Aurelia Butler

LONDON (Reuters) – Global shares rose on Monday thanks in part to a burst of risk appetite, with the yen jumping by the most against the dollar in two months after the head of the Bank of Japan hinted at an eventual shift away from negative interest rates.Signs of stabilisation in the Chinese economy pushed up the price of copper and underpinned the oil price above the crucial $90-a-barrel level.The yen surged after BOJ Governor Kazuo Ueda said the central bank could end its policy of negative interest rates when the achievement of its 2% inflation target is in sight.The dollar dropped by as much as 1.3% to 145.91 yen and was last down 0.6% on the day at 146.955 – within sight of last week’s high of 147.87, a level at which traders were preparing for the BOJ to possibly intervene outright in the markets to prop up the currency.The dollar has benefited in recent weeks from a growing sense of caution among investors towards China and Europe, both showing worrying signs of slowdown in contrast with the U.S. economy, which many believe is heading for a soft landing.Global shares, as reflected by the MSCI All-World index, rose 0.1%, supported by a bounce in stocks in Europe, where the STOXX 600 gained 0.3%. Last week, the STOXX posted its longest stretch of losses in 5-1/2 years.This week holds a number of major risk events, such as the European Central Bank policy meeting and a key reading of U.S. monthly inflation, which will likely temper a broader rally, according to City Index strategist Fiona Cincotta.”After such a heavy sell-off last week, there is a bit of a recovery, or a pause in the sell-off, now, and given that it’s such a big week as far as the ECB is concerned and as far as inflation is concerned, investors are in a cautious mood, which is going to prevent stocks from going too much higher,” she said.INFLATION IN SIGHTU.S. inflation data is due on Wednesday. Economists polled by Reuters expect consumer prices to have risen by 3.6% from last year, up from July’s 3.2% reading.The core rate, which excludes food and energy prices and is more of a focus for the Fed, is expected to have slowed to an annual rate of 4.3% from 4.7% in July.Investors are pricing in a 93% probability the Fed will leave rates unchanged when it convenes next week, but the outcome of the November meeting is less clear – money markets show the split is 50/50 as to whether there is another hike.The yield on the benchmark 10-year Treasury note rose 4 basis points to 4.302%, while that on the two-year note was up 1 bp at 4.99%.U.S. stock futures were up between 0.4-0.5%. On the markets in Asia, Chinese blue-chip stocks ended the day up 0.7% after data showed deflation pressures were easing, which suggested the economy might be returning to a more stable footing. A separate report showed new lending almost quadrupled in August, a sign of the central bank’s efforts to shore up growth.”In the near term investors are cautious towards China but we are quite encouraged that the policies have turned from more piecemeal to more targeted in the past few weeks, especially with property,” said Marcella Chow, JPMorgan Asset Management market strategist.Copper futures rose 1.3% to $8,353 a tonne, while Brent crude futures dipped 0.4% on the day but held above $90 a barrel, near the year’s highs.The euro was up 0.2% at $1.0725, having lost 1.09% in a month as expectations have faded for the ECB to raise rates again this year in light of a sharp slowdown in business activity.The ECB meets on Thursday to set interest rates and markets have all but priced out any chance of a hike. More

Welcome to Trade Secrets. I’m sorry to say that I just can’t get worked up about the G20 softening the language on Russia and Ukraine in its communiqué over the weekend. The G20 doesn’t have an army, and neither do its communiqués substantively bind its members in any area as sensitive as national security. Below I argue it simply underlines how the G20 stays alive by saying fewer things of interest while recruiting more people to say them. Speaking of institutions looking for direction, this week I’ll be in Geneva at the World Trade Organization, which is holding its annual Public Forum. The event is actually quite a jolly affair. It started as a research and discussion conference and has now basically added on a convention for the trade policy industry (a trade trade fair, if you will). You can watch some of the debates livestreamed here. I’ll report back next Monday on the mood in the WTO. Charted waters is on the weakness in the Chinese renminbi.Never mind the quality, feel the widthThere’s a telling conspicuous-absence aspect to international summits at the moment. It’s as much about who doesn’t turn up as who does. August’s Brics meeting was notable for the truancy of President Vladimir Putin, skulking at home in Moscow to avoid an international arrest warrant for alleged war crimes. President Xi Jinping decided to skip this weekend’s G20 summit in India, perhaps thinking it insufficiently populated with China’s satraps for his liking.Looks like he wasn’t really needed, since India managed to dilute the language on Ukraine anyway. The fact that the rich democracies went along with it rather than blow up the meeting suggests they attach more importance to the G20 than China does.You can always boost attendance by enlarging the membership, and this weekend the G20 gave the 55-nation African Union the same full-member status as the EU. But as the representation widens, so the focus dissipates. It sounds reasonable enough to admit the AU, if only for reasons of legitimacy given the EU’s presence. But the EU is one of the world’s great trading, regulatory and currency powers. By contrast, while the AU did help to broker the creation of the African Continental Free Trade Area (AfCFTA) in 2018, the pact is a far weaker agreement than the EU single market and it doesn’t collectively strike deals with other countries and trade blocs.As for the AU’s geopolitical role, if anything it’s managed to do even less to stop the recent string of military coups in west Africa than the EU has to rein in Viktor Orbán’s autocratic tendencies in Hungary or indeed to deter Putin from annexing Ukraine.Even the most fervent G20 cheerleader has to accept that the grouping’s promise has faded since its elevation to primary global governance gabfest status in 2008. China’s indifference, if it persists, will weaken it further.Beijing is ruthless in choosing which institutions it invests energy in. As FT colleagues have described, China wants to dominate a bunch of UN agencies if it can pack them with friendly developing nations, much like the Brics grouping. Whatever you think of China’s actual trade policies, it has continued to engage actively in the WTO, certainly compared with the US. But Xi seems to have put the G20 into the same bucket as he has the IMF and World Bank: not pliant enough for his liking.India’s drive for trade deals is energetic but limitedSo if the G20 didn’t advance matters much, what is the host India itself up to? After a decade of being guided by its traditional toxic aversion to preferential trade agreements, particularly with rich economies, New Delhi has recently signed deals with the United Arab Emirates and Australia, and has talks with the EU, UK and New Zealand on the go. Should we be excited?Only a bit. Basically, what’s happening is this. India’s prime minister Narendra Modi vaguely likes the idea of being a pro-business free-trader. He also specifically likes the idea of establishing trade and geopolitical links to challenge the gravitational pull of China. (His rather nebulous announcement over the weekend of an India-Middle East “transport corridor” backed by the EU, US and Saudi Arabia, details tbc, is a classic of the genre.) But he’s also got the standard Indian problems with exposing vulnerable small farmers to import competition. Moreover, he wants to try his hand at industrial policy, including raising some goods tariffs, to strengthen Indian manufacturing.Ergo, India has offered round a fairly thin deal to trading partners that excludes access to its market for a lot of sensitive products including wheat, rice and sugar. Whether countries have taken this basically depends on how keen they are themselves to signal independence from China or an active trade policy more generally. Australia, facing Chinese trade coercion, snapped it up, labelling it an interim deal and is now trying for more. (Good luck with that.) The UK, keen for post-Brexit points on the board, was also very keen and kept briefing that it was imminent, but is now balking at Indian demands on work visas.The EU is much less bothered about the symbolism and the geopolitics and won’t sign a deal that dilutes its standard preferential model. New Zealand, which doesn’t have the same issues with China that Australia does, is also eager in principle but holding tough on substance in practice, particularly on dairy.What India’s been offering isn’t nothing, but it’s more of a Rorschach blot that reveals the attitudes of its trading partners than a coherent attempt to liberalise.Charted watersRemember the glory days of the 2000s when trade disputes were all about currency undervaluation and the weakness of the renminbi? Well, here we go again, with the Chinese currency hitting its lowest rate since 2007. Except things are rather different this time: China’s trying to hold the currency up to prevent an asset price rout rather than hold it down to boost exports. Still, given all the capacity China’s adding in electric vehicles in particular, a glut of cheap Chinese products being dumped on to world markets when it’s currency is weak has the potential to add an exciting new dimension to the trade tensions between Washington (and Brussels) and Beijing.Trade linksThe US Department of Commerce has released its latest plans to help diversify supply chains in the Indo-Pacific, but work by the Peterson Institute says the project runs counter to current trends and might well flop.Relatedly, the New York Times reports on research suggesting that value networks supplying the US market remain heavily dependent on China, just not as directly as before.Council on Foreign Relations fellows Jennifer Hillman and Inu Manak suggest a new way of regulating and controlling industrial subsidies.The US has proposed expanding the financing power of the World Bank, a move generally backed in principle by the G20. Washington wants to counter the influence of China’s vast bilateral financing arrangements.Italy is edging further towards pulling out of its partnership with Beijing’s Belt and Road Initiative, though Prime Minister Giorgia Meloni has said it does not want to jeopardise trade with China overall.The EU has released its annual report on the use of its trade defence instruments such as antidumping and countervailing duties, as Brussels continues to create new legal tools to go after unfairly subsidised trade.Trade Secrets is edited by Jonathan Moules More

KUALA LUMPUR (Reuters) -Malaysia will develop a policy to ban exports of rare earth raw materials to avoid exploitation and loss of resources, Prime Minister Anwar Ibrahim said on Monday, making it the latest country to restrict shipments of key minerals. Malaysia is home to just a fraction of the world’s rare earth reserves, with an estimated 30,000 metric tons, data from the United States Geological Survey in 2019 showed. China is the biggest source with an estimated 44 million tons of reserves.The decision, however, comes as the world looks to diversify away from China, the world’s largest producer of the critical rare earth minerals that are used widely in semiconductor chips, electric vehicles and military equipment.Anwar said the government would support the development of the rare earths industry in Malaysia and that a ban would “guarantee maximum returns for the country”. He did not say when the proposed ban would come into effect.The rare earth industry is expected to contribute as much as 9.5 billion ringgit ($2 billion) to the country’s gross domestic product in 2025 and create nearly 7,000 job opportunities, Anwar said in parliament. “Detailed mapping of rare earth element sources and a comprehensive business model that combines upstream, midstream and downstream industries will be developed to maintain the rare earth value chain in the country,” he said. Malaysia’s ban could affect sales to China, which imported about 8% of its rare earth ores from the Southeast Asian country between January and July this year, according to China customs data. CRITICAL MINERALSEarlier this year, China itself announced restrictions on exports of some metals used widely in the semiconductor industry, in a move seen as retaliatory measure for U.S. curbs on sales of technologies to China. The curbs triggered fears that China could also limit exports of other critical minerals including rare earths. Analyst David Merriman at Project Blue said the impact of a Malaysian ban was not immediately clear due to a lack of details, but a ban on rare earth ore could affect Chinese companies operating in Malaysia.”The legislation could have some negative impacts on potential investment in Malaysia from Chinese parties, which have looked to other Asian nations to source unprocessed or mixed rare earth compounds as feedstock for (rare earth) processing facilities in southern China,” Merriman said. Australia’s Lynas Rare Earths Ltd, the biggest producer of rare earths outside China, has a plant in Malaysia to process concentrate that it gets in Australia. It was unclear if Malaysia’s planned export ban will impact Lynas, which did not immediately respond to a request for comment. Malaysia has imposed restrictions on some of Lynas’ processing operations, citing concerns about radiation levels from cracking and leaching. Lynas has disputed the allegations and has said it complies with regulations. ($1 = 4.6700 ringgit) More

The US and Vietnam have agreed billions of dollars in business deals and partnerships led by companies including Boeing, Microsoft and Nvidia, after the former foes upgraded their ties in a historic shift in response to China’s growing influence.US president Joe Biden hailed the move to strengthen co-operation in areas including cloud computing, semiconductors and artificial intelligence while in Hanoi on a two-day trip to mark the formal upgrading of the countries’ relationship. “We’re deepening our co-operation on critical and emerging technologies, particularly around building a more resilient semiconductor supply chain,” said Biden in a joint press conference late on Sunday with Nguyen Phu Trong, general secretary of the ruling Communist party of Vietnam. “We’re expanding our economic partnership, spurring even greater trade and investment between our nations.”Senior executives from Google, Intel, Amkor, Marvell, GlobalFoundries and Boeing joined a Vietnam-US Innovation and Investment Summit on Monday led by Biden, US secretary of state Antony Blinken and Vietnam’s prime minister Pham Minh Chinh and investment minister Nguyen Chi Dung.The business roundtable was also attended by executives from Vietnamese companies including VinFast, the electric vehicle maker whose valuation overtook those of Ford and General Motors after its Nasdaq listing last month.The agreements unveiled on Monday are expected to initiate a wave of investment deals between Vietnam and the US after the countries’ leaders signed a “comprehensive strategic partnership” on Sunday. The shift raised Washington two levels to the top status in Hanoi’s bilateral ties hierarchy, which was previously reserved for China, Russia, India and South Korea. Vietnam had long refrained from upgrading ties with the US, its former wartime adversary, to avoid upsetting China.In addition to significant security implications — the US views developing countries in Asia as crucial to countering China’s power in the Indo-Pacific region — the upgraded ties bring significant economic opportunities, both sides said.Since Vietnam, which was Asia’s fastest-growing economy last year, has transitioned from centralised economic control to a more open model, the US has become its largest export market.Leading technology groups including Apple, Google and Dell have already expanded their presence in the country in recent years as they seek to diversify supply chains away from China amid deteriorating relations between Beijing and Washington.Among the agreements announced on Monday was a $7.8bn deal for Vietnam Airlines to buy 50 737 Max jets from plane maker Boeing, AI projects in the country involving Nvidia and Microsoft, and the construction of semiconductor design centres by California-based groups Synopsys and Marvell in Ho Chi Minh City.The agreement also includes a new US-Vietnam chip partnership to “support resilient semiconductor supply chains for US industry, consumers and workers”. Washington is particularly concerned about Beijing’s development of advanced chips, and has sought to muster allies in support of its export controls on semiconductors and chipmaking equipment.

A previously announced $1.6bn Amkor factory near Hanoi that will assemble, package and test chips is due to start operations in October, said the White House in a statement.In another major deal, AMI AC Renewables, a Vietnamese company, and US industrial group Honeywell will launch a pilot project to develop Vietnam’s first battery energy storage system in Khánh Hòa province.New York-based Nobu Hospitality, known for its eponymous Japanese restaurant, will also establish its first presence in Vietnam in partnership with Viet Capital Real Estate. More

The EU economy will expand by just 0.8 per cent this year and 1.4 per cent in 2024, according to European Commission figures that lowered growth predictions and signalled the persistence of inflation.Monday’s figures marked a downgrade from predictions by Brussels in May of 1 per cent growth this year and 1.7 per cent in 2024, with high prices hitting consumer spending across the bloc and the German economy now expected to shrink this year.“The EU economy has lost momentum since spring,” said Paolo Gentiloni, the European commissioner for the economy. “Economic activity stalled in the second quarter and survey indicators point to further weakening in the coming months.”The new figures predict a contraction in German real gross domestic product of 0.4 per cent, compared with a previously forecast rise of 0.2 per cent. The German economy will still grow by 1.1 per cent in 2024 but at a slower rate than expected in Brussels’ spring forecast.“Overall, when the largest economy of the union is in slightly negative growth this is affecting everyone,” Gentiloni added. The EU growth revision comes as the European Central Bank prepares for a pivotal decision on Thursday on whether to raise rates to contain high inflation in Europe, or to keep them on hold to prevent worsening the downturn.The commission added that inflation would fall to 6.5 per cent this year — lower than its previous forecast of 6.7 per cent. But it cautioned that inflation would remain at 3.2 per cent in 2024, 0.1 percentage points higher than previously anticipated.Europe’s economic outlook has weakened in recent months because of a downturn in manufacturing, faltering trade with China, a reduction of government support measures and squeezed consumer spending due to high inflation and rising borrowing costs.“High and still increasing consumer prices for most goods and services are taking a heavier toll than expected” in previous forecasts, the commission said. The deteriorating prospects for the region’s economy, underlined by a downward revision to the official eurozone growth figure for the second quarter from 0.3 per cent to 0.1 per cent, have increased expectations that the ECB will pause its interest rate rises on Thursday.However, concern remains about eurozone inflation, which is well above the ECB’s 2 per cent target, even though it has halved from an all-time high of 10.6 per cent last October to 5.3 per cent in August.

Upward pressure on inflation is coming from rising oil prices and a weakening euro that pushes up import costs, meaning another rate increase by the ECB remains a possibility.The largely unchanged outlook for global growth and trade means that the EU cannot rely on demand from other countries to support its economy, the commission added.The estimates also revised Brussels’ forecasts for the Italian economy down by 0.3 percentage points for both 2023 and 2024. After rebounding sharply after the pandemic, the country’s GDP is now expected to grow by 0.9 per cent this year and 0.8 per cent next year. Domestic demand has been falling in the country, including investment in construction, after the phaseout of temporary incentives to support the sector. More