Aurelia Butler

The writer, an FT contributing editor, is chief executive of the Royal Society of ArtsA global arms race to reindustrialise is under way, reversing long-established trends in many advanced economies. The forces driving this race — decarbonisation, deglobalisation, remilitarisation — are likely to have lasting implications for the global macroeconomy and may even help it break free from secular stagnation.Manufacturing has been in secular decline in many advanced economies. At its peak, manufacturing accounted for almost half of output and employment in the UK. Today it stands at less than 10 per cent. Manufacturing in the US peaked in the 1950s at about 28 per cent share of the economy, but has since fallen to little more than 10 per cent. Even in Europe’s manufacturing powerhouse, Germany, the manufacturing share of the economy fell from 25 per cent to 19 per cent between 1991 and 2022. Underpinning this shift has been a relocation of manufacturing production from west to east and an accompanying reconfiguration of global supply chains. This was made possible by successive waves of trade liberalisation, culminating in China’s accession into the World Trade Organization in 2001. These trends were then amplified by the activist industrial policies pursued by countries such as China and Singapore, policies typically not matched in the west.These shifts in the sectoral and spatial pattern of manufacturing have shaped the global macroeconomy in important ways. In the west, they contributed importantly to low and falling rates of inflation, growth, productivity and interest rates in the first two decades of the 21st century. As cheaper imported manufactured goods from the east depressed price levels in the west, inflation fell, in the US and EU to below target levels, with short-term interest rates following suit.Manufacturing companies have higher investment rates, especially in R&D, and higher rates of measured productivity than those in the services sector. The loss of manufacturing thus contributed to falling rates of investment, productivity and economic growth in the west too. Falling investment also widened the imbalance between global savings and investment, lowering global long-term interest rates by 3-4 percentage points.The past few years, however, have seen a new industrial age beginning to take shape, with global manufacturing undergoing a revival, in particular in the west. This has been underpinned by three distinct global arms races. The first centres on green technologies and industries, a race to decarbonise. China has stolen a march in technologies such as solar and battery manufacture. Latterly the west has stirred, led by the US Inflation Reduction Act’s blockbuster package of subsidies and incentives. The EU is now escalating its own efforts. With an extra investment of around 2-3 per cent of global gross domestic product per year in green technologies needed to hit net zero, this race has a distance to run. These initiatives have drawn criticism on the grounds they amount to a subsidy race. But an arms race to invest in decarbonising technologies is in fact exactly what the world needs to tackle two global externalities — the climate crisis and the investment drought. The theory of the second best tells us that, faced with an externality, subsidies can help us achieve the best attainable outcome. The second global arms race under way is remilitarisation. After a period of decline, heightened geopolitical tensions, amplified by the war in Ukraine, have caused governments globally to reinvest in defence. Global defence spending rose sharply last year to well over $2tn and is set to rise faster still this year. This arms race, while decidedly less benign, is reigniting manufacturing in both east and west.Third, there is an ongoing global race to re- or on-shore manufacturing. This has been motivated by the need for greater supply chain resilience in the wake of Covid-19, but also by a desire for local job re-creation as the economic and social costs of the loss of many millions of manufacturing jobs in the west have become transparent. This has led to the activist industrial policies long since in place in the east now being adopted in the west — witness the US’s Chips and Science Act. These arms races are beginning to transform the contours of global policy and the global economy. Many countries are now targeting advanced manufacturing in their growth strategies, with subsidies and sweeteners to attract frontier technologies and businesses. Encouragingly, these new industrial hubs are often located where land and labour are cheap and local growth most needed, in places such as Cincinnati and St Louis in the US and Sheffield and Manchester in the UK.This new industrial age is also beginning to reverse some of the secular macro trends of the past. Fractured supply chains are raising global prices, causing inflation targets to overshoot and interest rates to rise. Public and private money is flooding into manufacturing projects, irrigating firms dehydrated by the investment drought. Higher investment plans are also helping absorb the global savings glut, with global real interest rates rising by over 1 percentage point so far. Most arms races leave no one better off. Today’s race to reindustrialise is different. It may be just the impetus the world needs to break free of its economic and environmental torpor. More

Germany’s federal audit office has warned the Bundesbank may need a bailout to cover losses arising from the European Central Bank’s bond-buying scheme, potentially throwing a spanner in the ECB’s plans to carry out similar programmes in the future.“The possible Bundesbank losses are substantial and could necessitate a recapitalisation of the [bank] with budgetary funds,” said the report by the audit office, the Bundesrechnungshof, which has been seen by the Financial Times.Purchasing vast amounts of bonds to lower borrowing costs, known as quantitative easing, has long been controversial in Germany. The Bundesbank argued against it in 2015, when the eurozone’s central bank launched its bond buying, but it was outvoted at the ECB. The audit office’s criticisms are likely to make a repeat of the policy more difficult, especially as some economists blame QE for stoking the recent wave of inflation.The Bundesbank announced in March that it had suffered a €1bn hit from its bond holdings, as it grappled with the impact of higher interest rates. It also warned that future losses would wipe out its remaining financial buffers, though it denied it would need a government rescue.The audit office report takes aim at the ECB’s public sector purchase programme, which was launched in 2015 and involved the bank purchasing €2.7tn worth of sovereign bonds of eurozone countries. The Bundesbank bought €666bn of German government debt under the scheme, which stopped buying more bonds last year.The scale of the purchases, coupled with the ECB’s sub-zero interest rates, pushed up the price of the bonds, meaning many of them yield negative rates. That means the Bundesbank is now being squeezed by the growing gap between the interest it pays to commercial banks on their deposits and what it earns on the bonds.The Bundesbank said in March that losses in future years would “probably” exceed its remaining €19.2bn of provisions and €2.5bn of capital. However, it has €170bn of gold and foreign exchange reserves and could carry forward any further losses against future profits, as it did in the 1970s.A Bundesbank spokesperson said its balance sheet was “sound even in the event of a loss carry-forward” because it had a “considerable amount of net equity”.But Germany’s public finances will still be hit by the losses as the bank has stopped paying dividends to the government, depriving Berlin of an income stream amounting to €22bn in the past decade. The bank said dividends were not expected to resume for “an extended period of time”.In a statement, the German finance ministry said it had a “different assessment” to the Bundesrechnungshof of the risks to the budget arising from the Bundesbank’s actions.The government believed it was “highly unlikely” that losses from the Bundesbank’s monetary policy operations would “put a strain on the federal budget”, the ministry said.In 2020, Germany’s constitutional court shocked European capitals by ruling that the German authorities and the EU’s top judges had failed to properly scrutinise the PSPP, in a move that threw the policy into doubt.The spat was resolved when the ECB produced a “proportionality assessment” backed by the German government and the Bundesbank to justify its bond buying, as the judges in Karlsruhe had requested.

The report by the Bundesrechnungshof, Germany’s highest government audit authority, looked into whether the German government — and particularly the finance ministry — was fulfilling the obligations imposed on it by the constitutional court’s May 2020 ruling, including “continually monitoring” the actions of the ECB.In the report, the audit office zeroed in on the risks posed to Germany’s public finances by the Bundesbank’s “monetary policy actions” and accused the finance ministry of failing to consider what effect Bundesbank losses might have on the budget.“If the functioning of the Bundesbank is endangered by an inadequate or even negative net equity, the Federal Republic of Germany can be obliged to inject capital,” it said. “Depending on the extent and probability, the risks arising from monetary policy could, in the worst case, endanger the budgetary autonomy of the German Bundestag”.The report called on the finance ministry to use “scenario analyses” to “regularly assess risks to the federal budget arising from the Bundesbank’s activities and inform the German Bundestag about them, in an appropriate manner”.Antje Tillmann, a MP for the opposition Christian Democratic Union who serves on the Bundestag budget committee, said the Bundesbank had “so far been able to deal with the losses it has sustained using the risk provisioning built up in times of low interest rates.“At the same time, we are very closely monitoring the situation around the dimension of the purchased bonds by the [national central banks of the eurozone] and would like to see a faster reduction in the holdings of bonds,” she added. More

The writer is chief economic strategist at NetwealthThere needs to be a prolonged period of positive real interest rates in western economies. That is, policy rates will need to remain higher than inflation for some time. Not now, but once we see where core inflation settles. Markets will need to factor this in fully.The end of cheap money is the dominant issue, driven by the need to restore anti-inflationary credibility to policy. Two aspects stand out. One is where rates will peak and whether central banks have done enough to curb inflation.Tightening through higher policy rates could end soon. Globally, headline inflationary pressures are easing. Freight rates and oil prices are low. The UN’s measure of food prices is 22.1 per cent below its March 2022 all-time high.China, which maintained a prudent monetary policy during the pandemic, has just eased and is likely to cut its reserve requirement ratios for banks again, providing liquidity. While many countries are likely to have seen policy rates already peak, central banks are reluctant to signal easing. Take India. It has seen inflation ease to a 25-month low of 4.25 per cent but policy is on hold.The persistence of core inflation is keeping central banks in the west cautious. The initial drivers of this global inflation bout have been reversed, namely supply-side factors and lax monetary policies. However, second-round inflation effects are feeding into core inflation in economies such as the UK. Rising inflation expectations and tight labour markets are feeding wage growth and companies appear able to pass on higher costs, thus maintaining or boosting profit margins.Despite criticism, the US Federal Reserve was sensible to pause. There is considerable policy tightening in the pipeline that will slow the economy. But it will raise rates if its aggressive tightening to date does not curb core inflation.The Fed’s credibility allows it to pause. In contrast, the Bank of England lacks any credibility and so has not been able to pause. So further rises look likely, with recession possible.The second key issue warrants more attention. Future monetary policy neutrality points to the need for real positive interest rates. This is in addition to central banks shrinking their balance sheets.Markets may thus no longer be able to rely upon monetary policy as being the inevitable shock absorber, where rates are cut in response to economic weakness or financial stress. If so, expect more policy pressures and market volatility.It is quite possible that inflation in many western economies, including the US, euro area and the UK, may settle at a higher level than before the pandemic, and above the 2 per cent where markets always seem to expect inflation to return to. If so, expect talk of higher targets.When the inflation environment changes, expectations can adjust slowly. This was the case in the 1970s. It was also the case in the early 1990s. Then I was in a small group of economists who believed we were moving to a new era of low inflation and was struck by how long it took market thinking to adjust. It kept expecting inflation to return to its previous higher levels globally. Likewise now. Two per cent is ingrained in thinking. Perhaps this should now be 3 per cent.For a quarter of a century, inflation has been low because of globalisation, the squeeze on wage shares, financialisation and technology. Two of these four are changing, with globalisation replaced by fragmentation and wage shares rising. A 1977 article by economist Bob Rowthorn seems relevant now, highlighting the conflict between workers and owners and how they anticipate inflation and react.Also, markets are mindful of the group thinking that has characterised central banks. Before the pandemic there was agreement that R-star, the real neutral rate of interest that is consistent with stable economic conditions, was zero in most western economies. So if inflation settled at 3 per cent, policy rates would be 3 per cent. But an R-star of close to zero is a policy outcome that reflects deeply flawed thinking because of the distortions that arise from cheap money. That thinking has been at the heart of the problems we have seen.Cheap money led to asset price inflation, to markets not pricing properly for risk and to a misallocation of capital. It also contributed significantly to the recent bout of inflation. The last thing the world economy needs is a return to cheap money.Lower inflation will contribute to positive policy rates. But that is unlikely to be the whole story. This is about a credible shift in thinking that keeps policy rates higher than markets have become used to since the 2008 global financial crisis. More

The writer is Europe’s Futures fellow of the Institute for Human Sciences-IWM and non-resident fellow at BruegelThe European Commission last week launched an economic security strategy for the continent, responding to threats ranging from Russia’s war in Ukraine to competition for critical raw materials. The EU’s 27 members still have different views on how to operationalise it, with debates raging over industrial policy and trade restrictions. But Europe’s recognition of the costs of non-diversification and the downsides of interdependence is a decisive turn away from 30 years of “Wandel durch Handel” (transformation through trade), and 70 years of pursuing economic integration as its central security strategy. Yet the biggest threats to economic security are not being addressed by political leaders. For many decades, as prosperity rose, we not only ignored the risks of our suppliers weaponising dependence, but also the costs of this economic model in destroying nature, both internally and in the countries where goods destined for European markets are produced.The enormous cost of losing ecosystem services such as pollination, soil genesis and water and air detoxification was set out by Cambridge economist Partha Dasgupta in his landmark 2021 report on how to bring ecological externalities into economics. However, attempts to develop methods of valuing nature and quantifying climate risk have moved very slowly since. The EU has developed a carbon market through its emissions trading scheme, and the huge business opportunities in producing low-carbon energy are driving investment. But it is hard to turn a profit from improving biodiversity in a system that overvalues productive capital, undervalues human capital and fails to value natural capital at all. There are still no market mechanisms to protect the oceans and forests, which are profitable to destroy but not to keep as carbon sinks and biodiversity reserves. The “tragedy of the commons” is that they are not accounted for in measures of economic performance.Work on addressing these longer-term, systemic risks is slowly reaching the EU policy agenda. On June 28, the European External Action Service and the commission are due to produce their first joint paper on climate security, a holistic overview of all the new threats from environmental degradation and climate change to European security. Meanwhile, the European Central Bank is studying how to account for nature-related risks building up in the financial system due to the impact of environmental degradation on production processes, and hence on the creditworthiness of 4.2mn European companies accounting for more than €4.2tn in corporate loans. In the euro area, nearly three-quarters of companies are highly dependent on at least one ecosystem service, leading the ECB to argue that nature loss needs to be built into financial risk models. Some economists ask whether the ECB should be worrying about future risks when issues such as inflation need immediate attention. But the real problem is not that European institutions are extending their mandates to recognise environmental impacts, but that national governments’ mandates are too limited — both geographically and temporally. It is hard for governments to propose paying for climate issues. The immediate cost of the green transition falls on their electorate now, whereas the benefits of avoiding more expensive problems will be enjoyed by future citizens.Climate degradation is exactly the kind of long-term, transnational problem that EU institutions were established to manage. It is a complex, long-term policy issue that affects the welfare of all Europeans — and no one government can address it on its own. That is why European-level institutions need to bring environmental risk fully into their mandates.Currently, implementation of policies to mitigate climate risk comes down to the national level, causing a blame game. Political leaders express support for the European Green Deal and agree to EU-level common targets. But as soon as their farmers and coalminers complain, they blame Brussels.In explaining why we have to address these huge security threats, it would help if political leaders spelt out the costs of inaction. Voters need to see why investments in natural security — such as decarbonisation, dematerialisation and nature preservation — are less costly than cleaning up after floods and wildfires, and trying to restore biodiversity after it collapses. That requires a timescale that extends beyond the next election, which is difficult in democracies. But every European institution has to take responsibility for environmental impacts, and the sooner the better. More

Investors have piled into fixed income this year, lured by the promise that bonds were back after a year of miserable returns. So far, that trade has failed to deliver bumper returns.Global bond markets have lost 1 per cent this quarter, as stubbornly high inflation on both sides of the Atlantic pushes big central banks to keep raising interest rates. Following a 3 per cent gain in the first quarter, that setback means the asset class so far has not delivered on its promise of a strong rebound after last year’s historic 16 per cent loss for the Bloomberg Global Aggregate index — a broad gauge of global fixed income and the benchmark for many bond funds.Investors betting that inflation is on its way down as recession looms are “up to their eyeballs” in bonds, said Jim Bianco, president of Bianco Research. “It has been a painful bet. Over the last five or six weeks, there have been a number of them seeing their performance getting hurt,” he added.Investors loaded up on bonds at the start of the year, with nearly $113bn flowing into taxable bond funds in the first five months of 2023, according to Morningstar data, a marked difference from the $107bn of outflows last year over the same period. The flood of cash came as big money managers including JPMorgan, Pimco, Charles Schwab, Fidelity Investments, and Amundi declared that “bonds are back”.Buyers were looking to capture the highest yields available in years. But many were also betting that the cycle of interest rate increases from the US Federal Reserve and other central banks — which was behind 2022’s fixed income bloodbath — was nearly at an end.Earlier this spring, investors in the futures market were betting that the Fed would be forced to cut interest rates multiple times this year. But at June’s Fed meeting, the committee released its latest “dot plot” which showed that officials expected interest rates to rise to 5.6 per cent this year, implying an additional two interest rate increases.The European Central Bank similarly warned of further rises in borrowing costs at its June meeting, while the Bank of England this week surprised markets with a bigger than expected half percentage point rate increase.Those moves have been bad news for investors who bought short-dated government debt — which is highly sensitive to the outlook for interest rates — on expectations that the peak in borrowing costs was near.The two-year Treasury yield on Friday rose to its highest level in three months after Fed chair Jay Powell said in testimony before the US Congress that the central bank’s fight against inflation was not over.“If you piled into short duration rates at the beginning of the year, you are probably feeling some pain, because rates have continued to move higher,” said Jason England, the global bonds portfolio manager at Janus Henderson.The iShares exchange traded fund which tracks the 1-3 year segment of the US Treasury market has lost 0.6 per cent so far in June, and lost 0.6 per cent in May too.Although the declines look modest compared with last year’s sell-off, some of the enthusiasm for fixed income appears to be waning.There have been outflows worth $763mn out of short-dated government bond funds in April and May, according to Morningstar data. Inflows into the broad taxable bond fund category have slowed slightly — $71bn came in during the first quarter, with only $42bn in April and May.“We wouldn’t need to be coming out with slogans like ‘bonds are back’ if the money was coming in organically,” said a senior analyst at an asset manager. Some of those outflows may be attributable to the fact that Treasury bills — the ultra-short, ultra-safe US bonds that mature in anywhere from a few days to a year — are offering the best returns in decades, well above those available on longer-duration bonds that carry more risk. “What we’re hearing anecdotally is investors are content to sit in Treasury bills and government money market funds, and just clip that yield there, as opposed to short-dated fixed income,” said Alex Obaza, a portfolio manager at T Rowe Price. “We’ve seen some outflows from short-term bonds funds.” Despite the lacklustre performance, many fund managers remain relaxed about their bets on fixed income, arguing that the higher yields offer a margin for error, meaning holders can still make a positive return even if prices fall modestly.The cushion afforded by chunkier yields was “the story of bonds ultimately”, said Greg Peters, co-chief investment officer at PGIM Fixed Income.“When rates were at zero or negative, and spreads were tight, that was the worst environment because there was no cushion. So I feel much, much more comfortable owning bonds today than I did in 2017,” he said. More

The rush to address a shortage of HGV drivers in the UK has led to a scarcity of mechanics needed to keep the lorries running and could disrupt supply chains, say industry leaders.Logistics groups said the huge investment made over the past two years to reduce a driver shortage resulted in employers splurging on higher salaries and signing-on bonuses, which in turned encouraged mechanics to get behind the wheel and exacerbating another gap in the sector.They warned that although the effects were yet to be seen on a large scale, the UK could soon suffer a repeat of the empty shelves that hit shops in 2021, when the country faced an acute shortage of truckers delivering goods. That year, desperate retailers including Tesco and John Lewis offered £1,000 to new drivers just for taking jobs.Now openings for mechanics have become the most difficult to fill in the sector, according to industry group Logistics UK. A November survey of 207 members found that 54 per cent faced a “severe” problem hiring enough fitters, technicians and mechanics, compared with 35 per cent a year earlier. Over the same period, the share of companies facing difficulties recruiting lorry drivers dropped from 61 to 37 per cent.Roy Thomas, head of maintenance at the UK arm of TIP Trailer Services, said that five years ago it would take little more than a week to fill job openings for technicians. Now the truck rental business is resorting to opening its own training facility in September as it struggles to even find interviewees.“The industry lost a lot of technical staff. Rather than lying under the truck all day in the cold, they’ve decided to go driving,” he said. Sarah Watkins, a deputy director at Logistics UK, said many HGV mechanics were able to drive trucks, which meant it was simple to switch careers when driver salaries soared. “If [a lorry] breaks down and needs servicing, and there’s a delay to do that, a vehicle off the road means goods can’t be delivered when they are expected on the shelves,” she warned. “That is when, as consumers, we [will notice].”The difficulties faced by the logistics sector underline the UK’s broader challenge over chronic labour shortages.Although hauliers around the world are struggling with an ageing workforce, those in the UK were particularly hit by an exodus of European drivers after Brexit. Faced with calls to increase the size of the labour pool, the government has focused on encouraging British citizens to take up new professions rather than opening the door to more foreign workers.Even before experienced technicians jumped ship, logistics businesses said they faced difficulty recruiting new mechanics from within the UK.Steve Cole, fleet director at Biffa, one of the UK’s largest waste collection groups, said the industry had struggled to attract school leavers as more chose to go to university or pursue technology-focused careers. The group, which employs roughly 300 technicians, currently has up to 15 per cent of those roles unfilled.“It was obvious during Covid that waste collection is an essential service,” he said. “[But] if we cannot employ enough fitters, we have to stand vehicles down.”In an effort to plug the labour gap, Logistics UK recently helped launch a TikTok campaign to promote jobs for young people in the industry. But in the meantime employers are resorting to financial incentives. Average UK salaries for HGV mechanics and technicians rose 15 per cent to £41,034 between November 2021 and April this year, according to Logistics UK’s analysis of data from job site Adzuna. But employers fear that these additional costs in the wake of driver wage rises are not sustainable.“We’ve got a lot of competitors all fighting for the same resource. A guy might move halfway down the road for 50p more an hour,” said Cole. “We try to be as flexible as we can. But inevitably, we have a business to run. Having people moving around doesn’t solve the problem.” More

Saudi Arabia will send one of the biggest official delegations to this week’s “Summer Davos” in China, as Beijing deepens co-operation with the Middle East to reboot the world’s second-largest economy after three years of Covid-19 lockdowns.The attendance of the 24-strong delegation, which will include six ministers and vice-ministers, at the first in-person World Economic Forum event in China in three years comes as the two countries seek alternative investment partners to the west.Saudi Arabia’s delegation at the Annual Meeting of the New Champions, which will be held in the northeastern port city of Tianjin and is colloquially known as the Summer Davos, will be led by economy and planning minister Faisal Alibrahim and communications and information technology minister Abdullah Alswaha.Saudi Arabia is China’s biggest oil supplier, and China is the kingdom’s top trading partner, with bilateral trade of $116bn in 2022, up from $87bn the previous year. Saudi Arabia is keen to receive Chinese help to diversify its economy and wants investments beyond the traditional oil, refining and telecommunications sectors, in industries ranging from steel to internet platforms, gaming and tourism.“Given the large size of the Arabian market, especially Saudi, this cross-border investment trend can . . . benefit Chinese companies tremendously,” said Winston Ma, a law school adjunct professor at New York University and a former managing director of Chinese sovereign fund China Investment Corporation.Kicking off on Tuesday with a speech from Premier Li Qiang, China’s second-ranked politician after President Xi Jinping, the WEF meeting comes as China’s economy is struggling to stage a robust recovery from Covid. Beijing is also wrestling with rising tension with the US over Taiwan, Washington’s export controls on high-technology goods and the Ukraine war, which is weighing on investor confidence, analysts said.Riyadh is keen to look beyond its traditional partnership with the west and strengthen commerce with Asia, especially China. Some of the country’s biggest companies, such as PetroChina and telecommunications group Huawei, are already present in Saudi Arabia. Relations with China were strengthened by a state visit to the kingdom by Xi in December.Saudi Crown Prince Mohammed bin Salman wants to diversify the country’s oil-dominated economy to areas such as health, infrastructure, the digital economy and tourism under a programme known as Vision 2030.Under the programme, China’s largest steelmaker Baowu Steel in May revealed a plan to pay $437.5mn for a 50 per cent stake in a joint venture with Saudi Aramco and the sovereign Public Investment Fund.In other bilateral investments, Saudi Arabia’s investment ministry in April invited Chinese theme park operator Haichang Ocean Park to invest in a new facility in the country while Chinese genetics company BGI opened a testing lab in Riyadh this month.J&T Express, a Chinese-backed parcel delivery group that expanded into Riyadh a year ago, has grown rapidly and is filing for a listing of up to $1bn in Hong Kong this month.

Jessica Wong, managing partner at eWTP Arabia Capital, one of Saudi Arabia’s largest private equity funds, said the kingdom was seeking greater “localisation” of digital and infrastructure services than what had been offered by the western companies.“In each segment, western companies have a market share of 80 to 90 per cent, but they all ignored localisation,” Wong told the Financial Times. “The market wants someone who respects their user habits and doesn’t always demand a high premium.”Focusing on localising Chinese digital services in Saudi Arabia, Wong’s funds raised $400mn in 2019, $300mn of which came from the Public Investment Fund. A second round of fundraising is likely to close at $1bn by the end of this year.Sensing the potential growth, Chinese entrepreneurs flocked to an Arab-China business forum this month. Half of the Chinese attendees were visiting Riyadh for the first time, according to fellow attendees.Official visits of delegations from Chinese cities such as Beijing and Xiamen are also booming. “We are witnessing the honeymoon period of [the] China-Saudi relationship,” said one of the conference attendees. More

SINGAPORE (Reuters) – The dollar held near a one-week high against its major peers on Monday as traders weighed the impact of protracted monetary tightening cycles on the global growth outlook and as worries over a deep downturn in major economies lingered.Investors were also on guard after dramatic weekend events in Russia, though reaction in the currency market was subdued as they assessed the implications of the aborted mutiny.The euro was nursing its losses from last week and was last up 0.07% at $1.0902 in Asia trade.The single currency had fallen to a one-week low on Friday after data showed that euro zone business growth virtually stalled in June amid a deepening downturn in manufacturing activity and a slow expansion of the bloc’s dominant services industry.Sterling rose 0.1% to $1.27285, reversing some of its 0.8% fall last week after an outsized 50-basis-point rate increase from the Bank of England stoked fears of a British recession.Flash Purchasing Managers’ Index (PMI) data on Friday showed Britain’s economy displayed signs of a slowdown this month but inflation pressures stayed high.Meanwhile, U.S. business activity fell to a three-month low in June and the contraction in the manufacturing sector deepened, though the overall picture indicated economic growth ticked up a notch in the second quarter.”Again, (there was) another set of weak PMI data coming out of Europe,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY) (CBA). “By contrast, PMI data in the UK and the U.S. continue to be pretty solid in the face of aggressive interest rate hikes.”The aggressive monetary tightening in the major economies … will likely continue to see the global economy continue to deteriorate, which will underpin the safe haven U.S. dollar.”Against a basket of currencies, the U.S. dollar steadied at 102.71, after a gain of more than 0.5% last week, its first in nearly a month.Elsewhere, the Japanese yen rose 0.3% to 143.27 per dollar, though was not far from an over seven-month low of 143.87 hit on Friday.A summary of opinions of the Bank of Japan’s (BOJ) June policy meeting showed that a board member said the central bank should discuss revising its yield curve control policy at an early stage.The yen has come under renewed pressure in recent weeks amid the stark contrast between the BOJ’s ultra-dovish stance and hawkish central banks elsewhere.Japan’s top currency diplomat Masato Kanda said on Monday authorities will respond to any excessive moves in the currency market, warning that recent yen moves were “rapid.”RISKS ABOUNDTraders were also closely monitoring developments in Russia, after heavily armed Russian mercenaries withdrew from the southern Russian city of Rostov under a deal that halted their rapid advance on Moscow but raised questions on Sunday about President Vladimir Putin’s grip on power.The risk-sensitive Australian dollar slipped 0.07% to $0.66745, while the kiwi rose 0.19% to $0.61555.”If the situation in Russia sharply deteriorates, that can abruptly weigh on currencies like the Aussie, so that is something that we’ll continue to watch,” said CBA’s Kong.China also returns from a holiday on Monday, with markets on the alert for further support measures from Beijing to stimulate the country’s faltering economic recovery.The offshore yuan languished near a seven-month low at 7.2162 per dollar. More