Economy

BOGOTA (Reuters) – During this month’s U.N. Biodiversity Summit, known as COP16, in the Colombian city of Cali, nearly 200 countries will be debating how they can save nature from the current rapid rate of destruction.Here is what to watch for:NATIONAL ACTION PLANSTwo years after brokering the world’s landmark Kunming-Montreal Global Biodiversity Framework, countries now must spell out how they plan to meet more than two dozen globally agreed goals. They include setting 30% of their territories aside for conservation, slashing subsidies for businesses that harm nature, and mandating that companies report their environmental impact.Countries are expected to submit those national biodiversity plans, known as NBSAPs, by the start of the Cali summit that runs from Oct. 21 to Nov. 1.Delegates will use the submissions to gauge how much progress has been made since the COP15 summit in 2022 and what needs to be prioritized going forward.GENETIC INFORMATIONGenetic information taken from plants, animals and microbes can be used in researching and developing new medications, cosmetics or other commercial compounds.Historically, national laws and the 2010 Nagoya Protocol focused on how to pay the country of origin for the sharing of physical samples. But now that genomes can be sequenced in hours, rather than years, the amount of digital genetic information shared online has exploded and is increasingly divorced from original samples.The summit aims to establish a global multilateral system for paying for access to that data, called digital sequence information (DSI), with negotiators telling reporters in August that they expect an agreement during COP16.A deal would likely spell out when payments are required, by whom, and where the money should go. Companies are hoping that the possible deal will eliminate the legal uncertainties of working with DNA sequences.INDIGENOUS COMMUNITIESCOP16 host country Colombia has put the inclusion of Indigenous and traditional communities at the center of its agenda in Cali. The U.N. office for the Convention on Biodiversity – which oversees implementation of the original 1992 nature pact – has called for special protections to be given to Indigenous groups in voluntary isolation, stressing these communities’ role in protecting nature.COP16 will look to finalize a new program for including traditional knowledge in national conservation plans and decisions.Summit negotiators will also discuss the possible creation of a permanent body on Indigenous issues to ensure that these groups are represented in the U.N. decision-making on biodiversity.BOOSTING FINANCEWealthy nations agreed at COP15 in Montreal in 2022 to contribute at least $20 billion annually starting in 2025 toward helping developing countries meet their nature goals, with the target rising to $30 billion by 2030.Up to now, biodiversity aid has fallen short of those levels. Governments provided about $15.4 billion to helping developing countries on biodiversity in 2022, up from $11.4 billion in 2021, according to the Organisation for Economic Co-operation and Development (OECD).In Cali, both governments and companies are expected to announce further funding efforts, while also discussing new mechanisms for channeling money toward nature.OVERLAPS WITH CLIMATE CHANGE While countries have traditionally discussed global climate efforts separately from biodiversity, leaders are increasingly looking at ways of addressing both sets of goals simultaneously. After all, the two issues – climate change and nature loss – are deeply interrelated. Safeguarding nature helps to curb climate change, while global warming is also destroying biodiversity and driving extinctions. Experts say that COP16 must raise pressure ahead of November’s COP29 climate summit in Baku, Azerbaijan, for better recognition of the role of nature in fighting climate change. More

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MOSCOW (Reuters) – The Russian central bank is expected to hike the key interest rate by 100 basis points (bps) to 20%, the same level as at the start of what Russia calls a “special military operation” in Ukraine, according to a majority of analysts polled by Reuters.Twenty-five analysts out of 30 who participated in the poll anticipate the interest rate will be at 20% after the Oct. 25 meeting of the regulator’s board. Five analysts expect an even larger hike of 200 bps to 21%, marking a new historic high.”Most likely, a 20% rate with strong rhetoric aiming for 21% in December,” said Anton Tabakh from Expert RA credit rating agency, adding that a rise in the population’s inflationary expectations and an inflationary budget were the main culprits.Russia unveiled a new draft budget this month with a higher-than-expected deficit for this year, higher-than-expected utilities tariff hikes next year, and increased military spending.Central bank officials said some parts of the draft budget came as a surprise. Meanwhile, inflationary expectations among Russian households for the year ahead rose to 13.4% in October, up from 12.5% in September.These expectations, which the central bank sees as important a gauge as actual inflation, have been rising steadily since April, dropping slightly only in September. They are currently at the highest level since the start of the year.President Vladimir Putin’s economic aide, Maxim Oreshkin, said earlier that inflation, currently running at 8.5%, has peaked and is slowing down, but stressed that more effort to slow inflation is needed.Some analysts also argue that the weak Russian currency, which lost 10% against China’s yuan in September alone and has been weakening against all major currencies since early August, is another reason for the hike.”Two pro-inflationary factors have emerged since the last meeting: currency depreciation and the new budget figures,” said Natalya Orlova from Alfa Bank, arguing that the rouble’s weakness is temporary.The central bank, which sees inflation at 7.7% by the end of the year, is also under pressure from influential businessmen who say that high rates are painful for the economy, but analysts say such pressure will not deter the regulator.”At the moment, its mandate is very strong, after the country’s leadership, having faced a shock stronger than those in 2014 and 2020, has once again been convinced of its ability to ensure stability,” said Oleg Kuzmin from Renaissance Capital.The central bank argued that the reasons for hiking the rate to 20% in March 2022 — and keeping the rate high now — are different. In 2022, the regulator wanted to calm markets spooked by the events in Ukraine, while now it is fighting inflation. More

NEW YORK (Reuters) – Federal Reserve Bank of Dallas President Lorie Logan said Monday she sees more rate cuts ahead for the central bank and suggested she sees no reasons why the Fed can’t also press forward with shrinking its balance sheet.“If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate toward a more normal or neutral level can help manage the risks and achieve our goals,” Logan said in the text of a speech to be delivered before the Securities Industry and Financial Markets Association annual meeting in New York. “The economy is strong and stable,” Logan said, but, “meaningful uncertainties remain in the outlook” around rising risks for the labor market and ongoing risks to the Fed’s inflation objectives. The Fed “will need to remain nimble and willing to adjust if appropriate,” she said. Logan spoke as market participants are currently debating whether the Fed will be able to deliver the half percentage point worth of rate cuts into year-end it penciled in at its September policy meeting. While inflation has been retreating, recent jobs data has suggested a stronger-than-expected labor sector, which to some suggests the Fed may not need to be as aggressive with cutting rates. Logan devoted much of her remarks to the Fed’s ongoing balance sheet drawdown process known as quantitative tightening, or QT. Since 2022 the Fed has been shedding mortgage and Treasury bonds it purchased to provide stimulus and to smooth markets during the onset of the pandemic. It has reduced holdings from a peak of $9 trillion to the current $7.1 trillion mark and Fed officials have suggested this process has room to run further. Logan indicated she doesn’t see any need to stop soon and noted QT and rate cuts both represent a normalization of monetary policy and are currently working in the same direction. “At present, liquidity appears to be more than ample,” Logan said, noting “one sign liquidity remains in abundant supply, and not merely ample, is that money market rates continue to generally run well below” the Fed’s interest on reserve balances rate. Logan said recent volatility in money markets isn’t surprising and shouldn’t vex the Fed, noting “I think it’s important to tolerate normal, modest, temporary pressures of this type so we can get to an efficient balance sheet size.” Logan said that longer run she expects there will be only negligible balances in the Fed’s reverse repo facility. If some money is still in the facility in the future, she added, “reducing the (reverse repo) interest rate could incentivize participants to return funds to private markets.” Logan said longer run it’s likely money market rates should be close to or just above the interest on reserve balances rates. She also said the Fed selling mortgage bonds it owns to move them off the balance sheet faster is “not a near-term issue in my view.” Logan also reiterated “all banks” should have plans to meet liquidity shortfalls and be ready to use the Fed’s Discount Window liquidity facility if needed. More

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Latin America is anxiously counting the days to Nov. 5, when U.S. voters will choose between relative continuity under Vice President Kamala Harris or a return to policies that triggered volatility in the region’s largest markets and economies under former president Donald Trump.Trade and tariffs, as well as monetary policy’s effect on global interest rates, are likely the largest avenues for the election to jolt the U.S.’s neighboring region. Washington’s economic war with China could particularly rock Mexico and boost Brazil, especially in a tit-for-tat scenario.On a broader level, a Trump victory would likely send shockwaves through the region, potentially putting the squeeze on some currencies and central banks even as countries that are more tied to commodities or trade with China could emerge largely unscathed.While the Biden administration did not roll back tariffs imposed by Trump on China, Harris’ plan to keep them roughly as they are makes her a dove toward the world’s No. 2 economy. Under Trump, tariffs on Chinese products would jump to around 60%. China will also hover over talks to revise the U.S., Mexico and Canada trade deal (USMCA), scheduled for 2026, as some goods including from Chinese companies’ transplant factories could stop being treated as Mexican. Automotive sector content requirements, known as “rules of origin,” are likely to loom large in those talks. Trump said weeks ago that he would slap a tariff as high as 200% on vehicles imported from Mexico.”A trade war (with China) would likely intensify in the case of a Trump presidency, and I think that the most affected country in Latin America could be Mexico,” said Carlos de Sousa, emerging markets strategist and fixed income portfolio manager at Vontobel. “If Trump wins, he would probably try to leverage that (USMCA) sunset clause as some stronger negotiating position, potentially to change the rules of origin.”He added that the increased scrutiny on the trade rules regarding Mexico could mean “We’ll go back, in terms of Mexican asset prices, to a higher volatility level than what we have seen in the last five or six years.”Lazard (NYSE:LAZ) said in a recent client note that a universal 10% tariff like the one proposed by Trump could be used as leverage to prevent countries from skirting tariffs by setting up shop in U.S. trading partners. Other instances of its use as leverage could include policy around migration, as remittances make a big contribution to several regional economies, especially in Central America.South American countries may be in a better position to dodge a stricter U.S. trade regime. The investment bank places copper and lithium powerhouse Chile on a list of countries with high exposure to the US market that could be largely spared based on the less replaceable nature of their exports.Such calculations would become much less relevant in the case of a Harris victory.”If the Democratic candidate Vice President Kamala Harris wins, likely with a divided government, tariff risk would likely decline and we would expect lower growth and investment conditions in the United States, which could lead to sustained outperformance of EM assets,” the investment bank said in its October outlook for emerging markets, published last week.While Mexico’s industrial export economy would likely feel the squeeze under a second Trump administration, other countries that are primarily commodities exporters could even benefit.South America could also benefit from its lower reliance on remittances from the U.S., which under a Trump scenario may be taxed at 10% if U.S. Senator JD (NASDAQ:JD) Vance, Trump’s running mate, follows through on his proposed tax.Some Central American countries such as Honduras and El Salvador receive more than 20% of their GDP from remittances, meaning the tax could translate into a couple percentage points of GDP lost per year. In the case of Mexico, the largest remittance recipient in the region by dollar amount, it could shave over $6 billion in inflows per year based on the 2023 estimate.As trade tensions with Beijing ballooned under Trump in 2018, China replaced all its U.S. soybean imports with Brazilian ones. China is already Brazil’s largest trade partner, and South America’s largest economy would further benefit from even more China commerce.”There can be a tariff outcome that helps Latin America if, as a result of tit-for-tat dynamic, it redirects purchases of primary products away from the U.S. into other suppliers like Brazil and Argentina,” said Alejo Czerwonko, CIO for emerging markets in the Americas at UBS Global Wealth Management.”The rhetoric that tariff uncertainty can only hurt Latin America might be overly simplistic.”A Trump presidency is expected to raise the U.S. budget deficit more than a Harris administration, driving inflation, as well as interest rates, higher. Tighter financial conditions globally could also weigh on Latin American assets. “If Trump wins and the deficits are a bit larger, then the disinflation process could be a bit slower, and that could translate into a slightly slower monetary policy easing” in the U.S., Vontobel’s De Sousa said. Tighter monetary policy in the U.S. has historically translated into subdued financial asset prices across emerging markets, including Latin America.Lastly, Argentina’s President Javier Milei, who shared a stage with Trump earlier this year at a conservative gathering outside Washington, could see his Trump-like abrasive style rewarded. Milei could benefit from added U.S. support if Trump were to be elected as the South American grains exporter seeks to extend or renew its loan program with the International Monetary Fund, of which the U.S. is the largest shareholder.Trump would have a “higher decibel approach to different countries, less institutional and more personal,” said Francisco Campos, chief economist for Latin America at Deutsche Bank. “Because of the ideological affinity and similar governing style between Milei and Trump, maybe Argentina could find itself with a little tailwind under a Trump scenario.” More