Aurelia Butler

The Brazilian leader was referring to the EU’s addendum to the deal attaching sustainability and climate change commitments and introducing penalties for nations failing to comply with the climate goals outlined in the 2015 Paris Agreement.”I am available to reach an agreement (on Mercosur), but with this additional letter from the EU, it’s not possible,” Lula told an event in Paris. “The letter makes a threat to a strategic partner (Brazil),” he added.Lula also said the United Nations needed to regain political strength and he criticised the World Bank and International Monetary Fund for “leaving a lot to be desired” compared to people’s expectations. “The UN needs to become representative again, to have political strength,” Lula said. “We can’t let the institutions function in the wrong way,” he added. More

Just as world stock prices raced ahead this month, broader business activity appeared to be stalling again.Surprisingly soft readings from flash business surveys for June show that in the euro zone at least overall factory and service sector growth almost ground to halt during the month, with another big contraction in manufacturing.Equivalent Japanese and British surveys also showed sub-forecast growth and markets nervously await the U.S. version later on Friday. The dollar was the big market mover – surging into the weekend against Asia and European currencies.With central bankers around the world this week still focused on squeezing the last vestiges of inflation from the system, questions will inevitably be raised about the remarkable resilience of economies to date in the face of tighter credit.While Federal Reserve boss Jerome Powell slightly softened his tone at the second day of his semi-annual congressional hearings on Thursday – talking of a “careful pace” in any further hikes – he continued to point to two more tightening notches this year even though markets still only see one.But the hawkishness was more pronounced in Europe where inflation looks slower to retreat. The Bank of England and Norway’s central bank both executed stiff half-point rate rises on Thursday, with the Swiss National Bank hiking rates too.For stock and commodity markets, the latest brush strokes to the combined picture provided another reason to reverse some of June’s ebullience, with European stocks on course for their worst week in three months.Even though Shanghai was closed for a holiday, other Asia bourses were also lower by more than 1% on Friday.Brent crude oil prices, which are still falling at a rate of more than 30% year-on-year, dropped to a 10-day low.After a late rally by Wall Street’s main stock indexes on Thursday after Powell’s comments, U.S. stock futures were back in the red early today.Compared with Europe, the picture appears more benign stateside – even if still complicated. Inflation is falling faster, real wage growth is back positive, the jobs market is loosening slightly and housing is rebounding somewhat.So even as stock prices have come off the year’s highs, the VIX implied volatility gauge continues to fall away – closing below 13 on Thursday for the first time since January 2020.Two-year Treasury yields did pop higher to 4.80% on Thursday for the first time in a week, but have slipped back a bit since.And the Treasury yield curve inversion between 2- and 10-years, often seen as a harbinger of slowdown and recession, deepened below 100 basis points for the first time since the banking stress of early March.The dollar was the big mover however – hitting its highest for the year against Japan’s yen and China’s yuan and surging also against the euro, sterling and Swiss franc.Events to watch for later on Friday:* Flash June business surveys from the United States and around the world* Atlanta Federal Reserve President Raphael Bostic, St Louis Fed President James Bullard and Cleveland Fed chief Loretta Mester all speak* U.S. Corporate earnings: Carmax(By Mike Dolan, editing by Jane Merriman [email protected]. Twitter: @reutersMikeD) More

Investors withdrew a net $15.12 billion from global equity funds which had seen net inflows of $16.04 billion a week earlier.Fed Chair Jerome Powell struck a hawkish tone in his testimony before the U.S. House Financial Services Committee on Wednesday, noting that a majority of policymakers expected two more quarter-point rate hikes by year end.The Bank of England surprised investors by raising interest rates by half a percentage point on Thursday, saying it would take more time for inflationary pressures to subside.The U.S. and European equity funds witnessed outflows of $16.47 billion and $1.81 billion, respectively, while investors pumped about $2.6 billion into Asian funds.Healthcare and industrial sectors saw $1.14 billion and $174 million worth of net selling, respectively. Financials attracted about $710 million worth of inflows.Meanwhile, global bond funds extended their inflows streak to a 14th straight week, with about $4.07 billion flowing in.Global government and corporate bond funds attracted about $1.9 billion each. Meanwhile high yield, loan participation and convertible funds suffered outflows of about $400 million each. Meanwhile, investors withdrew a net $15.13 billion from money market funds, their second straight week of outflows.Among commodity funds, investors withdrew $498 million from precious metal funds, their fourth successive week of net selling. Energy funds also saw $176 million in outflows.Data for 24,028 emerging market funds showed that investors secured a net $714 million worth of bond funds in their third straight week of net buying. They also purchased $812 million of equity funds. More

The writer is professor of public policy at the University of Cambridge and author of ‘Cogs and Monsters: What Economics is, and What it Should Be’Like flared trousers, platform heels, inflation and other 1970s phenomena, industrial policy is back in fashion. US president Joe Biden was the trendsetter, with the Inflation Reduction Act and the Chips Act. The EU mirrored this with more investment in chip manufacturing and, in February 2023, its Green Deal Industrial Plan. Many Asian economies had never given up on industrial policy of course. The UK government is holding out, however. It offers many “announceables” (as officials label bite-sized media-friendly policy initiatives) but no cohesive supply-side economic policy. Perhaps this is not surprising from a Conservative government whose prime minister and chancellor are admirers of Margaret Thatcher’s free market philosophy. But the one player not bothering to play the industrial policy game is going to lose. In any case, the intellectual centre of gravity in the economics profession has been steadily shifting towards a more active approach to policy. The Thatcherite 1980s brought the heyday of economists’ belief that markets would ensure the most efficient use of economic resources and a reasonable distribution of the gains. Privatisation, contracting out, squeezing public spending and limiting the role of government were the order of the day. In the mid-2020s, the limitations of this philosophy are all too apparent in crumbling infrastructure, uncompetitive markets, and failing public services and local government, as well as intolerable inequalities.There is now widespread (though not universal) support in the economics profession for the alternative view that the government’s job is to take a strategic view of the economy and establish a policy framework to provide consistent rules within which the private sector can operate. Take, for example, the broad consensus about the need to move towards net zero. This requires a range of policies spanning investment in the electricity grid, provision of charging infrastructure for cars, technical standards, new building regulations, subsidies for heat pumps and insulation and more. There needs to be sufficient certainty about the next 25 years for the private sector to make the investments required to hit that target. The market will deliver — if the government sets a consistent set of rules and does so with enough cross-party consent that those rules will not change. Businesses and citizens are being asked to make investment decisions over at least a twenty-year horizon, so the least the state can do is take a similarly long-term perspective. It is not just the climate and biodiversity crises that need policy consistency. The UK economy is not short of long-term strategic challenges. Some of them have even been government priorities during the Conservatives’ time in office. These include “levelling up” the country’s deep geographic inequalities, and improving the dismal productivity and investment performance that has seen the UK trailing other comparable economies for years. It is manifestly clear that this government’s policies have not worked — although possibly because they were never given enough time. The UK needs a different approach. The state and the market are partners, not opponents. A prospering economy needs good infrastructure, high quality and adequately funded health and education provision and a consistent view of private and public investment priorities. It needs governmental co-operation in place of departmental silos. And it needs decisions to be made at the appropriate level of government: officials are no better able to make decisions for Cornwall or Herefordshire from a new building in Darlington than they are from Whitehall. There is plenty of scope for political differences in such an approach, as every other advanced economy demonstrates. The UK’s core problem is that its government has no strategic capacity at the centre. The Treasury is the only entity in Whitehall potentially able to take a long-term view, yet its philosophy is Just Say No. It believes government interventions should only target market failures but demands that spending departments and agencies operate on commercial principles. It insists on “value for money” but wastes millions by forbidding flexibility in budgeting from year to year or across activities. It centralises most economic decisions — to no purpose. Reform is needed. No doubt the US and EU will make some costly mistakes in their new industrial policies. But they will also give their private sectors some new opportunities and will boost regional growth and frontier technologies. Above all, they stand a chance of creating the shared sense of direction and optimism that is so essential for investment and growth. More

LONDON (Reuters) – Foreign investors hoping for a game-changing rate hike from Turkey’s newly appointed central bank chief said Thursday’s disappointing move to a key rate of just 15% could keep some money on the sidelines.The appointment of U.S.-trained banker Hafize Gaye Erkan to lead the bank boosted expectations that it would rapidly raise rates to unravel years of unorthodox policies as quickly as possible.But the 650 basis point hike – to 15% – was well below the median rate expectation in a Reuters poll of a rise to 21%, leaving some fretting that Erkan might have limited room to aggressively tackle inflation.”They lost one perfect chance to demonstrate that they mean business,” said Viktor Szabo, emerging markets investment director with Abrdn. “Whether it’s because they have political constraints, or they’re afraid for the banking system, it’s not great. It’s not a great message.”Newly re-elected President Tayyip Erdogan, a self-described enemy of high interest rates, for years directed a heavily managed economic system, with a tightly controlled lira, rate cuts in the face of galloping inflation and plentiful credit for local borrowers.Amidst tumbling reserves and fleeing investors, his choice of Erkan at the central bank, and investor darling Mehmet Simsek as finance minister, prompted bets for a quick turnaround to unravel some of these policies.But analysts said that after Thursday’s decision, Erkan and Simsek would need to work even harder to prove the country had indeed shifted course.”They look less credible now,” Eric Fine, portfolio manager of emerging market debt at VanEck, said of the central bank, adding: “They need to hike rates to whatever level prevents the need for currency interventions using reserves. They haven’t.”Since the decision, Turkey’s lira hit a fresh record low against the U.S. dollar, bringing its losses this year to nearly 23%. The country’s international bonds came under pressure.Already in the week to June 16, foreign investor holdings of Turkish government bonds had fallen by $16.2 million.”For now, it’s not enough, probably, for long-term investors. Because of the magnitude of some of the problems in the economy,” said Marek Drimal, a lead strategist at Societe Generale (OTC:SCGLY).CAUTION AND TEMPERED DISAPPOINTMENTStill, many, including Drimal, saw positive signs, and noted that even Simsek had repeatedly said that gradual rate moves were move likely.Simsek also promised predictable, market-based economic policies and an inflation-targeting model would enable capital inflows.”I think investor disappointment should be tempered,” said Dan Wood, head of emerging market debt at William Blair, adding that the bank also signalled that it will keep hiking rates until inflation improved.”It is clearly positive that a return to a more orthodox economic policy has been signalled.”The associate director of ratings agency Scope Ratings and a sovereign analyst at ratings agency Fitch also said the hike itself was positive – but the core question would be whether Erdogan allows Erkan to stay the course with continued rises.”I don’t think investors will throw in the towel just yet because I think there is still expectation there is more to come in the coming months,” said Kaan Nazli, portfolio manager at Neuberger Berman.”The market is very cautious – so to regain confidence, that will take a long time. I would think that you would need to maintain tight policy for a considerable amount of time for significant, more long-term inflows to come in.” More

Turkey’s first interest rate rise since 2021 was a “baby step” towards restoring investors’ faith in the country’s financial management, fund managers said. But they said they remained sceptical that President Recep Tayyip Erdoğan will allow the unorthodox policies that have triggered a years-long economic crisis to be fully unwound. The central bank on Thursday hoisted its main interest rate to 15 per cent from 8.5 per cent, while pledging to tighten policy as much as needed as it attempts to bring down inflation that is running at almost 40 per cent. The move marked the clearest sign yet that the economic team Erdoğan put in place after winning May’s election — led by finance minister Mehmet Şimşek and central bank governor Hafize Gaye Erkan — will use traditional economic tools to restore Turkey’s economy to a more sustainable path and try to lure back investors who have abandoned the market. But the scale of the increase disappointed some investors and local market participants who had projected a rise to 20 per cent or even as high as 40 per cent. “It’s a baby step in the right direction, [but] my guess is it is probably not enough to change sentiment,” said Paul McNamara, an investment director at GAM in London. Emre Akcakmak, a senior consultant at East Capital, a specialist emerging markets fund manager, added that “it was somewhat disappointing in the sense that it didn’t get the sense of urgency and decisiveness markets were looking for”. The lira fell about 5 per cent to a record low beyond 24 to the US dollar after the decision while the cost to protect against a Turkish debt default ticked higher. Selling continued into Friday with the currency weakening beyond 25 for the first time, leaving it down around 26 per cent this year.JPMorgan warned that it now expects inflation will end the year at 50 per cent, from its previous forecast of 45.5 per cent, saying “authorities revealed their preference for growth and employment over inflation ahead of March 2024 local elections”. The bigger question than the size of the rise, investors said, was whether the more muted than expected move was a sign that Şimşek, a former deputy prime minister who is well regarded by investors, and Erkan, an ex-Goldman Sachs executive who specialises in risk management, will be given the latitude they need to put in place more robust economic policies. With the current account deficit running at record levels, fuelled by a $36bn goods trade gap, a domestic economy that many analysts say is overheating, and a currency that is seen as overvalued despite a huge fall in recent years, the interventions Şimşek will need to undertake are expected to be painful in the short run. “It’s not just the rate hike itself, but the market will sense that the limits of Şimşek’s mandate are becoming clear,” said Murat Gülkan, chief executive of OMG Capital Advisors in Istanbul, adding that “with municipal elections just around the corner the risk is . . . results fail to materialise, then political will suffers and Simsek’s autonomy could be questioned”.Kieran Curtis, head of emerging markets local currency debt at fund manager Abrdn, said that “the big advantage with Şimşek is that there is someone back in the room who will put that [orthodox] case to Erdoğan”. But he said he was also nervous about how far Turkey’s central bank will be able to go in raising rates before Erdoğan changes his mind. During Şimşek’s previous tenure as deputy prime minister and finance minister from 2009 to 2018, he “spent a lot of time talking to investors about what he wanted to do, and then he was never really allowed to do them”, Curtis said. In a sign of how Erdoğan can swiftly change course on policy, Naci Ağbal was fired just months into his tenure as central bank boss in early 2021 after sharply increasing borrowing costs.

Şimşek appeared to attempt to assuage market concerns after the central bank meeting on Thursday, pledging that Turkey will shift to a “rules-based” fiscal and monetary policy that would focus on “sustainable” economic growth. He also said that the country would move to a “free foreign currency regime”. The promises are important because one of the centrepieces of Erdoğan’s economic policies has been regulations and other measures that have made it increasingly difficult for consumers and businesses to trade and hold foreign currency. The central bank has also burnt through at least $24bn this year in an attempt to defend the lira, a move that has left the country’s foreign currency war chest depleted. McNamara said that beyond raising the bank’s policy rate, it would be important to see Turkey step back from currency interventions and also take more decisive steps away from the credit-fuelled growth that has led to big imbalances in Turkey’s economy. “It is fair to say we’re not piling into Turkish assets right now.” More

HCOB’s flash Composite Purchasing Managers’ Index (PMI) for the 20 nations sharing the euro currency, compiled by S&P Global (NYSE:SPGI) and seen as a good gauge of overall economic health, sank to a five-month low of 50.3 in June from May’s 52.8.That was barely above the 50 mark separating growth from contraction and below all forecasts in a Reuters poll that saw a modest decline to 52.5.The figures suggest that the bloc’s economy is at best stagnating after a recession in the previous two quarters and a recovery is nowhere on the horizon, even if robust holiday bookings suggest that the tourism sector could keep the bloc afloat in the near term.”This speaks against a recovery of the economy in the coming months, which is expected by many,” Commerzbank (ETR:CBKG) economist Christoph Weil said. “We see our assessment confirmed that the euro area economy will contract again in the second half of the year.””The so far 400 basis points of ECB rate hikes are increasingly slowing down the economy,” he added.For the ECB, the data deepen a dilemma. Inflation at just over 6% is far too high and the labour market is running hot, suggesting more price pressures ahead as workers enjoy improved bargaining power. But economic activity is weak and the ECB has clearly failed in its goal of tightening policy just enough to contain price pressures without pushing the bloc into recession. Another issue is that a recession would normally push up unemployment, making the bank’s job easier. But firms appear to be hoarding labour, keenly remembering how difficult it was to hire back workers after the pandemic and offering the ECB little relief. Indeed, the jobless rate is at a historic low and nominal wage growth is at its highest in decades, even if wages are just catching up after inflation eroded their real value. Friday’s PMI data only confirm this trend, as firms still increased headcount this month, with the employment index at 54.1, somewhat below May’s 54.6.For now, policy hawks who fear inflation more than a recession, appear to be in a majority. “Another quarter of negative GDP growth is not unimaginable, although the current slump clearly remains mild enough for the European Central Bank not to change course on rate hikes,” ING economist Bert Colijn said.The ECB has de facto promised a rate hike in July and quite a few policymakers have also put one more move, to 4%, on the table for September or October.Friday’s real surprise was that PMI data covering the services industry slumped to 52.4 from 55.1, well below a median forecast of 54.5.While Germany, the bloc’s biggest economy, outperformed on services, France was a big drag with a services PMI at 48.Manufacturing activity has been in decline since July and the downturn deepened this month with the euro zone factory PMI dropping to 43.6 from 44.8, also below all forecasts in the Reuters poll and its lowest since May 2020 when the COVID pandemic was cementing its grip on the world.Germany, with its oversized manufacturing sector, was a drag on the bloc as its own manufacturing PMI fell to 41.0 from 43.2, hitting a 37-month low. More