Aurelia Butler

(Reuters) -The U.S. will take steps to prevent American chipmakers from selling semiconductors to China that circumvent government restrictions, a U.S. official said, as part of the Biden administration’s upcoming actions to block more AI chip exports.The new rules, details of which Reuters is reporting for the first time, will be added to sweeping U.S. restrictions on shipments of advanced chips and chipmaking equipment to China unveiled last October. The updates are expected this week, other people familiar with the matter said, though such timetables often slip.The new rules will block some AI chips that fall just under current technical parameters while demanding companies report shipments of others, said the official, who provided information on condition of anonymity.A spokesperson for the U.S. Department of Commerce, which oversees export controls, declined to comment.The latest crackdown on tech exports to China coincides with U.S. efforts to thaw difficult relations between the world’s two largest economies. Several senior members of the Biden administration have met their Chinese counterparts in recent months, and the latest round of rules risks complicating the diplomatic effort.The Biden administration has said it designed the export curbs to keep U.S. chips and equipment from strengthening China’s military. Beijing has accused the United States of abusing export controls to suppress Chinese companies. The restrictions marked a historic shift in U.S.-China tech policy.The Chinese embassy in Washington did not immediately respond to a request for comment.Last year, government restrictions kept Nvidia (NASDAQ:NVDA), the world’s most valuable chipmaker, from shipping two of its most advanced AI chips to Chinese customers, chips that have become the industry standard for developing chatbots and other AI systems. But Nvidia soon released new variants for the Chinese market that were less sophisticated and got around the U.S. export controls. One, named the H800, has as much computing power at some settings used in AI work as the company’s more powerful but blocked H100 chip. Still, some key performance aspects are limited, according to a specification sheet seen by Reuters. The U.S. now plans to introduce new guidelines for AI chips that will restrict certain advanced datacenter AI chips that are not currently captured, the U.S. official said.While the official declined to identify which additional chips will be effectively banned, Nvidia’s H800 is a semiconductor sources have suggested the administration has wanted to block.Santa Clara, California- based Nvidia did not immediately respond to a request for comment. In June the company’s chief financial officer said that if the H800 and a related chip called the A800 were restricted, they did not anticipate it “would have an immediate material impact on our financial results.”Chips meant for consumer products like laptops will be exempt from the new curbs, the official said. But companies will need to tell the Commerce Department when they are filling orders for the most powerful consumer chips to make sure they are not being used in ways that threaten national security, according to the official.In order to keep AI chips the U.S. views as too powerful from China, the official said the U.S. planned to remove one of the parameters – the “bandwidth parameter” – it has used to restrict exports of certain AI data center chips. By removing this parameter, another guideline kicks in, widening the scope of chips covered. This would likely mean the speed at which AI chips talk to each other would be reduced. This is important because training the largest AI models is impossible on one chip and requires many chips tied together. If one slows the speed they communicate at, it makes AI development more challenging and expensive.The U.S. also plans to introduce a “performance density” parameter to help prevent future workarounds, the official said, but declined to elaborate.Evolving technology The updated rules also are meant to cover AI chips as technology evolves. The U.S. will require companies to notify the government about semiconductors whose performance is just below the guidelines before they are shipped to China, the official said. The government will decide on a case-by-case basis whether they pose a national security risk but they can be shipped unless the chipmaker is told otherwise.The updates to the October 2022 rules may also close a loophole that gives Chinese companies access to American artificial intelligence chips through Chinese units located overseas, as Reuters reported last week.The rules are not expected to include restrictions on access to U.S. cloud computing services, or those of allies, but the U.S. will seek comments on the risks of such access and how they might be addressed, the official said. The Biden administration told Beijing of its plans to update the contentious rules this month, Reuters reported earlier in October, as part of a policy aimed at stabilizing relations between the superpowers. More

LONDON (Reuters) -U.S. service-sector businesses returned to steady expansion in the third quarter after a brief and scarcely perceptible slowdown in the second quarter, according to business surveys.But the expansion is fuelling faster price increases, putting the central bank’s disinflation plan in jeopardy and will likely lead to interest rates remaining higher for longer.In turn, higher rates will dampen interest-sensitive expenditure and likely lead to slower growth in oil consumption in 2024.Higher-for-longer rates will hit marginal borrowers in the United States, Europe and emerging markets especially hard.The Institute for Supply Management’s services activity index was at 53.6 (29th percentile for all months since 1997) in September up from a low of 50.3 (11th percentile) in May.In contrast to the manufacturing sector, which has experienced a long but relatively shallow business cycle downturn, the much larger service sector has barely experienced a downturn at all.Chartbook: U.S. service sectorRenewed expansion has ensured service providers have enough pricing power to push through further price rises after pricing power faltered briefly in the second quarter.Service-sector prices increased at an annualised rate of 5.2% over the three months ending in September, up from 3.3% in the three months ending in June.The acceleration in service-sector price increases was broadly based and similar whether housing rents are included or excluded.Service-sector prices are rising more than twice as fast as the central bank’s whole-economy flexible average inflation target of a little over 2%.Services are less energy-intensive but more labour-intensive than manufacturing, so the sector’s inflation rate tends to be more persistent and a better indicator of the overall amount of inflationary pressure within the economy.There are 112 million people on the payrolls of private-sector services firms compared with 13 million employed by manufacturers.HIGHER FOR LONGERInflationary pressures have persisted despite the fall in oil, gas and some other raw materials prices from their highs in early to mid-2022 in the aftermath of the pandemic and Russia’s invasion of Ukraine.Prices have also continued to escalate despite the central bank increasing overnight interest rates by 525 basis points between March 2022 and July 2023.Real rates have only become positive in the last few months, however, and even then they are scarcely higher than most measures of inflation.With most actual borrowing rates fixed for multiple years, rather than tracking the overnight rate, the increase in borrowing costs has only affected a minority of households and businesses so far.But the longer interest rates remain high, the greater the number of households and firms eventually affected by them when they need new credit or to refinance maturing loans.The full impact of the interest-rate increases so far will continue to filter through and hit interest-sensitive spending over the course of 2024.Most rate traders anticipate the central bank will be forced to keep overnight rates higher for longer to squeeze persistent inflation out of the economy.Based on futures prices, the Federal Reserve is not expected to cut interest rates from their current level of 5.25%-5.50% until the middle of 2024.Rates are still expected to be as high as 4.50%-4.75% at the end of 2024. Previously, during the second-quarter slowdown, rates were expected to fall to as little as 3.00%-3.25% by the end of 2024.The impact of higher-for-longer rates on overall borrowing costs is encapsulated in the rise in yields on long-term U.S Treasury securities which act as the benchmark for other borrowers.Yields on 10-year notes have climbed to more than 4.60% from less than 3.50% at the end of April amid the brief slowdown.In the short term, the renewed expansion of the U.S. manufacturing and service sectors is supporting oil consumption and prices.In the medium term, however, the higher-for-longer rates needed to bring inflation back to target will likely depress business activity and slow oil consumption growth in 2024.The central bank’s tentativeness about raising rates further may have spared the economy a hard landing in 2023 – in fact there may not have been any landing at all.But it seems likely that some of the pain has simply been postponed until next year.Related columns:- U.S. manufacturing rebound will stretch diesel supplies (October 5, 2023)- Cromwell’s rule and the global economic outlook (May 10, 2023)John Kemp is a Reuters market analyst. The views expressed are his own More

SINGAPORE (Reuters) – The dollar was on the front foot on Monday in cautious trade as tensions in the Middle East escalated, while investors awaited a speech by Federal Reserve Chair Jerome Powell later this week for further clues on the U.S. central bank’s rate outlook.The Israeli shekel fell to more than an eight-year low of 3.9900 per dollar in early Asia trade, after the country’s Prime Minister Benjamin Netanyahu vowed on Sunday to “demolish Hamas” as his troops prepared to move into the Gaza Strip in pursuit of Hamas militants.Carry trades funded by the yen could be the biggest casualty of further escalation in the war, analysts said, as global investors who have for months been shorting the yen to invest in higher-yielding currencies buy it back as a safe-haven.The yen was last steady at 149.53 per dollar.The Japanese currency, which is near to potential intervention levels around 150, could also rally if the Fed has to stop hiking rates even as the Bank of Japan feels compelled by domestic inflation to tighten policy. The BOJ has continued to maintain its ultra-easy policy settings although markets are rife with speculation that it could move to gradually exit from the accommodative stance sooner rather than later. “Obviously war is inflationary, disrupts growth and threatens risk assets,” James Malcolm, head of FX strategy at UBS in London.”The largest overhang I can see in this regard is dollar-yen, where the BOJ must pivot regardless and the carry trade that has built up now amounts to nearly half a trillion dollars.”Elsewhere, the safe-haven dollar stood near a one-week high against a basket of currencies as risk sentiment remained fragile, pinning the euro near a one-week low hit on Friday.The single currency was last 0.11% higher at $1.0522.Sterling gained 0.06% to $1.21515, though it was similarly languishing near Friday’s one-week trough of $1.2123.”I view what’s going on in Israel as a regional conflict, which typically does not have meaningful impacts on financial markets over time,” said David Chao, Invesco’s global market strategist for Asia Pacific ex-Japan.”I don’t see it altering growth trajectories of the major economies nor does it make the Fed more hawkish. If anything, I think the Fed is less inclined to tighten going forward given the perception of heightened risks.”The Australian dollar, often used as a proxy for risk appetite, gained 0.19% to $0.6309, after sliding 1.4% last week.On the policy front, traders looked to Fed Chair Powell’s speech before the Economic Club of New York later this week for clues on how much further U.S. interest rates could rise, after data last week showed consumer prices increased more than expected in September.Markets are largely expecting the Fed to keep rates on hold when it announces its next monetary policy decision in November, according to the CME FedWatch tool, though they see a roughly 32% chance the central bank could deliver a rate hike in December.In other currencies, the New Zealand dollar gained 0.33% to $0.5904.New Zealand’s centre-right National Party led by Christopher Luxon will form a new government with its preferred coalition party ACT, as Prime Minister Chris Hipkins conceded his Labour Party could not form a government after Saturday’s general election.”The kiwi dollar jumped this morning following a clear and decisive victory of New Zealand’s opposition National Party,” said Kyle Rodda, senior financial market analyst at Capital.com.”It appears the Nationals are in the position to win power while only requiring one coalition partner, excluding the populist New Zealand First party.”The kiwi has jumped on the prospect such dysfunction has been avoided.” More

TOKYO (Reuters) – Crude oil hovered above $90 a barrel while equities were weak and the safe-haven dollar was firm on Monday as investors nervously watched for whether escalating violence in Gaza would cause the conflict to spread beyond Israel and Hamas.Israel’s shekel sank to a nearly eight-year low, after the country’s prime minister, Benjamin Netanyahu, vowed to “demolish Hamas” in retaliation for the rampage on Oct. 7 that killed 1,300 people in the worst attack on civilians in Israel’s history.U.S. Secretary of State Antony Blinken is visiting the region, seeking to prevent further escalation. Netanyahu agreed to lift a blockade of water supplies to parts of southern Gaza after speaking with U.S. President Joe Biden. Brent crude futures reached a new recent high of $91.20 on Monday before easing back slightly to $90.84, following Friday’s 5.7% surge.Japan’s Nikkei share average fell more than 1%, while Australia’s S&P/ASX 200 index lost 0.15% in early trading. New Zealand’s equity benchmark slid 0.9%.On Friday, the pan-European STOXX 600 index lost 0.98 and New York’s S&P 500 declined 0.50%, although U.S. stock futures pointed 0.18% higher on Monday.”The situation is dynamic and it’s too early to say if the hedges placed on Friday are unwarranted, but there have been pockets of positive news flow,” Chris Weston, head of research at Pepperstone, wrote in a note, citing the resumption of water supplies as one example.”Risk and energy markets will look for headlines and actions from Iranian officials who have stated they have a duty to come to the aid of the Palestinians.”Benchmark 10-year U.S. Treasury yields were little changed at 4.6434%, following a more than 8 basis point decline on Friday amid demand for the safety of bonds.Currencies overall retraced some of their moves from the end of the week, with the U.S. dollar index easing slightly to 106.55 from as high as 106.79 on Friday.The euro rose 0.1% to $1.0522 while the yen was little changed at 149.505 per dollar.However, Israel’s shekel was weaker, last trading at 3.9850 per dollar after weakening to 3.9900 earlier in the day for the first time since April 2015. More

In a speech on tokenisation, Reserve Bank of Australia (RBA) Assistant Governor Brad Jones said a key priority for the bank was assessing how different forms of digital money and infrastructure could support the development of tokenised asset markets.Australia’s government on Monday separately outlined proposals for regulating crypto and digital assets that will make platforms subject to existing Australian financial services laws and require platform operators to obtain an Australian Financial Services Licence.This will include minimum standards for holding tokens, standards for custody software and standards when transacting in tokens.Jones, who heads the RBA’s financial system division, said tokenisation could deliver hypothetical transaction savings of around A$13 billion ($8.20 billion) a year to issuers in Australia’s capital markets, in part through providing increased liquidity.Another A$1 billion to A$4 billion could be saved in transaction fees via increased trading volumes and the benefits of atomic settlement, particularly on cross-border payments.Atomic settlement is instantaneous swapping of an asset for a payment.The RBA has been studying whether to issue a central bank digital currency (CBDC) of its own and if it would help facilitate atomic settlement in tokenised asset markets.A wholesale CBDC could also act as a complement to new forms of privately issued digital money, including tokenised bank deposits and asset-backed stablecoins.”Our overarching position is that we remain open-minded as to the functional forms of digital money and supporting infrastructure that could best support the Australian economy in the future,” Jones said.He said the RBA and Treasury would publish a joint report around the middle of 2024 to provide a stock take on CBDC research in Australia and set out a roadmap for future work.”The question of how we might arrange our monetary system to better support the Australian economy in the digital age is now a key priority for the bank,” Jones added.($1 = 1.5863 Australian dollars) More

Without the extension, British businesses, such as automakers and food and drink companies, would have faced high tariffs from Jan. 1 on exports of products made using materials from the European Union, under so-called rules of origin, and on products shipped via the EU.Annual trade between Britain and South Korea is worth 18 billion pounds ($21.9 billion), and the two sides will begin talks later this year on a new trade deal. Their current agreement was rolled over from Britain’s membership of the EU.Britain’s minister for international trade, Nigel Huddleston, said extending the tariff-free period would provide welcome certainty for businesses.”This is fantastic news for UK businesses who can continue selling their fantastic goods with confidence to South Korea,” Huddleston said.South Korea is the seventh-biggest export market for British-made cars and the third-largest supplier of new cars for Britain, meaning any new tariffs “would have been bad for both sides,” said Mike Hawes, the head of the British car industry trade body.”We look forward to the start of negotiations and swift conclusion of a modernised trade deal that delivers more benefits to our respective automotive sectors, in particular boosting trade in EVs and related technologies,” Hawes, the Chief Executive of the Society of Motor Manufacturers and Traders, said.($1 = 0.8237 pounds) More