Introduction: China bars Micron chips in escalation of tech clash with US
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Tensions between Washington and Beijing are rising after China announced that products made by US chipmaker Micron Technology have failed to pass a cybersecurity review.
China’s government told users of sensitive computer equipment they must stop buying products from Micron, the biggest US memory chipmaker.
Micron, China says, had failed a network security review announced last month, meaning operators of key infrastructure are now barred from buying from the company.
Announcing the move, the Cyberspace Administration of China (CAC) said:
The review found that Micron’s products have serious network security risks, which pose significant security risks to China’s critical information infrastructure supply chain, affecting China’s national security.
The decision could include sectors ranging from telecoms to transport and finance, according to China’s broad definition of critical information infrastructure.
Micron, which is headquartered in Boise, Idaho, makes products including DRAM chips, flash memory, and solid state hard drives. through its Crucial, Ballistix Gaming and SpecTek brands.
The move escalates the ongoing US-China row over technology and security. Last November, the Biden administration banned approvals of new telecommunications equipment from China’s Huawei Technologies and ZTE, saying they posed “an unacceptable risk” to U.S. national security.
A spokesperson from the US Commerce Department has criticised China’s move, saying:
“We firmly oppose restrictions that have no basis in fact,”
“This action, along with recent raids and targeting of other American firms, is inconsistent with [China’s] assertions that it is opening its markets and committed to a transparent regulatory framework.”
Shares in some rival chipmakers rose on the news (more on that shortly…).
The Micron ban came as G7 leaders, who met in Hiroshima last weekend, announced they want to de-risk from China, rather than decouple.
Joe Biden explained:
“That means taking steps to diversify our supply chains.”
Rishi Sunak went further, saying China poses the biggest challenge to global security and prosperity of our age.
The UK PM warned that China has the “means and intent to reshape the world order”, and that G7 leaders had shown “unity and resolve” in confronting the problems posed by Beijing.
The agenda
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10am BST: Eurozone construction output for March
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2pm BST: Bank of Israel interest rate decision
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3pm BST: Eurozone consumer confidence flash estimate for May
Key events
Greece’s stock market is roaring higher today, after the country’s right-wing New Democracy party claimed a strong first place in last weekend’s elections.
Athens’ ASE share index has jumped by 7% this morning, while Greek bonds are also strengthening in value, with investors anticipating a continuation of Greece’s current economic policies.
Greece’s conservative prime minister Kyriakos Mitsotakis hailed the result as a “political earthquake”, even though New Democracy didn’t quite win enough votes for a majority.
New Democracy party were heading for almost 41% of the vote, five seats short of a majority, and well ahead of the left-wing Syriza party led by former prime minister Alexis Tsipras, which won around 20% support.
Bill Blain, market strategist at Shard Capital, wrote this morning:
[Greece’s] right-wing government did surprisingly well in the polls telling us the public want experience, clarity and certainty – the economy is in recovery and may even win back investment grade status, but Greek friends tell me it still feels like austerity.
Today, Mitsotakis was handed a three-day mandate by Greece’s president, Katerina Sakellaropoulou, to explore the options of forming a coalition.
But, Mitsotakis would rather govern alone, as our Athens correspondent Helena Smith reports:
Aides said the 55-year-old leader, who appeared in ebullient mood as he arrived at New Democracy’s headquarters in Athens, would prefer a repeat poll with Sunday’s result hardening his view that a single-party government was “more than possible”.
In an address on Sunday night the prime minister said he was “proud and moved” by the result. “Hope has beaten pessimism, unity has beaten division,” Mitsotakis said.
“I pledge to work even harder. People want a strong government with a four-year mandate so that we can cover the lost ground that separates us from Europe. A government is needed that really must believe in reforms so that it can implement them.”
Heathrow: Passengers ‘should not be concerned’ about half-term strike
More travel news: Heathrow airport is pledging that next week’s strike by security staff will not lead to flight cancellations during the half-term rush.
Members of the Unite union working at Terminal 5 will walk out from May 25 to 27 in an ongoing dispute over pay.
But Heathrow has insisted that passengers will have a smooth journey through Heathrow during the half-term getaway.
Britain’s largest airport said said its contingency plans, which include deploying extra staff, have delivered “excellent passenger service” throughout previous strike periods, with “almost all” travellers waiting less than 10 minutes to pass through security.
Heathrow CEO John Holland-Kaye said:
“Passengers should not be concerned about strike action by Unite over the half term getaway. The 15 days of strike action over the Easter peak and Coronation weekends have had no impact on the smooth running of the airport, and passengers have not noticed any difference from the normal great service they expect at Heathrow.”
“These strikes are completely unnecessary. When I speak to colleagues the overwhelming message is that they just want to vote on our pay offer, but Unite won’t let them. We made a generous 10% offer early on, to make sure colleagues got a substantial increase when they needed it most. Unite’s delays mean non-union colleagues as well as the majority of colleagues who are union members, who voted to accept our previous offer are losing out.”
A year ago, Heathrow was gripped by disruption, with passengers suffering long queues and last-minute cancellations blamed on staff shortages.
Begbies Traynor Group, the business recovery, financial advisory and property services consultancy, has lifted its financial forecasts this morning.
Begbies Traynor told the City its results for the last 12 months are expected to be ahead of market expectations.
Russ Mould, investment director at AJ Bell, says this highlights problems in the wider economy.
“A better-than-expected trading update from corporate restricting group Begbies Traynor is good news for its shareholders, but typically a negative sign for the state of UK business.
It has reported an increase in liquidations and administrations which is a worry for the economy, so too is guidance from Begbies for further challenges to UK businesses.”
Revenue is expected to increase by 11% in the year to 30 April, with adjusted pretax profits tipped to grow by 16%.
Ric Traynor, executive chairman of Begbies Traynor Group, says:
“We performed strongly in the financial year, with results ahead of market expectations, aided by our increased scale and enhanced reputation in mid-market insolvency.
“We have further developed our range of services, extending both our financial advisory business and property advisory services through earnings accretive acquisitions principally funded by strong cash generation.
Back on the Micron-China news, Ben Barringer, equity research analyst at Quilter Cheviot, says chipmakers face potentially “politically treacherous waters.”
“Following a cyber security investigation China has decided to ban certain Micron memory products from the country, which will come as no surprise to many as it probably represents a retaliatory move following US restrictions on China’s access to technology.
“Around 11% of Micron’s revenue comes from China but we shall see how much this ban actually impacts its revenue because the ban is currently for domestic critical information infrastructure operators which is essentially used for defence, military and utilities. However, if this is broadened then it could put a dent in the company’s future revenues.
“The second unknown is the memory market is very homogenous. The two other major producers of similar technology are Samsung and Hynix and both companies have been asked by the US to not ship to China. How they respond will be key for Micron.
“Both the South Korean companies will now be closely watched to see how they behave in the face of the US request as they have manufacturing factories in China whereas Micron does not.
The companies may now need to navigate what could be politically treacherous waters.”
Shares in Meta are down 1% in pre-market US trading, after the company was hit by a record fine for EU privacy violations.
#UPDATE Facebook owner Meta has been fined a record 1.2 billion euros ($1.3 billion) for transferring EU user data to the United States in breach of a previous court ruling, Ireland’s regulator announced Monday. pic.twitter.com/5G61GEJ8zR
— AFP News Agency (@AFP) May 22, 2023
Facebook owner Meta hit with record £1bn fine over EU-US data transfers
Meta has been hit with a record fine by regulators for mishandling user information.
Meta, the parent of Facebook, has been fined a record €1.2bn (£1.05bn) by Ireland’s Data Protection Commission following an inquiry.
This beats the previous record of €746m levied on Amazon by Luxembourg in 2021.
Metaa must also suspend any future transfer of personal data to the US within five months.
The DPC ruled that Facebook had violated its rules requiring platforms to ensure data transfers from Europe to the US have appropriate safeguards in place.
In today’s ruling, it says:
While Meta Ireland effected those transfers on the basis of the updated Standard Contractual Clauses (“SCCs”) that were adopted by the European Commission in 2021 in conjunction with additional supplementary measures that were implemented by Meta Ireland, the DPC found that these arrangements did not address the risks to the fundamental rights and freedoms of data subjects that were identified by the CJEU in its judgment.
The ruling relates to a legal challenge brought by an Austrian privacy campaigner, Max Schrems, over concerns resulting from the Edward Snowden revelations that European users’ data is not sufficiently protected from US intelligence agencies when it is transferred across the Atlantic.
My colleague Dan Milmo explained the background to the case here:
China’s commerce minister, Wang Wentao, has declared that the country will continue to welcome US-funded firms.
Speaking after Beijing barred Micron from selling memory chips to key domestic industries. Wang insisted that China was open to foreign firms.
He told a seminar in Shanghai that:
“China’s economy is recovering and improving, and the market potential continues to be released, which will provide more development opportunities for enterprises from all over the world, including U.S. companies.”
Back in the chip sector, shares in other US chipmakers are also under pressures,
Qualcomm and Broadcom are both down around 0.75% in pre-market trading.
House asking prices jump as confidence returns to UK housing market
The average price tag on a home reached a record high in May, as activity picked up across the housing market.
The average asking price jumped by £6,647 or 1.8% month-on-month, new data from Rightmove shows, lifting the average asking price for a home coming to market to £372,894.
This is the largest monthly increase for 2023 so far, and above the 1% increase typically seen during May.
Rightmove reports that sellers were cautious earlier this year, following the fallout from the mini-Budget. But with buyer demand 3% higher than in 2019, asking prices are moving higher.
Spring gets a late spurt of growth as buyer interest pics up for first & second steppers; resulting in AVG ASKING prices getting a 1.8% monthly inc (+£6,647) in May, to reach a new record of £372,894. Whilst those at the final rung lose sight of reality & buyers @rightmove pic.twitter.com/dAXC5Xlu84
— Emma Fildes (@emmafildes) May 22, 2023
This doesn’t mean that houses are selling for record levels, though. Official data shows that house prices in February were £5,000 below the recent peak in November 2022, while Nationwide reports that prices rose in April after seven months of declines.
Higher mortgage rates, following 12 interest rate increases in a row, mean borrowing to buy a new home is rather more expensive than in 2021.
Tim Bannister, Rightmove’s Director of Property Science, says:
“This month’s strong jump in new seller asking prices looks like a belated reaction and a sign of increasing confidence from sellers, as we’d usually see such a big monthly increase earlier in the spring season. One reason for this increased confidence may be that the gloomy start-of-the-year predictions for the market are looking increasingly unlikely.
What is much more likely is that the market will continue to transition to a more normal activity level this year following the exceptional activity of the pandemic years. Steadying mortgage rates and a generally more positive outlook for the economy are also contributing to more seller confidence, though there are likely to be more twists and turns to come.
The market is still very price-sensitive and it is important that new sellers do not damage their prospects of a sale by overpricing initially and reducing later, with agents reporting that it’s the realistically-priced new instructions that are selling best.”
Rightmove reports that demand is being driven by the first-time-buyer and second-stepper sectors, while houses at the top of the market are taking longer to sell:
“Buyer demand is 1% lower than in 2019 for top-of-the-ladder properties, compared with 3% above 2019’s level in the second-stepper sector, and 6% above in the first-time-buyer sector” @rightmove pic.twitter.com/4PLGxoHbHc
— Emma Fildes (@emmafildes) May 22, 2023
European stock markets have made a mixed start to trading, as investors digest China’s ruling that products made by US memory chip giant Micron Technology are a national security risk.
The UK’s FTSE 100 has gained 0.3% or 22 points to 7,779 points, but France’s CAC and Germanys DAX are both down around 0.1%, with the US debt ceiling deadline also on traders’ minds.
Saxo’s strategy team told clients this morning:
After a cyber-security review, China’s Cyberspace Administration of China ordered that Chinese companies dealing with critical information stop buying chips from US-based Micron Technology.
The review said that Micron’s chips posed “relatively serious cybersecurity problems” that could “seriously danger the supply chain of China’s critical information infrastructure.” The move was widely viewed as a retaliation against recent US limitations on exporting high-end chips and chip-manufacturing equipment to China.
A US Commerce Department spokesperson said the move has “no basis in fact”. Mainland China and Hong Kong revenue exposure is around 15% of total revenue for Micron Technology.
