Aurelia Butler

Good morning. The Biden administration has dropped efforts to pressure Japan to include anti-whaling language in its signature Indo-Pacific trade pact after fierce opposition from Tokyo and concern from some US officials.The US trade representative had been pushing Japan to accept anti-whaling language in the Indo-Pacific Economic Framework, a trade deal the administration is negotiating with 13 Indo-Pacific nations. But USTR, an agency led by Katherine Tai, has reversed course because of the opposition, according to three people familiar with the move.The FT reported last week that Tokyo had strenuously objected to including anti-whaling language in IPEF. One senior Japanese official said Tokyo was prepared to abandon IPEF unless the US backed down, which would have dealt a blow to Washington and a deal it hopes will provide an economic counterweight to China.“IPEF is not the place to address concerns about whaling, so its removal from the agenda would be a triumph of diplomatic common sense,” said Christopher Johnstone, a Japan expert at the CSIS think-tank and former senior White House and Pentagon official. Read the full story. Here’s what else I’m keeping tabs on today and over the weekend:Summits: US president Joe Biden hosts Japanese prime minister Fumio Kishida and South Korean president Yoon Suk Yeol at Camp David today. Biden is set to announce a landmark trilateral agreement that will help Washington and its Asian allies boost deterrence against North Korea and China.Economic data: Malaysia publishes second-quarter GDP figures. Economists expect the data to show growth slowing in the quarter that ended in June. (New Straits Times)Sport: England and Spain meet in the Women’s World Cup final on Sunday in Sydney.How well did you keep up with the news this week? Take our quiz.Five more top stories1. Foreign investors have dumped Chinese stocks and bonds after losing confidence in Beijing’s promises of more help to shore up the wobbling economy. The FT’s calculations show that investors have almost completely reversed Rmb54bn ($7.4bn) in net purchases of Chinese equities that followed a July 24 pledge from the politburo of top Communist party leaders to increase policy support. Here’s more analysis. Turmoil at Zhongzhi: The finance giant’s missed payments to investors are fuelling concerns of a spillover effect from the property slowdown.2. A former Google researcher who co-authored a paper that kick-started the generative AI revolution has joined forces with an ex-colleague to found a Tokyo-based artificial intelligence start-up. Welshman Llion Jones, who left the US tech giant this month, has since set up Sakana AI alongside David Ha, the former head of Google’s AI research arm in Japan. Here’s why the founders picked Japan for the company’s headquarters.3. Iran is grappling with the unintended consequences of ultra-cheap petrol. Heavy state subsidies ensure that Iranian prices start at just $0.03 a litre, but a widening gap between supply — which is limited by domestic refining capacity — and rising demand has forced the Iranian authorities to tap its strategic reserves and import petrol for the first time in a decade. Read more on the government’s dilemma. 4. Wirecard’s byzantine fraud scandal has gripped courts in Munich and Singapore, three years after the collapse of the German payments company. The legal cases underline the challenges for national law enforcement agencies trying to get to grips with a complex, global fraud that involved one of Germany’s most celebrated start-ups and an opaque network of companies. Here’s our in-depth look at the cases. 5. Yields on long-term US government debt on Thursday neared their highest level since 2007 as investors increased bets that the Federal Reserve would successfully avoid a recession while curbing inflation through higher interest rates. Read the latest Markets Briefing. The Big Read

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Devastating floods have ravaged northern China. Wildfires have ripped through Canada, southern Europe and, in recent days, the Hawaiian island of Maui. The disastrous effects of climate change can first be measured in the thousands of lives lost — but also economic value. What will happen when businesses and investors realise they have vastly underpriced climate risks?We’re also reading . . . On the Hollywood picket line: Blazing sun and walled off sidewalks test the will of striking actors and writers in Los Angeles.Generative AI: Hype is huge around the technology, but some uncomfortable truths are also being raised, writes John Thornhill.War in Ukraine: A negotiated outcome remains elusive, writes Domitilla Sagramoso, but this could change if neither side gains the military advantage and a cold winter stalemate sets in.Chart of the day

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Will the rest of the world feel China’s deflation pain? For now, economists say there is little reason for concern. Neil Shearing, chief economist of Capital Economics, said the rise in core inflation from 0.4 per cent in June to 0.8 per cent in July demonstrated the lack of entrenched deflation in China. Take a break from the newsFrom Iceland to West Hollywood — Richard Ford, Sara Wheeler, Paul Theroux and other leading writers reflect on their favourite places to dive in.

Seljavallalaug in Iceland © TJ Drysdale/Icelandtrippers.com

Additional contributions by Tee Zhuo and Gordon Smith More

(Reuters) – Federal Reserve Chair Jerome Powell will deliver a talk on the economic outlook on Aug. 25 at the central bankers’ confab held each year in Jackson Hole, Wyoming by the Kansas City Fed, the U.S. central bank said on Thursday. The speech, set for 10:05 am ET, will provide a chance to give his latest views on whether more policy tightening will be needed to bring down inflation amid surprisingly strong economic growth, or if enough progress on disinflation has been made to hold rates steady. More

In the week ended Aug. 9, total lending from the three Fed emergency lending programs fell to $250.84 billion from $254.18B in the prior week.Banks borrowed an average of $1.96B each night, up from $1.91B from a week earlier, according to the Fed data.Borrowing from the Fed’s Bank Term Funding Program, which was launched to inject confidence in the banking system following the collapse of Silicon Valley Bank earlier this year, rose to $107.24B from $106.86B in the prior week.Lending to the Federal Deposit Insurance Corporation, an independent agency tasked with ensuring stability and public confidence in the U.S. financial system, fell to $141.64B from $145.41B. More

NEW YORK (Reuters) – Ahead of the July Federal Reserve meeting, banks and money managers projected the hike in interest rates they expected for that gathering would be the last the central bank delivered, according to New York Federal Reserve surveys released Thursday.At the last Federal Open Market Committee, officials raised their target rate a quarter percentage point to between 5.25% and 5.50%, which is what respondents to the surveys of large banks and money managers had expected. The Fed next meets on Sept. 19-20, and futures markets currently expect no increase for that gathering. Primary dealers also thought ahead of the July 25-26 FOMC meeting that the Fed would be able to cut rates at the April 2024 meeting. Meanwhile, the Fed’s survey of market participants, which are largely money managers, saw rate cuts starting sooner, with a quarter percentage point easing at the March 2024 gathering. By the final quarter of next year, primary dealers told the New York Fed they expect a 4% federal funds rate, while the market participant survey predicted 3.88%. Many expect the Fed to ease rates next year to keep the overall potency of monetary policy stable at a time when inflation is expected to further cool. The primary dealer survey showed that the banks projected an end to the Fed’s runoff of Treasury securities by the third quarter of next year. The process of shedding mortgage-backed securities could extend beyond 2025, which was as far as the banks were polled. The big banks expect the total runoff of the Fed’s balance sheet, which is complementary to its interest rate policy, to end during the second or third quarter of next year when holdings stand at $6.75 trillion. Fed holdings peaked in the summer of 2022 at just shy of $9 trillion and currently stand at $8.3 trillion. The New York Fed survey of banks and market participants are conducted before every FOMC meeting to give officials a sense of how their view aligns with the financial sector, which the central bank relies upon to transmit changes in monetary policy to the broader economy. On Wednesday, Fed officials released the meeting minutes from the July FOMC meeting that showed some division over the need for their last rate rise. It also showed uncertainty over the need for additional actions now that inflation pressures are showing signs of abating. That said, officials remained worried about inflation and appear ready to act again should they deem it necessary. More

“As for the debt and the economy, there is an obvious need for a big debt restructuring of the sort that Zhu Rongji engineered in the late 1990s, just much bigger,” Dalio wrote in a LinkedIn post, referring to the former Chinese premier who reformed lumbering state-owned enterprises and laid off millions. “China is overdue in doing it.”Dalio said deleveraging is never an easy task, but in the case of China it can be more manageable because most of its debt is in domestic currency and is held by its citizens. “It needs to follow this beautiful deleveraging process now because the debt-burdened balance sheets and burdensome debt service payments are freezing the economy, especially at the provincial level and most especially in some of the poorest provinces,” Dalio said.China has been struggling to revive its economy following the COVID-19 pandemic and economists say debt-laden municipalities now represent a major risk to the country’s economy. Very popular among Chinese investors, Dalio is a self-proclaimed Sinophile with long connections with China. The Chinese version of Dalio’s book, “Principles: Life and Work,” was a bestseller when it debuted in 2018.Connecticut-based Bridgewater Associates, the $125 billion hedge fund he founded and in which he is a member of the operating board, not only is an investor in China but also offers funds for Chinese investors. Last year, Bridgewater doubled its fund assets in China to more than 20 billion yuan ($2.74 billion), cementing its position as the biggest foreign hedge fund in the country.The hedge fund launched its first onshore China fund in 2018 and, since then, two other funds have been established. ($1 = 7.2910 Chinese yuan renminbi) More