Aurelia Butler

(Reuters) – Euro zone government bond yields fell on Tuesday while money markets scaled back their expectations about European Central Bank’s rate hikes amid concerns over the economic outlook due to surging energy prices and potential gas supply cuts.Physical gas flows through the Nord Stream 1 pipeline from Russia to Germany fell to zero on Monday.Some analysts forecast a quick monetary tightening in 2022 and a potential stop in 2023 as they expect the euro area economy to slow down significantly due to the impact of surging energy prices and a possible reduction in gas supply.The terminal rate for November 2023, according to the short-term euro rate (ESTR) forward, was at around 1.2% from 2.6% hit in mid-June.Nomura expects the ECB to raise rates by 175 basis points by March 2023. But as an expected recession drags on, they see a 25 basis-point rate cut to follow in June.Germany’s 10-year government bond yield fell 13 basis points (bps) to its lowest in almost a week at 1.179%. It hit its lowest since May 31 at 1.072% last week.Money markets are currently pricing 137 bps of ECB rate hikes in 2022, down from 145 bps on Monday, and 180 bps worth of tightening by the end of 2023 from around 195 bps the day before.”We see room for the Bund yields to decline to the bottom of the recent range,” said Mohammed Kazmi, portfolio Manager at Union Bancaire Privée (UBP).Peripheral bond prices — which move inversely with yields — slightly underperformed their peers on concerns about the ECB’s so-called anti-fragmentation tool and Italian politics.Italy’s 10-year bond yield fell 10 bps to 3.202%, while the spread between Italian and German 10-year yields widened by 3.5 bps to 208 bps. Portuguese and Spanish yield spreads widened by 2.5 and 3 bps to 107.5 and 108.3 bps. GRAPHIC: Yield spreads https://fingfx.thomsonreuters.com/gfx/mkt/dwvkrbdjnpm/Pasted%20image%201657622676396.png The ECB pledged to buy more bonds from debt-laden countries such as Italy to contain the widening spread between their borrowing costs and Germany’s that might hamper monetary policy transmission across the bloc.Hawkish policymaker Joachim Nagel said the ECB should model its bond-buying scheme on the one announced during the debt crisis, namely the Outright Monetary Transactions programme (OMT) which allows the ECB to buy unlimited amounts of bonds from countries that apply for a bailout from the European Stability Mechanism.He added on Tuesday that current differences in yields were “fundamentally justified” until proven otherwise.”Nagel’s remarks don’t help, but I don’t think there’s any real news about the anti-fragmentation tool. If markets were disappointed, we would see much higher spreads as markets would test the ECB’s resolve,” UBP’s Kazmi argued.Meanwhile, Italian Premier Mario Draghi met on Monday with Italy’s president to discuss the future of his government amid simmering tensions with coalition member the 5-Star Movement.”There’s a bit of political noise affecting spreads with Five Star providing less support for the Draghi government. Our base-case scenario is that Draghi will stay as a prime minister, without snap elections this year,” he added. More

Surgical masks and paracetamol for the fight against Covid-19. Microchips from Asia for European car manufacturers. Sunflower oil from Ukraine for restaurants and households. All have been in short supply at times since the start of the pandemic. But now — for French food lovers — it’s getting serious: the country is running out of mustard. “I eat lots of mustard,” French musician Didier Marouani told me with barely concealed panic, “but there’s no mustard in Paris. I’ve been to 25 shops, and we’ve found nothing — well, there is some mustard, but it’s not the good stuff.” A visit to my nearest Monoprix supermarket confirms the gravity of the crisis. No mustard at all. And while the local corner store has two kinds on sale, one is bright yellow Colman’s mustard imported from England and the other is a “sweet-and-sour” concoction mixed with honey. There is no sign of the smooth Dijon mustard so prized by the French — Amora and Maille are popular brands and, like Colman’s, both belong to Unilever. This is the condiment with which we used to eke out our cash as teenagers by slathering it on endless slices of baguette as we hitchhiked around France in the 1970s. It’s the same story as far afield as the Mediterranean. As I write this I have just received a WhatsApp message from a concerned colleague: “Guys. Corsica has run out of mustard too. It’s the talk of the town.”The mustard makers of Burgundy say they have been hit by a triple catastrophe that has cut supplies of the seeds of Brassica juncea, the so-called “brown mustard” species used for the Dijon product. First, there was bad weather in Burgundy itself and in Canada linked to climate change, particularly a North American heatwave last year that cut the crucial Canadian mustard seed exports by half. Then there was the Russian invasion of Ukraine, which had previously been a fallback source of supply. And last, importers faced the global Covid-related shipping and transport logjams.“We didn’t think we would have such a shortage,” says Luc Vandermaesen, managing director of producer and exporter Reine de Dijon, who also heads the Burgundy Mustard Association. Wholesale prices for the seeds were double or triple the normal level for some shipments, and retail prices have risen nearly 10 per cent in the past year. Vandermaesen says the financial impact for consumers is minimal given that the average person in France spends just €4.80 a year on mustard, but if the shortage persists it could deprive the French of a vital cooking ingredient. Bertrand Chauveau, chef at the Garance gastronomic restaurant in the smart 7th arrondissement of Paris, explains to me — a culinary ignoramus — that Dijon mustard is used not just for salad vinaigrettes but also to flavour rémoulade, the spicy mayonnaise that comes with cold lobsters, crabs and prawns. “It’s fundamental to French cuisine,” he says. “It’s what makes the mayonnaise yellow.” And I had always assumed it was the egg yolks.Chauveau and other chefs have recently faced problems with supplies of everything from aluminium foil to products containing sunflower oil, but he has not so far run short of mustard for his kitchen because he uses high-end, artisanal brands made from French-grown seeds. Ordinary shoppers, meanwhile, have been learning all about the “heat dome” that ruined the Canadian crop and discovering that “Dijon mustard” does not mean the seed itself has to come from Burgundy because it is not an appellation d’origine contrôlée. Marouani, meanwhile, has found a potential saviour in Ukraine, where a musical protégé of his once performed at a concert in Kherson with Marouan’s band Space, which has a big following in eastern Europe. “He’s my musical son and he says he’ll get me mustard from Ukraine — and send it by DHL,” says Marouani.In the longer term, Vandermaesen hopes that an agricultural research programme will result in higher yields and greater resistance to the frost and insects that have ravaged recent Burgundy mustard crops. “We are very confident that French production will rise in the years ahead,” he says, “but we are going to have some difficult months.” [email protected] More

TOKYO (Reuters) -U.S. Treasury Secretary Janet Yellen on Tuesday acknowledged the Japanese yen’s substantial depreciation in recent weeks, but said the U.S. view remained that currency intervention was warranted only in “rare and exceptional circumstances.”Yellen told reporters after separate meetings with Japanese Finance Minister Shunichi Suzuki and Bank of Japan Governor Haruhiko Kuroda that they had reviewed the yen’s depreciation, but did not discuss intervention or related policy.Yellen and Suzuki pledged in a joint statement after their more than hour-long discussion to continue to consult closely on foreign exchange markets and “cooperate as appropriate” on currency issues, in line with their commitments as part of the Group of Seven and Group of 20 economies. The dollar slid against the yen to stand around 136.89 on Tuesday, after touching a fresh 24-year high of 137.75 on Monday. Suzuki told reporters that he shared with Yellen Japan’s concerns about the yen’s sharp weakening and she listened earnestly.Yellen told reporters that Washington remained convinced that countries such as Japan, the United States and other members of the Group of Seven rich nations should have market-determined exchange rates and intervention was warranted “only in rare and exceptional circumstances.”Yellen said she reiterated that position during her meetings with the Japanese officials, and that G7, G20 commitments involved “communicating closely about exchange rate developments.”Asked if the yen’s depreciation was due to Russia’s war in Ukraine and its fallout on the global economy, or more due to macroeconomic factors, Yellen noted that Japan continued to have “yield curve control and zero interest rate policy” at a time when the Federal Reserve was tightening monetary policy.As a result, interest rate differentials – which tended to systematically strengthen the dollar and weaken other currencies – had become “quite large,” she said, although the yen’s losses had outstripped what one might expect based on the gap.There was, she noted, “speculation in the market” as well. More

Investing.com — The euro hits parity with the dollar for the first time in 20 years as German economic sentiment collapses. Twitter’s lawyers get to work on earning their money while Elon Musk trades barbs with Donald Trump. Stocks are set to open lower as recession fears continue to dominate, but Pepsi reports better-than-expected earnings. The race to be British Prime Minister cranks up and OPEC and the U.S. government present their respective views on the oil market. Here’s what you need to know in financial markets on Tuesday, July 12.1. Euro hits parity against dollar as ZEW tumblesThe euro traded at $1 – according to some trading systems – for the first time in 20 years, as fears of an energy-driven recession continued to undermine the single currency.However, it failed to hold below that level, apparently supported with intense vigor by traders defending barrier options positions.That was despite the first of the month’s important sentiment surveys from Germany showing that business expectations among economists fell to their lowest level since the depths of the euro crisis in 2011. The ZEW economic sentiment indicator fell to -53.8 from -28.0, a much steeper drop than forecast. The survey came a day after Russia stopped all gas shipments to its largest customer in Europe, as a planned maintenance period compounded an earlier cut that the German government said was politically motivated.2. Twitter’s riposte overshadowed by Trump-Musk snipingTwitter’s lawyers responded robustly to claims by Elon Musk that his decision to abandon the proposed $44 billion takeover was caused by a “material adverse effect”, exonerating him from the obligation to go through with the deal.“Twitter has breached none of its obligations under the agreement, and Twitter has not suffered and is not likely to suffer a company material adverse effect,” according to a letter drafted by its new legal team.Twitter (NYSE:TWTR) stock fell 11% on Monday to its lowest since March, before Musk made his initial offer, while Tesla (NASDAQ:TSLA) stock fell some 6.5%. Both stocks edged lower in premarket on Tuesday amid concerns that neither side will emerge from the looming legal battle with its reputation undamaged. Elsewhere, Donald Trump decried Musk’s “rotten” bid and talked up his own social media platform, calling Musk a “bulls**t artist”. Musk replied – on Twitter, naturally – that Trump should “hang up his hat & sail into the sunset”.3. Stocks set to open lower; Pepsi earnings in focus; Barkin speech eyedU.S. stock markets are set to open lower again, with recession fears still paramount despite the evidence of a still-strong economy in Friday’s jobs report. Worrying reports of a further rise in COVID cases in Shanghai that could escalate into a fresh lockdown are also weighing on sentiment.By 06:20 AM ET, Dow Jones futures were down 193 points, or 0.6%, while S&P 500 futures were down 0.5%, and Nasdaq 100 futures were down 0.4%.Stocks likely to be in focus later include Pepsico (NASDAQ:PEP), which outperformed in premarket after reporting better-than-expected quarterly numbers, and Gap (NYSE:GPS), which parted ways with its CEO Sonia Syngal after it was caught cold by the sudden slowdown in consumer demand this spring.Richmond Fed President Tom Barkin is due to speak at 12:30 PM ET.4. Tories at the starting gateThe race to succeed Boris Johnson as Prime Minister of Britain gets going in earnest later, with candidates required to drum up the support of 20 sitting Conservative Members of Parliament to make it on to the first-round ballot later this evening.  A second ballot is slated for Wednesday which will require the support of 30 of the Tory party’s 380-odd lawmakers.Earlier, former Chancellor of the Exchequer Rishi Sunak won the support of Deputy Prime Minister Dominic Raab and former party chairman Grant Shapps. However, he faces stiff resistance due to his active role in bringing Johnson down and his insistence on not making unfunded tax cuts – something that most of the other candidates are more relaxed about.The election process is due to be wrapped up by September 5, with a two-way choice presented to the national party membership if MPs can’t agree on a leader by themselves.5. Oil falls ahead of OPEC, STEO reports; WASDE, API numbers dueCrude oil prices fell, following the broader risk-off move that also took other industrial commodities lower. Risk assets such as crypto also suffered, with Bitcoin falling back below $20,000.By 06:30 AM ET, U.S. crude futures were down 2.5% at $101.45 a barrel, while Brent futures were down 2.2% at $104.73 a barrel.The Organization of Petroleum Exporting Countries will update its forecasts for global supply and demand in its monthly report later, while the U.S. government’s Short-Term Energy Outlook comes out at 12:00 PM ET and the American Petroleum Institute’s weekly inventory data are out at 04:30 PM ET.The Agriculture Department’s latest crop updates will meanwhile be included in the monthly WASDE report, also due at 12:00 PM ET. More

Iran is preparing to supply Russia with hundreds of drones and other unmanned aerial vehicles to support Vladimir Putin’s invasion of Ukraine, the White House said yesterday, as Joe Biden prepares to embark on his first trip to the Middle East as president.Jake Sullivan, Biden’s national security adviser, told reporters the US had information indicating Tehran was “preparing to provide Russia with up to several hundred UAVs . . . on an expedited timeline”.He added that the shipment would include drones that could be used as weapons and that Iran was preparing to train Russian forces to use the UAVs and that the training sessions would begin “as soon as early July”.Biden departs Washington tomorrow for Israel and the West Bank and Iran is likely to be one of the issues discussed. He will subsequently travel to Saudi Arabia, where he is expected to push for the world’s biggest crude producer to increase production to help bring down global energy prices that have soared during the war in Ukraine.The Kremlin said today that Russian president Vladimir Putin will visit Iran next week in the wake of Biden’s trip to the region.The fallout from the war in Ukraine has created an opening to put relations between Washington and the world’s biggest crude producer back on track, officials and analysts in the US and the Gulf say.Before his election in 2020, Biden had promised to reassess relations with the Gulf state. Relations between the US and Saudi Arabia reached a historic low in the wake of the killing of journalist Jamal Khashoggi in 2018.Biden will attend a summit of Arab leaders and meet Saudi Arabia’s de facto leader Crown Prince Mohammed bin Salman in Jeddah at the weekend.In a pre-emptive defence of his visit, Biden wrote in the Washington Post at the weekend that “from the start, my aim was to reorient — but not rupture — relations with a country that’s been a strategic partner for 80 years”.Preview Joe Biden seeks reset on Saudi Arabia as oil tensions flareDo you think Biden should be travelling to Saudi Arabia for talks with Prince Mohammed? Email me at [email protected] or hit reply to this email. Here is the rest of the day’s news — GordonFive more stories in the news1. US and Japan to tackle exchange volatility The US and Japan have agreed to “co-operate as appropriate” to address the falling value of the yen against the dollar after a meeting between US Treasury secretary Janet Yellen and her Japanese counterpart Shunichi Suzuki. The dollar extended its recent rise today as fears of a global recession and aggressive interest rate rises by the Federal Reserve push investors into the US currency. 2. BYD shares tumble Shares in Chinese electric carmaker BYD fell 12 per cent after a stake close to the size of Berkshire Hathaway’s appeared in the Hong Kong stock exchange clearing system. Berkshire told investors in February that it owned a 7.7 per cent stake in the company, valued at $7.7bn. Last week BYD overtook Tesla to become the world’s biggest electric vehicle producer by sales.3. Twitter calls Musk bid to scuttle deal ‘invalid and wrongful’ The social media company has hit back at Elon Musk’s attempt to walk away from his $44bn acquisition of the platform, accusing him of breaching the merger agreement, according to a letter sent to the billionaire’s lawyers.4. Klarna’s valuation crashes Once Europe’s most valuable private tech company, Klarna has had its price tag slashed from $46bn to $6.7bn at its latest fundraising that highlights the crash in many valuations. Premium subscribers can click here to receive our FintechFT newsletter.5. Global population growth hits lowest rate since 1950 The global population grew by less than 1 per cent a year for the first time since the aftermath of the second world war in 2020 and 2021, according to the UN. Despite the slowing growth, the global population is still poised this year to reach the milestone of 8bn people, with India next year projected to surpass China as the most populous country.The day aheadJanuary 6 Committee Domestic far-right extremism and its connection to Donald Trump will be the focus of today’s hearings. The bipartisan committee investigating last year’s storming of the Capitol building will argue the former president played a “pivotal” role in spurring groups like the Proud Boys to attack Congress in an attempt to overturn the result of the 2020 election.Company earnings PepsiCo, the consumer goods group, is expected to report revenues increased 1.54 per cent to $19.5bn in its second fiscal quarter, according to analysts polled by Refinitiv. The company previously boosted its sales outlook for its most recent quarter but warned in April that a strong dollar would result in a higher currency translation “headwind” and weigh on its results. Amazon’s Prime Day The two-day event, which runs today and tomorrow, is forecast to generate global sales of more than $12.5bn, up 17 per cent on last year, according to research group Insider Intelligence.Conservative party leadership race Former chancellor Rishi Sunak will launch his campaign to be the next leader of the Conservative party and British prime minister. Under the rules of the contest, all nominations must be submitted by the end of today and voting will begin on Wednesday. A winner is expected to be announced on September 5.Croatia closer to the euro Ministers from 27 European Union member states are due to pass the final three legal acts required for the country to become the 20th member to take on the currency.Nasa scientific observations The US space agency and its partner, the European Space Agency, release four scientific observations from the $10bn James Webb Space Telescope. They come hot on the heels of the first image of infant galaxies formed 13bn years ago, which was unveiled last night.

Joe Biden unveiled this image, known as Webb’s First Deep Field, during a White House event yesterday, showing galaxy cluster SMACS 0723

What else we’re readingLipsticks, lattes and labradors: JAB’s bet on pets After spending more than $50bn on coffee chains, restaurants and cosmetic companies, the European group has found a cute solution to boosting its mixed returns: pets. But its investments in vets and insurance are under scrutiny from competition officials.The Supreme Court has weakened legal predictability in America One thing that the US has always had going for it has been the rule of law. A radical shift at the Supreme Court, which has overturned nearly 50 years of abortion rights, has now thrown the consistency of the legal system into question, writes our editorial board.Executives seek briefings on Taiwan war risk Company executives are increasingly concerned about the possibility of war over Taiwan, according to consultants who have seen a sharp rise in demand for briefings following the invasion of Ukraine.America’s new agricultural frontier After years of laboratory testing, companies are now racing to scale up their operations for the commercial production of plants, and hoping to beat competitors to a dominant share of what could be a vast market.Abe killing shines spotlight on links with Moonies Close ties between the Moonies and powerful figures in the governing Liberal Democratic party have long been an open but little-discussed secret in Japan. Shinzo Abe’s killing and the suspect’s alleged family links with the group have shone a spotlight on the relationship, as the nation seeks answers to one of its worst incidents of political violence since the second world war.FilmThe Russo brothers, two of the highest-earning film-makers in history, talk to our Los Angeles correspondent about the unusual release of their new action thriller The Gray Man after a record-breaking run at Marvel. More

Silvina Batakis has spent her first week as Argentina’s finance minister pledging to stick to IMF commitments and restore “order and balance”, but those reassurances have failed to calm investors who fear another sovereign debt default amid galloping inflation and poor public finances. Batakis was selected July 4 to replace Martin Guzmán, the country’s more pragmatic minister who quit amid a split in the ruling coalition government over which direction the economy should take. The appointment of 53-year old Batakis, a relatively unknown career civil servant, triggered a week of market turmoil as investors braced for possible policy changes that would undermine efforts to stabilise the Argentine economy and keep the already fragile $44bn IMF deal on track. Batakis used her first official press conference in Buenos Aires on Monday to provide a reassuring message, saying that ​​Argentina is “not going to spend more than we have,” and that as minister she was committed to the IMF programme agreed earlier this year. “It is an agreement we signed as a state and we must comply,” Batakis told journalists. She added that she would continue her predecessor’s plans to cut energy bill subsidies and move towards interest rates that are positive when adjusted for sky-high inflation. So far officials in Washington have publicly welcomed the new appointment. Kristalina Georgieva, the IMF’s managing director, said Batakis understood “the purpose of fiscal discipline,” and described having had a “very good” first call with the minister last week. Georgieva also stressed the “very complex” economic outlook the country faces. But with Argentina’s economy in distress, the task will be a formidable one. Inflation is forecast to exceed 75 per cent this year, according to a central bank survey. Poverty is high and climbing higher. Savers have rushed to convert their holdings into more stable currencies fearing the economy could get a lot worse before it gets better. Purchases of cryptocurrencies have also shot up in signs that these digital assets are increasingly seen as a store of value amid the economic turmoil. Diana Mondino, an economist and professor at CEMA University in Buenos Aires, said Argentina’s economic crisis has become “incredibly difficult” to manage. “The government has backed itself into a narrow financial corner . . . everything they do is increasing the amount of debt the country has,” she said.The country’s sovereign bonds, already in distressed territory, have fallen to record lows. Two of the six dollar bonds that were restructured in 2020 fell below 20 cents on the dollar last week — levels that indicated a high probability of default. Rather than printing money against hard currency, central bank policymakers have been issuing inflation-linked or dollar-linked treasury bonds, creating what could be a serious problem in the second half of the year, Mondino said.Batakis must not only contend with the economy but also the country’s fraught politics. An open split between president Alberto Fernández and the more radical bloc of the leftwing Peronist coalition led by Cristina Fernández de Kirchner, Argentina’s powerful vice-president, is an additional hurdle.Kirchner has been heavily critical of IMF pressure to trim government spending and reduce the budget deficit, which she blames for Peronist losses in midterm elections last year. She has repeatedly called for a looser fiscal stance and a tougher position in negotiations with the international lender, which Guzmán and his team had resisted. It is not yet clear what role Batakis will play in addressing the tensions over how to reconcile the economy. Argentine economist Eduardo Levy Yeyati said she is probably a “place holder” minister, someone to fill the position for the time being who both political factions can call their own. Unlike under Guzmán, “the government has no margin for improvisation,” given the levels of distress in the economy, he said.

Investors are sceptical that a divided and unpopular government facing elections in 2023 can keep the IMF arrangement on track and implement the sweeping changes needed to bring down inflation while trying to shore up voter support. Anti-government protesters mobilised in the capital’s main square over the weekend as confidence in a divided government waned. “This new minister is just a figure change, but it doesn’t change the direction of our economy,” said activist Celeste Fierro. “We, the workers, are the ones who are going to continue paying [the debt].” More

The writer is chief investment officer at Bank of SingaporeLike it or not, China is different. The populous nation resides in an alternate universe where Covid-19 restrictions prevail and economic activity strains at the gates for gradual reopening.But while global equity markets are suffering their worst first half-year start since 1970, Chinese stocks may be the one major market to offer uncorrelated positive returns in the second half of 2022.Since mid-2021, Chinese markets have borne the brunt of selling well before the global bear market malaise in the first half of 2022. China has suffered four quarters of sliding or relatively weak growth, souring market sentiment in both equities and bonds.On top of China’s stringent zero-Covid lockdown, the broad swath of woes have included credit growth constraints, supply chain tightness, semiconductor shortages and adverse regulatory scrutiny across industries such as property, technology, education and gaming. There have also been uncertainties surrounding the regulations for US-listed China American Depositary Receipts, instruments that offer US investors exposure to foreign stocks.Over the past few months, the outlook has begun to brighten. Significantly, April’s Politburo meeting marked a change of tone from officials and the start of supportive policies. The benchmark five-year Loan Prime Rate was cut. Some 33 comprehensive stimulus measures were announced by the State Council.Regulators have also clarified their stance for tech platform companies and gaming approvals. President Xi Jinping reiterated commitment to the official 5.5 per cent GDP growth target for 2022 last month, and, importantly, the quarantine period for inbound travellers has been halved as the authorities begin to loosen its zero-Covid stance.The green shoots of recovery are apparent in June’s data releases. The Caixin composite purchasing manager Index jumped from more than 13 points to 55.3 points, implying activity is expanding firmly again as lockdowns ease.Unlike global peers, inflation woes are not top of mind in China. Officials face benign 2.5 per cent inflation, food and energy resilience, a current account surplus and ample room for fiscal and monetary stimulus to meet this year’s official GDP target. The People’s Bank of China stands out as the only central bank under no pressure to hike interest rates to curb inflation. Its capital controls also keep the renminbi stable despite the strength of the dollar. In fact, China can afford to lower interest rates to ease credit conditions.Despite the recent bounce from April’s lows, the CSI 300 Index and the broader MSCI China Index still trade at 13 and 12 times forward price-to-earnings ratios respectively, close to their historic averages. Recent funds flow data show that emerging markets fund managers have closed their underweight position in China relative to benchmarks in the past six months.But we’re not out of the woods. The overhang for China remains its zero-Covid policy, which is likely to continue at least until the 20th Party Congress in the fourth quarter. The PBoC’s second-quarter survey of bankers and enterprises suggests that loan demand and business conditions remain weak. China high-yield bonds, dominated by real estate issues, are down 30 per cent year-to-date, trading at distressed levels. Despite the nascent recovery of property sales and share prices, the offshore property bond remains moribund.US-China relations also remain a structural risk. President Joe Biden is still weighing whether to extend Trump-era tariffs on Chinese imports into the US. Furthermore, audit disputes over US-listed China firms remain in the balance.Despite investors’ chagrin at the ebbs and flows in China’s investor friendliness, we are witnessing the first innings in the internationalisation of China’s onshore capital markets across currency, stocks and bonds.China’s energy transition and technological advances offer investment opportunities in green infrastructure, while national focus on “common prosperity” supports consumer companies serving the rising middle class.Notwithstanding the regulatory and geopolitical risks, China’s unique value proposition for global investors lies in its contrasting fortunes within the global economic world order — relative to developed nations and broader emerging markets. There will be an opportunity cost for global investors of not owning China. This is a set up to make staunch bears reluctant bulls. More

At a grocery shop in a rundown district of central Tunis, Khaola, a civil servant, bemoaned recurring shortages of basic foods and the soaring prices that have forced her to stop buying meat and fruit.“There was a period when you could not find flour or semolina, now it’s better but they only give you two packets,” said the divorced mother of two teenagers. “There is no sugar, and rice is scarce. Prices are so high, I can no longer afford meat or tuna and I haven’t bought fruit for a month.”The Ukraine war has dealt a severe blow to Tunisia’s economy which was badly scarred by coronavirus and had been moribund for years before the pandemic. Increases in global food and energy prices sparked by the conflict pushed inflation up to a record 8.1 per cent in June, adding to the burden on a population which has seen its living standards plummet over the past decade since Tunisia’s 2011 revolution against autocratic rule.Economic growth averaged an anaemic 1.8 per cent in the years between 2011 and 2020, when the economy contracted by 9.3 per cent as a result of the pandemic. It is expected to grow 2.5 per cent this year but unemployment stands at 16.8 per cent, hitting 38.5 per cent among the young. High prices for wheat and oil imports have piled pressure on the strained public finances of a heavily indebted government which subsidises bread and fuel for its 12mn people. “Since independence in 1956 we have not lived a catastrophe in public finances like the one we have been experiencing since 2020,” said Fadhel Abdel Kefi, a former investment minister and leader of the opposition Afek Tunis party. “The government owes money to milk producers, bakers and construction companies. After our bonds were downgraded by Fitch rating agency to CCC [in March] the international debt market has been essentially closed to us because the interest rates required are too high.”On at least one occasion in May ships carrying wheat from Spain and Romania were forced to wait outside the port of Sfax until the government paid suppliers so the cargo could be unloaded, according to a western diplomat in Tunis and local press reports.Officials say the budget deficit will hit 9.7 per cent of gross domestic product this year, up from the 6.7 per cent originally forecast. But even before the Ukraine war, the finance minister said Tunisia needed to find some $7bn of extra financing in 2022.The economic crisis comes against a backdrop of political uncertainty. Kais Saied, the elected populist president who last year shuttered parliament and seized the levers of powers, has called a referendum on a new constitution. The move, expected to be approved by voters, has been slammed by political opponents as the final step in the dismantling of the democratic system established after the 2011 revolution. The proposed charter gives the president extensive powers over government and the judiciary and limits the role of parliament. Until Saied’s power grab, Tunisia was seen as the only successful democratic transition among Arab countries which overthrew autocratic leaders in 2011.Saied has cast himself as the country’s saviour after a decade of economic decline and a succession of weak coalition governments. But during his year as sole ruler, analysts say beyond speeches attacking corruption he has offered no vision to salvage the economy. To prevent economic collapse the government is seeking a loan agreement with the IMF of up to $4bn. That could be at risk because of the president’s stand off with the powerful General Union of Tunisian Workers, UGTT, the biggest organised force in the country which has rejected proposals to cap the public sector wage bill and restructure subsidies — part of the measures needed to secure the IMF loan.A strike called by the UGTT last month paralysed public transport, air travel and state-owned industries. More strikes that would include the civil service are threatened.“We accept an agreement with the IMF, but not with the conditions of the fund,” said Anouar Ben Kaddour, assistant secretary general of the UGTT. “We refuse the lifting of subsidies, or freezes on civil service hiring and salaries. We also refuse the privatisation of public companies.” Tunisia has a poor record with IMF loans. In the past decade it signed two agreements totalling $4.6bn but it failed to implement reforms amid union opposition and popular protests. This time the stakes are high for Europe as well as Tunisia. Diplomats say France and Italy are pressing for an IMF deal to prevent an economic collapse that could send migrants across the Mediterranean.“The last thing we want to see is violence and people leaving for economic or political reasons,” said a western diplomat in Tunis. He said the IMF was “being a bit more flexible on preconditions and understood the difficulties of requiring reforms before the negotiations.” The IMF said last month negotiations would start within weeks. To shore up public finances in the interim the European Union and the World Bank have advanced hundreds of millions of dollars to cash-strapped Tunis. The World Bank in June approved a $130mn loan to support wheat and barley imports while in May the EU disbursed a €300mn loan.“After adopting the [new] constitution, Saied can get the IMF deal,” said Hamza Meddeb, scholar at Carnegie Middle East Center. “The big question after that is then what? The country will be highly polarised and there will still be an economic and social crisis.”He predicts the economic situation will erode Saied’s popularity whether or not he carries out austerity measures to be agreed with the IMF.But for now many Tunisians say they are still pinning their hopes on Saied. “He is not a thief and he should be given a chance,” said a shopkeeper in Tunis. “He only had one year in office. We should judge him in five.” More