Aurelia Butler

Brussels’ top trade official has urged caution over EU plans to ban products made using forced labour, arguing that such a “sensitive” measure could risk a trade backlash. Valdis Dombrovskis, EU executive vice-president for trade, has written to MEPs warning that the European Commission will not rush into proposing a law on forced labour. He said it would require more than a year to produce and questioned whether a ban on products entering the EU market is an effective way to stop human rights abuses. “Banning imports from entering the EU would not automatically prevent those products from being produced with forced labour so the problem itself will not go away,” Dombrovskis said in a letter to a group of MEPs on December 22. Commission president Ursula von der Leyen announced plans in September for a law that would place a “ban on products in our market that have been made by forced labour”. The measure was read as being squarely aimed at addressing the issue of China’s persecuted Uyghur minority. But Dombrovskis’ comments signal that Brussels is stepping away from explicit import bans, for fear they will be seen as discriminatory trade measures. An EU official said a ban would require the bloc to drastically amend its customs code and would be difficult to enforce in a bloc where all 27 member states have their own customs authorities.

By contrast, US lawmakers this month passed a Uyghur Forced Labor Prevention Act that will require companies to prove that imports from China’s Muslim-majority Xinjiang region are not made using forced labour. In his letter, Dombrovskis said the US measure “cannot be automatically replicated in the EU” and warned that a ban on non-EU imports “could be challenged by our trading partners as it risks being perceived as discriminatory” if it does not also target forced labour inside the EU. “If a ban has to be pursued, it should be a ban of all goods produced with forced labour, no matter where the forced labour took place,” says the letter. Rather than import bans, Brussels is drawing up sweeping “due diligence” legislation that will force companies to take action against potential abuses of human rights in their supply chains. This so-called corporate sustainable governance legislation is due in the first half of next year, and was an “effective way of addressing human rights violations in value chains, including forced labour”, said Dombrovskis. He also did not rule out the possibility of forcing companies to withdraw products from the market under the legislation. Supporters of a tough law on forced labour want the EU to take a stronger stance against China’s internment of more than 1m Uyghurs and other Muslim minorities in labour camps in the cotton-rich region of Xinjiang. The EU, along with the US and UK, has imposed sanctions on some Chinese officials but an import ban would be the bloc’s toughest measure yet. Brussels has begun to introduce limited import bans, including on products from areas at risk of deforestation, and a law on batteries that forces companies to assess human rights risks in their supply chains. More

Purchases of goods and services, after adjusting for higher prices, were little changed following a solid 0.7% gain in October. The government’s figures were the marquee of a pre-holiday burst of economic reports Thursday that showed stronger orders for durable goods, increased new-home sales and firmer consumer sentiment. Underlying the spending figures are a series of crosscurrents. Buffeted by headlines about snarled supply chains, many Americans started their holiday shopping earlier than usual this year, helping to explain the strong advance in the prior month.But consumers are also facing the fastest inflation in decades. With every trip to the grocery store and gas pump eating away a little more of their paychecks, people have less left over for discretionary purchases. And the new omicron variant of Covid-19 threatens to curb the incipient rebound in outlays for services.The report showed Americans are spending more on essentials amid the pickup in prices. Money spent on housing and utilities increased last month, as did outlays on gasoline and food. The data showed inflation-adjusted spending on services rose 0.5%, the most in three months, while goods outlays dropped 0.8%, the first decline since July.The personal consumption expenditures price gauge, which the Federal Reserve uses for its 2% inflation target, increased 0.6% from a month earlier and 5.7% from November 2020, the highest reading since 1982. The data come on the heels of a hawkish pivot by Fed officials, who have been under pressure to take action against overheating prices. Last week the central bank announced it would accelerate the end of its asset-buying program, and new interest-rate projections indicated policy makers favor raising borrowing costs by three-quarters of a percentage point next year.Consumers are saving less amid the rapid price increases. Adjusted for inflation, disposable personal income, or after-tax income, fell 0.2%, the fourth straight decline. The savings rate — personal saving as a share of disposable income — declined to 6.9%, the lowest since December 2017.What Bloomberg Economists Say…“A flat reading on real consumer spending in November — even before omicron hit — suggests inflation may be starting to weigh on consumer resilience into year-end… The increase in services was widespread, a positive sign of rotation out of goods spending going into next year.”– Yelena Shulyatyeva and Anna Wong, economistsThough federal stimulus has waned, a host of companies have hiked pay this year to attract and retain talent amid widespread hiring struggles. In November, wages and salaries rose 0.5%, following a 0.8% gain in October, the report showed.The core price index, which excludes food and energy, rose 0.5% from the prior month and 4.7% from a year earlier, the fastest gain since 1983.Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he’s scaling back his forecast for the gain in fourth-quarter consumer spending on the grounds that “the omicron Covid wave appears to be hitting spending at restaurants.” The firm now sees outlays rising at a 5.5% annualized rate in the period, down from the prior 6% forecast, according to a note Thursday.Meanwhile, the outlook for both manufacturing and residential construction appears solid after a pair of Thursday reports showed stronger bookings for durable goods and the firmest pace of new-home sales in seven months.Orders for goods meant to last several years increased 2.5% from the prior months, spurred by more bookings for commercial aircraft, motor vehicles, metals and communications equipment. While core capital goods orders softened, the figures follow steady increases in prior months that illustrate a robust pattern of business investment. Housing demand is also flexing some muscle and keeping builder backlogs elevated. Purchases of new single-family homes increased 12.4% to a 744,000 annualized pace, although the prior was revised down sharply.Of the homes sold in last month, construction on 221,000 had yet to be started, the most since May, suggesting backlogs are growing. Separate data from the University of Michigan showed consumer sentiment picked up this month as households grew more upbeat about the economy and outlook for their finances.And the Labor Department said new applications for state jobless benefits totaled 205,000 in the week ended Dec. 18, unchanged from the prior period and underscoring a subdued level of job losses.©2021 Bloomberg L.P. More

WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits held below pre-pandemic levels last week as the labor market tightens, while consumer spending increased solidly, putting the economy on track for a strong finish to 2021.The economy’s stamina demonstrated in Thursday’s data, which also showed new home sales racing to a seven-month high and manufacturing still buoyant in November, came as the nation was battling a resurgence in COVID-19 infections, driven by the Delta strain and the highly transmissible Omicron variant. That could hurt economic activity in the first quarter.”The economy was running on all cylinders in the fourth quarter,” said Diane Swonk, chief economist at Grant Thornton in Chicago. “The bad news is that much of the weakness associated with the spread of the Omicron variant is still ahead of us. Some of the weakness could show up in data for December, but the bulk of the weakness will show up as canceled events, travel and less spending on services in January.”Initial claims for state unemployment benefits were unchanged at a seasonally adjusted 205,000 for the week ended Dec. 18, the Labor Department said. Early this month, claims dropped to 188,000, the lowest level since 1969. Last week’s claims were in line with economists’ expectations.Claims have declined from a record high of 6.149 million in early April of 2020. Applications typically increase during the cold weather months, but an acute shortage of workers has disrupted that seasonal pattern, resulting in lower seasonally adjusted claims numbers in recent weeks. “Looking past that noise, however, we expect claims to remain around 200,000 as layoffs remain low amid tight labor market conditions,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics in New York. “The spread of the Omicron variant may lend an upside risk to that forecast, but for now, it appears as though businesses are striving to remain open.”The claims data covered the period during which the government surveyed businesses for the nonfarm payrolls portion of December’s employment report.Claims dropped between the November and December survey periods, suggesting a pickup in job growth this month. Labor shortages, however, remain a challenge. There are hopeful signs that unemployed Americans are starting to rejoin the workforce, but soaring coronavirus infections could be an obstacle.The number of people continuing to receive benefits after an initial week of aid fell 8,000 to 1.859 million in the week ended Dec. 11. That was the lowest level for the so-called continuing claims since mid-March of 2020. About 2.138 million people were receiving unemployment checks under all programs in early December, down 320,452 from the end of November.Stocks on Wall Street rose for a third straight session. The dollar was steady against a basket of currencies. U.S. Treasury prices fell.SERVICES BUOY SPENDINGThe tight labor market is underscored by an unemployment rate that is at a 21-month low of 4.2%. There were a record 11.0 million job openings at the end of October. Higher wages as companies scramble for scarce workers are helping to underpin consumer spending. A separate report from the Commerce Department on Thursday showed consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.6% last month after shooting up 1.4% in October. Services surged 0.9%, accounting for nearly all the gain in spending. The broad increase in services was led by housing and utilities. Spending on goods edged up 0.1% as outlays on long-lasting manufactured goods like motor vehicles fell 0.6%, reflecting shortages. Spending on goods was also weaker after Americans started their holiday shopping early to avoid empty shelves.A 0.4% increase in personal income, driven by a 0.5% rise in wages, helped to fund some of the spending, though high inflation cut into income gains. Consumers also relied on savings, resulting in the saving rate falling to a still-high 6.9% from 7.1% in October.Inflation accelerated in November, with the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rising 0.5% after a similar gain in October. In the 12 months through November, the so-called core PCE price index jumped 4.7%, the largest increase since February 1989. It advanced 4.2% year-on-year in October. “Although consumers say they are anxious about inflation, the outlook for household spending growth in 2022 is solid,” said Gus Faucher, chief economist at PNC Financial (NYSE:PNC) in Pittsburgh, Pennsylvania. “Consumers have an extra $2 trillion saved up relative to before the pandemic, thanks to government aid in 2020 and 2021 and limited opportunities to spend.”The scarcity of goods is hampering business spending on equipment. A third report from the Commerce Department showed orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dipped 0.1% last month with shipments rising 0.3%. Higher prices meant inflation-adjusted consumer spending was flat after increasing 0.7% in October. Despite the unchanged so-called real consumer spending last month, economic growth is expected to have accelerated in the fourth quarter, given strong gains in the prior months.”The inflation tiger needs to be tamed back into its cage primarily by addressing significant bottlenecks and barriers in the transportation and shipping industries which are preventing products from getting to the consumer,” said Brian Bethune, professor of Practice at Boston College.Growth forecasts for the fourth quarter are as high as a 7.5% annualized rate. The economy grew at a 2.3% pace in the third quarter. It is expected to grow 5.6% this year, which would be the fastest since 1984, according to a Reuters survey of economists. The economy contracted 3.4% in 2020. More

(Reuters) – U.S. Transportation Secretary Pete Buttigieg announced over $241 million in discretionary grant funding for 25 projects to improve port facilities in 19 U.S. states and one territory to address supply chain challenges at ports.Buttigieg made the announcement in a statement released the U.S. Department of Transportation on Thursday. More

ISTANBUL (Reuters) – Turkey’s lira rallied further on Thursday and was on track for its best week in two decades, boosted by a government plan to protect some deposits and the added support of state banks aggressively selling dollars. The lira rallied as much as 10% to 10.25 versus the dollar, its strongest level in a month, before paring most of those gains to trade at 11.395 at 1444 GMT. The currency has whipsawed back from a historic low of 18.4 on Monday when it was down some 60% on the year, capping a week of record volatility and intraday swings. Despite the rebound, risk measures are near all-time highs as questions remain over the state’s anti-dollarisation plan, which could further stoke inflation, add to public debt and eat into foreign reserves if the lira begins sliding again. In an echo of past interventions, four sources told Reuters that Turkey’s state banks heavily sold dollars this week after President Tayyip Erdogan announced the government would guarantee some deposits against depreciation losses.One source said the interventions on Monday and Tuesday totalled $3 billion. The selling coincided with a drop in the central bank’s foreign reserves, which a second source said amounted to $6 billion on those two days alone. The three big state banks – Ziraat Bank, Vakif Bank and Halk Bank – did not immediately comment on possible interventions. The central bank was not immediately available to comment.The central bank’s balance sheet suggests that $5.5 billion of the fall in net reserves on Monday and Tuesday is due to foreign currency sales, said Haluk Burumcekci, head of Istanbul-based Burumcekci Consulting.Reflecting market jitters, the cost of insuring against a sovereign default using CDS broke above 600 basis points earlier this week, before dipping back to 593, still near all-time highs, according to IHS Markit. THIN RESERVES BUFFERIn 2019-2020 the central bank backed, via swaps, the sale of some $128 billion via state banks to stabilize the lira, depleting Turkey’s foreign reserves. Earlier this year, the sales emerged as a focus of what the political opposition calls government mismanagement. To address the latest turmoil, the central bank has announced five direct market interventions this month that bankers say totaled between $6-$10 billion. It has made no intervention notices this week. Official data shows the bank’s net foreign reserves dropped to $12 billion last week, from $21 billion a week earlier, as the interventions weighed. Seeking to bolster its buffer, the central bank is wrapping up talks with counterparts in Azerbaijan and the UAE on a possible currency swap line and one deal is likely before year-end, separate sources told Reuters.On Monday, President Tayyip Erdogan announced the series of steps that would shift the burden of a weakened currency to the Treasury and encourage Turks to hold lira rather than dollars. The central bank will backstop lira converted from hard currencies. More than half of locals’ savings is in hard currencies and gold, official data shows, due to a loss of confidence in the lira after years of depreciation and eroded central bank credibility.Under pressure from Erdogan, the central bank has cut rates by 500 basis points to 14% since September. The president has pledged to continue with his low-rates policy despite widespread criticism, while opposition parties have called for immediate elections over the currency meltdown. Wall Street bank J.P. Morgan said markets expect a big reversal in monetary policy and are pricing in a 16 percentage point rise in Turkey’s key interest rate over the next year. Graphic: Markets pricing in run of Turkish rate hikes next year https://fingfx.thomsonreuters.com/gfx/mkt/gdvzymxxlpw/Pasted%20image%201640255443242.png Graphic: The Erdonomics effect https://fingfx.thomsonreuters.com/gfx/mkt/dwvkrzxozpm/Pasted%20image%201640257543003.png More