Aurelia Butler

LONDON (Reuters) – The euro was on track for its biggest one-day drop since September as German inflation eased in December, while the dollar rose to a two-week high with focus turning to the Federal Reserve’s minutes from the December meeting.The euro was last down around 1.3% against the dollar at $1.0526, its lowest level since Dec. 12 and on track for its biggest daily fall since Sept. 23 last year. German state inflation data showed an easing of price pressures in December, indicating national inflation may also have slowed for a second month due in part to the government’s one-off payment of household energy bills.”The EUR is under-performing somewhat on the session, with the weaker than expected data likely weighing on sentiment,” said Scotiabank chief currency strategist Shaun Osborne in a note. “Near-term, corrective EUR losses could extend to the 1.03/1.04 region before renewed buying pressure develops,” Osborne added. He noted that the German inflation figures would unlikely deter the ECB from pursuing a relatively aggressive tightening policy in the next few months.Preliminary pan-German December data is due at 1300 GMT.Investor attention this week is also on the Fed’s December meeting minutes scheduled for release on Wednesday, with traders looking for clues to what rate path is likely to be taken. The U.S. central bank raised interest rates by 50 basis points last month after delivering four consecutive 75-basis point hikes, but has said it may need to keep interest rates higher for longer to tame inflation. “The Fed was hawkish but the market didn’t buy into it,” said Nordea chief analyst Niels Christensen. “The market is pricing in cuts towards the end of this year and that’s not the message from the Fed as we see it,” Christensen added.The dollar index, which measures the U.S. unit against six major currencies including the euro, was last up 1.1% at 104.82. The index rose 8% last year in its biggest annual jump since 2015 on the back of the Fed raising interest rates to tackle inflation.The yen, which hit a seven-month peak during Asian trading hours, was last trading a touch softer at 130.83 per dollar.Speculation that the Bank of Japan was set to start shifting from its ultra-loose policy flared in December when the central bank widened the yield cap range on 10-year Japanese government bonds.This was further fuelled by a Nikkei report on Saturday that the BOJ was considering raising its inflation forecasts in January to show price growth close to its 2% target in fiscal 2023 and 2024, which helped push the yen to its strongest level against the dollar since June 1 last year.”The move by the BOJ was definitely a game changer and the reaction was very swift,” Nordea’s Christensen said. “Everything is pointing to less easy policy in Japan and that will keep dollar-yen to the downside.” The Japanese currency lost 12% against the dollar in 2022, with the authorities stepping into the market in September to prop it up for the first time since 1998 and again in October, when it weakened to a 32-year low of 151.94 per dollar. Sterling was last trading at $1.1933, down 1% on the day, briefly hitting its lowest level since Nov. 30 last year. Meanwhile, China’s factory activity declined for the third straight month in December and at the sharpest pace in nearly three years as COVID-19 infections swept through production lines after Beijing’s abrupt reversal of anti-virus measures.The Australian and New Zealand dollars, which are sensitive to the Chinese growth outlook, both fell around 1.5% against the U.S. dollar. More

China’s factory activity contracted in December, according to a private survey, highlighting the economic costs of the country’s abrupt abandonment of its strict zero-Covid regime as it battled a nationwide wave of infections.The Caixin purchasing managers’ index, a private gauge of operating conditions in China’s manufacturing sector, showed a reading on Tuesday of 49 for December, its lowest level since September and down from 49.4 in November. China’s official PMI data, released over the weekend, showed a steeper decline in economic activity. Its manufacturing and services gauges came in at 47 and 41.6, respectively, both falling to their lowest levels since early 2020 at the beginning of the Covid-19 pandemic. A reading below 50 indicates a contraction, while one above 50 signals an expansion. China’s economy, which was until recently languishing under severe pressure from restrictions designed to keep the virus at bay, is now grappling with the impact of a sudden reopening and spiralling outbreaks in major cities.As many as hundreds of millions of people may have been infected with Covid by late December, according to internal government estimates, just weeks after authorities began to relax President Xi Jinping’s anti-Covid measures. In Beijing and other major cities, hospitals have been overwhelmed by a wave of elderly and vulnerable patients, while supplies of fever medication and antivirals have run low. Carlos Casanova, senior economist at UBP in Hong Kong, suggested that while the pandemic restrictions were an initial drag on growth in the fourth quarter, the “explosion in Covid cases” was the more significant factor in the weak PMI data.“The key message from the PMI data is that the reopening wave is proving very disruptive,” said Julian Evans-Pritchard, chief China economist at Capital Economics. “The market euphoria from the shift away from zero-Covid sort of overlooked how disruptive the transition would be.”The virus will be officially downgraded on January 8, when international arrivals will no longer be required to quarantine.The December weakness in manufacturing activity — which marked a fifth consecutive month of declines for the Caixin manufacturing PMI — followed a long period of economic fragility. Other metrics, including retail sales, a crucial measure of consumption, also deteriorated towards the end of 2022. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks has slipped 1.5 per cent over the past month, though it has edged higher in the past week since the announcement of the end of zero-Covid.China’s economy is set to miss a 5.5 per cent annual growth target for 2022 — already the lowest in decades — with economists polled by Bloomberg forecasting full-year growth of just 3 per cent.

In addition to the wave of Covid infections, policymakers are wrestling with a property crisis that has weighed on the economy for more than a year as well as slowing exports, which supported growth during the earlier stages of the pandemic.The Caixin survey nonetheless held a slim silver lining for the economy’s outlook, with factory managers reporting increased confidence for the year ahead as the rapid spread of cases drove expectations of an improvement after the peak of the wave passed.“Almost certainly by February things will be past the worst and will start to rebound,” said Evans-Pritchard. More

More than two years after the UK and EU completed their post-Brexit trade deal, the two sides are still locked in a bitter disagreement over the implementation of trading arrangements for Northern Ireland.But with Rishi Sunak, prime minister, now determined to reset relations with Europe and the 25th anniversary of the landmark Good Friday Agreement that secured peace looming in April, political pressure is building on all sides to settle their differences.After several months of technical pre-negotiations, London and Brussels are poised for a final diplomatic heave to secure a deal that could restart Northern Ireland’s stalled power-sharing executive and help to normalise EU-UK relations.However, despite warming diplomatic mood music, securing a lasting settlement will require Sunak to thread the needle through a knot of intense political and technical challenges that have defeated all his post-Brexit predecessors. The Financial Times looks at what needs to be done.Fixing the border in the Irish Sea To avoid the return of a north-south border in Ireland, Boris Johnson agreed in the Northern Ireland protocol that the region would continue to follow EU rules for goods after Brexit. This necessitated a trade border in the Irish Sea. Unionists say this cuts them off from the rest of the UK and creates bureaucracy that deters small businesses in Great Britain from trading with Northern Ireland.Fixing this will require “de-dramatising” the border by reducing the number of physical checks, but the EU says this can only be done if the UK provides sufficient data on all goods flowing from Great Britain to Northern Ireland. A computer system to do this is being tested. But creating data sets requires businesses in Britain to fill in forms, which is what the UK is trying to avoid. Resolving this dilemma to the satisfaction of the Democratic Unionist party — the largest pro-UK party in Northern Ireland, which has paralysed local politics since May to press for sweeping changes to the protocol — will be the first step towards a deal.The negotiators must then resolve the question of whose regulations — those of the UK or the EU — goods circulating in Northern Ireland must comply with, and try to find mechanisms to allow the region’s institutions to be better consulted over the future EU regulations it must accept.Lastly, will come the question of “governance”. Since Northern Ireland must follow EU rules for goods, VAT and subsidy control, the agreement is policed by EU’s top court, the European Court of Justice — Conservative Eurosceptics say that is an affront to UK sovereignty. This will be a very difficult circle to square, but if a deal is close, some EU diplomats and officials say that a way could be found to “soften the edges” of ECJ’s role, even if it cannot be completely removed.Selling a deal in WestminsterThe pro-Brexit European Research Group helped to put Liz Truss into Downing Street and her humiliating failure as prime minister was a serious blow to the Eurosceptic cause.Nevertheless Sunak, with a working majority in the House of Commons of 69, knows he cannot afford to alienate dozens of MPs in his party’s troublesome pro-Brexit wing by “selling out” to Brussels.To manage the ERG, Sunak has installed Brexiter Chris Heaton-Harris as Northern Ireland secretary, and brought back Oliver Lewis, who helped to negotiate Boris Johnson’s Brexit deal, as an adviser.David Jones, deputy chair of the ERG, said that the “fundamental” issue in the talks with the EU was ending the jurisdiction of the ECJ from UK territory. Sunak’s challenge is to find a legal fudge that satisfies both sides.“Our position is we have now left the EU and it’s about sovereignty,” Jones said. “The question is whether the ECJ’s judgments have binding force in the UK.”Jones claims the EU would be ready to compromise and says it would be perfectly acceptable for British courts to take account of ECJ rulings. “The issue is whether we’re bound by those decisions,” he said.Getting Northern Ireland’s unionists to compromise There is no easy climbdown for the DUP, which has prevented the power-sharing Stormont executive and legislative assembly from working since elections in May in protest at the protocol.It feels that its hardball tactic is working: indeed, London and Brussels now agree that no deal is possible without the backing of the unionist community, and polls show its support has increased in Northern Ireland.The DUP, runner-up to the pro-unity Sinn Féin party last May, says London has a simple choice: the protocol or Stormont. It has set seven tests to measure any future deal — including no Irish Sea border, no checks on goods from Britain staying in Northern Ireland, and a say for the region’s people in making laws that affect them. While these are not all seen as politically achievable in London, the DUP insists that devolved institutions will remain in limbo until the protocol is changed to its liking or Westminster passes a bill (currently on hold in the House of Lords) giving ministers powers to scrap key parts of it.The Easter anniversary of the 1998 Good Friday Agreement, which ended the three decades-long conflict known as the Troubles, means London is particularly keen to get a deal done. But there is a growing feeling that the DUP will continue to hold out, raising the prospect of a yet another long hiatus for devolution in Northern Ireland.Working with Europe to seal a dealEU officials and diplomats are willing to compromise and believe the UK is serious in wanting to find a solution to the impasse. “Work at technical level is going better than it was so we hope that the preference for a negotiated solution is genuine,” said one. Maroš Šefčovič, the Brexit commissioner, has offered to reduce checks between Britain and Northern Ireland to a minimum but as trade outside the EU’s borders becomes harder — the US is becoming more protectionist and the Russian market is off limits for many industries — the bloc’s desire to protect the single market has intensified. Many EU capitals are clear that they cannot allow an unprotected border between the single market and a third country. Failure to enforce any checks on the Irish Sea would also leave Brussels open to legal challenge by companies that believe competitors in Northern Ireland have an unfair advantage.While there is little evidence so far of dangerous food or faulty products slipping across the Irish Sea, there have been some reports of counterfeit electric goods clearly destined for the EU single market being shipped to Northern Ireland. Diplomats also say there can also be no deal until London abandons the Northern Ireland protocol bill, which would unilaterally abolish much of the protocol. “The UK has to take the loaded gun off the table,” said one.However, they weigh the prospect of a less satisfactory deal against the instability in Northern Ireland, where the bloc has invested billions in the peace process. More

The job cuts have been implemented at Douyin, the Chinese equivalent of TikTok with about 600 million daily users, as well as the company’s gaming and real estate operations, SCMP reported citing sources.The job cuts represent a small percentage of ByteDance’s workforce, the report added.ByteDance did not immediately respond to Reuters’ request for comment. More

Investing.com — Stocks start 2023 on a positive note, but the dollar is also bid higher from oversold levels. Tesla delivers fewer cars than expected in December. China’s COVID death toll continues to rise but there are tentative signs of improvement. German headline inflation looks set for a big drop in December, and natural gas futures hit their lowest in 10 months as warm weather cuts European demand. Crypto’s 2022 winter shows no sign of ending though. Here’s what you need to know in financial markets on Tuesday, 3rd January. 1. Dollar surges but risk appetite seems intact; German inflation fallsGlobal markets had a fairly confused overnight session, as the dollar rose along with both bonds and equities, in contrast to normal trading patterns.European and Asian stocks were broadly higher on hopes that the COVID-19 wave in China may soon peak and allow a recovery in Chinese economic activity to be priced in. The Hang Seng index in China finished at a four-month high, while European stock indices gained by between 1% and 2%.  Europe was supported by another big drop in headline inflation in Germany, thanks to government measures capping household energy prices.Despite the strong performance of risk assets, the dollar index – which tracks the greenback against a basket of advanced economy currencies – rose by over 1.2%, bouncing from levels that many had seen as oversold (at least on a short-term basis) toward the end of last year. That was due not least to gains against the euro after the German inflation numbers.2. China’s COVID struggle near turning point? China’s economic performance stayed in the spotlight as various reports suggested ongoing high levels of deaths from COVID-19 but, at the same time, tentative signs that the wave may be peaking.Officials in the city of Beijing said casualty numbers had fallen on Monday, while a revival in mobility data suggested that life was starting to return to normal in some other cities. Local media reported that Apple (NASDAQ:AAPL) supplier Foxconn (TW:2354) is now back operating its massive factory in Zhengzhou – the scene of some of the worst COVID-related disruptions – at 90% of capacity.That couldn’t stop December’s data from being bad, however. The Caixin manufacturing index stayed below the key 50 level for a fifth straight month in December.3. Stocks set to open 2023 higher despite Tesla disappointmentU.S. stock markets are set to open the year higher after a muted end to 2022, with all three indices set to recoup their December 31st losses and then some.By 06:25 ET (11:25 GMT), Dow Jones futures were up 240 points, or 0.7%, while S&P 500 futures were up 0.8% and Nasdaq 100 futures were up 0.9%.Stocks likely to be in focus later include Tesla (NASDAQ:TSLA), which opened lower in premarket after it announced lower-than-expected delivery numbers for December (albeit that still capped a record year for output by the EV maker). Also in focus may be Univar (NYSE:UNVR), after German rival Brenntag (ETR:BNRGn) said it had ended talks about a possible merger, and General Electric (NYSE:GE), whose healthcare unit is set for its market debut this week.4. Silbert-Winklevoss row turns ugly The nightmare of 2022 continues for crypto. Two of the biggest whales left in the space clashed publicly on Monday over the paralysis at Digital Currency Group’s Genesis, which suspended client withdrawals from its Earn program in November.Cameron Winklevoss, co-founder of the Gemini investment platform which has substantial amounts of money at risk in Genesis Earn, accused crypto tycoon Barry Silbert of using Genesis funds to shore up his affiliated businesses, notably the Grayscale Bitcoin Trust ETF. Winklevoss called on Silbert to resolve the issue by January 8th. He didn’t say what he would do if Silbert missed that deadline.Silbert rejected Winklevoss’s accusations, saying his Digital Currencies Group is current on all its loans and doesn’t have to pay Genesis any interest until May. GBTF is set to open close to a two-year low, while Bitcoin remains stuck below $17,000 on sharply reduced trading levels.5. Oil falls on recession warning, natgas swoons as Europe supply fears easeCrude oil prices fell amid concerns for the global demand outlook, with a recession warning from International Monetary Fund managing director Kristalina Georgieva capturing the tone.”We expect one third of the world economy to be in recession” this year, Georgieva told the CBS news program Face the Nation. U.S. crude futures fell 1.4% to $79.13 a barrel, while Brent fell 1.4% to $84.69 a barrel.However, the bigger action was in natural gas, where a new set of weather forecasts predicted that Europe would continue to enjoy unseasonably warm temperatures, further easing concerns about a supply crisis – at least until next winter. Natural gas futures are now below their pre-Ukraine invasion levels in both the U.S. and Europe. More

On Valentine’s Day in 1945, US president Franklin Delano Roosevelt met Saudi King Abdul Aziz Ibn Saud on the American cruiser USS Quincy. It was the beginning of one of the most important geopolitical alliances of the past 70 years, in which US security in the Middle East was bartered for oil pegged in dollars. But times change, and 2023 may be remembered as the year that this grand bargain began to shift, as a new world energy order between China and the Middle East took shape.While China has for some time been buying increasing amounts of oil and liquefied natural gas from Iran, Venezuela, Russia and parts of Africa in its own currency, President Xi Jinping’s meeting with Saudi and Gulf Co-operation Council leaders in December marked “the birth of the petroyuan”, as Credit Suisse analyst Zoltan Pozsar put it in a note to clients. According to Pozsar, “China wants to rewrite the rules of the global energy market”, as part of a larger effort to de-dollarise the so-called Bric countries of Brazil, Russia, India and China, and many other parts of the world after the weaponisation of dollar foreign exchange reserves following Russia’s invasion of Ukraine.What does that mean in practice? For starters, a lot more oil trade will be done in renminbi. Xi announced that, over the next three to five years, China would not only dramatically increase imports from GCC countries, but work towards “all-dimensional energy co-operation”. This could potentially involve joint exploration and production in places such as the South China Sea, as well as investments in refineries, chemicals and plastics. Beijing’s hope is that all of it will be paid for in renminbi, on the Shanghai Petroleum and Natural Gas Exchange, as early as 2025.That would mark a massive shift in the global energy trade. As Pozsar points out, Russia, Iran and Venezuela account for 40 per cent of the world’s proven oil reserves, and all of them are selling oil to China at a steep discount. The GCC countries account for another 40 per cent of proven reserves. The remaining 20 per cent are in north and west Africa and Indonesia, regions within the Russian and Chinese orbit.Those who doubt the rise of the petroyuan, and the diminution of the dollar-based financial system in general, often point out that China doesn’t enjoy the same level of global trust, rule of law or reserve currency liquidity that the US does, making other countries unlikely to want to do business in renminbi. Perhaps, although the oil marketplace is dominated by countries that have more in common with China (at least in terms of their political economies) than with the US. What’s more, the Chinese have offered up something of a financial safety-net by making the renminbi convertible to gold on the Shanghai and Hong Kong gold exchanges.While this doesn’t make the renminbi a substitute for the dollar as a reserve currency, the petroyuan trade nonetheless comes with important economic and financial implications for policymakers and investors.For one thing, the prospect of cheap energy is already luring western industrial businesses to China. Consider the recent move of Germany’s BASF to downsize its main plant in Ludwigshafen and shift chemical operations to Zhanjiang. This could be the beginning of what Pozsar calls a “farm to table” trend in which China tries to capture more value-added production locally, using cheap energy as a lure. (A number of European manufacturers have also increased jobs in the US because of lower energy costs there.)Petropolitics come with financial risks as well as upsides. It’s worth remembering that the recycling of petrodollars by oil-rich nations into emerging markets such as Mexico, Brazil, Argentina, Zaire, Turkey and others by US commercial banks from the late 1970s onwards led to several emerging market debt crises. Petrodollars also accelerated the creation of a more speculative, debt-fuelled economy in the US, as banks flush with cash created all sorts of new financial “innovations”, and an influx of foreign capital allowed the US to maintain a larger deficit.That trend may now start to go into reverse. Already, there are fewer foreign buyers for US Treasuries. If the petroyuan takes off, it would feed the fire of de-dollarisation. China’s control of more energy reserves and the products that spring from them could be an important new contributor to inflation in the west. It’s a slow-burn problem, but perhaps not as slow as some market participants think.What should policymakers and business leaders do? If I were chief executive of a multinational company, I’d be looking to regionalise and localise as much production as possible to hedge against a multipolar energy market. I’d also do more vertical integration to offset increased inflation in supply chains.If I were a US policymaker, I’d think about ways to increase North American shale production over the short to medium term (and offer Europeans a discount for it), while also speeding up the green transition. That’s yet another reason why Europeans shouldn’t be complaining about the Inflation Reduction Act, which subsidises clean energy production in the US. The rise of the petroyuan should be an incentive for both the US and Europe to move away from fossil fuels as quickly as they [email protected] More