Aurelia Butler

The freighter, which was travelling from Germany to Egypt when the blaze broke out on July 26, was towed to a location north of the Dutch islands Ameland and Schiermonnikoog, the Rijkswaterstaat ministry said in a statement.The fire on the Panamanian-registered Fremantle Highway, which was carrying new cars, resulted in the death of an Indian crew member and the injury of seven who jumped overboard to escape the flames. Japan’s Shoei Kisen, which owns the ship, said the entire crew of 21 was Indian.A Rijkswaterstaat spokeswoman told the Dutch ANP press agency that at the new temporary location, the ship would be further removed from shipping routes and more sheltered from wind.The relocation is an intermediate step in the difficult salvage operation, the spokeswoman said.Ship charter company “K” Line said on Friday there were 3,783 vehicles on board the ship – including 498 battery electric vehicles, significantly more than the 25 initially reported.The company declined to say anything about the car brands, including whether they included any cars from Japanese manufacturers.EV lithium-ion batteries burn with twice the energy of a normal fire, and maritime officials and insurers say the industry has not kept up with the risks. More

The restrictions on equipment including some drone engines, lasers, communication equipment and anti-drone systems would take effect on Sept. 1, the commerce ministry said.The controls would also affect some consumer drones, and no civilian drones could be exported for military purposes, a ministry spokesperson said in a statement.”China’s modest expansion of the scope of its drone control this time is an important measure to demonstrate our stance as a responsible major country, to implement global security initiatives, and maintain world peace,” the unidentified spokesperson said.Authorities had notified relevant countries and regions, the spokesperson said.China has a big drone manufacturing industry and exports to several markets including the U.S. U.S. lawmakers have said that more than 50% of drones sold in the U.S. are made by Chinese-based company DJI, and they are the most popular drone used by public safety agencies. DJI said on Monday it always strictly complied with and enforced laws and regulations of the countries or regions in which it operates, including China’s export control regulatory requirements.”We have never designed and manufactured products and equipment for military use, nor have we ever marketed or sold our products for use in military conflicts or wars in any country,” the drone maker added.A German retailer in March 2022 accused DJI of leaking data on Ukrainian military positions to Russia, which the company rejected as “utterly false”. China’s commerce ministry said in April this year that U.S. and Western media were spreading “unfounded accusations” that it was exporting drones to the battlefield in Ukraine, adding the reports were an attempt to “smear” Chinese firms and it would continue to strengthen export controls on drones.The drone export curbs come after China announced export controls of some metals widely used in chipmaking last month, following moves by the United States to restrict China’s access to key technologies, such as chipmaking equipment. More

It’s traditional at this point of the year, at the time the Trade Secrets newsletter goes fortnightly over the summer (though there will be more frequent Trade Secrets columns during August), to have a look back on the year so far. I used to do annual predictions at the beginning of the year — and immodestly add I was generally quite pleased with the results. But these days the future of globalisation is so uncertain it’s not even clear what I’d be predicting. So, today I assess the story so far in 2023. (tl;dr: not great for those who want open markets, but could have been worse.) Charted waters is on China and India dominating the global steel market.That was the half-year that wasTrade and globalisation tend to be subjects involving trends rather than high-frequency events. Looking back to gain a broader perspective often results in a recognition that a narrative arc is in place that didn’t necessarily provide a lot of spectacular news stories along the way.Many of the trends don’t present themselves as trade issues. It’s quite likely one of the biggest stories for globalisation is the climate crisis. The series of weather disasters we’ve had over the past few weeks by themselves tend to have moderate or localised effects on trade — see the section below on the global food crisis that wasn’t. But if they repeat over time they will far outweigh the impact of, say, a diplomatic spat on electric vehicle tax credits.With that caveat in mind, here’s what we’ve seen this year so far and what I’ve said about it.The US-China trade and tech conflict showed few signs of letting up, but remained short of all-out trade war. It’s more about targeted export controls — the US continues to press its allies to block semiconductor sales to China — than Donald Trump-style wanton destruction of commerce. Critical minerals has emerged as a bigger issue, with China resorting to export controls in that area. With regard to wider repercussions for geoeconomics, emerging countries have done a pretty good job of not taking sides, not for want of trying by Beijing in particular. EU-China relations continued to provide an entertainingly eclectic buffet of interventions. European Commission president Ursula von der Leyen concocted the elegant recipe (later copied by her close pals in the Biden administration) of “de-risking” rather than decoupling from China. French president Emmanuel Macron, to widespread dismay in Europe, produced a contrasting dish of mateyness with Beijing. Germany’s coalition government, after leaving it to stew slowly for a long while, emerged with a meaty and notably sceptical strategy towards China. If you’re expecting these contradictions and tensions definitively to be resolved by the end of the year, or indeed ever, you don’t know the EU. EU-US relations are dominated by some set-piece conflicts, the attention paid to which (I plead guilty here) is often miles out of proportion. Brussels and Washington have more or less settled for now the issue of tax credits for electric vehicles in Joe Biden’s big green giveaway. (The importance attached to that issue is quite surreal given that the real issue is China dominating the world EV market, not the US.) The big scrap now is over their conflicting ideas for carbon border measures on steel and aluminium. There’s no sign yet of either side backing down. Most likely they’ll just extend the uneasy ceasefire past its original expiry of October, and in the longer term the EU’s carbon border measures might be addressed through extended litigation at the WTO including other countries.The global food crisis still isn’t happening, despite the best efforts of Vladimir Putin when he recently pulled out of the Black Sea grain initiative. There isn’t much of a policy infrastructure in place to keep trade flowing, such as powerful disciplines on export restrictions, so a few bad harvests could see supply tighten and fears rise again of a rerun of the sudden price spikes of 2022. The searing heatwave in southern Europe and its effects on grain production don’t look like a great start to the second half of the year, but it will take more than that to tip the markets over into panic.Supply chains and shipping have continued to recover from the snarl-ups of 2020 and 2021, and by this point it’s pretty clear the congestion was a sudden surge of demand for consumer durables and not anything structurally wrong with the freight industry. World goods trade itself will head down if the global economy slows markedly, even if it doesn’t technically go into recession. But that’s the standard pattern of trade following the economic cycle, not anything structurally wrong with cargo trade.The World Trade Organization: don’t expect much and you won’t be disappointed. Its director-general and staff continued to try to keep the institution active in debates over climate change, including carbon border tariffs. But for the organisation itself, there isn’t much optimism that the next ministerial meeting, in the United Arab Emirates next February, is going to produce very much. The one big thing that would make a difference is the US coming up with a plan to revive the WTO’s Appellate Body it put into the deep freeze, but its pronouncements on the subject so far have been masterpieces of non-committal verbiage.The UK is still flailing about pretending a trade policy that doesn’t prioritise realigning with the EU has much significance. It’ll come round eventually.Charted watersPretty much any issue in globalisation, or at least manufacturing, comes back to China, and steel is no exception. The above-mentioned EU and US debate over keeping out carbon-intensive steel has China looming over it. That might seem odd, because the assiduous application of trade defence instruments such as antidumping duties means China is a relatively small source of imports for them (only the eighth biggest for finished steel products for the EU, and similarly little for the US). But their concern is the Chinese steel sold on the world market that depresses the global price.Trade linksAn analysis in the FT argues that Brazilian president Luiz Inácio Lula da Silva is running a retro strategy that echoes the country’s (failed) interventionist industrial policy of the 1970s. Talking of 1970s industrial policy (who is not?), the latest episode of the podcast Trade Talks focuses on the fiercely contested question of whether South Korea’s interventionist strategy helped or hindered its spectacular manufacturing growth.The FT’s Britain After Brexit newsletter explains how UK attempts to undo some of the damage to worker mobility with the EU are proving tough going.Also on the subject of the UK, do read the inaugural column of the FT’s latest recruit Soumaya Keynes, on whether bad vibes are holding back the British economy.David Lubin at Chatham House (familiar disclaimer: I’m also an associate fellow there) says the “global trade recession” may already have started.Trade Secrets is edited by Jonathan Moules More

LONDON (Reuters) – Markets have high hopes for a soft landing for the economy, with bonds and equities rallying. Yet a sharp drawdown in the excess savings created by COVID-19 could be a curve ball that slams into bullish sentiment. The cash piles households built up during the lockdowns and government stimulus of 2020-2021 have long been touted by analysts and central bankers as a reason economies could avoid a deep recession. But sky-high inflation and rapidly rising interest rates in response are shrinking this savings cushion fast.U.S. excess savings have fallen to around $500 billion from around $2.1 trillion in August 2021, the San Francisco Federal Reserve estimates.In Europe, Deutsche Bank (ETR:DBKGn) reckons excess savings in Sweden, struggling to contain a property slump, have dwindled. British households withdrew money from outright savings at a record pace in May, while the government’s Office for Budget Responsibility forecasts a savings ratio of zero by year-end from almost 25% in 2020. The end of savings won’t cause a recession with jobs markets tight. Still, a spending downturn may hasten a typical economic pain spiral of falling business investment then high unemployment.Government bonds will shine in a recession, investors said, while dwindling savings make consumer stocks and high-yield credit assets to avoid. “Domestic consumption is a huge part of the economies,” in Britain, the United States and the euro zone, said Janus Henderson multi-asset portfolio manager Oliver Blackbourn. “As soon as that starts to fall apart these economies can become very, very fragile very quickly.” RUNNING OUT Definitions for excess savings differ, but economists generally agree that this means savings that went beyond trend levels during the pandemic. Cardano chief economist Shweta Singh said U.S. pandemic excess savings are likely to be depleted by year-end. This comes just as the end of U.S. pandemic-era student loan repayment relief creates more pain for consumers.In Europe, excess savings have not been spent to the same degree. Euro zone consumers stashed away an extra 1 trillion euros ($1.10 trillion) during the pandemic but a strong savings culture would likely prevent them spending this on clothes or holidays, economists said.”Europe is a little bit further behind, but I suspect the same dynamic is playing out there and that has been about as good as it’s going to get for discretional spending,” said Zurich Insurance Group (OTC:ZFSVF) chief market strategist Guy Miller.CAUTION Business activity data suggests the recently-resilient services sector is weakening. European airline Ryanair warns of low demand for winter holidays and JPMorgan (NYSE:JPM) boss Jamie Dimon notes U.S. “consumers are slowly using up their cash buffers.” Ben & Jerry’s ice cream maker Unilever (NYSE:UL), in February flagged $1.5-$2 trillion in excess household savings in China that it believed could help boost sales. It now sees a “very cautious” Chinese consumer. Eren Osman, managing director of wealth management at Arbuthnot Latham, was cautious both on shares in the consumer discretionary sector – businesses such as car makers – and businesses selling consumer staples like cleaning products and food.”If we do see a continuation of consumer savings wearing down with that pinch on disposable incomes,” he said, “that’s going to have an impact” on consumer businesses’ profit margins.Janus Henderson’s Blackbourn said he was cautious on smaller stock indices more exposed to domestic consumers such as the U.S. Russell-2000 and London’s FTSE-250.The Russell index tends to underperform the larger S&P 500 during downturns, according to Goldman Sachs (NYSE:GS).”The concern is the same,” with the FTSE 250, said Blackbourn, noting this index was dominated by UK banks, consumer discretionary and industrial stocks.Zurich’s Miller noted that U.S. and European high-yield credit indices have a 35% and 31% direct exposure to consumer cyclical and consumer non-cyclical names respectively.BUY GOVVIESExpecting the savings drain to hasten recessions, investors favour safe-haven government bonds.Legal & General fixed-income manager Simon Bell said dwindling consumer savings influenced his preference for government bonds of countries like Britain and Australia, where shorter mortgage terms made households rate sensitive.Higher housing costs plus weaker consumer spending could persuade central banks to “believe they’ve done enough” sooner rather than later, he said.Britain’s savings are expected to run down just as fixed-rate mortgage costs jump, as households refinance loans taken out in low interest rate years with more expensive debt.The Bank of England forecasts mortgage repayment increases of at least 500 pounds ($641.25) for 1 million households by 2026. Investors trying to time recession are mostly focused on jobs markets, which remained hot in developed economies, said Aviva (LON:AV) Investors multi-asset portfolio manager Guilluame Paillat. Still, weaker consumer spending may cool inflation. “So we do like duration,” Paillat said, referring to taking interest rate risk on longer term bonds. ($1 = 0.7797 pounds)($1 = 0.9127 euros) More

WASHINGTON (Reuters) – Throughout the Federal Reserve’s drive to kill inflation, policymakers have focused on raising the benchmark overnight interest rate high enough to do the job and getting it there fast enough to keep the public from losing faith.But in the quest for a “soft landing,” where inflation falls without a recession or big job losses, the other half of the conversation – of when to cut rates and lighten the pressure on households and businesses – will be just as important and perhaps even harder to get right.In the three recessions prior to the coronavirus pandemic – 1990-1991, 2001 and 2007-2009 – the U.S. central bank reached its peak rate level and had begun reducing borrowing costs anywhere from three to 13 months ahead of what proved to be the start of a downturn. That shows both how hard it is to arrest a slide once it begins, and how difficult it is to match the slow-moving effects of monetary policy with what the economy might need months in the future.Allowing high inflation to become embedded in the economy is central banking’s cardinal sin, and Fed officials would still rather make the mistake of going too far to be sure inflation is controlled than stop short and risk its rebound, said Antulio Bomfim, head of global macro for the global fixed income team at Northern Trust (NASDAQ:NTRS) Asset Management and a former special adviser to the Fed’s board of governors.”We all wish we could slow the economy ‘just enough,'” Bomfim said. “The margin of error is quite high … You are seeing an economy that is resilient in terms of activity but also stubborn on underlying inflation … The risks of doing too little – that asymmetry – is still there.”That may point to at least one more rate hike even as investors bet the Fed is finished, with rate futures markets reflecting no more than a roughly one-in-four chance of another increase. The Fed last week raised its policy rate to the 5.25%-5.50% range, the 11th increase in the last 12 meetings. ‘PUZZLE’ PIECES COMING TOGETHERRecent data on wages, growth and prices show the dilemma facing policymakers as they consider whether to push borrowing costs even higher and how long to leave rates elevated, a discussion that could determine the economy’s broad direction – growing or shrinking, with rising joblessness or still-strong job markets – in 2024, a presidential election year. After sixteen months of rapid monetary tightening, the economy still grew at a faster-than-expected 2.4% annualized rate in the second quarter, above what’s considered its non-inflationary trend, with that momentum seen continuing into the current quarter. Employment compensation costs rose 4.5% for the 12-month period ending in June, another decline from pandemic-era highs but also above what the Fed would regard as consistent with its 2% inflation target. While headline inflation has fallen sharply from the highs of 2022, measures of underlying price pressures have moved more slowly. The personal consumption expenditures price index stripped of food and energy costs slowed notably in June to 4.1% on a year-over-year basis after being lodged for months near 4.6%, but is still more than double the 2% target. Fed Chair Jerome Powell said last week that the pieces of the low inflation “puzzle” may be aligning, but he doesn’t trust it yet.”We need to see that inflation is durably down … Core inflation is still pretty elevated,” Powell said in a press conference after the end of the Fed’s two-day policy meeting. “We think we need to stay on task. We think we’re going to need to hold policy at restrictive levels for some time. And we need to be prepared to raise further.”Powell acknowledged the touchy calibration needed to vanquish inflation without restricting activity more than necessary and to stay ahead of any downturn with lower rates as inflation falls and activity ebbs.”You stop raising long before you get to 2% inflation and you start cutting before you get to 2% inflation,” Powell said, noting how long it takes for changes in the Fed’s benchmark rate – up or down – to be felt. The Fed’s policy rate influences the economy by changing what lenders charge consumers for credit card, auto, and home loans or what businesses pay on bonds or for credit lines.’NORTH STAR’ Powell would not give direct guidance on how the Fed will assess when it’s time to move policy lower, saying “we’d be comfortable cutting rates when we’re comfortable cutting rates.” Still, he contended inflation would not return to target until the economy slows to below its potential for a time, with direct implications for the number of jobs. Things have been edging that way. Though the unemployment rate remains low, workers are quitting less frequently, job openings have fallen, and wage increases have slowed, suggesting an employment market cooling from pandemic years characterized by labor shortages and large wage increases.But with inflation down from its peak without any major job disruptions, some economists wonder whether Powell – in focusing on the need for economic “slack” to finish the task – isn’t making the same mistake as his predecessors and setting the stage for an unneeded recession.”Exploring just how compatible low unemployment and low inflation are should be the North Star … This is a vast border we could test,” said Lindsay (NYSE:LNN) Owens, executive director of Groundwork Collaborative, a labor-focused economic policy group. “The timeline for discussing cuts is probably like October.”While the latest Fed policymaker projections, issued in June, show rates falling by the end of 2024, the decline is less than the expected drop in inflation, which means the inflation-adjusted interest rate is really still rising.The risk of continued restrictive policy is that the economy not only slows, but buckles, something previous Fed officials know can come quick. In December of 2000, Fed staff and policymakers wrestled with weakening data and concluded the economy was going to slow but not contract, according to transcripts of Federal Open Market Committee meetings. A month later the central bank was cutting rates, and it was eventually determined that a recession started in March of 2001.”I think the economy is kind of at the ‘last-gasp’ phase,” said Thomas Simons, senior U.S. economist at Jefferies, with slowed bank lending, rising credit costs, and rising loan delinquencies “consistent with the beginning of every recession we’ve seen since 1980.” “Given that inflation is still sticky, they’re going to end up with rates either too high or as high as they are for too long. They’re going to be relatively slow to cut because they need that weakness to develop.” More

Eurozone inflation fell in line with expectations to 5.3 per cent in July, after the single currency bloc returned to growth in the second quarter.Eurostat, the EU’s statistical office, said inflation in the 20-country single currency bloc was down from 5.5 per cent in June.But core inflation, which excludes energy and food prices to give a clearer sign of underlying price pressures, was unchanged at 5.5 per cent.The figures were a setback for the European Central Bank, which raised interest rates for the ninth consecutive time last week. The central bank has said it will keep increasing borrowing costs until underlying price pressures are clearly falling towards its 2 per cent target.“July’s inflation data will have been a disappointment for policymakers,” said Andrew Kenningham, an economist at consultants Capital Economics, predicting services prices would fall only slowly from a record high in July and “keep the ECB from pivoting to rate cuts until well into next year”.Hopes of a soft landing for the eurozone economy were bolstered by separate figures from Eurostat showing it rebounded with growth of 0.3 per cent in the second quarter, despite the ECB’s unprecedented rise in borrowing costs over the past year. The eurozone stagnated in the previous quarter.However, growth in the bloc was skewed upwards by a 3.3 per cent surge in Irish gross domestic product in the period, which has been volatile owing to shifts in intellectual property by large US pharmaceutical and technology companies with EU headquarters in the country.Italy became the weakest performer of the eurozone’s big economies in the second quarter after output contracted 0.3 per cent from the previous quarter because of a decline in Italian industry and farming output that outweighed slight growth in services.The shrinking of Italy’s economy marked a deterioration from 0.6 per cent growth in the first quarter and was below the stagnation forecast by economists in a Reuters poll. Italy’s statistics agency said domestic demand made a negative contribution while foreign trade — including tourism — was neutral.But economists said the Italian downturn was likely to have been triggered by the recent ending of a “Superbonus” scheme, which had triggered a boom in home improvement after offering Italians tax credits worth 110 per cent of any energy efficiency work on their homes.“We are confident that the biggest drag will have come from investment, which likely fell sharply after rising for eleven straight quarters as the Superbonus tax relief was eased, lending standards were tightened and interest rates rose further,” said Melanie Debono, an economist at research group Pantheon Macroeconomics.ECB president Christine Lagarde told French newspaper Le Figaro that GDP figures from France, Germany and Spain were “quite encouraging” and supported its forecast for eurozone growth of 0.9 per cent this year, which many economists see as over-optimistic.Some politicians, particularly in Italy, have criticised the ECB for raising rates too high and warning it risks dragging Europe into a recession. But Lagarde stressed her determination to “have a thick skin” and to “keep sight of the objective of lowering inflation”.Inflation in the eurozone has fallen more slowly than in the US, where it was 3 per cent in June, but faster than in the UK, where it slowed to 7.9 per cent last month.Eurozone energy prices fell 6.1 per cent in the year to July, a slightly bigger fall than in June. There was also a slowdown in food, alcohol and tobacco inflation to 10.8 per cent and in industrial goods inflation to 5 per cent. Services prices accelerated, however, at a new high of 5.6 per cent. Inflation fell in 15 of the 20 countries that share the euro, but rose in Spain, Finland, Greece and Luxembourg. Price growth was below the ECB’s 2 per cent target only in Belgium. More