yield on the 10-year U.S. Treasury note is fetching 3.25%. The 2-year U.S. Treasury note yield hit a 15-year high today. The inverted yield curve is another clue suggesting a U.S. economic recession is imminent.

Technically, October gold futures prices hit a six-week low today. The gold futures bears have the solid overall near-term technical advantage. Prices are in a three-week-old downtrend on the daily bar chart. Bulls’ next upside price objective is to produce a close above solid resistance at $1,750.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at the July low of $1,686.30. First resistance is seen at today’s high of $1,713.10 and then at Wednesday’s high of $1,728.70. First support is seen at today’s low of $1,689.80 and then at $1,686.30.

December silver futures prices hit another more-than-two-year low today. The silver bears have the solid overall near-term technical advantage. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $19.00. The next downside price objective for the bears is closing prices below solid support at $17.00. First resistance is seen at $18.00 and then at $18.50. Next support is seen at today’s low of $17.40 and then at $17.25.

The country’s Finance Ministry said it is “critical” to create the new Moscow World Standard (MWS) to “normalize the functioning of the precious metals industry” and have an alternative to the LBMA.

“The basis of this new structure will be a new, specialized international precious metals brokerage headquartered in Moscow, which will rely on the MWS,” the Finance Ministry said in a letter quoted by Russian media.

Russia is also proposing to fix prices of precious metals in the national currencies of key member countries or via a new monetary unit — such as the new BRICS currency proposed by Russia’s President Vladimir Putin.

The price-fixing committee would include central banks and other large banks from the Eurasian Economic Union (EEU). Member states of the EEU are Russia, Kazakhstan, Belarus, Kyrgyzstan, and Armenia.

The idea would be to make membership attractive to big gold players like China, India, Venezuela, Peru, and other South American countries.

According to the letter published by the Finance Ministry, the creation of such an organization would quickly destroy the monopoly of the LBMA and ensure the stable development of the precious metals industry in Russia and around the world.

It was also clarified that the proposal for the new standard did not originate from the Finance Ministry but was received from market participants.

According to the Finance Ministry, Russia was the second highest gold producer by volume in 2021, with gold output rising by 9% to 343 tons. Russia is also one of the three largest producers of platinum, palladium and rhodium. The precious metals industry in Russia accounts for around $25 billion a year.

Following Russia’s invasion of Ukraine, the LBMA suspended its accreditation of Russian precious metals refiners, barring them from selling new products in London. The suspension was made official on March 7.

The Finance Ministry said that the action paralyzed Russia’s precious metals activities and was a critical negative factor.

This contradicts what many analysts have dubbed a largely symbolic move by the LBMA.

The U.S. Consumer Price Index (CPI) came in at 8.5% in July and was lower than the market expectation of 8.7%. The most recent data follows June’s 9.1% annual gain.

On a monthly basis, the headline number was unchanged from last month following an advance of 1.3% in June, the U.S. Labor Department said on Wednesday. The flat number was mainly due to a 7.7% drop in gasoline prices, which offset increases in other sectors.

Core inflation, which strips out volatile food and energy costs, accelerated 5.9% from a year ago, surprising slightly on the downside but maintaining the same pace as in June. Meanwhile, the monthly increase was also below markets’ expectations, with an advance of 0.3%.

The biggest price drop was in the energy sector, down 4.6% on a monthly basis. “The gasoline index fell 7.7 percent in July and offset increases in the food and shelter indexes, resulting in the all items index being unchanged over the month. The energy index fell 4.6 percent over the month as the indexes for gasoline and natural gas declined, but the index for electricity increased. The food index continued to rise, increasing 1.1 percent over the month as the food at home index rose 1.3 percent,” the release stated.

In an immediate reaction to the data, gold jumped to a fresh daily high of $1,824 an ounce. At the time of writing, December Comex gold futures were trading at $1,816.90, up 0.25% on the day.

The July CPI data was the most anticipated release of the week as markets attempted to gauge how aggressive the Federal Reserve could be at the September meeting.

According to some analysts, the price deceleration in July is not meaningful enough for the Fed to start slowing down its tightening cycle just yet.

“With headline inflation still at 8.5% and core inflation at 5.9%, this is not yet the meaningful decline in inflation the Fed is looking for. But its a start and we expect to see broader signs of easing price pressures over the next few months,” said Capital Economics chief U.S. economist Paul Ashworth.

For gold, the slowdown in inflation could trigger substantial buying, but there is still a risk of a price reversal, said analysts at TD Securities.

“Ultimately, prop traders are still holding a massive amount of complacent length, suggesting we have yet to see capitulation in gold, which argues that the pain trade remains to the downside, but prices may be able to trade higher before macro headwinds weigh on the yellow metal once more,” the analysts said Wednesday.

Global stock markets were mixed to slightly up overnight. U.S. stock indexes are pointed toward slightly higher openings when the New York day session beings. Corporate earnings reports will be in focus for stock traders this week. We are in the “dog days” of summer, whereby trading volumes in many markets wane as traders and investors step away from markets and take family vacations. Much of Europe is on vacation during August. Markets are likely to be mostly quieter until after the U.S. Labor Day holiday in early September.

Traders are still digesting last Friday morning’s U.S. jobs report for July, which showed a strong rise of 528,000 in non-farm payrolls. A gain of around 260,000 was expected. After Friday’s strong jobs numbers, notions of the Federal Reserve easing up on its aggressive monetary policy tightening were somewhat dashed. Most in the marketplace still look for another 0.75% rate hike from the Fed in September.

Jobs report a ‘game changer’ for gold price, focus shifts to next week’s inflation numbers
Traders are still watching China’s military exercises near Taiwan. A Wall Street Journal headline reads, “China’s military exercises showcase modern fighting force preparing for possible war in the Taiwan Strait.” This news is also likely keeping a modest safe-haven bid in the gold market.

The key outside markets today see Nymex crude oil prices lower and trading around $87.75 a barrel. Crude oil on Friday hit a 4.5-month low. The U.S. dollar index is slightly lower in early U.S. trading. The yield on the 10-year U.S. Treasury note is fetching around 2.818%. The 2-year U.S. T-note yield is 3.209, which has the yield curve still inverted and is one clue the U.S. is in or headed toward economic recession.

U.S. economic data due for release Monday is light and includes the employment trends index.

Technically, the October gold futures bears have the overall near-term technical advantage. However, a fledgling price uptrend is still in place on the daily bar chart to suggest a market bottom is in place. Bulls’ next upside price objective is to produce a close above solid resistance at $1,850.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at the July low of $1,686.30. First resistance is seen at the August high of $1,801.00 and then at $1,825.00. First support is seen at the overnight low of $1,776.20 and then at $1,769.80. Wyckoff’s Market Rating: 3.5

September silver futures bears have the overall near-term technical advantage. However, recent price gains suggest a market bottom is in place. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $21.50. The next downside price objective for the bears is closing prices below solid support at $19.00. First resistance is seen at the August high of $20.51 and then at $20.75. Next support is seen at $20.40 and then at the overnight low of $19.745. Wyckoff’s Market Rating: 3.0.

China’s foreign ministry said it was also suspending cooperation with Washington on prevention of cross-border crime and drug trafficking, an area along with climate change where U.S. officials see opportunity for cooperation.

Enraged after Pelosi became the highest-level visitor in 25 years to the self-governed island that Beijing regards as its sovereign territory, China launched military drills in the seas and skies around Taiwan on Thursday. The live-fire drills, the largest ever conducted by China in the Taiwan Strait, are scheduled to continue until noon on Sunday.

Taiwan’s defence ministry said on Friday a total of 68 Chinese military aircraft and 13 navy ships were conducting missions in the sensitive Taiwan Strait. Some of them, they said, crossed an unofficial buffer separating the two sides, a move the ministry described as “damaging the status quo”.

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U.S. Secretary of State Antony Blinken said Washington has repeatedly made clear to Beijing it does not seek a crisis over Pelosi’s visit to Taiwan, which took place on Wednesday during a congressional tour of Asia.

“There is no justification for this extreme, disproportionate and escalatory military response,” Blinken told a news conference on the sidelines of the ASEAN Regional Forum in Cambodia. He added, “now, they’ve taken dangerous acts to a new level”.

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On Friday, China’s military conducted air and sea drills to the north, southwest and east of Taiwan “to test the troops’ joint combat capabilities”, the Eastern Theater Command of the People’s Liberation Army (PLA) said in a statement.

Blinken emphasised that the United States would not take actions to provoke a crisis, but it would continue to support regional allies and conduct standard air and maritime transit through the Taiwan Strait.

“We will fly, sail and operate wherever international law allows,” he said.

DIPLOMATIC FRONT
The White House summoned Chinese ambassador Qin Gang on Thursday to condemn the escalating actions. That followed Beijing’s summoning of U.S. Ambassdor Nicholas Burns early this week over Pelosi’s Taiwan visit. read more

Representatives for the State Department did not immediately reply to a request for comment on China’s halting of talks and cooperation on several fronts.

The Chinese comments did not mention a suspension of military talks at the senior-most levels, such as with U.S. Defense Secretary Lloyd Austin and Chairman of the Joint Chiefs of Staff General Mark Milley. While those talks have been infrequent, officials have said they are important to have in the case of an emergency or accident.

Beijing separately announced that it would personally impose sanctions on Pelosi and her immediate family in response to her “vicious” and “provocative” actions.

“Despite China’s serious concerns and firm opposition, Pelosi insisted on visiting Taiwan, seriously interfering in China’s internal affairs, undermining China’s sovereignty and territorial integrity, trampling on the one-China policy, and threatening the peace and stability of the Taiwan Strait,” a Chinese foreign ministry spokesperson said in a statement. read more

Speaking in Japan, Pelosi said her trip to Asia was never about changing the regional status quo. read more

‘EVIL NEIGHBOUR’
Taiwan’s defence ministry said the island’s military had dispatched aircraft and ships and deployed land-based missile systems to monitor ships and aircraft that briefly crossed the Taiwan Strait median line. read more

On Thursday, China fired multiple missiles into waters surrounding Taiwan.

Japan’s defence ministry, which is tracking the exercises, first reported that as many as four of the missiles flew over Taiwan’s capital, which is unprecedented. It also said that five of nine missiles fired toward its territory landed in its exclusive economic zone (EEZ), also a first, prompting a diplomatic protest by Tokyo.

Later, Taiwan’s defence ministry said the missiles were high in the atmosphere and constituted no threat. It gave no details of their flight paths, citing intelligence concerns.

Some Taipei residents, including Mayor Ko Wen-je, criticised the government for not putting out a missile alert, but one security expert said that could have been done to avoid stoking panic and playing into China’s hands.

“It counteracted the effect of the Chinese Communist Party’s psychological warfare,” said Mei Fu-shin, a U.S.-based analyst. “The shock and fear were not as great as they could have been.”

Asked to comment on the missiles, Taiwan Premier Su Tseng-chang did not directly respond, but referred to China as the “evil neighbour showing off her power at our door.” read more

“In my view, the larger threat is that China is doing a rehearsal for a blockade, demonstrating it can block Taiwan’s ports and airports, and prevent shipping,” said Bonnie Glaser, a Washington-based Asia security specialist at the German Marshall Fund of the United States.

JAPAN’S WORRIES
Responding to the Chinese drills, President Tsai Ing-wen said Taiwan would not provoke conflicts but would firmly defend its sovereignty and national security.

Taiwan has been self-ruled since 1949, when Mao Zedong’s communists took power in Beijing after defeating Chiang Kai-shek’s Kuomintang (KMT) nationalists in a civil war, prompting the KMT-led government to retreat to the island.

Beijing has said its relations with Taiwan are an internal matter. It says it reserves the right to bring Taiwan under Chinese control, by force if necessary.

Pelosi addressed the diplomatic furore around the congressional delegation’s trip to Asia, and most specifically to Taiwan, speaking in Tokyo before departing for Washington.

“We have said from the start that our representation here is not about changing the status quo in Taiwan or the region,” she told a news conference after meeting Japanese Prime Minister Fumio Kishida.

“I have informed speaker Pelosi that the fact China’s ballistic missiles had landed near Japanese waters including EEZ threaten our national safety and security and that Japan had strongly condemned such actions,” Kishida said.

China’s foreign ministry said it had summoned the ambassador for Japan and a Canadian diplomat in Beijing on Thursday over an “erroneous” Group of Seven (G7) nations statement on Taiwan, and also made complaints to EU envoys.

Supply chains will remain under constant threat of disruption for the next decade
Supply chains operate best when the world is peaceful and stable
A smoothly running supply chain requires “buffer stock,” which is challenging with declining population demographics
There is a conflict between environmental, social and governance (ESG) goals and supply chains optimized for cost and speed. If we prioritize ESG, we will need to contend with supply chain risks
Supply chain technology will become the big venture capital category winner as companies continue to make investments in technologies that can help them mitigate their supply chain challenges
In a world faced with the prospect of tightening supplies, higher energy costs, heightened geopolitical risk, and strained transportation networks, advanced supply chain technologies will become mission-critical for many more companies.

Image of U.S. and Chinese flags, with a rupture between them indicating conflict.
U.S.-China relations have become very tense in recent years as China flexes its new economic muscle in other arenas.
Supply chains benefit from times of peace
Anyone that has been a part of the supply chain industry can attest to the fact that supply chains have always been subject to disruptions. Natural disasters, terrorism, economic cycles, and capacity shortages have created challenges since the beginning of trade.

Since the end of the Cold War, global supply chains have benefited from peaceful trade between developed and developing countries. Many poorer and less developed countries that were previously ruled by Communist or autocratic regimes took advantage of new markets in the developed world and used global trade to move beyond subsistence economies to prosperous ones. Some of these countries developed into capitalistic and democratic countries, while other governments exploited the free market system to solely benefit those already in power, and became wealthy and powerful enough to threaten the very system that enabled their ascension.

The Eastern European countries that were formerly part of the Soviet bloc are examples of the countries that embraced capitalism and shifted toward democracy, while China did the opposite.

Dockworkers at the Port of Los Angeles. (Photo: Port of Los Angeles)
Dockworkers at the Port of Los Angeles. (Photo: Port of Los Angeles)
Labor is key in supply chains
The arbitrage between the developed and developing countries has been massive. The cost of producing goods in countries with cheap labor, lax environmental and labor regulations, and little regard for sustainable natural resources has enabled the world to enjoy unprecedented prosperity and peace.

Because the goods produced in these parts of the world were so cheap, it made sense that they would be produced in excess. This buffer stock kept inflation in check and provided supply chains with ample supplies that could fend off short-term fluctuations and disruptions. Think about how the cost of televisions and computing hardware has fallen over the past few decades, and how auto prices haven’t risen as significantly as the many improvements in product features and quality were made.

This all happened at a time when the United States was the only superpower and the only expectation that the U.S. had of other nations is that trade should be unobstructed.

Cheap labor is becoming scarcer, particularly in Asia. This is largely due to aging populations – the average age continues to increase and there are fewer people to work in these manufacturing jobs.

The UNEA aims to create an international, legally binding agreement that includes production, design and disposal of plastic.
Pollution in one part of the world can impact other areas. (Photo: Shutterstock)
ESG requirements hamper the stability of supply chains
Companies have instituted ESG requirements that require disclosures and monitoring of how and where products have been sourced. This pressure means that goods that are produced in factories that don’t match Western standards for environmental controls and human rights may not be available to Western consumers. The factories that do produce goods that match Western standards will often be more expensive and therefore there will be less buffer stock in the system.

The same ESG standards also create challenges for commodity producers, as the cost of adhering to environmental and social disclosures makes it more expensive and less productive. It also discourages investment in the production of environmentally sensitive commodities – most obviously in energy.

Environmental concerns and regulations that have prevented exploration and production and killed pipeline projects are largely the reason that the world currently lacks sufficient energy resources to buffer against the consequences of the Russia-Ukraine war.

In the previous three decades, supply chains have operated relatively smoothly because companies could source from around the world and not have to worry about global military conflict or autocratic regimes shutting down manufacturing. While international trade regulations were complicated to navigate, the world overall was trending toward larger, more open trading blocs – not just in North America, but in Europe and Asia as well.

As the United States has become more insular and has pulled back from being the world’s policeman, and China has started to flex its muscles and create a global competitor to the United States, the world has become far more unstable and less peaceful. This global friction is unlikely to go away. China desires to take Taiwan as its own, risking sending the world into a geopolitical crisis that is more dangerous than at any point since World War II.

Buffer stocks of products are far less likely in the future, as the cost of producing those items continues to rise. Cheap labor, offered by large populations of young people, is largely a thing of the past. This will make it more expensive for companies to produce buffer stock and far less likely that supply chains will enjoy the ability to absorb short-term shocks that are inherent to complex global networks.

Warehouse automation continues to accelerate as consumer appetite for e-commerce grows, and that is placing robotics companies in the spotlight. (Photo: Locus Robotics)
Warehouse automation continues to accelerate as consumer appetite for e-commerce grows, and that is placing robotics companies in the spotlight. (Photo: Locus Robotics)
Supply chain technology will be the big winner
Companies will look closer to home for product sourcing. They will prioritize production in countries that are far more stable and friendly to the United States. The Freedom Trade movement will drive supply chain professionals to prioritize production and sourcing in the Americas.

Latin America will become a big winner, as it benefits greatly from having direct land transportation networks with North America and seas that are well protected by the U.S. Navy.

The American South and Midwest will also see an acceleration in manufacturing and production, as they can offer predictable and resilient sourcing, without the geopolitical risks of foreign suppliers or the labor unions of the Rust Belt.

Automation, including robotics, will become more important. Nearshoring manufacturers will try to offset higher production costs with robotics and other automated production systems.

Supply chain market intelligence systems, a data category that monitors developments around supply and demand, will be critical for supply chain professionals who are trying to navigate increasingly complex and opaque markets. Materials and product supplies are no longer guaranteed, so the need for constantly refreshed data models that track the balance of supply and demand will be critical to the success of companies.

FreightWaves SONAR provides near real-time market intelligence information, which has seen explosive growth in recent months as shippers have realized that supply chains are not returning to normal and the need for high-frequency data is increasingly critical for success. Historical models no longer work – as the world becomes far less predictable, peaceful, and safe – and supply chains are far more exposed to supply and demand shocks.