Aurelia Butler

June futures on the S&P/TSX index were up 0.3% at 7:04 a.m. ET.Contracts tied to oil prices surged more than 5% after the Organization of the Petroleum Exporting Countries and their allies(OPEC+) announced over the weekend further oil output cuts of around 1.16 million barrels per day. [O/R]The Purchasing Managers’ Index data is due at 9:30 am ET. Manufacturing activity expanded at a faster pace in the previous month as new orders and measures of output both rose to nine-month highs. Teck Resources (NYSE:TECK) Ltd on Monday rejected unsolicited acquisition proposal from Glencore (OTC:GLNCY) Plc, stating rival’s all-stock offer is inferior to its own planner separation. U.S.-listed shares of the Canadian miner rose more than 10%. Among other stocks, Quebecor Inc was upgraded by Veritas Research to “buy” from “reduce”, while Scotiabank resumed coverage of miner Pan American Silver (NASDAQ:PAAS) Corp with “sector outperform”. On Friday, the Toronto Stock Exchange’s S&P/TSX composite index ended 0.8% up after data showed stronger-than-expected growth in the domestic economy. (TO)Dow e-minis were up 126 points, or 0.38%, at 7:05 a.m. ET, while S&P 500 e-minis were down 2.75 points, or 0.07% and Nasdaq 100 e-minis were down 84.5 points, or 0.64%. [.N]COMMODITIES AT 7:00 a.m. ET Gold futures: $1,976.8; -0.01% [GOL/]US crude: $79.65; +5.25% [O/R]Brent crude: $83.95; +5.13% [O/R]U.S. ECONOMIC DATA DUE ON MONDAYMarch S&P Global (NYSE:SPGI) Manufacturing PMI final due at 9:45 am ETMarch ISM Manufacturing PMI due at 10:00 am ETFOR CANADIAN MARKETS NEWS, CLICK ON CODES:TSX market report (TO)Canadian dollar and bonds report [CAD/] [CA/]Reuters global stocks poll for CanadaCanadian markets directory($1 = 1.3479 Canadian dollars) More

Welcome to Trade Secrets. I seem to have annoyed a few people a couple of weeks back saying that the UK’s imminent entry into the Asia-Pacific CPTPP agreement was essentially irrelevant and borderline damaging. So, with accession now more or less agreed, today I will double down and annoy them some more. But first a thought on the EU’s anti-coercion instrument (ACI), which has taken another step towards launch. The newsletter takes a break next week for the pagan fertility festival now known as Easter, but will be back on April 17.Being bashful about beating up BeijingThe European Commission, European Council of member states and parliament agreed last week on the form for the ACI, an idea I’ve been banging on about since they first thought of it. To recap: originally targeted at Donald Trump, now focused on China, the tool gives the EU great leeway to use trade and investment restrictions to hit back at a country attempting to coerce a member state or the bloc to change its policies. The big shift during intra-EU discussions was a bigger role for the member states rather than the commission in deciding whom to hit and with what. This means it’s less likely the ACI will get used, for fear of reprisals. Take the obvious example, punishing China for coercing Lithuania over relations with Taiwan. The commission might have been pretty gung-ho for retaliation, but the immediate response from German industry to Chinese boycotts of Lithuanian exports was pushing Lithuania to back down in case it hurt their supply chains. Similarly realist/mercantilist/defeatist (delete au choix) sentiments will no doubt be reflected in future discussions. The German coalition government might be less reflexively pro-China than its predecessors, but it’s still got all those lovely exports and investment to protect.As if to prove the point, commission president Ursula von der Leyen last week gave one of her clearest China-sceptic interventions yet. But there’s a whole stream of EU heads of government going to Beijing, including Emmanuel Macron in a joint visit with von der Leyen next week, who generally sound a lot less aggressive. All are watching for business opportunities and diplomatic concordance over Russia, and all are chary of starting fights they don’t have to. Discussions on using the ACI are going to be strongly politicised, more so than some of the other trade instruments the EU is creating.More reasons to discount the UK joining CPTPPSo, the UK is in the CPTPP and a new Asia-Pacific era begins for a country in the north Atlantic. The standard Brexiter argument for joining the deal is that membership anchors the UK in a dynamic fast-growing region rather than being shackled to a sclerotic continent run by an ageing rabble of sausage-scoffers. (I caricature, but you get the vibe.) Here are two more reasons that argument doesn’t really work. The UK’s comparative advantage is in services. The CPTPP doesn’t cover services very much. Nor, in fact, do many preferential trade agreements — except, of course, the EU Single Market. Some UK services exports to the Asia-Pacific region are important, such as higher education. But you don’t need a trade deal for that — you need the Home Office to stop assiduously shooting the UK university sector in the foot by cutting back on study visas. And yes, distance continues to matter for services trade.

The UK needs something to sell. As Sam Lowe points out in his Most Favoured Nation newsletter, one plus point of the deal for the UK is the relatively generous rules of origin. These will allow the UK to build supply chains with CPTPP members in, say, cars, by importing inputs from one member country and then exporting to another without being caught by pesky rules on domestic value-added. Problem: the UK doesn’t have much of a car industry with which to take advantage, and certainly not in electric vehicles. Why not? Amazing to relate, one reason is Brexit. The restrictive ROOs in the EU-UK trade deal, plus the general sense of political and business uncertainty, are endangering Britain’s car industry. UK car manufacturing recovered from its previously disastrous state from the 1980s onwards thanks to foreign investment, assiduously encouraged by Margaret Thatcher’s government, and exports to the EU. (More evidence that Thatcher, who ended up loathing the EU, and the EU, a lot of which ended up not liking Thatcher much, were actually a highly productive combination.)The UK’s flagship electric vehicle battery producer just went bust and its successor won’t be making car batteries until 2025 or beyond. Foreign car companies are citing Brexit as a reason not to invest in the UK. To compete in Asia you need super-efficient supply chains. Volkswagen has them, thanks to its sourcing strategy throughout the EU single market, which contains a variety of economies with different cost, skill and technology profiles. The UK doesn’t. If it wanted to sell into the Asia-Pacific, it would do better from within the EU. In other words: CPTPP is basically irrelevant for the UK because it doesn’t produce the kind of stuff that might benefit, and Brexit means it’s less likely to start. Still, Global Britain.Trade linksThe FT reports that China has de facto turned itself into a rescue lender in an attempt to recoup money it has lent under the Belt and Road Initiative. Alphaville’s Robin Wigglesworth gives his thoughts on the phenomenon here.Europe’s transition to electric cars is under threat because of persisting shortages of lithium. As Patricia Nilsson and Harry Dempsey report, the projected deficit may prove existential for European carmakers.The FT’s TechTonic podcast examines an attempt to use a quantum application to streamline the notoriously inefficient Port of Los Angeles.Laurence Boone, France’s Europe minister, describes the EU’s approach to economic statecraft in a seminar at the Peterson Institute.The FT’s inflation tracker shows price increases beginning to wane in many countries following the cost shock of Russia’s invasion of Ukraine.Trade Secrets is edited by Jonathan Moules More

LONDON (Reuters) – The dollar trimmed its initial gains against major pairs in the course of Monday as investors focus on diverging central bank policy, with the impact of oil production cuts complicating the inflation outlook. An announcement on Sunday of output target cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, caused oil prices to jump by around 8% in early trade in Asia on Monday. Brent crude was last trading at $84 per barrel, up $4.10 or 5.1%. [O/R]OPEC+ had been expected at a meeting on Sunday to stick to cuts of 2 million barrels per day (bpd) already in place until the end of 2023, but instead announced further output cuts of around 1.16 million bpd. “A higher oil price will put pressure on global inflation and if we assume the banking turmoil continues to reside then the markets will increasingly focus on the inflation outlook,” said Mohamad Al-Saraf, Associate, FX and Rates Strategy at Danske Bank.The dollar, which had jumped on the surprise cut to output, slowly reversed course through the European morning to trade lower as attention turned back to central bank policy.Data released on Friday showed an acceleration in core price growth in the euro area, which analysts said should strengthen the case for more rate hikes from the European Central Bank, while a measure of core inflation in the U.S. came in a shade lower than expected at 4.6%. “Interest rate differentials are the main driver for euro-dollar,” said Niels Christensen, chief analyst at Nordea. “It was a surprise to see the euro lower this morning because data released last week should be supportive of more rate hikes from the ECB,” Christensen added.Traders are pricing in around 60 basis points of further tightening from the ECB by the end of the year. In contrast, markets price in around 15 basis points of tightening from the Fed, with 40 basis points of rate cuts by December. The euro was last up 0.2% to $1.0865, after touching a one-week low of $1.0788 earlier in the session.The dollar index, which measures the currency against a basket of six currencies including the euro, was down 0.4% at 102.49. Focus this week will be on U.S. activity data and Friday’s jobs report, although many markets will be closed for the Easter holiday. “If we get firm data from the U.S., the markets may have to revise its rate hike expectations and the dollar may get some support,” Nordea’s Christensen added.The dollar rose 0.3% to 133.23 Japanese yen, after earlier hitting its highest level since March 17.Sterling was at $1.2357, up 0.2% on the day, while the dollar rose 0.1% against the Swiss franc. Oil-sensitive currencies, such as Norway’s krone and the Canadian dollar were beneficiaries of the rising oil prices. The risk-sensitive Australian dollar was last up 0.6% to $0.6724 ahead of a policy meeting at the Reserve Bank of Australia on Tuesday, with markets placing around an 85% chance the central bank will stand pat on interest rates after 10 interest rate hikes.In cryptocurrencies, bitcoin was up 0.6% at $28,340. Ethereum rose 0.5% to $1,805. More

The following examines how higher crude prices – which jumped around 5.5% on Monday following the OPEC+ decision – could impact ECB policy.IS AN OIL PRICE SURGE INFLATIONARY?A spike in energy prices was the main driver of inflation over the past year, but energy is now a drag on prices as oil is trading well below its levels of a year ago. Brent crude is down by one-fifth from this time last year and its surge on Monday leaves it in line with its levels of a month ago. “At these levels, energy prices remain a disinflation force, as the price is significantly lower than it was a year ago,” Paul Donovan at UBS Global Wealth Management said. Longer-term inflation expectations actually fell on Monday, while a short term market-based indicator barely edged up, suggesting that investors do not see a significant inflationary impact. Part of the issue is that high energy prices slow growth further out and thus become deflationary because they reduce households’ and businesses’ purchasing power. IS THERE NO IMPACT ON POLICY? There could be, mostly in the unwinding by investors of some recent bets that central banks will stop hiking rates earlier than they had planned, spooked by the recent banking turmoil and taking comfort in the quick fall in headline inflation. Higher energy prices could reinforce inflation fears and – provided there is no further financial market turbulence – prompt policymakers to emphasize the need to keep raising borrowing costs. Investors now see only another 60 basis points of rate hikes from the ECB, a downgrade compared to about 110 basis points expected just a few weeks ago. These bets on the so-called terminal rate rose only a few basis points on Monday. “The case for more ECB rate hikes is still intact,” UniCredit said in a note. “Forwards are pricing in just an 80% probability of a 25 bps rate hike (in May), which is still too low, in our view.”HOW QUICKLY WILL THE ECB REACT?Not quickly at all. The central bank acts on longer-term trends and looks through this sort of market volatility. For policy, longer-term pricing matters more, and oil futures further out rose by less than half the spot price increase. While consumers will see pump prices rise within days, the impact on inflation is more subtle. A 10% durable rise in oil prices increases overall inflation by just 0.1%.”A lot of factors influence our world and they should not be evaluated in isolation to gauge their impact on inflation and ECB decisions. We need to take all of them into account,” ECB policymaker Gediminas Šimkus said on Monday. “For rate decisions, the broader trends are much more important than a single factor.”Another key issue is that the ECB is now increasingly focused on underlying inflation, which filters out volatile energy and food costs. This measure is still accelerating, so policymakers’ main worry is not oil, but that last year’s episode of sky-high inflation has seeped into the broader economy, exerting upward pressures on wages and services.HOW WILL OTHERS REACT?The U.S. Federal Reserve is the key player. If high energy prices spook the Fed, rate-cut bets will unwind and push up the dollar. This then adds to the case for other central banks to hike, to counter the risk that inflation will be imported into their economies via commodities and other goods and services that are priced in dollars on world markets. More

HELSINKI (Reuters) – Outgoing Finnish Prime Minister Sanna Marin was left to consider her future after she conceded defeat in a tight parliamentary election on Sunday that handed her centre-right rival Petteri Orpo the right to try and form a coalition. Despite gaining three seats, Marin’s left wing Social Democratic Party (SDP) came third with 43 of parliament’s 200 seats behind Orpo’s centre-right National Coalition Party with 48 seats and the nationalist Finns on 46.That leaves Orpo with an uneasy choice of whether to court Marin’s SDP, whose economic policy he wants to replace, or Riikka Purra’s nationalists, whose climate-sceptic, eurosceptic and anti-immigration views he opposes.”Orpo has two options: a right-wing government together with the Finns Party in which case he would struggle to find enough (smaller) allies,” said Emilia Palonen, a senior researcher in political science at the University of Helsinki. “The other option is an alliance (with SDP) and certainly Sanna Marin is ready to negotiate for that,” with her party keen to defend public services and to make sure promised cuts are not excessive, she said.If Marin, the world’s youngest prime minister when she took office aged 34 in 2019, ends up outside of government, she may shift focus to a top job in Brussels, such as the ‘Spitzenkandidat’, the lead candidate of the European Social Democrats to head the European Commission, Palonen said. LIKELY NEXT PRIME MINISTERIn the run-up to the election, Orpo campaigned to “fix Finland” and its economy, vowing to curb spending and stop the rise of public debt, which has reached just over 70% of GDP since Marin took office in 2019.In turn, Marin’s Social Democrats rallied voters to support them in their defence of the Nordic welfare model of cradle-to-grave services from free education and affordable healthcare to decent pensions, against Orpo’s spending cuts.While a coalition bridging the left-right divide would not be a first of the kind in Finland, Orpo and Marin might struggle to agree on a joint programme for the economy, said Ilkka Ruostetsaari, professor in political science.”In the debates these parties’ goals were very far apart from each other and that gives a challenging starting point for the coalition talks,” he said.During Marin’s time as prime minister, Finland faced coronavirus lockdowns, the energy crisis and soaring consumer price inflation, and the country is expected to undergo a mild recession this year.    “I think it’s the challenging couple of years we have behind us now, I guess people want to see change of any sort and that might explain the result maybe a little bit,” 26-year-old architect Maija Simoska told Reuters in Helsinki on Monday. More

Investing.com — OPEC forces oil prices sharply higher with a surprise cut in output quotas. Tesla posts record deliveries but is behind Elon Musk’s target for growth this year. And UFC owner Endeavor is reportedly in talks to merge with WWE. Here’s what’s moving markets on Monday, April 3rd.1. Saudi Arabia leads shock cut in OPEC oil outputThe Organization of Petroleum Exporting Countries is to cut its oil production target by 1 million barrels a day from May, aiming to put a floor under crude prices that have fallen in recent weeks in response to an economic slowdown across developed economies.Bond yields moved higher as markets priced in a fresh boost to inflation over the course of this year.The decision reflects the difficulty of reconciling the Saudi Arabian and U.S. views of the global energy market. It comes only weeks after the U.S. abandoned plans to refill the Strategic Petroleum Reserve this year, a measure that would have supported prices in the near term.It also comes hard on the heels of a decision by the Biden administration to allow the Willow oil project in Alaska to proceed, a signal of more sensitivity to the U.S.’s own energy security needs.As always with OPEC quotas, the actual change in current supply may not match the announced change. Analysts expect the actual reduction to be nearer 700,000 b/d.U.S. crude futures, which had spiked as much as 8% on the news on Sunday, trimmed their gains as markets digested the bearish message underlying the step. By 06:00 ET (10:00 GMT), they were back below $80 at $79.60 a barrel, up 5.2% from Friday. Brent was up 5.1% at $83.94 a barrel.2. Tesla 1Q deliveries leave it on track to miss Musk’s targetTesla (NASDAQ:TSLA) hit a new record for car deliveries in the first quarter, juiced by aggressive price cuts in January.The company delivered over 422,000 cars in the three months through March, up 36% from a year earlier and up 4% from the December quarter. That falls clearly short of Elon Musk’s implicit target of over 50% growth, although growth is expected to pick up in the second half of the year as output ramps up at the company’s newer factories.The numbers come against the backdrop of spreading layoffs in higher-paying parts of the U.S. economy, which provides the greater part of Tesla’s customer base.Tesla stock fell some 2% in premarket trading in response.3. Stocks set to open mixed; ISM Manufacturing PMI dueU.S. stock markets are set to open the week mixed on the back of the surprise OPEC move, which has cast further doubt over the ability of the Federal Reserve to start easing monetary policy in response to the economic slowdown.By 05:30 ET, Dow Jones futures were up 102 points, or 0.3%, but S&P 500 futures were down 0.2%, and interest rate-sensitive Nasdaq 100 futures were down 0.7%.Stocks likely to be in focus later include Endeavor Group after reports that it’s eyeing a merger with wrestling franchise owner WWE (NYSE:WWE), and McDonald’s (NYSE:MCD), which is reportedly set to announce layoffs across its group this week.The data calendar is quiet with only the ISM manufacturing PMI due. Comparable surveys overnight disappointed in China but turned out slightly stronger than expected in the euro zone.4. UBS set to cut 36,000 jobs after CS merger; Swiss prosecutors get busyThe fallout from UBS’s shotgun marriage with Credit Suisse (SIX:CSGN) continues. A Swiss newspaper reported on Sunday that UBS (SIX:UBSG) intends to cut up to 36,000 jobs as it right-sizes after being forced by regulators to swallow its cross-town rival in March.The job cuts are most likely to be concentrated in the investment bank unit, which Credit Suisse was in any case in the process of shrinking. UBS had shrunk its investment banking and capital markets businesses after its flirtation with a collapse in 2008/9.Over the weekend, Switzerland’s Federal Prosecutor said it will investigate if the takeover of CS – which required a hasty rewriting of Swiss law – had entailed any possible criminal offenses. The announcement makes for a piquant prologue to Credit Suisse’s annual shareholder meeting, which is due to take place on Tuesday.5. Ukraine war hurts European governing parties; bomb blast claims Russian propagandistThe pressure of the year-long war in Ukraine took a toll on ruling parties in Europe in two elections over the weekend.Finland’s left-leaning Prime Minister Sanna Marin, lost power after a surge in support for parties on the center-right and right-wing, while a pro-Russian party made large gains in elections in Bulgaria, making the formation of a new government more complicated.In Russia itself, authorities arrested Darya Trepova, an antiwar activist, in connection with a bomb blast that killed Vladlen Tatarsky, a prominent Russian military blogger, on Sunday. Ukraine’s government said the incident was driven by internal tensions within Russia.Tatarsky had achieved notoriety as a war propagandist, famously boasting in one video after the annexation of four Ukrainian provinces last year that: “We’ll defeat everyone, we’ll kill everyone, and we’ll rob everyone we need to. Everything will be just as we like it.” More

Ports in the rest of Asia will need significant investment to match the capacity of Chinese harbours, according to analysis that shows how western businesses could struggle to loosen ties with the world’s largest exporter. US and European companies have signalled their intent to shift some of their manufacturing from China to India and countries in south-east Asia, amid rising geopolitical tensions between Washington and Beijing. However, shipping industry figures caution that other countries in the region will have to invest in ports infrastructure as well as manufacturing capacity to handle the mega-container ships that drive world trade.More than 80 per cent of goods are transported by ship, according to the UN. But data from research group Drewry shows that other Asian manufacturing hubs have a dearth of harbours able to accommodate the largest ships that have become essential for transporting goods from east to west.While China has 76 port terminals able to support large ships carrying more than 14,000 20ft containers, south and south-east Asian countries have just 31 between them. Large vessels make up about two-thirds of the shipping capacity for services between east Asia and Europe, according to data provider MDS Transmodal.Mike Garratt, chair of MDS Transmodal, said it was “a no brainer” that ports in other Asian emerging markets would struggle to process China’s container volumes without significant investment. Glenn Koepke, general manager at supply chain monitoring group FourKites, said: “The power of China’s manufacturing and ability to produce and ship goods cannot be matched.”The gap between Chinese ports and their rivals underlines how investment by Beijing has enabled China’s dominance as the world’s manufacturer-in-chief. The country invested at least $40bn between 2016 and 2021 in coastal port infrastructure, according to Shenzhen-based Qianzhan Industrial Research Institute.The investment has meant the equivalent of 275mn 20ft containers could be handled at Chinese ports last year, up to 80 per cent more than the amount processed annually by all countries in south and south-east Asia combined, according to figures from data group Dynamar and the UN.

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Garratt said “a great deal of investment” was required from other Asian emerging markets to catch up with China, adding that it generally takes port operators up to five years to build a new terminal.Shipping groups have also acknowledged the industry faces challenges helping companies shift their supply chains away from China.Dheeraj Bhatia, senior managing director for Hapag-Lloyd in the Middle East, said that while customers were expecting to import more from India, the country needed to do “a lot more” in terms of investment in ports capacity “to take advantage”. “I don’t think this is going to be a quick shift,” Bhatia said. “It will take several years.”In January, Hapag-Lloyd announced plans to acquire a 40 per cent stake in Indian operator JM Baxi Ports & Logistics.Rodolphe Saadé, chief executive of CMA-CGM, told the Financial Times in early March that it could take “five or 10 years” for India and south-east Asia to build terminals for large ships and “play a different, bigger role”.China itself has invested in infrastructure in Asian economies, such as Sri Lanka and Pakistan, through its Belt and Road Initiative. Chen Yipeng, deputy general manager at COSCO Shipping Ports, said last week that the Chinese state-owned group was aware of companies planning to shift to south-east Asia and was “actively looking for opportunities”.A significant increase in exports from elsewhere in Asia would also require shipping patterns to be redrawn.China’s largest port, Shanghai, runs 51 weekly services to North America — more than twice as many as any south or south-east Asian hub, according to MDS Transmodal. Vietnam’s Ho Chi Minh, south-east Asia’s best-connected port to North America, runs 19 services a week.South-east Asian countries could help “mitigate risks” associated with China, but “we don’t anticipate major swings in the long term”, said FourKites’ Koepke. Western-based multinationals are still planning to reduce their reliance on China, however. According to a European Chamber of Commerce in China survey at the height of the government’s Covid lockdowns in 2022, almost a quarter of respondents were considering shifting current or planned investments in China to elsewhere.Dale Buckner, chief executive of Global Guardian, said the security consultancy is helping a large company withdraw from China, with several people and production lines to be moved over the next three years. He said the business planned to shift manufacturing to Latin America as well as the Philippines.Widespread sanctions on Russia have only deepened anxieties about a similar response if China were to invade Taiwan.Moscow’s full-scale invasion of Ukraine had taught businesses a “key lesson”, Buckner said. “How do we protect ourselves as that relationship between China and the west is decoupling? [A] long-term worst-case scenario is you could lose your supply chain with China.”Analysis by AlphaSense showed that corporate America is increasingly citing deteriorating Sino-US relations in the risk sections of their annual filings with the Securities and Exchange Commission.“Unsurprisingly, we reached a new high this year with general mentions of ‘geopolitical uncertainty’,” said Nick Mazing, AlphaSense’s director of research.Additional reporting by Yuan Yang in London More