Aurelia Butler

1. U.S. futures climb after key inflation readingU.S. stock futures pointed higher on Thursday, adding on to sharp gains in the prior session, as investors eyed the release of another major inflation reading.By 05:37 ET (09:37 GMT), the Dow futures contract rose by 90 points or 0.26%, S&P 500 futures added 17 points or 0.37%, and Nasdaq 100 futures jumped by 103 points or 0.67%.The main indices surged to their highest level in more than a year on Wednesday after the closely-watched consumer price index for June slowed by more than expected, suggesting that the Federal Reserve may soon back away from its recently aggressive steak of policy tightening.The Fed’s path ahead may become clearer later today when the producer price index, another key inflation gauge, is published at 08:30 ET. Economists project that the measure grew by 0.4% annually and 0.2% monthly.2. Chinese trade slipsChinese exports dropped at their quickest rate in over three years in June, while imports were also weaker than expected, in a fresh sign of the pressures facing the world’s second-largest economy.Exports dipped by 12.4% annually in dollar terms, outpacing forecasts for a decline of 9.5%, according to customs data. Imports also contracted by 6.8%, a faster decrease than estimates for a fall of 4.0%.Exports and imports sank by 7.5% and 4.5%, respectively, in May.The trade figures have cast doubt over China’s ability to rely on external sources to bolster growth. Beijing has already rolled out stimulus measures in a bid to inject new life into the country’s sputtering recovery from three years of COVID-19 rules and disruptions.But, as China’s customs bureau spokesperson noted on Thursday, high inflation in the developed world and ongoing geopolitical tensions will likely continue to weigh on trade activity during the second half of 2023.3. China to unveil generative AI regulationChina’s government has announced that it has issued a new set of rules to govern the use of so-called generative artificial intelligence (AI) as traditionally strict regulators in Beijing aim to gain some control over the booming industry.The powerful Cyberspace Administration of China said that companies will now need to conduct security assessments and perform algorithm filing procedures before any product launches. These measures are set to take effect on Aug. 15.Generative AI utilizes vast data troves to create unique content from user prompts. Microsoft-backed Open AI’s ChatGPT is perhaps the most well-known iteration of this burgeoning technology, with the program’s recent success inspiring the creation of a number of rivals.China, which has cracked down on the domestic tech industry in recent years, has been keeping a close eye on these developments. Reports suggest that Beijing may be concerned that generative AI could produce content that does not coincide with its political views.4. Disney extends CEO Bob Iger’s contractDisney (NYSE:DIS) announced that it has extended the contract of chief executive Bob Iger to 2026, further prolonging an ongoing search for his successor at the helm of the world’s biggest entertainment group.Iger, who returned for a second stint as CEO following the rocky tenure of former head Bob Chapek, was originally supposed to stay on until 2024. But the company said the length of Iger’s contract has now been pushed out to 2026, arguing that the move will give it “continuity of leadership during [its] ongoing transformation.”Shares in Disney moved higher by more than 1% in premarket U.S. trading on Thursday. 72-year-old Iger faces a host of challenges to the business, including a high-profile spat with U.S. presidential hopeful Ron DeSantis over its backing of LGBTQ+ causes, heavy competition to its Disney+ streaming service, and weak box office performance of the latest film from its lucrative Pixar division. Meanwhile, Disney has said it will cut 7,000 jobs to save $5.5 billion in costs.With annual bonuses worth five times his base salary on the table, Iger will likely have ample incentive to successfully overhaul the company. However, it remains uncertain what Disney plans to do after his term ends.5. Oil inches higherOil prices increased slightly on Thursday, hovering around three-month highs, after the softer-than-anticipated U.S. consumer price data suggested that the Federal Reserve may soon bring its long-time rate-hiking cycle to a close.The modest rise in consumer prices in June boosted hopes that the central bank’s tightening campaign will peak after an anticipated increase later this month. Higher borrowing costs threaten to weigh on economic growth and, in turn, oil demand.Meanwhile, a report from the International Energy Agency projected a surge in crude demand to record levels this year, although wider growth headwinds and elevated interest rates would moderate this uptick.Monthly oil imports in China, which touched the second-highest figure on record, were also a silver lining in the otherwise disappointing trade data.Thursday’s gains were limited by an unexpected build in U.S. oil inventories, with the Energy Information Administration indicating that stocks grew 5.95 million barrels in the week to July 7, much more than forecast.By 05:37 ET, the U.S. crude futures traded 0.18% higher at $75.89 a barrel, while the Brent contract climbed 0.27% to $80.33. More

Next week, leaders will meet for the first EU-Latin America summit in a very long time. The most important item on the menu is the trade agreement between the EU and Mercosur, the trading bloc comprising Brazil, Argentina, Paraguay and Uruguay. The deal was agreed in 2019 after years of talks but has still not been ratified. Most of the blame for that lies in Europe where two forces have stalled its conclusion, one traditional and one much more recent. The traditional one is agricultural protectionism. The newer, much more interesting one is the EU’s move beyond what we could call standard trade liberalisation towards including new elements in trade deals — in this case, environmental and climate demands.The Mercosur countries did agree to climate and environmental provisions — designed to protect the Amazon from deforestation — but European green politics overtook the process. Brussels has been pressured to request additional provisions to make the green aspects of the deal legally binding. These extra commitments are what Brazil, in particular, has been resisting.We shouldn’t expect a breakthrough on the Mercosur deal at the summit, but we can hope for some political meeting of minds that allows a final agreement to be sealed soon. But today I am less concerned with the details of the green provisions than with the principle behind them and how this reflects an entirely new approach to trade policy.What is new about it is that trade deals have started to cover not just specific products (and to some extent services) but the methods by which they are produced. The EU-Mercosur deal’s attention to deforestation is just one of many examples. The same agreement also contains a provision where eggs will only receive favourable import treatment if they have been produced in accordance with EU animal welfare standards. The EU is not alone: when the US renegotiated the old Nafta trade deal with Canada and Mexico, it only extended tariff reductions to cars produced by labour paid above a certain amount. Nor are non-conventional considerations only pursued through bilateral trade agreements. The EU is using unilateral trade policies too, such as the carbon border tax on imports from countries with less stringent emissions regulation than the bloc, or requirements on human rights in EU companies’ global supply chains. A new EU law banning imports of palm oil from cleared forests has held up its trade talks with Malaysia and Indonesia.All these new trade rules are examples of otherwise identical products being given different treatments depending on the method of production. This is legally controversial, or at least novel, as David Henig explained in a Borderlex column a few weeks ago. Traditionally, treating identical products differently has been seen as a sign of protectionism, to be justified with the exceptions allowed by international trade rules. Interestingly, the same tension exists within US law, where the Supreme Court has just upheld California’s animal welfare restrictions on sales of pork products produced in other states. Henig similarly suggests that legal refinements are possible to allow for a consideration of production methods while preventing protectionism.I agree, but I am more concerned with the economics than the law. What economic rationale is there for these extra conditions on trade if we believe there are generally gains from voluntary economic exchange?One answer is “externalities” — free trade is not always efficient, so it should be made a bit less free in order to achieve greater efficiency. Carbon tariffs could be a case in point here: without them, domestic carbon regulations simply shift polluting production abroad — “carbon leakage” — with the result that pollution stays the same but goods are more expensive. But two things about this answer bother me. The first is that the externality argument does not generalise easily to other areas (European hens would not be any less protected without an animal welfare provision in the Mercosur deal). The other is that it takes for granted that there is a trade-off between free trade and these other considerations.I think there is another, more ambitious argument for including non-conventional considerations in trade policy, founded both on economic efficiency and pro-trade liberalism. It is this: modern consumers themselves distinguish between otherwise identical goods that are produced in different ways. Today, many people care directly about whether a product is produced in ethical ways — say, with the use of child or slave labour — or ways that threaten the environment. A T-shirt made with cotton from concentration camps in Xinjiang is simply a different product from one with ethically produced cotton. Moreover, the digital revolution’s blending of goods with services means that “production methods” don’t end when a good is sold. For many consumers, a car that spies on you by sending data about your behaviour to a manufacturer in a different jurisdiction is a different product from one that doesn’t.There is a narrow but important economic research literature on “procedural utility”, the idea that we care not only about the outcomes we achieve but the ways in which those outcomes are reached. Here is one early contribution. It is a topic I take a particular interest in because my own PhD was an extensive argument about why and how economics needs to take process-dependent preferences into account. (For those interested, the published version included a mathematical model of process-dependence, an experiment demonstrating people do care about processes separately from outcomes, and a philosophical argument about why it’s perfectly rational to do so.)Because people care about production processes, it is a mistake to think that taking them into account violates free trade. Free trade cannot mean forcing a consumer to accept the replacement of one preferred product with a different one they consider inferior because of how it was produced. Of course, there is a need to guard against protectionism — arguments about production methods could be made in bad faith. But that is no different from other product rules, such as prohibiting the import of toys with lead-based paint, for example. Free traders have nothing to be ashamed about in accepting rules on production methods in trade policy. We can, and should, be confident that the new approach to trade policy is here to stay.Other readablesContrary to what much market punditry expected, the Italian government’s cost of borrowing has come closer to Germany’s over the past year. Erik Nielsen of UniCredit explains why. In his podcast, my colleague Gideon Rachman interviews the great Anu Bradford, who coined the term “Brussels effect” and has a new book out on how to regulate artificial intelligence. (Strictly speaking, this is not a readable but a “listen-able” — but you can always read the transcript if podcasts are not your thing. Do give Gideon’s a try if you do not already follow it.)Numbers newsThe eurozone has seen very strong jobs growth since the pandemic — but behind the numbers lurk big differences between countries and a fall in average hours worked per job.

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Ukraine faces a dramatic demographic challenge. More

The Office for Budget Responsibility warned that the 2020s are “a very risky” era for public finances as multiple shocks have left the country in a “vulnerable position” to tackle an ageing society, a warming planet and rising political tensions.In a report on Thursday, the UK’s fiscal watchdog said the rapid succession of shocks “has delivered the deepest recession in three centuries, the sharpest rise in energy prices since the 1970s and the steepest sustained rise in borrowing costs since the 1990s”.These events have pushed government borrowing to its highest level since the mid-1940s, the stock of government debt to its highest level since the early 1960s and the cost of servicing that debt to its highest since the late 1980s.The government faces, among other challenges, a £23bn increase in state pension spending by 2027-28 compared with the start of the decade, the OBR said. More

One of Tesla’s biggest challengers in China has called on the US government to offer Chinese electric vehicles equal access to the American market, arguing carmakers should not be enmeshed in political tensions between the superpowers.William Li, founder and chief executive of Shanghai-headquartered Nio, questioned why Chinese companies faced hurdles selling their high-tech cars to American consumers while Tesla boss Elon Musk was given red-carpet treatment by senior Chinese government officials last month.“The world should be more open and stop politicising business,” Li said in an interview with the Financial Times. “The global political climate has become totally different from that when we set up our company back in 2015, especially after the pandemic stirred up division and antagonism.”Nio has international credentials. Li noted that as well as being listed in New York, more than three-quarters of the company’s investors came from outside China.His criticism of US protectionism highlights the uncertainty over foreign market access for Chinese companies, just as a clutch of rising EV makers, including BYD, Xpeng and Li Auto, are aggressively expanding overseas.Exports have become increasingly important for Chinese EV companies. The domestic car market — the world’s biggest — has been extremely competitive since Musk sparked a price war last year in a bid to chase market share.Last week, Nio joined a group of Chinese carmakers and Tesla in a pledge to enhance “core socialist values” and compete fairly after Beijing directed the industry to rein in the months-long price war.Nio chief William Li said foreign brands that failed to keep pace with Chinese innovation would end up in a ‘dangerous situation’ © Qilai Shen/BloombergHowever, access to the US is complicated by high tariffs on vehicles from China. There is also uncertainty over access to subsidies and the treatment of Chinese-branded vehicles and China-made EV components under Joe Biden’s Inflation Reduction Act, which is aimed at boosting domestic manufacturing and cutting American economic dependency on China.“Chinese consumers have a wide range of [new energy vehicles] to choose from. Why can’t these products be enjoyed by US consumers as well?” Li said.While Nio has yet to export a single car to the US, it faces growing competition at home. The company delivered 23,520 vehicles in the second quarter in China. Its share in the domestic market for pure electric cars and plug-in hybrids shrank to 1.3 per cent from 2.3 per cent in the first quarter.Nio recorded a net loss of $699.5mn and a gross margin of 1.5 per cent in the first three months of the year, compared with a loss of $281.2mn and a margin of 14.6 per cent in the first quarter of 2022. Following analyst criticism of its cash burn rate as it tried to boost sales, the company secured a $740mn investment in June from Abu Dhabi-backed CYVN Holdings.Li’s call for improved US market access comes as China is expected to overtake Japan as the world’s biggest car exporter this year after taking the second spot from Germany last year.Given the barriers to selling cars to Americans, Nio and its fellow Chinese EV makers are focusing their efforts on Europe, where new emissions rules are incentivising a rapid switch to EVs from the internal combustion engine.

Nio last year began deploying battery swap stations across the region, where vehicles batteries can be removed and swapped out for fresh ones instead of recharged in a process that takes just minutes. It is targeting close to 1,000 such stations by 2025.Li is betting that technology and services will be a key point of difference from legacy carmakers, which are already struggling to keep up with Tesla. Among premium services popular with middle-class Chinese consumers are free designated drivers and shared office spaces, as well as free repairs.Li also hit back at perceptions that the company’s success in China — and the decline of some foreign rivals — has been driven by rising patriotism among younger Chinese consumers.“Chinese consumers are just like consumers everywhere around the world, they focus on quality,” he said, warning that foreign brands failing to keep pace with Chinese innovation would end up in a “dangerous situation”. More

China’s exports have suffered their biggest year-on-year decline since the start of the coronavirus pandemic, adding to concerns over the growth trajectory of the world’s second-largest economy.June exports declined 12.4 per cent year on year in dollar terms, official data showed on Thursday, the biggest drop since February 2020. Economists polled by Reuters expected declines of 9.5 per cent.Imports fell 6.8 per cent, also exceeding expectations. In May, exports and imports fell 7.5 per cent and 4.5 per cent respectively.China’s exports this year have been hit by weaker international demand at a time when the economy is already strained by a struggling property sector and a disappointing rebound after Covid-19 controls were lifted at the start of the year.Youth unemployment has also reached its highest point since China started providing the data in 2018, while lacklustre consumer demand has helped to push the country to the brink of deflation.“China has to depend on domestic demand,” said Zhiwei Zhang, president at Pinpoint Asset Management. “The big question in the next few months is whether domestic demand can rebound without much stimulus from the government.”

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The General Administration of Customs on Thursday said trade growth faced “relatively big pressure” and cited economic and geopolitical risks. It said yuan-denominated exports grew 3.7 per cent in the first half of the year.Gross domestic product data set to be released on Monday will shed further light on the health of the Chinese economy. The government has set an official growth target of 5 per cent for the full year, its lowest level in decades, after posting growth of just 3 per cent in 2022. Premier Li Qiang said last month that second-quarter performance would surpass the first quarter rate of 4.5 per cent.Policymakers in China have so far stopped short of large-scale stimulus, instead easing key interest rates last month to support growth. They have also introduced cautious measures to support a property industry that accounts for more than a quarter of economic activity but is grappling with a wave of defaults.

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Inflation data this week showed the country was on the cusp of consumer price deflation, implying continued weakness in domestic spending months after the anti-Covid regime was abandoned. Factory gate prices are already in negative territory.After an initial decline, China’s exports surged in the early stages of the pandemic as consumption in other countries shifted towards goods and away from services. Official data often reflected double-digit percentage increases.

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Thursday’s data showed a reversal, with widespread declines across categories including mobile phones, computers, steel and clothing exports.One exception was car exports, which increased $4.1bn compared with the same period last year. Exports to Russia and Singapore also increased in terms of dollar value, but goods to all other major economies declined. More

NEW DELHI (Reuters) – Global finance chiefs will meet in India next week to discuss increasing loans to developing nations from multilateral institutions, reforming the international debt architecture and regulations on cryptocurrency, Indian officials said.The finance ministers and central bank governors from the Group of 20 (G20) nations will also discuss a multilateral agreement on taxing conglomerates with cross-border operations, while the Russian war in Ukraine was also bound to come up, they said. The July 17-18 meeting in Gandhinagar, the capital of the western state of Gujarat, will be the third finance chiefs’ meeting under India’s G20 presidency and will set the tone for a leaders summit in New Delhi in September.The meeting is likely to be attended by most senior treasury officials from G20 member-nations, including U.S. Treasury Secretary Janet Yellen, as well as the World Bank’s newly appointed President Ajay Banga and the International Monetary Fund’s Managing Director Kristalina Georgieva.Senior treasury officials from Russia and China are also expected to attend, according to two Indian officials, who did not want to be named. India will try to keep the focus of member nations on discussing issues of debt and other economic issues, and not push for any consensus on Ukraine war, one Indian official said, declining to be identified.During the two-day meeting, the group is likely to discuss a “substantial” increase in annual loans to developing countries from multilateral institutions as recommended by an independent panel formed in March, said another Indian official, who also did not want to be named.The independent panel, headed by economists Lawrence Summers and N.K. Singh, was commissioned by the G20 to propose reforms to multilateral development banks with a focus on increasing funding for sustainable developments goals and climate change, among others.The official also said the group will continue to work towards resolving differences in helping low-income countries manage their debt burdens and free up funding for climate financing. Countries like Zambia and Ghana have been waiting for big creditors to make progress in providing debt relief under the so called “Common Framework”, which is led by the G20.Global creditors, debtor nations and international financial institutions agreed in April to galvanize the Common Framework – a platform supposed to speed up and simplify the process of getting over-stretched countries back on their feet. Though Zambia, locked in default for almost three years, struck a deal last month to restructure $6.3 billion in debt owed to governments abroad including China, many challenges remain. The finance ministers and treasury heads will also attempt to bring agreement on the principles of managing cryptocurrencies in their respective geographies.The first volume of a report and a “guidance note” to develop a globally coordinated framework for regulation and supervision of crypto assets will be discussed in Gandhinagar, India’s Economic Affairs Secretary Ajay Seth said in a video address on Wednesday.At the first meeting of the finance chiefs in February, the IMF endorsed the Indian government’s position that crypto assets would require global and coordinated regulation, while giving sovereigns option to ban such assets. The G20 is also expected to discuss the key differences in taxation of large multinational companies under a framework put forward by the Organisation for Economic Co-operation and Development (OECD). The OECD agreed on Wednesday to defer levying taxes on large multinational companies by one year to 2025 until a common framework is in place. More