Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.What did Hamas hope to achieve by its attack on Israel of October 7? The answer was surely to set the region aflame. More narrowly, it was to provoke the response we see, with inevitable consequences for Israel’s global reputation and the prospects for peace in the region. The strategy, in other words, is to make martyrs of the people of Gaza in a greater cause. Alas, it is working.The way this unfolds will have implications for human lives, the regional balance of power and perhaps even global peace. But it also has implications for the global economy, which has been battered by a series of shocks over the past four years: Covid-19, the post-Covid inflation, the Russia-Ukraine war and now this. How big a shock then will this latest horror prove to be?You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.This is more than a matter of dollars and cents. According to a “special focus” chapter of the World Bank’s most recent Commodity Markets Outlook, on the “Potential Near-Term Implications of the Conflict in the Middle East”, the number of people suffering from severe food insecurity jumped by more than 200mn between 2019 and 2021. The Russia-Ukraine war must have made this considerably worse, though the facts are not yet available. This is partly because of its direct effect on food prices and partly because of higher energy prices. Another big jump in energy prices would make this worse. So, how big might the implications be? This depends on the answer to two further questions. How severely and how far might the war and its political ramifications spread? In addition, what might be the consequences for the global economy, largely (but not exclusively) via energy markets?You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Fortunately, Gideon Rachman has recently addressed the first question. He reminds us that the first world war began as a conflict between Austria and Serbia, both allies of greater powers. In this case, Israel might be viewed as a proxy for the US and Hamas and Hizbollah as proxies for Iran (which might turn out to be a proxy for Russia or even China). A chain of disastrous events might, he notes, spread to the Gulf itself. It could even lead to conflict among superpowers. Moreover, we can add, the region’s regimes might be destabilised by popular anger over failure to help Gaza. It is worth remembering that the hugely damaging 1973 oil embargo was not a direct outcome of war, but a political response of Arab oil producers.If the war were to spread, would it matter? Yes, definitely. The region is far and away the world’s most important energy-producer: according to the 2023 Statistical Review of World Energy, it contains 48 per cent of global proved reserves and produced 33 per cent of the world’s oil in 2022. Moreover, according to the US Energy Information Administration, a fifth of world oil supply passed through the Strait of Hormuz, at the bottom of the Gulf, in 2018. This is the chokepoint of global energy supplies.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The World Bank also notes that past energy shocks have been significantly costly. Iraq’s invasion of Kuwait in 1990 raised average oil prices three months afterwards by 105 per cent, the Arab oil embargo of 1973-74 raised them by 52 per cent and the Iranian revolution of 1978 raised them by 48 per cent.So far, however, the effects on oil prices of the Hamas attacks on Israel and the war in Gaza have been modest. In real terms, oil prices in September were close to their mean since 1970. In all, there is little dramatic to be seen so far. In addition, adds the report, oil has become less important and oil markets less vulnerable since the 1970s: oil intensity of global output has declined by close to 60 per cent since then; sources of supply have also diversified; strategic reserves are bigger; and the creation of the International Energy Agency has improved co-ordination.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Nevertheless, oil remains a vital transportation fuel. Liquid natural gas from the Gulf is also an important part of global supplies of natural gas. Big disruptions to these supplies would have a powerful impact on energy prices, global output and the overall price level, notably in foodstuffs.The bank envisages scenarios with small, medium and big disruptions to supplies: the first would, it assumes, reduce supply by up to 2mn barrels a day (about 2 per cent of world supply), the second would reduce it by 3-5mn barrels a day and the last would reduce it by 6-8mn barrels a day. Corresponding oil prices are estimated at $93-$102, $109-$121 and $141-157, respectively. The last would bring real prices towards their historic peaks. If the Strait were to be closed, the outcomes would be far worse. We are still in the fossil fuel era. A conflict in the world’s biggest oil-supplying region could be very damaging.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The best way to think about this is to emphasise the uncertainty. The great probability is that the conflict will be contained. If so, the economic effects will stay insignificant. But it is possible that it will spread and so become far more serious. Civil unrest might also force governments in the region to consider embargoes. Hamas might wish the region to be aflame. But that is certainly not going to be in the interests of the billions of people who want to get on with their lives as best they can. It is up to policymakers in the region and outside to avoid the sorts of mistakes that have proved devastating in the past.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Right now, the big question is what Israel is going to do. I understand the outrage Israelis feel over the brutal assault and their determination to eliminate Hamas. But is that feasible by any military means? What is their political end game? What, if any, is the strategy for reaching an accommodation with the Palestinians? Above all, how wise will it turn out to behave just as Hamas so evidently [email protected] warFollow Martin Wolf with myFT and on X (formerly Twitter)  More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Toyota is pouring a further $8bn into its battery manufacturing plant in North Carolina, in the largest such investment by a foreign carmaker since the US passed the Inflation Reduction Act in 2022.The newly announced funding would take the Japanese group’s investment in the plant — one of its largest outside Japan — to about $13.9bn by 2030. It would also add about 3,000 jobs to the site it calls the “epicentre of lithium-ion battery production in North America”, bringing the total to more than 5,000.The IRA, championed by the Biden administration, included $370bn in subsidies to build a US supply chain for green industries such as electric vehicle and battery manufacturing and swiftly decarbonise the US economy.Toyota’s investment also rivals those made by domestic car companies; in 2021, Ford announced an $11.4bn investment in EVs and batteries in Tennessee and Kentucky.“Today’s announcement reinforces Toyota’s commitment to electrification and carbon reduction, bringing jobs and future economic growth to the region,” Sean Suggs, president of Toyota North Carolina, said in a statement.North Carolina offered at least $900mn in incentives for the Toyota plant, which ranks among the largest projects in the state’s history. Its relationship with Toyota began in 2017 when the Japanese carmaker was looking to build an internal combustion engine plant and ultimately chose Alabama. “Toyota today has made a big investment that establishes North Carolina as a leader in the EV race for the future,” Rahm Emanuel, the US ambassador to Japan, told the Financial Times.The IRA has already prompted an investment spree by Japanese manufacturers with Panasonic, Toyota, Honda, Bridgestone and others announcing additional spending plans in the US.Japanese manufacturers had committed nearly $20bn in clean tech manufacturing in the first year after the IRA was signed into law, according to an FT analysis. Toyota’s announcement reflects the larger trend of car companies turning towards southern US states for their electrification plans.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Toyota, the world’s largest carmaker by sales, said on Tuesday that the investment would allow for an additional eight production lines making batteries for fully electric vehicles and plug-in hybrids, bringing the total number of lines to 10.Production would be increased in a phased approach, Toyota said, with line launches planned through to 2030 to reach a total production of more than 30GWh a year.“It’s a huge transformative opportunity that is really going to change the economic trajectory, not just of the community and region, but really of North Carolina for decades to come,” said Christopher Chung, chief executive officer of the state’s economic development arm. Toyota’s announcement came hours after the United Auto Workers union suspended a historic six-week strike against Detroit’s Big Three carmakers that cost billions in earnings and marked an inflection point for unionisation at US EV plants, which are disproportionately located in states that are difficult to organise. FT Live event: Investing in America Summit7 November 2023Can foreign multinationals continue to find opportunity in the US?In-Person & Digital | Miami, PAMM | #FTInvestinginAmericaRegister hereThe US car sector is also experiencing a slowdown in demand for EVs as high interest rates and macroeconomic pressures bruise consumer interest. Big carmakers including Ford, General Motors and Tesla have paused plans to expand EV production in recent weeks.Toyota is investing heavily in battery technology as it tries to make up ground on its rivals. ​​It wants to have electrified options available for every Toyota and Lexus model globally by 2025 and has laid out plans to sell 3.5mn battery-powered vehicles every year from 2030.It is also pouring resources into next-generation battery technology. Earlier this month the FT reported Toyota’s claims that it was close to being able to manufacture solid-state batteries at the same rate as existing batteries for EVs, marking a milestone in the global race to commercialise the technology.Additional reporting by Leo Lewis in Tokyo More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The US is to remove preferential trading access under the African Growth and Opportunity Act from Uganda, the Central African Republic, Gabon and Niger for human rights violations and for failure to make democratic progress. President Joe Biden said Uganda, which this year passed punitive anti-gay laws including the death penalty for people engaging in certain same-sex acts, had committed “gross violations of internationally recognised human rights”. Niger and Gabon, whose governments were overthrown in coups this year, fell foul of Agoa stipulations that they should be “making continual progress towards establishing the protection of political pluralism and the rule of law”, he said. The loss of Agoa status takes effect for all four countries in January.The US this year suspended foreign aid for both Gabon and Niger. Niger’s ousted president, Mohamed Bazoum, was a close Washington ally in the war against Islamist extremism in the Sahel.Analysts say the Central African Republic probably lost its Agoa status because of its ties to the Wagner paramilitary group, designated a transnational criminal organisation by the US treasury and accused of committing atrocities, although Biden did not mention the Russian group explicitly.Wagner, which provides personal security for CAR’s president and participates in combat missions against rebel groups, has been granted gold and diamond mines in the mineral-rich country as well as timber concessions. But following the death in August of its founder, Yevgeny Prigozhin and recent attempts at a rapprochement between Bangui, Paris and Washington, the Wagner military and business presence in the impoverished country had shrunk considerably, said businesses people based in the capital. CAR exported less than $1mn of goods to the US in 2021, with “sawn wood” and “fake hair” topping the list.South Africa, whose car, textile and clothing industries benefit significantly from tariff-free access to the US, will maintain its Agoa benefits. South Africa is the biggest US trading partner in Africa with exports to the US worth $15bn in 2022.Washington and Pretoria overcame tensions this year over a perceived drift by President Cyril Ramaphosa’s ruling African National Congress towards Russia. The continent’s most industrialised economy’s access to Agoa was threatened in May when the US ambassador to Pretoria accused South Africa of smuggling arms to Russia through a US-sanctioned ship docked in Cape Town.Ramaphosa’s government lobbied US officials and lawmakers to let South Africa remain in Agoa and mounted an investigation that concluded that arms had not been found on the Lady R, a Russian transport vessel.In a sign of rapprochement, US trade representative Katherine Tai will travel to Johannesburg this week for an Agoa forum hosted by Ramaphosa.The US introduced Agoa in 2000 as a way of stimulating African exports through preferential access for some 1,800 designated goods. Some countries, including South Africa, Lesotho and Kenya, have benefited greatly from tariff-free access, though others have failed to develop industries with goods to sell to the US in significant quantity. Ethiopia, which built a textile industry partly on the back of Agoa access, was struck off last year after a civil war in which atrocities were documented. Addis Ababa said more than 12,000 people lost their jobs because of the removal of preferential access to US markets. It has lobbied hard to be reinstated. Susan Muhwezi, senior adviser to the Ugandan president on trade, said Uganda was not aware of the reasons for it being removed from Agoa, “apart from hearing what was in the statement — gross violations of human rights”. She added: “I trust that they definitely know that to cancel a trade preference is not a very welcomed thing. It costs jobs, people have invested, people are benefiting . . . Probably their interpretation of human rights could be different.”Under Biden the US has sought more pragmatic engagement with African governments, few of which are fully democratic and a number of which have fallen to military dictatorships in recent years. But Agoa legislation is linked to specific criteria including adherence to certain standards of human rights and perceived progress towards democracy. The Biden’s administration has increased diplomatic engagement with Africa, with visits by several top officials including vice-president Kamala Harris and treasury secretary Janet Yellen. The US president is expected to visit at least one country on the continent in December. More

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“This state of the economy fully justifies the halt to the rate hike sequence decided by the (ECB) Governing Council last Thursday,” Villeroy de Galhau said in a statement.”Our monetary policy must now be guided by confidence and patience: confidence that we are making firm progress towards bringing inflation down to 2% by 2025; patience in stabilising interest rates at their current level for as long as is still necessary”, he said. More

In addition to seasonal factors, the cash shortage was caused by an upcoming flood of government bond issuance, and traders also pointed to market fears of default by cash-strapped institutions.The highest overnight rate for pledged repo – a short-term financing business – hit 50% on Tuesday, according to official interbank data, although the average rate remains modest at roughly 3.6%. Two-day repo rates jumped to as high as 30%, and the highest rate for seven-day repos was 12%. “The liquidity tightness caught me off the guard, the price suddenly shot up,” said a trader at a brokerage.The jump in rates stirred memories of a June 2013 cash crunch when the overnight repo rate leapt to a historic high of 30% in an event that roiled global markets. Rocky Fan, economist at Guolian Securities, said that while the 2013 crisis had resulted from China’s crackdown on shadow banking, the current stress was likely due to a high level of leveraged trades in the money market. Several traders at small lenders were still seeking to borrow money in later afternoon trading when contacted by Reuters. Some also expressed concern over default in the market, without giving details. “Liquidity is extremely tight today,” Caitong Securities wrote in a note to clients.The brokerage attributed the cash shortage to a “record supply” of government bonds, as well as restricted channels for banks to borrow money. China last week approved 1 trillion yuan ($136.67 billion) of sovereign bond sales to stimulate economic growth while local governments are rushing to issue refinancing bonds to repay existing debts. “We expect tight liquidity to force authorities to speed up the rollout of monetary easing measures,” Caitong analysts wrote. Ming Ming, chief economist at Citic Securities, expects repo rates to fall back in November as the central bank will likely maintain loose monetary conditions, with a cut in banks’ required reserve ratio possible.The average seven-day repo rate – a widely watched indictor of short-term borrowing costs in China – remained modest at 2.0765% on Tuesday, meaning many institutions can still borrow money at relatively low rates. More