Aurelia Butler

BRUSSELS (Reuters) -The European Commission set out plans on Wednesday to retaliate against countries that put economic pressure on EU members to change their policies, while stressing the main purpose was deterrent. The proposal is designed to counter an increased spillover of geopolitical tensions into trade. European Union member states have accused the administration of former U.S. president Donald Trump and China of using trade as a political tool.”At a time of rising geopolitical tensions, trade is increasingly being weaponised and the EU and its member states becoming targets of economic intimidation. We need the proper tools to respond,” European Commissioner for Trade Valdis Dombrovskis said in a statement.”With this proposal we are sending a clear message that the EU will stand firm in defending its interests.”On hearing a complaint, the Commission would need to determine whether a third country’s economic measure was designed to coerce the EU or one of its members to change policy.A current pre-occupation is the economic pressure Lithuania is facing after letting Taiwan set up a de facto embassy there.China downgraded diplomatic relations with the small Baltic state and officials there say Beijing has also imposed blocks https://www.reuters.com/world/lithuania-urges-europe-increase-indo-pacific-ties-face-chinese-coercion-2021-11-24 on its exports and pressured companies in third countries not to do business with it.After establishing economic coercion, the Commission would seek to negotiate with the third country or seek mediation or cooperation from other partners before taking action.The Commission would then have a wide range of counter-measures at its disposal, including tariffs on goods or services, withholding EU funding, or restrictions on access to EU procurement tenders or to research programmes.The counter-measures should be proportionate and designed both to lead to the third country halting its initial measures and to cause the least damage to the EU economy.The proposal still needs approval from the European Parliament and EU governments, some of whom are sceptical https://www.reuters.com/business/eu-plan-anti-coercion-trade-measure-faces-scepticism-2021-12-07 about a measure they see as potentially protectionist and prone to lead the bloc into tit-for-tat trade wars.It would add to an armoury of trade measures that include screening of foreign investment, limits on firms benefiting from foreign subsidies and curbs on public procurement for businesses of countries that do not open up their markets. More

The BoE shocked financial markets on Nov. 4 when its policymakers voted 7-2 to keep Bank Rate at 0.1%, even as it said inflation was heading towards 5%.Many investors had read previous comments by Governor Andrew Bailey as meaning a November rate hike was extremely likely.Since then, data has suggested the labour market withstood the end of the government’s furlough scheme – something the BoE wanted to see before any rate hike – and inflation hit a 10-year high of 4.2% in October.But the emergence of the Omicron coronavirus variant has prompted some MPC officials to sound a new note of caution about the economy’s recovery, although Omicron could also add to inflation pressures by aggravating supply chain problems.The BoE’s Monetary Policy Committee is due to announce its next policy decisions on Dec. 16 and Feb. 3.MPC MEMBERS WHO ALMOST BACKED A RATE HIKE ON NOV. 4ANDREW BAILEY, GOVERNORDec. 1: “Direct economic effects of COVID have attenuated a lot since the fall in GDP in the second quarter of last year, when we went off a cliff,” Bailey said. “However, there are still impacts that we are feeling from COVID quite strongly.”Nov. 20: “You’re in a fairly febrile world…. (The inflation picture) is two-sided. There are risks both ways. Obviously, our concern would be that if it gets into second-round effects, it could be elevated for longer.”Nov. 15: “I’m very uneasy about the inflation situation…. On the (November) decision itself, however, it was a very close call in my view…. I think that the situation in the labour market is looking considerably tighter.”HUW PILL, CHIEF ECONOMISTNov. 26: “In my view, the ground has now been prepared for policy action…. Incoming data support the conclusion that the recovery is continuing. Although supply disruptions weigh on activity, they also create inflationary pressures. The labour market is tight.”POLICYMAKERS WHO VOTED TO RAISE RATES ON NOV. 4 MICHAEL SAUNDERS, EXTERNAL MPC MEMBERDec. 3: “At present, given the new Omicron COVID variant has only been detected quite recently, there could be particular advantages in waiting to see more evidence on its possible effects on public health outcomes and hence on the economy. But continued delay also could be costly.”DAVE RAMSDEN, DEPUTY GOVERNOR (MARKETS & BANKING)Nov. 5: “That move in the UK (inflation expectations) above, and materially above, what was a relatively stable historical average, has been something I’ve been concerned about.”SOUNDING MORE WORRIED ABOUT INFLATION PRESSURESBEN BROADBENT, DEPUTY GOVERNOR (MONETARY POLICY)Dec. 6: “The aggregate rate of inflation is likely to rise further over the next few months and the chances are that it will comfortably exceed 5% when the Ofgem (regulator) cap on retail energy prices is next adjusted in April.””It’s more likely than not – looking a couple of years ahead as we should – that these pressures on traded goods prices are more likely to subside than intensify.”But Broadbent also said the jobs market could prove a source of inflation.SOUNDING LESS WORRIED ABOUT INFLATION THREAT CATHERINE MANN, EXTERNAL MEMBERNov. 30: “It’s premature to … even talk about timing (of a rate hike), much less how much.”SILVANA TENREYRO, EXTERNAL MEMBERNov. 24: “We’re learning about critical parts of the economy in coming months. My personal decision will be informed by that. I see myself as thinking more in, you know, (the) medium term.”JONATHAN HASKEL, EXTERNAL MEMBERNov. 23: Haskel said he was in “team transitory” on the question of inflation’s persistence. However, there was a risk that wage growth could exceed productivity growth, which has been weak in Britain for more than a decade.NOT SPOKEN ON MONETARY POLICY RECENTLY JON CUNLIFFE, DEPUTY GOVERNOR (FINANCIAL STABILITY)July 14: “We’re seeing a surge in demand. We’re seeing some constrictions in supply that’s driving inflation. How persistent is that (is the) clear question… We would expect some of these pressures, and we would expect transitory pressures at this stage.” More

China may soon severely restrict how local start-ups raise funds from foreign investors. For Beijing sanctions would offer a way to enforce its strict capital controls and protect sensitive data of local companies. While US investors will miss out, China’s own tech industry could end up suffering the most. A blacklist is planned to target new companies in sensitive sectors that use so-called variable interest entities to structure their China businesses. This popular legal structure gets around foreign ownership restrictions. More than a third of US-listed mainland companies use VIEs. Restrictions would probably hit China’s data-intensive sectors or those causing national security concerns.If meant as retaliation against US restrictions on Chinese investment in Silicon Valley start-ups, the blacklist would certainly land a blow on US investors. Chinese tech companies have been a source of lucrative returns for years. They have had fair warning. After a year’s worth of crackdowns by Beijing and US delisting threats, foreign venture capital poured more — about $24bn in the third quarter — into backing Chinese start-ups. Total investment this year is significantly more than last year. Any restrictions on VIEs must affect VC exit strategies.Any existing companies using a VIE structure are expected to gain exemptions. However, just five months ago, Beijing rolled out new regulations banning after-school tutoring companies from using VIEs without warning. Since then, a number of US-listed China education companies have collapsed. Shares of Tal Education have fallen 93 per cent this year. The timing is unfortunate. Beijing has aggressively pushed for self-sufficiency in big data. The government hopes to achieve this by tripling the revenues of the local industry to Rmb3tn ($471bn) in the next four years. Most mainland big data and artificial intelligence companies are private, early stage companies which could use plenty of funding from international investors.Larger companies also benefit from listing in the larger, overseas stock markets. Recent Chinese tech listing flops in Hong Kong mean the city may not offer an attractive option. Artificial intelligence firm SenseTime has decided to shrink the maximum size of its planned listing, to $767m, down from initial plans of raising at least $1bn.Government spending would have to increase by many times to support development of this sector without foreign boosters. Depending on how extensive the impending blacklist is, Beijing could stunt its own technological growth in the long run.The Lex team is interested in hearing more from readers. Please tell us what you think about investing Chinese mainland companies in the comments section below More

High inflation is challenging the ECB, which has little experience dealing with rapid price growth and complicates a crucial policy decision due on Dec. 16.While the ECB has maintained that inflation is temporary and will come back under target on its own, a growing number of policymakers are voicing their concern that a less benign outcome is also possible, so the bank should curb stimulus. While largely repeating the ECB’s recent stance, de Guindos acknowledged that inflation risks were “moderately” on the upside and the drop would be slower than once thought. “We are fully convinced that inflation will start to decline at the beginning of next year and in the second half of next year inflation will start to decelerate even more and will converge with our target of 2%,” de Guindos told a conference.”Perhaps the convergence towards the 2% target will take a little bit longer but no doubt that inflation will decelerate in 2022,” he added.Inflation hit 4.9% last month, a record high, and most private forecasters do not see it back under the ECB’s 2% target until very late 2022.De Guindos also played down the impact of high price growth, arguing that there’s no evidence that wages were reacting to temporary price pressures.”But wage growth is expected to be higher in 2022 than in 2021,” he said. “And we have to … stay vigilant with respect to the evolution of wages and the wage bargaining process.”He also said that while supply chain bottlenecks and pandemic-related restrictions could dent growth in the near term, these factors were unlikely to have an impact further out.”I do not think that this will derail the euro area recovery,” he said. “Growth factors are quite strong in the medium term.” More

Investing.com — The Omicron relief rally stalls on reports of fresh lockdowns in Europe, while preliminary findings from South Africa appear to confirm that the effectiveness of current vaccines against the new strain is indeed at least partly reduced. Robinhood (NASDAQ:HOOD) stock jumps as its early backers remove a key overhang. There’s central bank action in Brazil, Poland and – most interestingly – Canada, which is expected to flag its first interest rate hike when its policymaking council meets later. Oil prices have the froth knocked off them as the market digests a mixed bag of inventory data from the U.S. Here’s what you need to know in financial markets on Wednesday, 8th December.1. Omicron relief rally stalls as new data emergeMore information continues to emerge on the Omicron variant of Covid-19, and while it is far from all bad, it’s still not the all-clear.Preliminary findings from South Africa show that the variant is indeed partly capable of avoiding the immune response triggered by the Pfizer-BioNTech vaccine (a fear already flagged by officials at Moderna (NASDAQ:MRNA) regarding their own vaccine). However, the scientists leading the research said the results also indicated that previous infection coupled with vaccination still provides a good degree of immunity.On Tuesday, the U.S.’s top doctor Anthony Fauci had said that Omicron “almost certainly” isn’t more dangerous than the currently dominant Delta strain. The World Health Organization also talked up the effectiveness of existing vaccines against Omicron.2. Sterling slumps on reports of new lockdown comingOmicron may be less likely to cause serious illness than Delta, but it threatens to accelerate the spread of the disease in the northern hemisphere just as seasonal influences on transmission reach their peak.The British pound slumped after reports suggested that the U.K. government is about to reintroduce social distancing restrictions only five months after its much-trumpeted ‘Freedom Day’. That comes just as the government struggles with embarrassing leaks of a party held at 10 Downing Street last Christmas just after it had imposed a nationwide ban on any such events.European travel-themed stocks – which were already underperforming after a warning from tour operator Tui on the impact of Omicron – slumped again. Oil prices also fell to session lows.3. Stocks set to open mixed; Robinhood in focus U.S. stocks are set to open mixed, with the U.K. news prompting some to call a halt to the Omicron relief rally seen so far this week. By 6:15 AM ET (1115 GMT), Dow Jones futures were down 53 points, or 0.2%, while S&P 500 futures were up 0.1% and Nasdaq 100 futures were up 0.4%. The Dow, with its heavier exposure to ‘reopening’ themes, has outperformed in recent days after being hit harder by the initial wave of fear about the Omicron variant.Stocks likely to be in focus later include Robinhood, which said late Tuesday it has filed to cancel an agreement allowing early backers to unload over 10% of its share capital. Robinhood stock was up 3.8% in premarket. Across the Atlantic, Nestle stock and L’Oreal stock both rose after the former agreed to sell a 3% stake in the latter back to it at a 7% discount to current market value.Brown-Forman, United Natural Foods (NYSE:UNFI) and Campbell Soup (NYSE:CPB) all report earnings, as does Weber (NYSE:WEBR).4. Global central bank action hots upIt’s a big day for central bank action outside the U.S., with Brazil and Poland both set to raise interest rates at their meetings later.Brazil is expected to hike its key rate by 150 basis points to a four-year high of 9.25%, while Poland, whose key rate was still at 0.1% in September, is expected to hike another 50 basis points to 1.75%.  However, the most interesting meeting of all may be in Canada, where the central bank has already stopped its quantitative easing program. The bank is expected to signal when its first rate hike will be.India’s central bank earlier left its key rate unchanged at 4.00%, as expected.5. Oil prices dip on fears of new lockdowns; EIA data dueThe U.K.’s news knocked some of the froth off crude oil prices, as traders factored in the risk of another wave of demand-killing restrictions on mobility.  By 6:25 AM ET, U.S. crude futures were at an intraday low of $71.15 a barrel, down 1.3% on the day but still up by more than 6% from last week’s low. Brent crude futures were likewise down 1.0% at $74.65 a barrel.The market had barely reacted on Tuesday to inventory numbers from the American Petroleum Institute, which showed a surprisingly large drop in crude stocks last week but also an offsetting rise in gasoline stocks. The government’s data are due at 10:30 AM ET. More

TOKYO (Reuters) – Japan will deny some tax breaks to big companies that do not hike wages while boosting deductions for those that do, as it moves to boost domestic salaries, a final draft of the ruling party’s annual tax reform plan showed on Wednesday.Wages in Japan have stayed largely flat over the past 30 years, OECD data shows, causing “lost decades” and grinding deflation, while the ruling LDP and its coalition ally Komeito are expected to endorse the plan on Friday.The carrot-and-stick approach underscores Prime Minister Fumio Kishida’s focus on distributing wealth to households, with steps such as urging pay hikes of 3% or more by firms whose profits have returned to pre-pandemic levels.”The move shows the government has no choice but to intervene in private-sector wages to stoke a positive cycle of broad wage hikes and sustainable inflation in the long run,” said analyst Yoshimasa Maruyama.But it was doubtful the measures would immediately prompt firms to raise wages as they had recently lifted pay, added Maruyama, the chief market economist at SMBC Nikko Securities.Lawmakers of Kishida’s Liberal Democratic Party (LDP) have also agreed on tweaks to tax breaks on mortgages in another major reform for the next fiscal year, a senior lawmaker told Reuters. Such tax breaks, adopted to cushion the pain of a hike in sales tax in Oct. 2019, now permit a deduction of 1% of outstanding housing loans at the end of each year, for up to a decade.LDP lawmakers agreed on Tuesday to cut that deduction to 0.7% instead of 1%, as the exemptions outstrip the interest rates paid by homebuyers on such loans, while extending the term to 13 years from 10, to keep the amount of tax breaks steady.UNDER PRESSURE Since it swept to power in late 2012, the LDP-led government has piled pressure on cautious Japanese firms to spend their record cash piles to boost wages. But many have resisted, in the face of economic uncertainties.Large companies that raise wages by 4% from the previous year will get deductions of up to 30% of taxable income, up from the maximum of 20% now, according to the plan for next fiscal year’s tax reform obtained by Reuters.Small firms that raise wages by 2.5% will qualify for a tax deduction of up to 40% from the current maximum of 25%.However, companies that do not raise wages will not be able to claim tax deductions for spending on areas such as research and development, promoting investment, 5G, digital transformation and carbon neutrality, the draft showed.Wage increases of 4% would represent a significant hike for Japanese firms, compared with offers of about 2% at annual wage talks with unions in recent years. More

Hi from Washington, where we have both Margrethe Vestager, the EU’s competition and digital policy chief, and Anne-Marie Trevelyan, the UK’s new trade minister, in town. Vestager is here to launch the US’s and EU’s shiny new initiative on co-operating over tech antitrust policy, while Trevelyan is hoping to gain some sort of traction with US officials on those pesky steel tariffs — one of the subjects of our note today. Charted waters examines evidence (or lack thereof) of reshoring. Trade links features a great read from Nikkei that underlines how supply chain snags are affecting even mega companies such as Apple. From Brexit to spyware, policies pressurise alliesTwo story developments this week have highlighted how the US is increasingly using its trade policy as an element of broader foreign policy. The first is our scoop about the US dragging its feet over striking a deal with the UK to remove Trump-era tariffs on steel and aluminium over the UK’s position on Northern Ireland.This is, of course, a highly sensitive issue for the UK, and was not a story that either Downing Street or the White House wanted to be made public. For those not following this big trade row between the UK and the EU, the UK has been repeatedly threatening to unilaterally trigger Article 16 of its Brexit agreement with the EU, a safeguard clause in the post-Brexit Northern Ireland protocol that overrides part of the UK’s exit with the EU and would suspend checks on goods travelling to Northern Ireland from the rest of the UK.Senior US lawmakers and Joe Biden have warned the Brits that ripping up the NI protocol will destabilise peace on the island of Ireland. The UK has retorted that it does not see the two things as linked, and will have to do what it thinks is best when it comes to the delicate issue of the protocol.This is a deeply unusual situation. Straight-up trade policy, and tariffs imposed on the imports of an ally by a prior administration no less, is being used to pressure an ally to behave in certain way on an arguably unrelated topic.The second example is the case of the commerce department’s entity listing of Israel’s military-grade spyware group NSO, whose Pegasus software was used to infiltrate the phones of journalists, dissidents, human rights activists and diplomats. The listing, which happened about a month ago, means US tech companies would need US government permission to make sales to any blacklisted companies. The order also covers US-origin technology not in the US, so would cover sales of US tech by companies outside the US.It was already pretty clear, but there was a suggestion this week that the listing was a straightforward trade retaliation for a national security concern. Reuters reported that US diplomats had been targeted by the software.The listing is often used to ban the sale of cutting-edge military technology to foreign adversaries, and has been used as such with increasing frequency against various Chinese companies under Trump. In these cases, though, the US has been known to offer licences to allow US companies to continue exporting some US tech, because to totally block it would cripple the US semiconductor industry. In fact, one potentially unintended consequence was that the listing of Chinese chipmaker SMIC funnelled more orders towards Taiwanese foundry TSMC, exacerbating the global chip crunch.The case of NSO is in some ways simpler, because the company has no value to the US or to global supply chains, and more complicated, because US relations with Israel are much better than US relations with China (to put it mildly). While the US can grant licences and carefully target its export controls, listing also covers the purchase of technology used to run basic business operations, ranging from phones and laptops for staff to the rental of servers and widely used cloud computing services from US companies. One former commerce official said the US could “absolutely” block all of those basic item transactions. Jim Lewis, of the Center for Strategic and International Studies, said that in reality, a listing “signals to everyone that the company is radioactive and shouldn’t be touched”.About a month after the listing, we’re beginning to see the effects. It seems NSO’s lenders are preparing for a restructuring of the group’s debt. Lenders have said they’ve tried to sell the loan on to other investors but have struggled to find willing buyers even at a discounted price.So what next? Well, we expect to see more punitive export controls placed on spyware groups. The US has long used Treasury sanctions to cut off individuals and companies from the dollar, now it’s ramping up its use of trade instruments to try to push companies out of the global supply chain. As for the talks with Trevelyan, we’ll be watching out for any progress, but it seems like they may have risen above the usual trade diplomat channels. Charted watersThere has been a lot of chatter since the pandemic began predicting the regionalisation of goods trade. The belief is that the pandemic has exposed the vulnerability of countries and companies relying on shipping vital goods from Asia or other production hubs. There are shortages of everything from semiconductors worldwide to glass bottles in the US. The idea of reshoring trade has taken hold, with those in favour arguing that it’s better to produce things close to where they are consumed than rely on globalisation to deliver the goods. However, the annual DHL Global Connectedness index questions that. It found trade distances continued to increase over the course of 2020. “If a robust shift toward regionalisation were under way, we would expect trade, on average, to take place over shorter distances,” states the report, compiled by Steve Altman, director of the DHL Initiative on Globalization at NYU Stern, and colleagues. Andy BoundsTrade linksMust-read alert. Nikkei tells the story of Apple’s nightmare before Christmas, explaining why ($) the tech giant has not been unable to produce nearly as many models of its iPhone 13 as it would have liked. Australia has joined the US in boycotting the Winter Olympics, to be held next year in Beijing. The American Enterprise Institute, a right-leaning think-tank, argues that China tariffs don’t matter to inflation. The UK wants to ease trade barriers with individual US states, according to Bloomberg ($). Coffee has hit a 10-year high on the back of supply chain bottlenecks. China is pretty interested (Nikkei, $) in the result of New Caledonia’s referendum on independence from France on Sunday, with firms here having purchased more nickel and cobalt from the territory in 2020 than the previous four years combined. Aime Williams, Francesca Regalado and Claire Jones More