Spending Surges in Spite of Inflation Consumers Rely on Income and Still Dip Into Savings to Fuel Spending

(…) Even as the path lower for inflation continues to be disrupted, paychecks outpaced price gains with personal income rising 0.5% in March. Real disposable personal income rose 0.2% last month. (…)

Nominal spending rose 0.8% for each of the past two months—a feat not surpassed since November 2021. On an inflation adjusted basis, real spending started the year on a dour note falling 0.3%, but since then it has risen 0.5% in back-to-back months.

We learned in yesterday’s GDP report that goods spending contracted in the first quarter, but the weakness was mostly in durables, and we now know that weakness was concentrated in January. Real durables rose 0.9% in March after 1.4% in February. (…)

Upward revisions to January and February data reveal that much of the upside surprise in the annualized rate was due to more inflation in January and not a significant pickup late in the quarter. The monthly changes of core PCE in January and February were revised up to reveal a monthly pattern of 0.50%, 0.27% and 0.32% from January-March.

Still, core inflation picked up in March and that caused the annual rate to hold steady at 2.8%, but the composition of price gains is increasingly important in getting down to 2%.

The “super core” measure of inflation, which focuses on services and strips housing from the estimates, rose at an annualized rate of 5.5% over the past three months. A quick glance at the nearby chart will fan hawkish views that the Fed is nowhere near ready to ease policy as the rate rivals its 2020-23 highs of around 6%.

But here the concern over a fresh acceleration in inflation may be a bit overblown. Super core inflation was firm in March—it rose 0.4%, but the 0.7% gain in January was a major source of the jump in the annualized rate. If we simply match the monthly change in April, the three-month annualized rate will slip back to 4%—still above the roughly 2% pace of this component pre-pandemic but not quite as menacing as the recent three-month pace.

The question for the rates outlook is clouded by whether higher financing costs begin to bite and slow economic activity. There is evidence that financing costs are taking a toll on manufacturing and housing, but it has been difficult to spot the damage of financing costs to consumer outlays. Yet when we look at personal interest expense as a share of disposable income over the past 30 years, we find that peaks in the fed funds rate are associated with peaks in interest costs. At 2.6% in March, personal interest costs comprise about as large a share of income as they have at any point since the start of the financial crisis. How long can spending defy gravity?

You don’t get far in this business betting against the consumer, but earlier in this cycle we saw households dipping into savings to sustain spending when real income growth was flat or down. It is perhaps a symptom of the YOLO mentality of today’s consumer that now consumers are reaching into savings even when real income growth is strong. The personal saving rate slid to 3.2% in March, the lowest since October 2022. Households continue to pull out all the stops to keep spending.

Strong economic growth and a sturdy consumer is not necessarily a problem for the Fed unless it causes sticky inflation, or worst case an acceleration. Price growth was firm in March. That suggests easing isn’t around the corner, and it puts more emphasis on how inflation evolves into Q2 to determine the eventual start of Fed easing.

Other important details:

• Wages and Salaries, which rose at a 4.1% annualized rate in Q4’23, jumped 7.4% a.r. in Q1’24, including +8.5% a.r. in February and March.
• Rental income rose 1.6% MoM after +1.7 in each of January and February. Somebody’s income is somebody else’s expense. Many thought that it was only start-of-the year adjustments…
• Growth in real disposable income is anemic, normally bad for spending. But the huge effect from housing and equities is more than compensating. In nominal terms, DPI rose 4.5% a.r. in Q1’24 from +3.7% in Q4’23. Americans are not bothered, yet, by rising inflation. (see The Wealth Defect )

ING:

Remember that the top 20% of US households by income spend the same amount of money as the bottom 60% of households by income. The top 20% are doing very well with good, high-paying jobs, tending to own their own home (largely with low long-term mortgage rates) and can make 4% in money market funds while feeling the benefits of higher stock and home prices. The bottom 60% are feeling more stress with far less wealth exposure. They are more likely to rent and are more likely to have exhausted pandemic-era-accrued savings. The key question for the spending and growth in general is how long that top 20% can keep offsetting intensifying stresses faced by the bottom 60%.

But the wealth effect (or defect!) is reaching wider this time around as Axios reports:

Average household wealth for those under 40 in the U.S. is up 49% from its pre-pandemic level, Axios’ Emily Peck writes from a new analysis by the left-leaning Center for American Progress.

• Why it matters: Young households haven’t seen wealth growth like this since the Fed started tracking the data in 1989.

Stunning stat: Millennials — currently ages 27-43 — saw their wealth double over this period, according to the analysis.

Zoom in: Americans under 40 have seen big asset gains while reducing some liabilities:

1. Average housing wealth rose $22,000 — as homeownership rose and home prices soared.
2. Liquid assets climbed courtesy of leftover savings from pandemic relief and higher wages.
3. Financial assets, mostly stocks and mutual funds, increased by an average of $31,000.
4. Nonhousing debt fell by $5,000. With more money in their pockets, people could pay off credit cards (the student loan moratorium helped), or not take that debt on at all.

Data: Center for American Progress analysis of Fed data. Chart: Axios Visuals

A few month ago, Jay Powell suggested that splurging on goods would end from a “lack of storage space” but Americans are resourceful, taking advantage of the 3.5% durable goods deflation between September 2022 and December 2023 (they rose 0.5% since).

Consumption of services is only back to trend but it has perked up lately, potentially making services inflation a bigger headache for the FOMC going forward. PCE-services inflation was +5.7% a.r. in Q1’24, much faster than the +3.3% trend of Q4’23.

Maybe, the warnings from the April flash PMI will ease pressures:

• Employment decreased solidly and to the largest extent since mid-2020. In fact, excluding the opening wave of the COVID-19 pandemic, the decline in services staffing levels in April was the most pronounced since the end of 2009. In contrast, manufacturing employment continued to increase modestly.
• Output prices increased at a solid but slower rate during April, the pace of inflation cooling again having accelerated to a ten-month high in March. Prices charged inflation was in line with the series long-run average, though still elevated by pre-pandemic standards. Slower charge inflation was seen across both the manufacturing and services sectors.

There was also this other warning:

Input prices continued to rise sharply in April, although the pace of inflation eased from the six-month high seen in March. This was in spite of the fastest increase in manufacturing input costs for a year amid rising raw material prices. Service providers often noted higher staff and shipping costs, though reported the second-lowest overall cost increase for three-and-a-half years.

Rising costs and strong demand is a combo for higher prices. That’s what small business people are planning for.

Steve Blumenthal writes that

Month-over-month inflation has been rising on average 0.4% for the past three months and 0.3% for the past six months. If inflation continues to rise at this pace for the rest of the year, then year-over-year core CPI inflation will increase from currently 3.8% to 4% to 4.5%, see chart below.

Even if month-over-month increases in core CPI comes in at the historical average of 0.2% for the rest of the year, then year-over-year inflation will still end the year at 3%. To get inflation back to the Fed’s 2% inflation target, core CPI for the rest of the year will have to come in at an unprecedented 0.1% month over month.

If you wish to put odds on the black line above (2% target), know that +0.10% or lower average MoM core CPI over 9 consecutive months has only happened 2% of the times since 1966. Less than 0.21%, only 37% of the times. Which means that the odds of 3%+ inflation by the end of 2024 are 63% on that basis.

EARNINGS WATCH

From LSEG IBES:

229 companies in the S&P 500 Index have reported earnings for Q1 2024. Of these companies, 77.7% reported earnings above analyst expectations and 16.2% reported earnings below analyst expectations. In a typical quarter (since 1994), 67% of companies beat estimates and 20% miss estimates. Over the past four quarters, 79% of companies beat the estimates and 17% missed estimates.

In aggregate, companies are reporting earnings that are 9.5% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.2% and the average surprise factor over the prior four quarters of 7.0%.

Of these companies, 59.4% reported revenue above analyst expectations and 40.6% reported revenue below analyst expectations. In a typical quarter (since 2002), 62% of companies beat estimates and 38% miss estimates. Over the past four quarters, 65% of companies beat the estimates and 35% missed estimates.

The estimated revenue growth rate for the S&P 500 for 24Q1 is 3.8%. If the energy sector is excluded, the growth rate improves to 4.4%.

In aggregate, companies are reporting revenues that are 1.3% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 1.5%. The estimated earnings growth rate for the S&P 500 for 24Q1 is 5.6%. If the energy sector is excluded, the growth rate improves to 8.5%.

The estimated earnings growth rate for the S&P 500 for 24Q2 is 10.9%. If the energy sector is excluded, the growth rate declines to 10.4%.

Trailing EPS are now $224.30. Full year 2024: $242.32e. Forward EPS: $252.55e.

Revisions up and up!

  

• Earnings Growth — Mag 7 and the Rest: OK, in the short-term, Mag 7 have indeed been on a dream run when it comes to earnings growth. But here’s an interesting development… later this year the rest of the market is expected to start outperforming Mag 7 on earnings growth. Trees never grow to the sky, night never lasts forever. Stay alert for narrative changes! (Callum Thomas)

Source:  NewEdge Wealth Weekly Note

RBA’s Richard Bernstein hits the same nail showing that the Mag-7 are no longer exceptional growers …

… yet sell at exceptional multiples:

SMALL VS LARGE

Callum Thomas: “While the cycles vary in magnitude and duration, there does appear to be a distinct tendency for small vs large relative performance to undergo cycles, and on a number of fronts the current one seems overdue for a turn.”

Source:  @ISABELNET_SA

Source:  Daily Chartbook

That’s because the economy is strengthening and broadening.

A few great charts from Ed Yardeni:

• Small caps’ revenues are flat:

• Small caps’ profits are down:

• Small caps’ margins are down:

• Small caps are cheap, but for good reasons:

• But S&P 600 forward EPS are seen up 12.4%, same as S&P 500 EPS. Note however that while S&P 500 trailing earnings met expectations, S&P 600 earnings are 7% below forecast one year ago.

Remember that about 40% of the companies in the Russell 2000 are losing money. None in the S&P 600 index.

Why the large cap advantages?

• Smaller banks are more exposed to the commercial real estate bust. CRE loans make up just 6% of large bank balance sheets, versus 30% for small banks per Gavekal.
• Smaller banks are more vulnerable to deposit flight as short term interest rates stay higher for longer and to depositors’ angst about unrealized bond losses as longer rates rise.
• Financials represent 18% of the S&P 600 Index vs 13% for the S&P 500.
• Non-financial small-cap companies tend to borrow more at the short end of the curve, relying on short-term or variable interest-rate bank loans. Larger companies make broader use of the fixed-rate bond market.
• Large companies in need of financing have no trouble issuing bonds while small businesses, which generally have less liquid balance sheets, suffer from reduced credit availability.

As this RBA chart shows, small caps used to do well when long rates were rising, symptom of a strengthening economy. The pandemic seems to have impacted smaller companies more than usual. Is this the new normal?

Musk Wins China’s Backing for Tesla’s Driver-Assistance Service Beijing gives tentative approval for carmaker’s tech in its second-biggest market

After his flurry of meetings with top officials in Beijing, China’s government signaled its blessing for Tesla to roll out its advanced driver-assistance service in the carmaker’s second-biggest market. (…)

Chinese officials told Tesla that Beijing has tentatively approved the company’s plan to launch its “Full Self-Driving,” or FSD, software feature in the country, people familiar with the matter said Monday.

The U.S. electric-vehicle maker will deploy its autonomous driving services based on mapping and navigation functions provided by Chinese technology giant Baidu, the people said.

The partnership clears an important regulatory hurdle for Tesla to offer its driver-assistance system there. Working with a Chinese company helps ease regulators’ concerns over any data-security risks, the people said. Bloomberg earlier reported the deal with Baidu, which in addition to its core search-engine business has expanded into autonomous driving and artificial intelligence. (…)

The approval follows a meeting on Sunday between Musk and top Chinese officials including Premier Li Qiang, who was previously the Communist Party chief in Shanghai when Tesla was setting up its production facilities there. (…)

Chinese officials haven’t responded to Musk’s request for approval to transfer data that Tesla’s cars collect in China to the U.S. to train its driver-assistance features, people familiar with the matter said. Data from China, where Tesla has 1.7 million drivers, would help Tesla improve its algorithms.

It is a potentially thorny issue given Beijing regards protecting such data as a matter of national security. Tesla would have to go through China’s stringent approval process for data cross-border transfer, the people said.  

The China Association of Automobile Manufacturers said Sunday that Tesla’s Model 3 and Model Y had passed its tests and were compliant with China’s data-security requirements. The government-backed industry group checked how vehicles process facial-recognition data they collect using cameras outside the cars, as well as real-time data of drivers and passengers.

That clearance may pave the way for local authorities to loosen restrictions on where Tesla’s cars can go in China, the people said. Tesla’s EVs are banned from entering sensitive locations of the Chinese military and government and, in some cases, airports and train stations over concerns that data its cars collected could pose national-security risks.

Tesla has said that all data generated by its cars sold in China is stored locally in a data center it built in 2021.

On Monday, Musk also met with Robin Zeng, chairman of Tesla’s key battery supplier Contemporary Amperex Technology, in Beijing, a person familiar with the matter said. In an interview last month, Zeng said CATL was in talks with Tesla and other automakers to license its battery technology in the U.S.

So, China would let Tesla completely loose within China without making sure the U.S. would allow entry of Chinese cars in the U.S.? Such one-sided deal ain’t Chinese, is it? Why the “tentative” approval?

Last February:

Biden Is Looking Beyond Tariffs to Keep Chinese ‘Smart Cars’ Out of the US US considers restrictions to address data security concerns

(…) The measures would apply to electric vehicles and parts originating from China, no matter where they’re finally assembled, to prevent Chinese makers from moving cars and components into American markets through third countries like Mexico, the people said. The measures could also apply to other countries about which the US has data concerns, one of the people said. Tariffs alone, they added, won’t fully address this issue.

US officials are particularly concerned about the troves of data collected by so-called smart cars — which include EVs and other types of connected and autonomous vehicles — said the people, who were granted anonymity to discuss confidential conversations. Many of today’s cars, both gas and electric, are equipped with modems connecting them to the internet, making them potential targets for hacking.

The administration may try to address data security concerns using existing Commerce Department authorities to regulate some information and communications technology transactions, some of the people said, but no decision has been made as officials conduct a sweeping policy study.

A separate executive order intended to ensure data privacy in general is expected to be released as soon as next week, and officials are also weighing adjustments to a 27.5% tariff on Chinese EVs originally imposed by President Donald Trump. (…)

Commerce Secretary Gina Raimondo worries that data could wind up in Beijing’s hands, she said last week, pointing to China’s ban on Tesla Inc. cars near government gatherings and for military use. “You can’t drive a Tesla on certain parts of Chinese roads, they say for national security reasons,” she said at an Atlantic Council event. “Well, think about that. What are the national security concerns?”

Chinese automakers like BYD Co. have stayed out of American markets in part because of high tariffs, but US officials think they may eventually choose to swallow those costs. The retail price of EVs made in China is less than half that of those manufactured in the US, so a flood a Chinese cars could upend President Joe Biden’s efforts to turbocharge domestic EV production. There’s also worry in Congress that Chinese companies like Contemporary Amperex Technology Co., the world’s biggest EV battery maker, may try to take advantage of tax credits in the Inflation Reduction Act, Democrats’ signature climate law. (…)

Trump, who has for years been vocal about Chinese EV firms’ ambitions in Mexico, has pledged to ratchet up tariffs on China if elected president in November, saying this month he may even go beyond a previously floated across-the-board figure of 60%.

US Demand Is Still Resilient, Even If GDP Doesn’t Show It Final sales to private domestic purchasers rose a robust 3.1%

Gross domestic product advanced at a 1.6% annualized rate, below all economists’ projections, with the biggest restraints stemming from less inventory accumulation and a wider trade gap.

However, so-called final sales to private domestic purchasers, which strips out inventories, trade and government spending, rose at a 3.1% rate after adjusting for inflation. For three straight quarters, this key gauge of underlying demand has expanded at least 3%.

That helps explain why the Federal Reserve’s progress on tamping down inflation late last year has stalled.

A closely watched measure of underlying price pressures advanced at a greater-than-expected 3.7% clip last quarter, the first acceleration in a year, the Bureau of Economic Analysis report showed Thursday. (…)

The first-quarter pickup in inflation was driven by a 5.1% jump in service-sector inflation that excludes housing and energy, nearly double the prior quarter’s pace. March figures on inflation, consumer spending and income are due Friday. (…)

While softer than forecast, personal spending increased at a still-healthy 2.5% pace. That was driven by the biggest gain in services outlays since 2021, fueled by health care and financial services. Business outlays for equipment picked up for the first time in nearly a year.

Moreover, residential investment registered the strongest advance in more than three years.

Spending on goods, however, decreased for the first time in more than a year, restrained by motor vehicles and gasoline. (…)

Separate data out Thursday showed initial applications for unemployment benefits fell to 207,000 last week, the lowest level in two months. Continuing claims also decreased. (…)

Wells Fargo:

After an unsettling headline miss, the picture that emerges from the details in today’s GDP report is actually more of the same in terms of the factors that are standing in the way of a lower rate environment.

Consumers are still spending, they are just prioritizing activities in the service sector. Spending on non-durable goods stalled in the quarter while outlays on big-ticket durable goods items contracted at a 1.2% annualized rate. That was not nearly enough to offset the much larger services category, where consumers spared no expense in the first quarter.

Like a relief pitcher in the late innings, services spending came in throwing heat in the first quarter with a blistering 4.0% annualized growth rate—the fastest surge in consumer services spending since the stimulus-fueled binge in 2021. Excluding 2020 & 2021, services has only come in above 4.0% three times in the last two decades (once in 2014 and twice in 2004). Higher rates are intended to cool consumer demand; the trouble for the Fed is: it’s not working.

The core PCE deflator rose at a 3.7% annualized rate in Q1, a notable acceleration after a sharp slowing the prior two quarters. This data implies a strong 0.4% increase in March core PCE, set to be released tomorrow. Services excluding energy and housing rose at a 5.1% annualized rate in Q1, the fastest in a year. (…)

In looking through some of these volatile factors, underlying growth remained quite solid in the first quarter. Real final sales to domestic private purchasers, which strips away net exports, inventories and government investment and gets at the underlying trend in domestic demand, rose at a 3.1% annualized rate during the quarter. The last three quarterly prints for this measure have all come in at 3.0% or higher, signaling healthy and stable growth. Don’t underestimate this economy.

• Traders pushed back the timing of the first rate cut to December from November. Treasuries sold off, and equities slid.

CONSUMER WATCH

• BofA: Total card spending per HH was down 0.5% y/y in the week ending Apr 20, according to BAC aggregated credit & debit card data.
• Retail ex auto spending per HH came in at -0.6% y/y in the week ending Apr 20.
• The slowdown in total card spending over the last few days of the sample was likely due to services. (MikeZaccardi)

Labor Tightness Lingers

We received further confirmation today that labor conditions remain tight, with both initial and continuing unemployment claims declining on a week over week basis and coming in beneath estimates. Initial claims dropped to 207,000 during the week ended April 20 versus the projected 214,000 and the previous period’s 212,000. Continuing claims for the week ended April 13 fell to 1.781 million from 1.796 million the week before while economists were expecting a number closer to 1.814 million. Both figures are indeed trending lower, with the four-week moving averages moving down to 213,250 and 1.794 million from 214,500 and 1.801 million during the prior weeks.

China to Pay Consumers Up to Nearly $1,400 to Replace Old Cars China plans to give car owners up to nearly $1,400 to replace their old cars with new ones, a move to boost slowing demand in the world’s largest electric-vehicle market.

Consumers who replace their cars with electric or hybrid vehicles can in some cases receive government subsidies of up to 10,000 yuan ($1,381) through the end of this year, China’s Ministry of Commerce and other departments said in a joint statement Friday. People trading in older cars for traditional cars with engines sizes of 2.0 liters and below are eligible for CNY7,000.

China’s policymakers are trying to boost consumption amid subdued domestic demand in the world’s second largest economy. Estimated passenger car retail sales dropped 1.5% on year in April, swinging from a growth of 6.2% last month, China Passenger Car Association data showed Thursday.

Beijing launched a similar trade-in program to boost domestic consumption in 2009 and 2010.

States Take On China in the Name of National Security Local politicians impatient with Washington’s actions against Beijing block Chinese land purchases, factory plans and research

States have a new adversary: China.

From Florida to Indiana and Montana, an expanding array of local proposals, bills, laws and regulations aim to block Chinese individuals and companies from acquiring land, winning contracts, working on research, setting up factories and otherwise participating in the U.S. economy.

State officials, overriding traditional local interests such as drawing investment and creating jobs, say they are acting where Congress hasn’t to address grassroots American distrust of the Chinese Communist Party.

The states have generally been moving faster on China legislation than Congress. By the time a bill that could force a sale of TikTok by its Chinese owner ByteDance reached President Biden’s desk Wednesday, over 30 state governments had passed regulations targeting the short-video app.

In their efforts to challenge perceived China threats, states are often claiming authority to define national-security risks.

“There is a real responsibility on behalf of governors and state legislatures to look out for the safety and protection of our citizens,” said Virginia Gov. Glenn Youngkin, who last year blocked Ford Motor from setting up a battery venture in his state with China-based Contemporary Amperex Technology, or CATL. He has also signed bills to curb Chinese land purchases and use of TikTok on state devices.

Youngkin says he opposed the plant for electric-vehicle batteries because he didn’t want to allocate Virginia taxpayer money to support Chinese technology. Ford is now building a scaled-down version of the project in Michigan, where it has also faced localized resistance.

When Iowa’s state Senate passed a bill this month to shield some of the world’s biggest chemical makers from certain pesticide lawsuits, its legislation specified that one type of company would be ineligible for the protection: Chinese. (…)

Since early 2023, states and the District of Columbia have introduced 624 pieces of legislation related to China, rivaling Congress’s 663, according to information service BillTrack50.com. (…)

Grand Forks, N.D., last year stopped a Chinese food ingredient maker, Fufeng Group, from building a corn-processing plant that promised to create 1,000 jobs. State and local authorities had initially welcomed Fufeng’s expected $700 million investment, pitched as the city’s largest private investment ever, but support collapsed when claims were made—with little substantiation—that the facility could be a conduit to spy on nearby Grand Forks Air Force Base. (…)

Fufeng later identified a site for its plant in Indiana, only to get tripped up by a new state law that forbids Chinese and other designated adversaries from entering deals for agricultural land.

One of the bill’s proponents, Indiana State Sen. Jean Leising, acknowledged the proposed plant was popular among corn farmers and that she was warned that between Fufeng and 10 other Chinese investors, the legislation would cost Indiana $14 billion in lost income. She reasoned that sacrifices are necessary. “Safety or revenue, you sometimes have to make a decision,” she said. (…)

Syngenta is also under fire in Arkansas, where authorities fined the company $280,000 and ordered it to sell 160 acres it has owned for 36 years for violating a new law barring land holdings by a “prohibited foreign-party-controlled business.” A spokeswoman for Gov. Sarah Huckabee Sanders said, “Gov. Sanders has promised Arkansans she’ll step up where the federal government has failed.” (…)

In a sign of inconsistencies between states pursuing similar goals, the same Indiana land-use bill that stopped Fufeng from building a plant there grandfathered Syngenta, which has around 100 employees and 115 acres in the state. (…)

Florida has legislated some of the most far-reaching China decoupling. While campaigning for president last year, Gov. Ron DeSantis signed a law to stop land purchases, block state contracting and university partnerships involving Chinese nationals. His office termed the package “a blueprint for other states.” (…)

Several efforts have faced legal challenges.

After Montana imposed an outright ban on TikTok in the state, a judge blocked the measure, citing the First Amendment—an avenue the company is expected to explore in challenging the federal legislation. Asian-Americans in Texas took credit last year for killing a state legislative effort to ban Chinese land ownership.

And in Florida, three Chinese nationals from large public universities argued in a suit against state agencies such as the state Education Department that new hurdles to their participation in academic research are unconstitutionally race-based. (…)

Trade restrictions in various forms are now ubiquitous worldwide:

Xi Warns Blinken Against ‘Vicious Competition’ Between US, China China’s Wang Yi sees rising ‘negative factors’ in relationship

(…) Overall the talks were cordial and muted, bolstering expectations that the two countries can keep ties steady.

“China and the United States should be partners rather than rivals,” Xi told Blinken, according to a Chinese Foreign Ministry statement. The two sides should “seek common ground and reserve differences, rather than engage in vicious competition,” he added. (…)

China’s Foreign Minister Wang Yi accused the US of taking “endless measures to suppress China’s economy,” during five-and-a-half hours of talks with Blinken, which included a working lunch. “This is not fair competition, but containment — and it is not removing risks, but creating risks,” he added, citing curbs on technology.

Blinken stressed to his Chinese counterpart US concerns over Beijing’s support for the Kremlin’s military industrial base, peace around Taiwan — which the Communist Party considers its territory — and China’s military activity in the South China Sea. He also brought up China’s “non-market practices.” (…)

Huawei’s New Phone Runs Latest Version of Made-in-China Chip The Pura 70 relies on a 7nm chip similar to the Mate 60’s

Huawei Technologies Co.’s latest smartphones carry a version of the advanced made-in-China processor it revealed last year, independent analysis revealed, underscoring the Chinese company’s ability to sustain production of the controversial chip.

The Pura 70 series Huawei unveiled last week sports the Kirin 9010 processor, consultancy TechInsights found in a teardown of the device. That’s a newer version of the Kirin 9000s made by Semiconductor Manufacturing International Corp. for the Mate 60 Pro, which alarmed officials in Washington who thought a 7-nanometer chip beyond China’s capabilities. (…)

US officials are now weighing additional sanctions intended to ring-fence the company and China’s semiconductor ambitions more broadly. (…)

For Huawei, it’s another step toward rebuilding a consumer business devastated by Trump-era sanctions. The company was roughly on par with Apple Inc. in terms of Chinese market share in the first quarter, underscoring the way it’s eroded the iPhone maker’s domestic market share in past months.

Japan Tightens Export Controls on More Chip and Quantum Tech

Japan said it plans to expand restrictions on exports of four technologies related to semiconductors or quantum computing, the latest in a global push to control the flow of strategic tech.

Tokyo’s new measures will affect scanning electron microscopes, used to analyze nanoparticle images, and gate-all-around transistors, a technology embraced by Samsung Electronics Co. to improve semiconductor design. Japan will also require licenses for shipments of cryogenic CMOS circuits used in quantum computers, as well as for quantum computers themselves. (…)

Last year, Japan expanded restrictions on exports of 23 types of leading-edge chipmaking technology. That measure came on the heels of US efforts to limit China’s access to key semiconductor processes. Washington officials have lobbied international partners like Japan and the Netherlands to match its trade sanctions on China, which the US sees as a geopolitical and potentially military rival.