Aurelia Butler

TOKYO (Reuters) – Confidence among Japan’s large service-sector firms improved in the three months to December, a closely watched central bank survey showed, suggesting the economy was gradually emerging from the hit of the coronavirus pandemic.But big manufacturers’ confidence was flat from three months ago and companies saw business conditions worsening ahead, underscoring the fragile nature of Japan’s economic recovery.The outcome offered a mixed picture for policymakers seeking to reflate Japan’s fragile economy by maintaining ultra-loose monetary policy and a massive pandemic-relief spending package.The headline index gauging big manufacturers’ sentiment stood at plus 18 in the final quarter of 2021, unchanged from the previous quarter, the Bank of Japan’s (BOJ) tankan survey showed on Monday. It compared with a median market forecast for plus 19.An index gauging big non-manufacturers’ sentiment rose to plus 9 from plus 2 three months ago, the survey showed, in a sign the Sept. 30 lifting of state of emergency curbs to combat the COVID-19 pandemic was helping lift consumption. It compared with market forecasts for a reading of plus 6.Big manufacturers and non-manufacturers expect business conditions to worsen three months ahead, though the survey was closed too soon to incorporate the impact of the recent spread of the Omicron variant.The survey was conducted from Nov. 10-Dec. 10 with most of the replies coming in by Nov. 29, a BOJ official told a briefing.The survey also showed big firms plan to increase capital spending by 9.3% in the year ending in March 2022, less than the market’s median forecast for a 9.8% gain.Japan has lagged other countries in staging a strong rebound from last year’s pandemic hit, shrinking an annualised 3.6% in July-September due to weak consumption and output hit by a spike in infections and supply constraints.While analysts expect growth to bounce back in the final quarter of this year, some warn the emergence of Omicron clouds the outlook and may keep the recovery feeble next year. More

RIYADH (Reuters) -Saudi Arabia said on Sunday it expected to post its first budget surplus in nearly a decade next year, as it plans to restrict public spending despite a surge in oil prices that helped to refill state coffers hammered by the pandemic.After an expected fiscal deficit of 2.7% of gross domestic product this year, Riyadh estimates it will achieve a surplus of 90 billion riyals ($23.99 billion), or 2.5% of GDP, next year – its first surplus since it went into a deficit after oil prices crashed in 2014.”The surpluses will be used to increase government reserves, to meet the coronavirus pandemic needs, strengthen the kingdom’s financial position, and raise its capabilities to face global shocks and crises,” Crown Prince Mohammed bin Salman was quoted as saying by Saudi state press agency SPA.The world’s biggest oil exporter plans to spend 955 billion riyals next year, a nearly 6% expenditure cut year on year, according to a budget document.Riyadh plans to reduce military spending next year by around 10% from its 2021 estimates, the budget showed, a sign that the cost of the military conflict in neighbouring Yemen has started to ease.Revenues jumped this year by almost 10% to 930 billion riyals from the budgeted 849 billion, driven by higher crude prices and oil production hikes as global energy demand recovered.Next year, the kingdom expects revenues of 1.045 trillion riyals.”We are totally now decoupling the government expenditure from the revenue”, Finance Minister Mohammed al-Jadaan told Reuters.”We are telling our people and the private sector or economy at large that you can plan with predictability. Budget ceilings are going to continue in a stable way regardless of how the oil price or revenues are going to happen”.’INVESTMENT BURDEN’The largest Arab economy shrank last year as the coronavirus crisis hurt its burgeoning non-oil economic sectors, while record-low oil prices weighed on its finances, widening the 2020 budget deficit to 11.2% of GDP.But the economy bounced back this year as COVID-19 restrictions were eased globally and domestically.Saudi Arabia forecast 2.9% GDP growth this year followed by 7.4% growth in 2022, according to the budget.The kingdom does not disclose the oil price it assumes to calculate its budget. For 2022, it was likely basing its budget on an oil price assumption that could be as low as $50-$55 per barrel, estimated Monica Malik, chief economist at Abu Dhabi Commercial Bank.That could leave extra room for further improvement in its fiscal position. Brent crude oil has climbed this year and is expected to average about $70.60 per barrel in 2021 and decline slightly to $70.05 next year, according to the Energy Information Administration. Saudi Arabia’s ability to maintain fiscal diligence depends partly on the increasing roles of entities like the Public Investment Fund (PIF) or the National Development Fund in backing Prince Mohammed’s ambitious investment plans.Saudi Arabia plans more than $3 trillion in investment in the domestic economy by 2030, a target that economists have said will be tough to meet.”The budget’s expected surplus in 2022 comes not only on the back of higher oil prices and production, but also on the back of scaling back COVID-related spending as well as continuing with transferring the investment burden to the state funds led by PIF”, said Mohamed Abu Basha, head of macroeconomic analysis at EFG Hermes.($1 = 3.7513 riyals) More

South Korea will apply to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, after China’s application to the regional trade pact assuaged Seoul’s fears of upsetting its biggest trade partner.Kwon Chil-seung, South Korea’s minister for small and medium enterprises, told the Financial Times in an interview that concerns within the government about joining the CPTPP had been resolved. “The SME ministry and agriculture ministry had been relatively cautious, but a decision has been made internally at a collective government meeting to join the CPTPP,” he said. “The process could be delayed, but the overall direction has been set.”A South Korean trade ministry official said a decision on when to submit the application had not been made.The CPTPP was signed in 2018 as a successor to the Trans-Pacific Partnership, a trade agreement negotiated by former US president Barack Obama and designed to limit Beijing’s growing economic and political influence in the region. Donald Trump withdrew the US from the pact in 2017 when he was president. The TPP evolved into the CPTPP, which was signed the following year but does not include the US. South Korea had been hesitant about joining either pact, in part because of concerns about damaging relations with Beijing. Ministers have also been reluctant to provoke important domestic constituencies ahead of a presidential election in March. South Koreans working in the agriculture, fisheries and SME sectors have expressed opposition to joining the pact because of fears of intensified foreign competition. But China itself applied to join the CPTPP in September, a day after the US, UK and Australia announced a new military partnership designed to counter Beijing’s military assertiveness in the region. Taiwan applied to join less than a week later.“The process seems to be held up because of the government’s reluctance to take risks with further market opening, and with the presidential election just three months away,” said Cheong Inkyo, a trade expert at Inha University. “But its sense of urgency has increased now that China and some other countries submitted applications.”A senior diplomat from a country party to the CPTPP added: “The Chinese and Taiwanese applications changed the dynamic.” According to a 2019 policy brief published by the Peterson Institute for International Economics, a Washington-based think-tank, South Korea would gain $86bn annually from membership.“South Korea cannot keep watching trade diversion to other countries and be excluded from the global supply chain,” said Choi Byung-il, a former Korean trade negotiator and professor at Ewha Womans University in Seoul. A potential obstacle for South Korea is its difficult relations with Japan. The countries are embroiled in a dispute at the World Trade Organization over export controls that Tokyo imposed on South Korean semiconductor components in 2019 amid a fight over Japan’s wartime occupation of Korea.“There are likely to be mixed feelings in Japan about any South Korean application to join the CPTPP,” a Japanese official told the Financial Times.South Korea’s decision to join the agreement follows a broader shift towards multilateral trade agreements, which the country has traditionally chosen not to join. Seoul is in the process of ratifying the Regional Comprehensive Economic Partnership, a separate regional agreement led by China that includes 15 Asian countries. More

Hello and welcome to the working week. Just as offices were starting to come back to life and finding some of their old rhythm, most of us here in London will now be hunkering down for yet another period of enforced homeworking, after the government announced stricter rules in a bid to get a grip on rising cases of coronavirus and the Omicron variant. In somewhat better news, expect strong UK labour market figures on Tuesday to show no evidence of rising unemployment since the end of the furlough scheme in September, and for inflation to rise again to about 4.5 per cent in the November figures due on Wednesday. Yet even with these signals of economic strength, the Bank of England is unlikely to raise rates, as it weighs the potential impact of Omicron.The tighter restrictions will inevitably hit certain sectors such as retail and transport, though it could be a boon for some retailers, such as online grocery delivery companies. (UK retail sales data for November will be published on Friday.)In the US, meanwhile, all eyes will be on the Federal Reserve’s meeting on Wednesday. Policymakers are expected to hasten the taper on quantitative easing and signal the likelihood of more interest rate rises next year, in light of growing concerns about rising inflation.Please feel free to send feedback on this newsletter — or indeed details of your work Christmas party Plan Bs — to [email protected] dataEconomists expect the UK’s Bank of England to keep the rate at 0.1 per cent when it meets on Thursday, as the rising numbers of coronavirus infections and the emergence of the Omicron variant favour a wait-and-see approach. US consumer inflation expectations and core producer price index (PPI) figures will be published on Monday and Tuesday. November inflation hit 6.8 per cent, and the view that a higher rate would be “transitory” is slipping away. CompaniesTwo very different retailers publish updates on Tuesday, but the Omicron variant of the coronavirus matters to both. Sales growth at online grocer Ocado has slowed from last year’s peaks as some shoppers returned to stores. Will the emergence of a more transmissible variant push them back online? The share price, down 7 per cent over the past month, suggests investors don’t yet think so.Warsaw-listed Pepco sells discount clothing and general merchandise from more than 3,000 stores, mainly in central and eastern Europe. Investor focus is likely to be on guidance for the year to September 2022 and whether the new variant could result in renewed lockdowns — some of Pepco’s key markets have vaccination rates that are well below the EU average — or a slowdown in new store openings.Purplebricks, the UK’s biggest online-only estate agency, will reveal its half-year results on Tuesday. House prices continue to race higher, in November registering their strongest three-month growth in about 15 years, as a limited supply of homes for sale and low interest rates support the market. Yet Purplebricks’ share price has fallen by two-thirds so far this year, hurt by a falling number of instructions and a rise in employment costs. That led it to warn last month that these interim results would be worse than expected. Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.Monday UK, Bank of England’s latest Financial Stability Report and Financial Policy Committee Record India, inflation dataUS, consumer inflation expectationsOpec monthly reportTuesday UK, employment dataPepco trading updateUS, core producer price index (PPI) figures Ocado trading updateSodexo AGMCanada, fiscal update Purplebricks Group interim results Chemring annual resultsWednesday US, Federal Reserve interest rate decisionUK, consumer price index (CPI) and PPI dataUK house price indexCurrys interim resultsRussia, GDP dataInditex Q3 earningsThursdayEU, ECB rate decisionUK, Bank of England MPC meeting on interest rates Flash purchasing managers’ index (PMI) data — US, UK and eurozoneSwitzerland, central bank interest rates decisionRivian Automotive, Adobe and Go-Ahead Group earnings updatesFriday UK, retail sales figures Qantas market update888 Holdings EGMITM Power trading updateWorld eventsA rundown of other events and milestones this week.MondayUS secretary of state Antony Blinken visits Indonesia and Malaysia as the Biden administration ramps up engagement in south-east AsiaHong Kong’s District Court is expected to sentence to prison five pro-democracy activists for taking part in an unauthorised assembly at last year’s Tiananmen Square vigilThousands of tractors will descend on Brussels as European farmers protest against various elements in the EU Green DealTuesdayChief executives at EDF and TotalEnergies speak at a French power lobby conference Wednesday Australia reopens to foreign visa holders and vaccinated tourists from South Korea and JapanThe leaders of Armenia and Azerbaijan meet in Brussels. Clashes at the countries’ borders claimed at least 10 lives on November 19Thursday European Council summit takes place in Brussels, the first attended by Germany’s new chancellor Olaf ScholzUK, North Shropshire by-election, which follows the resignation of Conservative Owen Paterson last month after the MP had been found to have breached parliamentary rules on lobbyingFridayEuropean Automobile Manufacturers Association publishes monthly figures for new passenger car registrations in Europe Tunisia marks the 11th anniversary of the event that started the Arab Spring uprisings — the self-immolation of Mohamed Bouazizi in protest at the confiscation by police of his vegetable cartSaturdayTaiwan will hold a referendum on the construction of a new gas terminal that has been criticised by environmental campaigners for putting the reef and ecosystem at riskInternational Day of MigrantsSundayChile election run-offLegislative Council of Hong Kong election takes place after being postponed from September 2020 owing to the pandemic More

The adjective Joe Biden’s administration invariably attaches to its trade policy is one of those political labels whose unobjectionable banality is its strength. The phrase “worker centred” is like the “hard-working families” long invoked in both US and UK politics: you cannot oppose a trade policy supporting workers any more than you can be biased towards feckless loners.But helping all workers equally is not what it means in practice. Nearly 10 months in to the administration, this worker-centred policy shows a disturbing focus on old-style manufacturing-centred protectionism — and not even all manufacturing, just the politically rewarding parts.Although it is also proposing to extend trade-distorting support to new sectors like electric vehicles, the Biden administration has continued the historic US obsession with steel. It inherited tariffs on steel and aluminium imposed by the Trump administration and continued to defend the transparently bogus rationale of promoting national security.In October, to forestall the EU imposing retaliatory tariffs, the US converted the duties into a horridly complex system of quotas, but is still controlling imports, including from other countries. And it is coupled with a new idea: a carbon club ostensibly to prevent environmentally-friendly steel from the US, EU and like-minded countries being undercut by emissions-heavy steel from the likes of China. In reality it has great potential, depending on how it is designed, to become a metastization of traditional protectionism.Now, for consumer goods you can just about make the case that tariffs transfer money from richer households, who buy imports, to poorer domestic workers, who compete with them. Yet given the complexities of modern supply chains and the efficiency losses from clumsy interventions, this is all too likely to go wrong. Attempting income redistribution through trade policy is like cutting your toenails with garden shears. The result might be shorter nails but you are more likely to lose a toe. For an industry like steel it makes no sense at all. For one, steelworkers are already much better off than the median employee, as a recent joint op-ed by US trade representative Katherine Tai and commerce secretary Gina Raimondo noted.Second, steel is an upstream product on which large swaths of downstream manufacturing and construction — including Biden’s infrastructure plans — are dependent. There are 80 jobs in downstream industries that use steel for every one in the steel sector. Beware anyone who claims to be cheerleading American manufacturing in general and illustrates their case with reference to steel prices: they are arguing against themselves.There is incontrovertible evidence that steel protectionism clobbers other manufacturers and the construction industry. A brilliant paper by Harvard academic Lydia Cox analyses the steel tariffs imposed by President George W Bush in 2002. With remarkably fortunate political timing, they were imposed just eight months before the midterm elections, in which the Republicans secured control of both houses of Congress. They were lifted in 2003 after being successfully challenged at the World Trade Organization.Cox found that even shortlived tariffs had persistent negative effects. A rise of 1 percentage point in upstream steel tariffs caused a relative decline of 0.2 percentage points in the downstream industry’s global market share for steel-intensive products.It isn’t as if the steel industry has been abandoned by government all these years. Decades of the assiduous deployment of import tariffs designed to prevent supposedly dumped and subsidised steel entering the US has led to American steel prices often being 50-100 per cent higher than those in the rest of the world. There is very little Chinese steel circulating in the US.Biden’s policy as applied to the steel industry isn’t “worker centred” in that it backs hard-pressed employees against pampered consumers. It is centred on a small number of relatively well-off workers whose interests are contrary to those in other sectors yet whose labour unions happen to be a strong part of the Democratic base.If this is what the administration feels is necessary to retain control of the White House in 2024 and help its allies in Congress in the meantime, so be it. Bush’s steel tariffs, after all, seemed to do the trick at the time. But let’s be clear: the jobs this worker-centred policy is primarily aimed at saving are those of Biden and the Democrats on Capitol Hill. [email protected] More

The Greek central bank is planning an appeal for the country’s bonds to remain eligible for new European Central Bank purchases after March when the vast bond-buying scheme launched in response to the pandemic is expected to end.Several members of the ECB’s governing council said they were amenable to finding a way to keep buying Greek bonds for the rest of next year when they meet on Thursday. But Greek officials fear legal hurdles may mean that ECB purchases of the country’s debt will still be reduced much more significantly than those of other countries.Officials in Athens are keen to avoid the stigma of the country being singled out once again without the safety net of the ECB’s bond-buying after its €1.85tn Pandemic Emergency Purchase Programme (PEPP) is due to stop net purchases in just over three months’ time.The ECB is usually barred from buying bonds issued by Greece because it is the only eurozone country rated below investment grade by the main credit rating agencies.However, the central bank made an exception to its ban on buying so-called junk-rated bonds that allowed it to restart purchases of Greek debt when it launched the PEPP in March 2020. The ECB has bought €35bn of Greek bonds over the past two years. When it stops net purchases under the PEPP, the central bank is expected to continue buying bonds under the longer-standing Asset Purchase Programme. But this scheme is barred from buying junk bonds.Greece’s borrowing costs have fallen sharply since the ECB started purchasing its bonds. The country’s 10-year bond yield dropped from about 2.4 per cent when the PEPP started to a record low of just over 0.5 per cent in August. Bond yields fall as their prices rise. The country’s bond yields have risen recently and investors expect their spread — the extra interest Athens has to pay relative to Germany when it sells new debt — to rise further if the ECB sharply reduces the amount of Greek debt it buys.Mark Dowding, chief investment officer at BlueBay Asset Management, said this scenario “would definitely be a reason for Greece to underperform a bit. You could see spreads widening further.” But he said hopes of future Greek rating upgrades may limit the downside for its bonds.Some ECB purchases of Greek bonds will still be possible using the proceeds of maturing bonds already bought under PEPP. The central bank has committed to continue those reinvestments “until at least the end of 2023” and they could be skewed in favour of Greece.Frederik Ducrozet, strategist at Pictet Wealth Management, predicted PEPP reinvestments would total about €12.5bn a month.Another option is for the ECB to launch a new bond-buying programme that has similar flexibility to the PEPP, although several council members said this was unlikely. The ECB and the Bank of Greece declined to comment.Analysts and Greek officials do not expect the country’s bonds to earn an investment grade rating until after the next national elections scheduled in 2023, despite the strong rebound of its economy this year. Greece has the largest national debt in the eurozone, amounting to more than 200 per cent of gross domestic product. Athens is still under a system of “enhanced surveillance” by the European Commission designed to ensure it meets deficit targets until next year.A Greek official said the country hoped to avoid another “Deauville moment” — a reference to the French coastal town where the leaders of Germany and France shocked investors in 2010 by agreeing that any rescheduling of a eurozone country’s debt would include private sector creditors, triggering a sell-off in Greek bonds. Greece was bailed out by the “troika” of the IMF, the ECB and the commission, which imposed strict austerity measures on Athens. ECB president Christine Lagarde, who was French finance minister during the Deauville meeting and later became head of the IMF, has since said “the demands vis-à-vis Greece were excessive” — indicating sympathy with the idea that the country was harshly singled out.Officials are confident Greece’s finances will not be hampered even if its bond yields rise. The country’s Public Debt Management Agency usually front-loads bond issuance and next year it aims to raise about half of its €10bn debt programme in the first quarter, before the PEPP expires. Greece has also built a cash buffer that now amounts to about €40bn, enough to cover financing needs for at least three years.Additional reporting by Tommy Stubbington More