Aurelia Butler

ISTANBUL (Reuters) – Turkey’s central bank hiked its key interest rate by a larger-than-expected 750 basis points to 25% on Thursday, sparking a rare lira rally and signalling a new determination to address rebounding inflation as part of a broader policy U-turn. The surprise move leaves the policy rate at its highest level since 2019, and sent the Turkish currency to its strongest level since mid-July. The bank has raised its one-week repo rate by 1,650 basis points since June. The policy committee – including three members taking part for the first time and seen as having hawkish sway – repeated it would tighten “as much as needed in a timely and gradual manner” to cool inflation, which soared to nearly 48% last month. Analysts said the move was the clearest step yet toward more orthodox policies after years of unorthodoxy under President Tayyip Erdogan, and should help rein in inflation expectations. The lira had touched new all-time lows almost daily in recent weeks, including in the minutes before the policy decision. But it jumped more than 3% versus the dollar afterward and was at 26.41 at 1205 GMT. Turkish bank stocks rallied nearly 10%, lifting the broader Istanbul bourse, while the government’s dollar-denominated bonds jumped more than 2 cents according to Tradeweb data. According to a Reuters poll, economists expected a median hike of 250 basis points, from 17.5% previously, with some even having expected a more dovish move given the bank undershot expectations in the last two months.The poll, conducted last week, showed that interest rates were not expected to rise to 25% until year end. The rate hike “sends a very strong signal that the (bank) is determined to rein in inflation and the initial market response is very positive,” said Piotr Matys, senior FX analyst at In Touch Capital Markets. However, he said, “at least some investors will be wondering whether the 750bps hike has been approved by President Erdogan.”TURNAROUNDErdogan appointed former Wall Street banker Hafize Gaye Erkan to head the central bank in June after his May re-election, in the face of an economy strained by depleted FX reserves and soaring inflation expectations. He named three new policy makers – Osman Cevdet Akcay, Fatih Karahan and Hatice Karahan – to the bank in July in another signal that independent economists would more forcefully tackle inflation, which has held well above the official 5% target for years. Erdogan’s past drive to slash rates sparked a currency crisis in late 2021 and sent inflation above 85% last year. Annual consumer prices are seen rising to around 60% by year end due partly to currency depreciation. The central bank said that rising oil prices and a deterioration in inflation expectations suggests that inflation will end the year at the upper bound of its forecasts. Still, “disinflation will be established in 2024,” it added.The currency is down about 68% in two years largely due to Erdogan’s previously outspoken opposition to high rates and influence over the central bank. It crashed again this summer as the new economic team in Ankara loosened the state’s grip on FX markets and began shedding unorthodox policies and regulations. The central bank has also selectively tightened credit. At the weekend it began rolling back a costly scheme, adopted to halt the late-2021 currency crash, that protects lira deposits against forex depreciation. More

The BRICS countries are “good partners” for Africa, former Brazilian President Rousseff said in a speech in Johannesburg, adding the bank would finance physical and digital infrastructure projects in Africa as well as educational ones.”The New Development Bank has the potential to be the leader of projects that address the most urgent challenges of African countries,” she said, pointing out that although Africa’s share of foreign direct investment (FDI) rose to 8.8% of global FDI in 2021 from just 4.9% in 2010 it “can and must rise much more”.One of the challenges to be overcome “is the expansion of payment mechanisms, notably local currencies and other financial instruments that may eventually be created in order to build a new, more multilateral and inclusive financial system”, she added.Rousseff also pointed to the need for joint infrastructure projects between several countries, noting that Africa has the world’s greatest untapped hydroelectric potential. More

Poland’s ruling nationalist Law and Justice (PiS) party, which has already won two elections in part thanks to generous social benefit programmes, has put security at the core of its campaign this year amid fears of rising instability on the country’s eastern border with Belarus.However, some economists warn that big-spending policies announced ahead of the elections could hamper the county’s fight against inflation, which was 10.8% in July, and raise the deficit to dangerous levels.”Under our government, budget revenues have more than doubled,” Mateusz Morawiecki told a news conference. “This would not have been possible without programmes to fix the public finances.”The government will spend over 4% of gross domestic product (GDP) on defence in 2024, Morawiecki said. It will spend 137 billion zlotys ($33.23 billion) on raises for public-sector workers and on social programmes like the 800+ child benefit scheme and additional payments to pesnsioners.It will also spend over 190 billion zlotys on health.The budget deficit will be around 4.5% of gross domestic product (GDP), compared to the 3.4% forecast in April when Poland submitted its convergence plan to the European Union.”It should not be a huge surprise given that in the last months… there were lots of promises regarding future spending and fiscal expansion so the direction of travel was to be anticipated, but still it is quite a high fiscal deficit,” said Piotr Bielski, head of economic analysis at Santander (BME:SAN) Bank Polska.”We have to remember that in 2024 the European Union restores the fiscal rules, so a deficit above 3% of GDP will be clearly above the limits that will be set in the European Union’s fiscal criteria.” More

Argentina faced a familiar problem at the end of last month. The South American nation was struggling to repay the IMF $2.7bn from its latest $44bn bailout. The solution, however, was unconventional. With its net dollar reserves in the red, Buenos Aires settled the payment partly in renminbi. “Argentina will not use a single dollar from its reserves to make the payment,” economy minister Sergio Massa crowed. The transfer in the Chinese currency was only Argentina’s second to the IMF. “These are indications of broader changes happening in the international financial system, which will become permanent,” a senior official at the Argentine economy ministry said. “These shifts will take time, but they will not be reversed.”On the other side of the globe, Bangladesh also alighted on the renminbi as the answer to a problem it had in April: how to make stalled payments to Russia for a nuclear power plant. Dollars were not an option because of US sanctions and rouble payment was not feasible for Dhaka, so the two nations opted for the renminbi instead.Developing economies have long chafed at the dominance of the US dollar in international trade and finance, particularly as America’s share of the global economy has more than halved since the second world war and new powers such as China, India and Brazil emerged. “De-dollarisation” has been on the anti-imperialists’ radar for decades but the overwhelming power of the US currency meant it amounted to little more than a slogan until recently, economists say.Argentina’s economy minister Sergio Massa said his country would ‘not use a single dollar’ to repay a loan from the IMF © Nathan Howard/BloombergBut with the expansion of US economic sanctions and the explosion of new technologies for international payments, cracks are starting to appear in the dollar’s once-impregnable position. And China, with its embrace of the digital renminbi, or e-yuan, and its drive to develop an alternative global payments system, is hoping to take advantage. The aim is not to depose the dollar but to chip away at its dominance — and, crucially, to create enough space for China’s economic survival if the US one day targets it with the type of sanctions it has imposed on Russia.“The US uses its financial power as a geopolitical weapon and the hegemony of the US dollar is a big part of this,” said one Chinese official, who declined to be identified. “If the US targets any developing country with sanctions through the payments system, we will suffer.” The list of individuals and entities sanctioned by the US Treasury’s Office of Foreign Assets Control (Ofac) now runs to 2,206 pages and lists more than 12,000 names. Their use has accelerated sharply in the past decade as successive US presidents have opted for an apparently low-cost, bloodless solution to foreign policy problems.“The extraterritoriality implied is frightening other governments,” said Christopher Sabatini, Latin America fellow at Chatham House. “When you have a quarter of the world economy under some form of sanctions and the threat that they can be used against any country at any time, that changes the game.”Agathe Demarais, author of Backfire: How sanctions reshape the world against US interests, traces three key developments: Iran being banned from the Swift global financial messaging network in 2012, economic sanctions on Russia in 2014 after its annexation of Crimea — making it by far the biggest nation ever sanctioned — and the US trade war with China starting in 2018. “These three events really accelerated the shift in thinking of rogue countries . . . to turn away from western financial mechanisms,” she said.

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Greatly expanded western sanctions have not just upset authoritarian states. They have also angered emerging powers such as Brazil, which believe the international financial system should not be weaponised.“Today there is a lot of discomfort with the international financial system based on the dollar,” Brazilian president Luiz Inácio Lula da Silva’s top foreign policy aide Celso Amorim told the Financial Times. “The main factor behind that is sanctions.”Eswar Prasad, professor at Cornell University, agrees that “practically every country around the world, including rivals as well as traditional allies of the US, would dearly love to ditch the dollar-denominated financial system,” though he points out that this is not easy.The difficulty for emerging powers seeking an alternative is that the dollar is so deeply embedded in the international financial system. Economists have long held that the “network effect” of such widespread dominance will doom any effort to replace the dollar. But across the financial system, China has been chipping away at the US currency, offering its own alternatives. Beijing’s focus has been to gradually dilute the power of Belgium’s Swift, the global platform through which about 90 per cent of money moved across borders is arranged. China’s strategy to achieve this is multipronged, persistent and starting to show important results, analysts said.A customer uses digital renminbi to make a purchase at a Beijing café © Simon Song/SCMP/Zuma/AlamyOne part is to create a larger pool of renminbi liquidity in offshore capital markets, so as to increase the supply of Chinese currency to traders and investors.Another is the establishment of the Cross-Border Interbank Payment System (Cips), a Chinese rival to Chips, the world’s largest private sector dollar clearing and settlement system, and to Swift. Total settlements on Cips jumped more than a fifth to Rmb97tn in 2022.Other strands are the international launch of the digital renminbi, which allows for transactions to take place without going through Chips or Swift.“That is going to become a totally different system . . . completely cut away from the western financial regulators,” said Zongyuan Zoe Liu at the Council on Foreign Relations in New York. “The e-yuan coupled with Cips would be quite a potent force for anti-western sanctions because in order for a sanction to be triggered [the US authorities] have to know the information about the transaction.”China’s desire to promote its own currency has been stymied by the fact that it is not fully convertible. Nevertheless, in March the renminbi surpassed the dollar and became the most-used currency in China’s own cross-border payments, according to China’s State Administration of Foreign Exchange (Safe).Stephen Jen, a former Morgan Stanley currency expert, said in a note in April that the dollar was losing its international reserve status much faster than generally accepted. When adjusted for exchange rate movements, he said its share of global reserves had fallen to 58 per cent in 2023 from 73 per cent in 2001.While there are signs of real progress, other analysts caution that Beijing is still several years away from being able to even dream of breaking the US dollar’s “hegemony”.President Xi Jinping with Crown Prince Mohammed bin Salman in Saudi Arabia last year. He told Gulf Arab leaders he wanted to see the renminbi used to trade oil and gas. © Royal Court of Saudi Arabia/Anadolu/Getty ImagesOne success has come in offshore capital markets. Cross-border debt denominated in renminbi has boomed this year with sales of “panda bonds” by foreign issuers rising to Rmb75bn ($10.4bn) so far — already surpassing the full-year record set in 2021, according to Chinese data provider Wind.Issuance of renminbi-denominated “dim sum” bonds in Hong Kong is also at a new high over the same period, having topped Rmb320bn, according to data from Bloomberg.In energy markets, where dollar pricing is the global norm, President Xi Jinping told Gulf Arab leaders at a summit in Saudi Arabia last December that he wanted to see the Chinese currency used to trade oil and gas. The first renminbi-settled LNG transaction on the Shanghai exchange was reported in March between China’s national oil company and France’s Total.Emerging powers have also been quick off the mark with digital payments systems, such as WeChat Pay in China, India’s Unified Payments Interface (UPI), Pix in Brazil or Kenya’s mobile money service M-Pesa.The west is lagging behind, with the US and Europe still examining the possibility of digital currencies and payments systems still dominated by Visa and Mastercard.“China has pilot projects to settle bilateral trade in e-yuan with Thailand and the UAE [United Arab Emirate],” said Demarais. “This is a clear case of countries using technology to pre-empt sanctions, and China really wants to have a first-mover advantage.”Few believe the dollar is likely to be toppled from its perch soon. But they do see an increasingly fragmented international financial system, with the renminbi playing a bigger role. All this will satisfy emerging powers’ desire to diversify. “This is less about the dollar losing its position as the world’s top currency,” said Daniel McDowell, a professor at Syracuse University. “But I genuinely do believe there are risks here for US power, especially the ability to use sanctions against China.”Additional reporting by Andres Schipani in Lima and Hudson Lockett in Hong Kong More

HONG KONG/SINGAPORE/WASHINGTON (Reuters) – For a decade until 2018, China sought to recruit elite foreign-trained scientists under a lavishly funded program that Washington viewed as a threat to U.S. interests and technological supremacy.Two years after it stopped promoting the Thousand Talents Plan (TTP) amid U.S. investigations of scientists, China quietly revived the initiative under a new name and format as part of a broader mission to accelerate its tech proficiency, according to three sources with knowledge of the matter and a Reuters review of over 500 government documents spanning 2019 to 2023.The revamped recruitment drive, reported in detail by Reuters for the first time, offers perks including home-purchase subsidies and typical signing bonuses of 3 to 5 million yuan, or $420,000 to $700,000, the three people told Reuters.China operates talent programs at various levels of government, targeting a mix of overseas Chinese and foreign experts. The primary replacement for TTP is a program called Qiming overseen by the Ministry of Industry and Information Technology, according to national and local policy documents, online recruitment advertisements and a person with direct knowledge of the matter who, as with others, spoke on the condition of anonymity because of the issue’s sensitivity.The race to attract tech talent comes as President Xi Jinping emphasises China’s need to achieve self-reliance in semiconductors in the face of U.S. export curbs. Regulations adopted by the U.S. Commerce Department in October restrict U.S. citizens and permanent residents from supporting the development and production of advanced chips in China, among other measures.Neither China’s State Council Information Office nor the ministry responded to questions about Qiming. China has previously said its overseas recruitment through the TTP aimed to build an innovation-driven economy and promote talent mobility, while respecting intellectual property rights, according to the state-run Xinhua news agency.Qiming, or Enlightenment, recruits from scientific and technological fields that include “sensitive” or “classified” areas, such as semiconductors, two of the people said. Unlike its predecessor, it does not publicise awardees and is absent from central government websites, which the sources said reflected its sensitivity.Some of the documents mention Qiming alongside Huoju, or Torch, a longstanding initiative of the Ministry of Science and Technology that focuses on creating clusters of tech companies. The ministry did not respond to a request for comment.Qiming also operates in tandem with recruitment initiatives run by local and provincial authorities and a government-backed hiring drive by Chinese chip companies, according to two of the people and another source familiar with the matter. Reuters could not independently establish the companies involved.The U.S. has long accused China of stealing intellectual property and technology, a charge Beijing has dismissed as politically motivated.”Foreign adversaries and strategic competitors understand that acquiring top U.S. and Western talent is often just as good as acquiring the technology itself,” said Dean Boyd, a spokesperson for the U.S. government’s National Counterintelligence and Security Center, when asked about Chinese talent recruitment schemes. “When that recruitment creates inherent conflicts of interest or commitment, that can create risks to U.S. economic and national security.”Curtailing intellectual property leakage via talent flows is difficult, said Nick Marro, a China analyst at the Economist Intelligence Unit, because such efforts “can run the risk of turning into ethnically-charged witch hunts”.ELITE UNIVERSITIESChina’s chip industry has flourished in recent years but faces a shortage of about 200,000 people this year, including engineers and chip designers, according to a 2021 report published by the China Center for Information Industry Development, a government think tank, and the China Semiconductor Industry Association.China’s newer talent endeavours, which like the TTP focus on elite-level recruitment, favour applicants trained at top foreign institutions, three sources said.”Most of the applicants selected for Qiming have studied at top U.S universities and have at least one Ph.D,” said one of these people, adding that scientists trained at Massachusetts Institute of Technology, Harvard and Stanford universities were among those sought by China. The universities did not respond to requests for comment. Reuters could not determine how many experts have been recruited under Qiming or associated programs, though thousands have applied, according to Reuters’ review of government documents.U.S. officials say that while talent poaching in the U.S. is not illegal, university researchers risk breaking the law if they fail to disclose affiliations with Chinese entities while receiving U.S. government funds to conduct research, illegally share proprietary information, or violate export controls.Reuters found more than a dozen advertisements for Qiming applicants posted since 2022 on Chinese platform Zhihu and LinkedIn by people who identified themselves as recruiters.In a February LinkedIn post, Chen Biaohua, who listed his employer as Beijing Talent Linked Information Technology, asked candidates eligible for Qiming and Huoju to email him their resumes. The post said Chen was seeking “young talents” under 40 with a doctorate from well-known universities and overseas experience. He was also seeking applicants who held senior roles at foreign academic institutions or large companies. Headhunting firm Hangzhou Juqi Technology posted an ad in March on ResearchGate, a social network for academics, seeking people with doctorates from top universities and experience at Fortune 500 companies to help recruit 5,000 overseas researchers for Chinese enterprises.The ad described this effort as serving Qiming and Huoju, with each researcher able to obtain as much as 15 million yuan, or about $2.1 million, in rewards. It said that anyone who recommends a candidate who is then selected for the talent programs would receive “diamonds, bags, cars, and houses”.Chen and LinkedIn declined to comment. Questions sent to Chen’s employer, as well as to Zhihu, ResearchGate and Hangzhou Juqi Technology yielded no responses.One foreign-trained semiconductor expert at the Beijing Institute of Technology (BIT) was identified on its website as a 2021 Qiming recipient. Ma Yuanxiao is an associate professor at BIT’s School of Integrated Circuits and Electronics, who did his masters at Britain’s University of Nottingham between 2013 and 2015 and his Ph.D at the University of Hong Kong until 2019. Ma and BIT did not respond to requests for comment.OPENING WALLETSAcross China, provincial and municipal governments are pouring resources into the recruitment drive, official documents show.One initiative is the Kunpeng Plan, run by authorities in eastern Zhejiang province, whose 2019 launch was covered in state media. The Zhejiang Daily reported in June 2022 that the program aimed to attract 200 tech experts in five years, with 48 already recruited.In the eastern city of Wenzhou, local authorities’ investment in each Kunpeng professional can reach up to 200 million yuan, including an individual reward, start-up funding and housing, according to a 2022 talent policy report by the city government.A report by the Wenzhou branch of the Communist Party’s Organization Department, which oversees personnel decisions, said its total budget in 2022 increased 49% from a year earlier, mainly because it had assigned 85 million yuan to Kunpeng and similar programs.One Kunpeng recipient is Dawei Di, a Cambridge-educated professor at Zhejiang University whose research focuses on semiconductor optoelectronic devices, the university’s journal reported in 2021.In Huzhou, also in Zhejiang, employers that recommend candidates to Qiming can receive incentive payments of up to 1.5 million yuan from the city or district governments if those people are accepted, according to a 2021 city directive.None of the city, provincial or Communist Party authorities, nor Di or his university, responded to queries from Reuters.’ONE FOOT OUT’Despite Xi’s emphasis on advancing China’s chip know-how, two sources with direct knowledge of the matter said many Chinese semiconductor experts overseas were wary of returning because of China’s political environment and weaker position in chip development relative to the West.”They have no idea if the programs could change overnight or lose government support,” one said.Zhuji, a county-level city in Zhejiang, reported in October 2022 that it had over 200 applicants for talent programs, mainly Qiming, but only eight successful candidates from the previous year had returned to China. Zhuji government’s general office did not respond to a faxed request for comment.Two people familiar with the matter said some Chinese scientists, especially those with foreign citizenship or permanent residency, worried that joining China’s government talent programs could mean forgoing international opportunities or becoming subject to U.S. investigations.In some cases, these people said, those experts will be offered roles at Chinese chip companies’ overseas operations.”Safer to have one foot in China, one foot out,” one said.($1 = 7.1475 Chinese yuan renminbi) More

1. Nvidia beats expectationsNvidia’s (NASDAQ:NVDA) second quarter revenues crushed lofty Wall Street estimates, sending shares higher in premarket U.S. trading on Thursday, as the California chipmaker was boosted by the intensifying frenzy over generative artificial intelligence.Estimates heading into the earnings were already sky-high, with some sources reportedly calling for sales of $12 billion in the three months ended on July 30 and $14B in the third quarter.But even those expectations proved to be modest. Revenue came in at $13.5B during the second quarter, more than doubling the prior mark of $6.7B. Nvidia also projected that sales in the current quarter, set to finish in October, would come in at $16B.The numbers highlight how central Nvidia has become to this year’s hype over AI. The group has long invested in manufacturing graphics processors that power the burgeoning technology, putting it in pole position to benefit from soaring AI demand.”A new computing era has begun,” Nvidia Chief Executive Jensen Huang said in a statement on Wednesday, adding that the “race is on” to adopt generative AI.2. Nvidia’s suppliers rallyThe global impact of Nvidia’s stellar release was felt in Asia, where the firm’s regional suppliers rose sharply on Thursday.TSMC (TG:2330y) (NYSE:TSM), Asia’s biggest chipmaker and a key supplier to Nvidia, jumped by 3.7%, while its U.S. listing moved up by over 3% in premarket dealmaking. South Korea’s SK hynix Inc. (KS:000660), which provides Nvidia with memory chips, also climbed by 4.2%.A prediction from Huang that the AI boom will last well into next year — as well as a $25B share buyback announcement — fueled a rally across most tech stocks in Asia. Chinese heavyweights Baidu (HK:9888) (NASDAQ:BIDU) and Alibaba Group (HK:9988) (NYSE:BABA) rose in Hong Kong, pushing up their New York listings premarket as well.Baidu in particular was among the best performers in the region, lifted by strong quarterly returns that were themselves supported by AI demand.3. ‘Higher for longer’ debate rages ahead of Jackson HoleCentral bankers from across the world will begin an annual two-day economic symposium on Thursday in Jackson Hole, Wyoming, with markets eager to receive any clues about the future direction of interest rate policy.Much of the conversation ahead of the event has swirled around the implications of recently stronger-than-anticipated U.S. economic data. Fed officials have in recent days floated the idea that the numbers may suggest that another uptick in borrowing costs could be appropriate, confounding some market predictions that cooling inflation would persuade the U.S. central bank to start stepping back from a long-standing tightening campaign. Indeed, policymakers even flagged “upside risks” to price growth in the minutes of the Fed’s latest meeting.But the issue was further complicated by figures on Wednesday that indicated that U.S. business activity growth was its weakest since February. U.S. Treasury yields, which soared last week, slipped as traders guessed that the Fed now had less headroom to keep interest rates higher for longer.The Fed has previously stressed that it will remain “data-dependent” — however, what it actually makes of the current numbers remains uncertain. Investors are hoping that a speech by Federal Reserve Chair Jerome Powell from Jackson Hole on Friday may provide more clarity.4. Futures mixed amid Nvidia earnings, Jackson Hole eventU.S. stock futures were mixed on Thursday as investors digested Nvidia’s better-than-anticipated results and looked ahead to the beginning of the Jackson Hole symposium.At 05:26 ET (09:26 GMT), the Dow futures contract dropped by 36 points or 0.10% and S&P 500 futures rose by 23 points or 0.52%.Futures for the tech-heavy Nasdaq 100 was the standout performer, increasing by 172 points or 1.13%, reflecting the excitement sparked by Nvidia’s numbers and bullish outlook.Earlier this year, a sterling first quarter report from Nvidia helped drive a broader AI-inspired stock market rally. Prior to its latest earnings, analysts were predicting that strong returns could have a similar impact.5. Oil volatile following mixed stockpile reportOil prices inched higher, paring back earlier losses, on Thursday after a mixed stockpile report from the Energy Information Administration.Data on Wednesday showed an unexpected, substantial build in U.S. gasoline and distillate inventories over the past week, which pointed to weakening U.S. fuel demand. However, crude inventories saw a larger-than-anticipated draw of 6.1 million barrels to 433.5M barrels, bringing the number 2% below its five-year average.By 05:26 ET, the U.S. crude futures traded 0.1% lower at $78.97 a barrel, while the Brent contract rose by 0.1% to $83.31. More