Aurelia Butler

Investing.com — There are jobless claims and Federal Reserve speakers galore – and an auction of inflation-linked Treasury bonds to look out for in your daily check on the outlook for U.S. interest rates. China takes a step forward to clear up one of the biggest messes in its real estate sector, India’s payments champion suffers an embarrassing fall on its market debut, and Nvidia (NASDAQ:NVDA) is set to lead U.S. stocks higher at the open. Oil continues to weaken on talk that the world’s biggest consumers will coordinate a release of strategic reserves. Here’s what you need to know in financial markets on Thursday, 18th November. 1. Jobless claims, TIPS auction and Fed speakers galore It’s a busy day for those trying to track the evolution of the Federal Reserve’s thinking on interest rates. The regional presidents from Chicago, New York, San Francisco and Atlanta will all speak during the day, and will have the opportunity to comment on the 30-year high in inflation and the latest weekly jobless claims data which are due out at 8:30 AM ET (1330 GMT). Analysts expect initial claims to edge down to a new post-pandemic low of 260,000.On Wednesday, JPMorgan (NYSE:JPM) had joined Goldman Sachs (NYSE:GS), Citigroup (NYSE:C) and Morgan Stanley (NYSE:MS) in shifting its house view on the coming tightening cycle. JPM now sees the first interest rate hike coming in September next year.There may also be more interest than usual on the Treasury’s auction of inflation-protected 10-year notes at 1 PM ET, given that yields on such paper have fallen close to all-time lows recently.2. China’s National Team set to bail out Huarong China stepped up its efforts to stop the slow-motion train wreck in its real estate sector from accelerating.China Huarong Asset Management, a specialist investor in distressed debt, will be recapitalized with an injection of up to $6.6 billion from a handful of state-backed financial institutions including Citic and China Life. That will dilute the Finance Ministry’s directly-held stake below 50%.  It will also sell its 40.53% stake in Huarong Xiangjiang Bank and an 80% stake in Huarong Financial Leasing.The recapitalization represents further progress in stabilizing the vehicle that holds a lot of the most toxic developer debt in China. Huarong’s former chairman was executed in January for financial crimes.3. Stocks set to open higher, boosted by NvidiaU.S. stocks are set to open higher later, recouping some of the losses of Wednesday that followed another unsettling batch of retail earnings.By 6:20 AM ET, Dow Jones futures were up 77 points, or 0.2% at 36,007 points, while S&P 500 futures were up 0.4% and Nasdaq 100 futures were up 0.6%.Stocks likely to be in focus later include Nvidia, whose buoyant forecast for the coming quarters after the bell on Wednesday is one of the main reasons for the turn in sentiment. Going the other way is likely to be Cisco Systems (NASDAQ:CSCO), whose problems with supply chain and other input cost issues were only too visible in its quarterly report. Intuit (NASDAQ:INTU) and Advanced Materials lead a much-diminished earnings roster Thursday – and both of them report late.4. India’s Paytm flops in massive IPOMaybe somebody does ring a bell at the top of the market in other countries. India’s largest domestic fintech, Paytm, fell 27% on its debut overnight, amid concerns about valuation, its unclear path to profitability and the willingness of early backers such as SoftBank (OTC:SFTBY) and Ant Group to sell down their stakes.It’s the latest, and by some way the biggest, company to fall flat on its debut in Mumbai, although a series of expensive IPOs still hasn’t derailed the benchmark SENSEX index, which is still only 5% off last month’s record high. India’s stock market has risen some 50% in the last 12 months as the country has defied doomsayers to overcome the Covid-19 epidemic. Case numbers have not picked up in recent weeks, despite signs of a fresh wave further east in Asia and, increasingly, in Europe and North America. Despite the weak debut, Paytm was still valued at around $15 billion at the close of trade.5. Oil weakens again on talk of coordinated reserve release Crude oil prices continued to ease after Chinese authorities confirmed that they have been examining the possibility of a coordinated release of strategic petroleum reserves to dampen high prices.By 6:30 AM ET, U.S. crude futures were down 0.1% at $77.13 a barrel, while Brent was down 0.1% at $80.24 a barrel.Prices had fallen to their lowest in six weeks overnight, despite data from the U.S. government showing a surprisingly sharp drop in both crude and gasoline inventories last week. More

Hello from Brussels. In today’s newsletter we update you with developments in a variety of running stories, which have a common theme: multilateral policymaking is a bit of a shambles, but attempts to fill the vacuum with bilateral or indeed unilateral — sorry, “autonomous” — actions are problematic. It’s the kind of wailing and rending of garments (in a snarky, low-key way) on which we thrive. To balance it out, next week we’ll argue that the prospects for actual trade are actually quite good, despite the occasional efforts of governments to get in the way and muck things up. Today we have three items for you lucky people, so the style of today’s newsletter is a little different. Charted waters delves into inflation and supply chains. The flimsy US framework that won’t worry ChinaFirst up, we’ve more news on China’s bid for dominance of the Asian trade architecture and whether the US is going to do anything serious about it. On Tuesday we noted that the Biden administration, having said it had no plans to join the CPTPP (the Comprehensive and Progressive etc, you know the one), will instead launch some exciting frameworks for economic co-operation in Asia. US trade representative Katherine Tai unveiled the first one yesterday, with Japan, and in an interview with the Financial Times said the US needed a “course correction” in Asia. Judge for yourself, but to us this US-Japan framework looks like a talking shop with no binding commitments in sight. We particularly enjoyed the commitment to undertake “co-operation in regional and multilateral trade-related fora”, given that the US remains largely absent from the big debates in the World Trade Organization and isn’t joining the only deal in the Asia-Pacific region that really matters (the aforementioned CP thingy).In related chin-stroking news, the US, Japan and EU have got the band back together in the form of their trilateral partnership to come up with new definitions of government subsidy that China can then reject out of hand the second they present them for discussion at the World Trade Organization. Forgive our negativity, but this trio did their first gig in 2017, and after long periods of stalling over “creative differences” they have yet to release even a demo version of their first album.Brussels bigs up tree-hugging coffee-growersToday’s second development comes from Brussels, where the European Commission yesterday released its plan for greening trade/imposing neocolonialism over developing country exporters (delete according to preference), with the launch of its plan on preventing deforestation. It will require companies importing or selling certain commodities (beef, soyabeans, palm oil, coffee, cacao and timber) into the EU market to prove their products’ tree-hugging credentials. It has the usual attributes of Brussels’ attempts to impose high standards through trade, for which see also the EU’s food and farming regulations. It may be well-meaning (though no doubt with a strand or two of protectionist sentiment in there), but the difficulty of monitoring and implementation means some imports will quite likely be kept out because of the costs of compliance, probably those coming from smaller producers and poorer countries. It’s also, for all Brussels’ talk of international partnership and co-operation, unashamedly unilateralist and potentially WTO non-compliant. You might argue that the world’s forests and the climate can’t wait for a multilateral solution or that this presents a model others can build into a wider agreement, and you may be right. But the EU has already been here with its de facto ban on imports of palm oil, and the likes of Malaysia and Indonesia do not regard Brussels as pioneering the enlightened making of environmental policy.The China-India awkward squad is on patrolLastly, we turn our attention to the big climate change Conference of the Parties (COP26) in Glasgow, which over the weekend finally ended after nearly two weeks. (Why such gatherings have to be about twice as long as any other annual policy summit is quite beyond us.) In the end, it didn’t turn into a bunfight over climate and trade as some feared. The EU getting its carbon border adjustment mechanism (CBAM) proposal out well ahead of the game with limited product coverage and a multiyear lead-in has managed to turn the arguments about carbon emissions protectionism into a technical debate about system design and WTO compatibility, at least for the moment.No, what we’d take from COP26 is that China and India’s last-minute dilution of the promise to phase out coal shows they are prepared to be the awkward squad at international policy summits and portray it as sticking up for developing countries against rich-world hypocrisy. This doesn’t bode well for the big WTO ministerial conference, now less than two weeks away. Delhi has been a pain about more or less everything on the agenda, and the Indian media have been reporting that the Modi government remains unhappy with the latest proposal for the one big deliverable of the meeting, a deal on fisheries subsidies. More on the WTO ministerial next week and the week after. And there we have it. Co-ordinated policy in trade is in short supply, but attempts to fix it with partial initiatives aren’t an obvious roaring success. A cheery thought.Charted watersThe Bank for International Settlements published an interesting paper last week, arguing that most of the inflation we’re seeing right now is down to bottlenecks in global supply chains. (FT Alphaville’s Izabella Kaminska has written it up here.) The chart adds weight to that argument, showing that — as one would expect if world trade was indeed triggering inflation — most countries have witnessed a surge in inflation.However, it also goes to show that the inflation we’re seeing right now is not entirely down to snags in supply chains. Inflation in the US is about two percentage points higher than on this side of the Atlantic. We think this has something to do with the tenor of the US’s fiscal stimulus, which has boosted consumer demand here more than anywhere else on the planet. Claire JonesTrade linksOne of China’s biggest chipmakers has warned (Nikkei, $) it may have to drop orders from foreign clients next year to prioritise domestic demand, Nikkei Asia has learned.The consultancy McKinsey argues that there is a lot of room to make the world’s trade finance industry more efficient to help more marginal companies access the global trading system. (We’ll be writing about trade finance before too long.) UK retailer Marks and Spencer warns that the EU’s efforts to fix the post-Brexit Northern Ireland problem with a system of labelling goods by destination could make things worse.The FT’s editorial board opines that Joe Biden and Xi Jinping should talk more.Singapore’s prime minister has offered (Nikkei, $) the US the Digital Economic Partnership Act it signed with New Zealand and Chile as a starting point for a regional digital trade pact like CPTPP. Alan Beattie and Francesca Regalado More

WASHINGTON (Reuters) – Huge spending by governments kept the world economy afloat during the pandemic as officials mobilized a fiscal response not seen since World War Two to bolster household incomes and give businesses a fighting chance to survive the health crisis.    But the resulting nearly $300 trillion pile of debt held by governments, businesses and households will leave many countries with vulnerable finances and weigh on efforts to address urgent challenges such as climate change and ageing populations.    Even as rich and poor governments take stock of battered finances, inflation is pushing central banks toward higher interest rates and a tightening of monetary policy which, for the indebted, can only make the math less favorable.    “That means higher borrowing costs, higher interest burdens for the government and for the real sectors,” said Emre Tiftik, direct of sustainability research for the Institute of International Finance (IIF), the global association of the financial industry.     “Over the medium term, the issue is all about finding the resources to fund climate goals and most are extremely behind on that,” he added of the rapid decarbonization of the global economy needed to avert a climate crisis.    This month’s Glasgow climate talks produced some new pledges by countries to reduce carbon emissions, but left many questions unanswered about how commitments will be financed and put into practice.     According to the IIF, global debt may just about have hit its peak from the pandemic and may fall slightly by year’s end from the current $296 trillion. COVID-19 has ramped up government debt levels, https://fingfx.thomsonreuters.com/gfx/mkt/mopanlwayva/Pasted%20image%201636715325503.png But easing the reliance on carbon-based fuels and mitigating climate damage is expected to require massive public and private investment – on order of $90 trillion by 2030, according to one World Bank estimate.     At this point there’s no global plan for how to underwrite it, and governments’ share of climate investments will have to compete with social, health and other spending priorities set to intensify because of demographic trends like ageing populations.    The vast pandemic stimulus deployed by the rich world propped up their economies successfully, and was also sustainable in a landscape dominated by low or near-zero interest rates. But as the cycle switches to policy tightening, this will mean higher interest costs, higher risk of possible debt crises in emerging markets, and less capacity to meet climate goals.    “The balance of benefits and costs of debt accumulation is increasingly tilted towards costs,” scholars at the Washington-based Brookings Institution wrote last month, citing possible constraints on policy and “crowding out” of private investment.GOING PRIVATE?    Low-income countries will be hit hardest, with some already facing unsustainable debt levels and others locked out of the more favorable financing available to wealthier countries, according to London School of Economics professor Amar Bhattacharya.    “The cost of servicing debt is very high and that can interact with climate ambition and climate vulnerability,” he said, urging more effort to restructure those countries’ debt.    By contrast, developed countries can finance debts in domestic currencies usually at low rates, and in the case of the U.S., Europe and some others, have central banks with effectively unlimited capacity to absorb debt and create bank reserves.    U.S. Congressional Budget Office projections in July 2021 showed U.S. debt service costs as a percent of gross domestic product rising only modestly in the coming decade from about 1.6% in 2020 to 2.7% in 2031 – even with overall debt rising to 106% of GDP by then, a level which in prior years would have triggered alarm bells.      “Economically the most advanced economies do not face much of a debt constraint right now,” said Jason Furman, a Harvard University economics professor who has tried to reshape the debate about public debt to focus more on the servicing costs and less on the total amount.    But it is politically sensitive, prompting Congressional officials to trim President Joe Biden’s proposed climate investments. And there’s still a chance of disruption from either an abrupt shift in Federal Reserve policy, and the potential impact on global financial markets that could trigger, or if Congress fails to raise the U.S. debt ceiling.Europe is going through its own balancing act, as EU capitals debate how to relax rules that oblige governments to keep budget deficits below 3% of GDP and debt below 60%.    Most agree those restrictions are no longer realistic, and would require debt cuts that are way too ambitious for most EU countries, keep economic growth on track and make room for the annual 650 billion euros the EU needs to tackle climate change over the next decade.    Such realities explain the fervor in Glasgow that greeted U.N. climate envoy Mark Carney’s announcement that banks and other institutions with a total $130 trillion of private capital had made combating climate change a priority.    But as critics questioned whether all of that astronomic sum was really aligned to a net-zero carbon world, it was clear that governments, whether rich or poor, will have to figure out how they do much of the heavy-lifting, regardless of any immediate debt squeeze they may face.    What might focus minds, as the LSE’s Bhattacharya told a webinar this week, is if the investment is not found now to tame the growing climate impacts on the economy, then the world’s debt is likely to become even more unmanageable.    “That investment is the best way for actually assuring long-term debt sustainability,” he said. More

The United States and Japan announced on Wednesday a new trade partnership to boost cooperation on labour, environment and digital trade issues, with an emphasis on “third country concerns”, a reference to China’s state-driven economic policies.Tai, who has been visiting Tokyo and met with Japanese officials on Wednesday, told NHK in an interview that the new partnership with nations in the Indo-Pacific region could be launched as early as next year.”Early next year, we are considering working with countries in the region to set up an economic framework, a framework with countries that share issues,” she was quoted as saying. No further details were given.Former U.S. President Donald Trump pulled the United States out of the Trans-Pacific Partnership (TPP) trade deal in 2017, and Tai has said that she would work to cooperate with countries in Asia on trade, but the world looks very different from 2015, when the TPP was negotiated. More

The recovery of the euro zone’s second biggest economy has surpassed most expectations this year as consumer spending bounded back following a mass vaccination campaign.Growth is now set to reach 6.8% this year and 4.2% in 2022, the OECD said in an in-depth report on the French economy. It had previously pencilled in forecasts of 6.3% this year and 4.0% next year.The government’s support measures for the economy during the crisis left the public finances severely strained and debt at record levels, just as France plans major investments to decarbonise the economy and faces growing costs from an aging population.With public spending already among the highest the world at nearly 60% of GDP, the OECD said France needed a multi-annual spending rule, which it said had a positive track record in curbing deficits in other high spending countries like Sweden.It said that would force the government to rationalise spending with in-depth reviews to ensure that money is well spent, which the OECD said was not always the case given the myriad of public bodies at different levels.While Finance Minister Bruno Le Maire has supported a multi-year spending rule and even writing it into the constitution, President Emmanuel Macron has so far not come out in favour or against.The OECD also said France’s pension system was too fragmented and spending too high. Macron shelved reform plans for now last week with a presidential election looming next April.As France like many European nations falls behind on its CO2 reduction targets, the OECD said it needed not only to boost green investment but also phase out tax breaks polluters benefit from and raise more environmentally friendly taxes.Macron scrapped a carbon tax in 2018 after it helped spark off waves of the most violent street demos in decades and triggered a broader anti-elite movement named after the high-visibility yellow vests protestors wore. More