Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.A deal to allow EU carmakers to benefit from US subsidies under the Inflation Reduction Act is under threat 24 hours before it was expected to be agreed at a summit on Friday.  US and EU teams are in intensive talks to rescue the accord over Washington’s demands on environmental and labour conditions. The biggest hurdle is the US’s insistence for countries where European carmakers are sourcing their electric battery materials from to allow inspections of mines and processing centres, according to EU diplomats.Brussels says it has similar environmental and labour standards through its own regulations and the inspection idea is impractical, said officials. The proposed deal — scheduled to be clinched on Friday when US president Joe Biden hosts EU leaders Charles Michel and Ursula von der Leyen — is supposed to reduce tensions over the IRA, which dispenses $390bn of tax credits and subsidies to companies producing green technology in the US.The IRA gives $7,500 in consumer tax credits to electric vehicles provided, among other things, its battery has had at least some of its critical mineral content either recycled or extracted and processed in the US or a country with which the US has a free trade or a critical minerals agreement (CMA).The raw materials covered are lithium, cobalt, manganese, nickel and graphite, the main components of vehicle batteries.Although the EU has little production or processing of critical materials, it has said that such a CMA with the US would increase investment in the sectors. Washington struck a CMA with Japan in May but its terms for the EU are more onerous. The US has had a trade agreement with Japan since 2020 covering some agricultural and industrial goods and digital trade, making the minerals agreement simpler, according to people familiar with the talks. Any EU pact must adhere to the Biden administration’s new definition of a trade agreement, which includes strict provisions on workers’ rights and the environment, said officials.France and Germany had lobbied hard for the inclusion of their large car industries in the IRA and the proposed deal had quieted EU complaints about unfair subsidies incentivising companies to relocate to the US.But those tensions could flare up again, according to diplomats. A meeting of member state ambassadors on Wednesday urged the European Commission, which is negotiating, to stand firm.Any deal must be ratified by the member states and European parliament.“It does not look like it will be possible to find an agreement now but we hope it is concluded soon, whether [Friday] or later,” said an EU diplomat. Talks were also continuing over steel and aluminium tariffs. The two sides have yet to agree over the terms of a green steel and aluminium club, which would put levies on imports from China.Officials believe the negotiations will continue after the summit ahead of a deadline of December 31, after which US section 232 tariffs levied on national security grounds would be reimposed on imports from the EU.The US could postpone the move provided the talks are progressing, they said. The commission said that Biden and von der Leyen on Friday will “aim to deliver important progress in our negotiations” both on steel and on critical materials, on the Global Steel Arrangement and a CMA.“Negotiations are ongoing,” the commission said. “Our objective with the CMA is to address EU concerns over key aspects of the US Inflation Reduction Act and support the development of EU-US critical minerals supply chains.”The US trade representative’s office did not respond to a request to comment.  More

Manufacturers have shown notable pessimism about future production. This decrease in sentiment comes at a time when the eurozone, where France is the second-largest economy after Germany, is preparing for slower growth this year, according to forecasts by the European Union.Despite this overall trend in the eurozone, France is expected to buck the trend and secure a 1% growth for 2023, as detailed in a report by Joshua Kirby (NYSE:KEX). This growth expectation for France stands in contrast to the general anticipation of slower growth within the eurozone and the current pessimistic outlook among French manufacturers.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Prime Minister Narendra Modi’s party, which faces elections in key states this year and national polls in 2024, has been under pressure to create jobs and help farmers, which may lead to higher than planned expenditure for the year.”The central government is likely to meet its 5.9% deficit target for FY23-24,” said Krishna Srinivasan, IMF’s director for the Asia and Pacific department. Earlier, this month, India hiked the cooking gas subsidy for low income households to 300 rupees per cylinder from 200 rupees announced in August. This could add to the 3.74 trillion rupees of subsidies for food, fertiliser and fuel planned for the current fiscal year, and with elections on the horizon more such measures are expected.”There’s some pressure on expenditure with higher than budgeted expenditure expense some areas – subsidies, higher MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) expenses. At this stage, we see room in the budget to absorb these unexpected increases,” Srinivasan said.Earlier this month, IMF raised its growth forecast for Asia’s third-largest economy to 6.3% from 6.1%, reflecting stronger-than-expected consumption. More

In remarks scheduled for 12 p.m. (1600 GMT) at the Economic Club of New York, Powell will all but close out a frenetic month following U.S. monetary policymakers’ last meeting in mid-September, when they opted to leave their benchmark lending rate unchanged in a range of 5.25% to 5.50% to assess how the economy was evolving.Since then, data has shown U.S. job growth reaccelerating unexpectedly, retail sales defying predictions of a slowdown and varying measures of prices offering up inconsistent signals as to whether inflation is on track to return to the Fed’s 2% target in a timely manner.If that were not enough, the bond market is reeling and tightening financial conditions at a rapid clip. The most deadly Middle East conflict in years has erupted, with no swift resolution in sight and worries it may widen into a regional war with unknown economic consequences.Hours before Powell was due to speak, the latest read on the labor market showed new claims for unemployment benefits tumbling to the lowest since January, although the rolls of those on benefits for more than a week edged up to the highest since July.At the same time, the bond market sell-off continued, threatening to drive the yield on the 10-year Treasury note that is instrumental as a credit benchmark for households and businesses above the 5% threshold for the first time since 2007.The Fed chair must parse it all while walking a fine line between sounding too confident or too doubtful, with a lean too far in either direction having the potential to swing financial markets – and overall financial conditions in their wake – in unwanted directions.Powell’s appearance comes less than 48 hours before the beginning of the traditional quiet period ahead of the rate-setting Federal Open Market Committee’s meeting on Oct. 31-Nov. 1. While a handful of other Fed officials have appearances later on Thursday and Friday before blackout begins on Saturday, it is Powell’s remarks that will set the tone for policy expectations heading into that meeting, and financial markets will hang on every word.”We think the Fed chair will stick to the message delivered by Vice Chair (Philip) Jefferson that the data has been coming in stronger than expected, but there has also been a big move in yields, which has tightened financial conditions, so no urgency for a policy response in November and the Fed can adopt a wait-and-see approach,” Evercore ISI Vice Chairman Krishna Guha wrote.Indeed, another senior Fed official – Governor Christopher Waller – on Wednesday said he wants to “wait, watch and see” if the U.S. economy continues its run of strength or weakens in the face of the Fed’s rate hikes to date. It was a notable signal from one of the Fed’s more hawkish policymakers that rates for now look set to remain where they are, and it parallels recent commentary from other officials during the turbulent inter-meeting period.Should they leave rates unchanged in two weeks as is now widely expected, it would mark the first back-to-back meetings with no rate increase since the Fed kicked off its hiking campaign in March 2022.While inflation has abated significantly from its peak levels in June 2022, progress has been choppy and Fed officials like Waller are eager to see if the tightening they’ve delivered so far begins to “bite” and slow activity sufficiently to return inflation to target without causing a recession.A Reuters poll of more than 100 economists published on Wednesday showed more than 80% expect no rate hike at the next meeting, and most also believe the Fed is done with rate hikes even though a majority of policymakers at their September meeting projected one more quarter-point increase was likely to be needed by year end.Many in the poll offered the caveat that if progress on inflation stalls out or reverses, the Fed would not hesitate to resume raising rates.Waller said as much on Wednesday: “If the real economy continues showing underlying strength and inflation appears to stabilize or reaccelerate, more policy tightening is likely needed despite the recent run-up in longer-term rates.” More

The comments by Federal Reserve officials have had an impact on the housing market, with declining new mortgage applications observed as 30-year mortgage rates have hit 8%. The broad strengthening of the US dollar has also led to a downturn in equity markets. On Wednesday, the S&P, Stoxx 600, and Russell 2000 indices were lower due to rising yields. Industries such as materials and consumer discretionary notably underperformed, with firms like Boliden and SSAB experiencing a sell-off of 4-6%, despite steady industrial metal prices.In the bond market, a surge in UK inflation data drove GILT yields higher, affecting global bond markets. Smaller currencies such as SEK and NOK were impacted by higher US yields, dwindling risk appetite, and rebalancing needs. Despite the negative sentiment that widened credit spreads in equity markets, the primary credit market remained active with limited deal activity.In other news, the People’s Bank of China is expected to maintain unchanged Loan Prime Rates. Meanwhile, during his visit to Israel, President Joe Biden negotiated a $100 billion supplemental funding package for aid to Israel, Ukraine, and several domestic issues with Egyptian president Abdel Fattah El-Sisi. Today’s data releases will only include the US Philadelphia manufacturing index and weekly jobless claims. The Federal Open Market Committee’s (FOMC) blackout period is slated to start on Saturday.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

BEIJING (Reuters) – The Taliban administration wants to formally join Chinese President Xi Jinping’s huge ‘Belt and Road’ infrastructure initiative and will send a technical team to China for talks, Afghanistan’s acting commerce minister said on Thursday.Beijing has sought to develop its ties with the Taliban-run government since it took over in 2021, even though no other foreign government has recognised the administration.Last month, China became the first country to appoint an ambassador to Kabul, with other nations retaining previous ambassadors or appointed heads of mission in a charge d’affaires capacity that does not involve formally presenting credentials to the government.”We requested China to allow us to be a part of the China-Pakistan Economic Corridor and Belt and Road Initiative… (and) are discussing technical issues today,” acting Commerce Minister Haji Nooruddin Azizi told Reuters in an interview a day after the Belt and Road Forum ended in Beijing.The Pakistan “economic corridor” refers to the huge flagship section of the Belt and Road Initiative (BRI) in Afghanistan’s neighbour.Azizi said the administration would also send a technical team to China to enable it to “better understand” the issues standing in the way of it joining the initiative, but did not elaborate on what was holding Afghanistan back.Afghanistan could offer China a wealth of coveted mineral resources. Several Chinese companies already operate there, including the Metallurgical Corp. of China Ltd (MCC) which has held talks with the Taliban administration, as well as the previous Western-backed government, over plans for a potentially huge copper mine.”China, which invests all over the world, should also invest in Afghanistan… we have everything they need, such as lithium, copper and iron,” Azizi said. “Afghanistan is now, more than ever, ready for investment.”Asked about the MCC talks, Azizi said discussions had been delayed because the mine was near a historical site, but they were still ongoing. “The Chinese company has made a huge investment, and we support them,” he added. Investors have said security remains a concern. The Islamic State militant group has targeted foreign embassies and a hotel popular with Chinese investors in Kabul.Asked about the security challenges, Azizi said security was a priority for the Taliban-run government, adding that after 20 years of war – which ended when foreign forces withdrew and the Taliban took over – meant more parts of the country were safe.”It is now possible to travel to provinces where there is industry, agriculture and mines that one previously could not visit… security can be guaranteed,” Azizi added. Afghanistan and 34 other countries agreed to work together on the digital economy and green development on the sidelines of the Belt and Road Forum on Wednesday. More

BRUSSELS (Reuters) -Meta and TikTok have been given a week by the European Commission to provide details on measures taken to counter the spread of terrorist, violent content and hate speech on their platforms, a week after Elon Musk’s X was told to do the same.The European Union’s executive body said on Thursday it had sent a request for the information to the two companies as researchers point to the proliferation of disinformation following Hamas’ attack against Israel more than a week ago.The Commission can open investigations into the companies if it is not satisfied with their responses.Under new online content rules known as the Digital Services Act (DSA) that came into force recently, major online platforms are required to do more to take down illegal and harmful content or risk fines as much as 6% of their global turnover.”Meta (NASDAQ:META) must provide the requested information to the Commission by 25 October 2023 for questions related to the crisis response and by 8 November 2023 on the protection of the integrity of elections,” the Commission said. “TikTok must provide the requested information to the Commission by 25 October 2023 for questions related to the crisis response and by 8 November 2023 on the protection of integrity of elections and minors online,” it added. More

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