Economy

European stocks followed Asia lower on Monday after weak data raised concerns over the health of China’s economy, while traders waited for corporate earnings to gauge the impact of rising global interest rates. Europe’s region-wide Stoxx 600 slipped 0.6 per cent, extending losses from the previous session, while France’s Cac 40 lost 1.2 per cent and Germany’s Dax gave up 0.5 per cent. The indices were dragged lower by declines in the luxury goods sector, after data from China signalled that the world’s second-largest economy struggled to recover after three years of severe Covid-19 restrictions. Swiss company Richemont led the decliners, falling 9 per cent.According to official data on Monday, China’s gross domestic product expanded 0.8 per cent in the three months to July, down from 2.2 per cent in the previous quarter, as falling exports, weak retail sales and a moribund property sector weighed on growth. The country’s post-pandemic “revival is losing steam after the initial release of pent-up demand built during the zero-Covid policy era, while exports are falling amid ebbing global demand”, noted Duncan Wrigley, chief China economist at Pantheon Macroeconomics. The disappointing data weighed on oil prices, with Brent crude, the international benchmark, falling 1.3 per cent to trade at $78.88 per barrel, while US marker West Texas Intermediate fell by the same margin to $74.46. China is the world’s second-largest oil consumer after the US. Investors’ focus turns to the upcoming meeting of China’s ruling politburo later in the month, where policymakers are expected to consider further possible support for the economy.“Today’s data raises odds of more stimulus measures from China over coming weeks,” said Mohit Kumar, chief Europe financial economist at Jefferies. “Given the market expectations have already been lowered on the China growth story, we could get some upward surprise from stimulus measures, which can support equity markets in the short term,” he noted. China’s benchmark CSI 300 index slipped 0.8 per cent on Monday, while Hong Kong’s stock exchange suspended trading owing to a weather warning. Japanese markets were closed for a holiday.Meanwhile, traders readied for the Federal Reserve Bank of New York to issue its Empire State Manufacturing Survey later in the day, with the index expected to have come in at minus 4.3 in July, down from 6.6 in the previous month.The negative reading means the majority of survey respondents reported an overall contraction in factory activity, as the sector faltered following a prolonged period of rising US interest rates. US futures were subdued, with contracts tracking Wall Street’s benchmark S&P 500 losing 0.1 per cent, while those tracking the tech-heavy Nasdaq 100 were flat ahead of the New York open. With the earnings season well underway, traders turn their attention to tech companies this week; the electric-car maker Tesla is on Wednesday the first of the sector’s giants to report results. More

GANDHINAGAR, India (Reuters) – Debt restructuring talks made little progress during the third finance meeting of the G20 countries in India as the bloc was unable to overcome key differences and low attendance due to domestic issues adding to the roadblocks.The finance ministers of the G20 countries gathered in the western Indian state of Gujarat, hoping to push for agreements on debt restructuring for vulnerable countries, global minimum taxation and reforms on multilateral development banks.”We are not making much headway with the debt restructuring issue,” a senior official, who is part of the meeting, told Reuters on Monday.Last month, Zambia struck a deal to restructure $6.3 billion in debt owed to governments abroad, in what was seen as a breakthrough for indebted nations around the world that have faced lengthy negotiations with their creditors.But nations did not agree to using Zambia as a model for other restructuring and most remained unwilling to talk about fresh lending to vulnerable countries as many G20 member countries face economic challenges back home, the official said.Ministers from many countries chose to skip the meeting, which added to the slow progress on the issue, a second official said, adding that 13 finance ministers attended the event. The United States has sent the biggest delegation, led by Treasury Secretary Janet Yellen, to the meeting.The two-day meetings that kicked off on Monday were seen as key to setting the tone for the G20 leaders’ summit in September in New Delhi.Officials said several finance ministers were forced to skip the meetings due to domestic issues that were a “priority”.”This may have crimped the bloc’s decision-making ability in this meet and slowed progress on building consensus on any issue,” a third official, also present in the meeting, said.Finance ministers from Japan, Australia, Canada, Indonesia, South Korea, Indonesia, South Africa, along with the United States and India were present.Argentina, Brazil, France and Mexico only sent junior-level officials, sources added. German and British ministers did not attend the meeting. However, Germany’s central bank chief Joachim Nagel attended.The officials did not want to be identified as they were not authorised to speak to the media. India’s finance ministry and external affairs ministry did not immediately respond to emails seeking comment.Argentina is facing very high inflation and low growth, while in recent weeks France has struggled to contain riots sparked by the killing of a teenager in a Parisian suburb. Germany has also been hit by recession.”In the absence of ministerial representation, officials making representation are often stating that they have to go back and consult their ministers before finalising their stand,” an official said. More

(Reuters) -J.P.Morgan, Morgan Stanley (NYSE:MS) and Citigroup (NYSE:C) trimmed China’s growth forecast for 2023 after the country’s economy grew at a weaker pace in the second quarter, with its post-COVID momentum unravelling rapidly.Data on Monday showed China’s economy grew 6.3% in the second quarter on a year-on-year basis, accelerating from 4.5% in the first three months of the year, but well below expectations of 7.3%, as demand weakened at home and abroad.”Market scepticism on China’s growth outlook is on the rise,” said Morgan Stanley economists led by Robin Xing.Demand weakness in China could ripple across developed and developing economies, raising the need for more fiscal stimulus from Beijing – a delicate task as any aggressive stimulus could fuel debt risks and structural distortions.JPM cut China’s Gross Domestic Product (GDP) forecast to 5% from 5.5%. The bank tempered its outlook on the property industry too, with no turnaround in sight yet. The biggest cuts were in new constructions, with JPM now expecting a contraction of 20% this year. They earlier projected new starts shrinking by 7%. The bank estimates that a 10 basis point (bps) policy rate cut in the fourth quarter, and nationwide housing policy easing, including a relaxation of down-payment requirements, are possible steps the government could take to boost economic growth. Citi, meanwhile, expects a 20 bps cut in the policy rate and 25 bps in the reserve requirement ratio (RRR) by the end of the third quarter. “We certainly need more significant measures to keep growth on track,” Citi’s chief China economist, Xiangrong Yu said.”The mid-year Politburo meeting will be a window to read the latest policy thinking, but we are also mindful of risks that policy could fall behind the curve or short of expectations.” Morgan Stanley cut its forecast for China’s GDP from 5.7%, and also trimmed its 2024 forecast for the country by 40 bps to 4.5%. This implied a return to China’s post-COVID potential growth trend, MS economists said.Goldman Sachs (NYSE:GS), however, maintained its 2023 full-year GDP growth forecast at 5.4%, even as they cut their current-quarter growth forecast to 5.5% on a quarter-on-quarter basis from 6.5% previously. “Some negative factors may fade in Q3 and policymakers have stepped up their easing measures, implying a potential rebound in sequential growth ahead,” GS economists led by Lisheng Wang said. More

Welcome to Trade Secrets. This week there’s a big summit between the EU, Latin America and the Caribbean in Brussels, just as Spain takes over the rotating six-month presidency of the European Council of member states. Today’s first piece looks at the new relevance of the EU-LatAm relationship in the context of critical minerals, the obsession of the moment. The second looks into how the WTO might deal with carbon border taxes and the future of the organisation itself. Charted Waters has more on minerals, in this case the rocketing price of the metal gallium after China imposed export controls.Colonialism and critical mineralsHey look, here come some Spanish-led European emissaries pitching up in Latin America wanting precious metals. Haven’t we been here before? Didn’t it end really, really badly for the locals?Europe’s colonialist past may have given it linguistic and cultural links with the region, but it also feeds a line of rhetoric about the EU trying to exploit its trading power to strip Latin America of its basic commodities. I wrote a while back about how the EU had tried to soften that approach a bit when it updated its trade agreement with Chile, allowing Chile to build a downstream lithium processing industry rather than just sending the basic raw material abroad.You can largely ignore whatever hand-waving stuff the summit comes up with about geostrategic EU-LatAm partnerships. You can also discount fairly heavily the EU’s various initiatives on minerals such as the Critical Raw Materials Club, which have neither legal force nor a big centralised procurement budget to give them much force.There is, however, one obvious substantive prize, which is ratifying the preferential trade agreement between the EU and Mercosur (Brazil, Argentina, Uruguay and Paraguay). The deal was signed in 2019 but has languished since in the face of European opposition based on fear of deforestation in the Amazon, plus concerns from Argentina and Brazil that if will further hollow out their manufacturing base. Agreement to move forward won’t get done at this summit, but we’ll at least see where the conversation has got to.The original shorthand for EU-Mercosur was a cars-for-beef deal. But the critical minerals issue, as Oscar Guinea and Vanika Sharma at the Brussels think-tank ECIPE point out, has given it a new imperative. Brazil in particular is already the EU’s fifth-biggest source of strategic raw material imports by value, including battery-grade nickel and silicon, and they reckon it could do a lot more, allowing the EU to diversify from China.

As in the Chile deal, EU-Mercosur contains some restrictions on countries preferentially choosing one trading partner over another and creating export monopolies. But Brussels needs to tread carefully. A sense that Europe is just after the minerals risks provoking indignant opposition.Dissing dispute settlementI don’t propose to make a habit of using this newsletter to add footnotes to the previous week’s Trade Secrets column, but I wanted to add a point to my argument that the WTO dispute settlement wing, weakened though it is, might be able to spread carbon pricing around the world.To recap the potential sequence of events: the EU will unilaterally introduce its carbon border adjustment measure (CBAM). A bunch of countries led by India will take WTO cases against it. If CBAM survives, perhaps with some tweaks, it will encourage trading partners to adopt similar carbon pricing to avoid tariffs, and the EU emissions trading scheme will be internationalised. Ta-da!One obvious problem: some countries aren’t entirely respectful of WTO dispute settlement. The EU has felt compelled to invoke its new enforcement regulation in a case involving Indonesia, where Brussels won a case on nickel export restrictions but Jakarta then put it in limbo by appealing to the non-functioning Appellate Body. And the US is positively rude, saying WTO dispute settlement isn’t fit for purpose and keeping the AB in the deep freeze by refusing to appoint new judges.Washington circulated a note on AB reform recently: reading it felt like wading waist-deep through a tepid sludge of inert truisms, and it concluded by saying the US wanted changes but wouldn’t be proposing any. It’s not looking good for progress on the subject at the next big WTO ministerial meeting, in the United Arab Emirates in February/March next year. A more co-operative route than litigation has been suggested by Jim Bacchus, former chair of the AB. and a former Democratic congressman. Bacchus is sympathetic to Brussels’ aims but is concerned that litigation will be messy. “Our friends in the EU, I think, have the best of motives and are acting in good faith. But despite their protestations to the contrary, they’re very much at risk from WTO dispute settlement.”He suggests instead the “mediation and conciliation” procedure, in which the WTO’s director-general or another appointed person tries to broker a deal. It’s a suitably touchy-feely non-confrontational approach for these “woke” times. But it’s never yet been used in dispute settlement. It seems a long shot that developing countries would choose to launch its maiden voyage on such a pivotal issue.Charted watersLook at those prices go. Strong demand, inelastic short-run supply, a load of production suddenly removed from world markets: Mission Control, we have lift-off. This chart shows what happened after China imposed export controls on gallium, a metal used in electronics and other high-tech manufacturing. (No word yet on iodine and thorium and thulium and thallium.)Bad news for big importers. Conventional geological-economic wisdom says it should be relatively straightforward for other countries to increase gallium production in the medium term, which the EU for one is urgently investigating. In that case, if China is trying to damage the European green industrial machine it will merely have exhausted a single-use trade weapon, as Russian president Vladimir Putin did with gas, only on a smaller scale.Trade linksThe UK formally signed the Asia-Pacific CPTPP deal this weekend, potentially adding 0.08 per cent to British gross domestic product in the long run. Here’s an entertaining possible scenario: the UK acts as a human shield for the other members by volunteering to veto China’s application, attracting ferocious flak from Beijing. Then in a few years economic realism returns to the UK, it rejoins the EU and leaves the CPTPP (paying compensation to Australia and New Zealand for the lost agricultural market access on the way out). Job done for the rest of the CPTPP, like subbing on a goalkeeper for a penalty shootout, or perhaps recruiting a martyr to throw to the Colosseum lions.The German government has published its long-awaited new comprehensive strategy towards China. Its tone bears the clear hallmark of the Greens in the coalition and is notably more sceptical than Angela Merkel’s accommodating approach, including suspending German support for the Comprehensive Agreement on Investment with China.Adam Posen of the Peterson Institute warns of the dangers of zero-sum industrial policy in one of the FT’s Economists Exchange conversations with Tej Parikh.The Biden administration’s supposedly less confrontational new approach to China won’t go as far as lifting tariffs on its exports, officials said over the weekend.Trade Secrets is edited by Jonathan Moules More

Adding that government was also being slow to provide stimulus, Morgan Stanley’s analysts said: “Market scepticism on China’s growth outlook is on the rise”.The bank also trimmed its 2024 GDP forecast by 40 basis point, to 4.5%, which it said implied “a return to China’s post-Covid potential growth trend”. (This story has been refiled to remove an incorrect picture) More

Industry-heavy Germany is bearing the brunt of a drop in global demand for goods – the result of higher borrowing costs dampening investment and people spending more on leisure, travel and other services in the aftermath of the pandemic.The Bundesbank said Europe’s largest economy was likely to have grown slightly in the three months to June after contracting in the previous two quarters, thanks to a stabilisation in consumer spending.But the outlook was more bleak than the central bank’s own estimate for a 0.3% contraction this year, which was published less than a month ago, due to worsening sentiment. “The economic recovery in the remainder of the year could therefore turn out to be somewhat more timid than expected in the June forecasts,” the Bundesbank said.It cited a survey from the Ifo institute showing that German business morale worsened for the second consecutive month in June, particularly in the industrial sector.The Bundesbank expected inflation – the No.1 concern for it and the European Central Bank at present – to fall further in the coming months as lower producer prices are passed down the supply chain.Core inflation, which excludes energy and food costs, should remain high, however, also thanks to a boom in packaged holidays, which now have a greater weight in the inflation index. More

Russia has formally withdrawn from a UN-brokered deal to export Ukrainian grain across the Black Sea, potentially imperilling tens of millions of tonnes of food exports from the war-torn country.President Vladimir Putin’s spokesman, Dmitry Peskov, told reporters on Monday that the agreement had “essentially stopped” and Russia would no longer co-operate with the deal.Russia has complained ever since the UN and Turkey initially brokered the deal a year ago that western sanctions were holding up a parallel agreement to allow payments, insurance, and shipping for Moscow’s own agricultural exports. Peskov said Russia would resume its participation in the deal “as soon as the relevant agreements are fulfilled”. A western diplomat and a UN official confirmed that Moscow had informed stakeholders on Monday that it would withdraw from the deal.The initiative has allowed some 32.9mn metric tonnes of food to be exported by sea from Ukraine since August, more than half to developing countries, according to the co-ordination committee set up to monitor its implementation.The Kremlin’s announcement marks the second time Russia has withdrawn from the grain deal after briefly exiting in November. It rejoined a day later under pressure from Turkish president Recep Tayyip Erdoğan.Yet people involved in the grain talks said Russia had appeared more set on derailing the deal in the run-up to Monday’s deadline.The Kremlin cancelled a planned trip by Rebeca Grynspan, the UN official leading a task force on the imperilled exports, to Moscow last week at short notice, two of the people said.Though Erdoğan said on Friday that he and Putin were “of the same mind on the extension of the Black Sea grain corridor,” his recent embrace of the west in a bid to end Turkey’s economic troubles limited his ability to broker a new extension.Erdoğan said on Monday that he believed Putin “wants the Black Sea grain deal to continue” and that Ankara had “intensified” its diplomatic efforts. The Turkish and Russian foreign ministers will discuss the pact on Monday, Erdoğan added.Ursula von der Leyen, European Commission president, said: “I strongly condemn Russia’s cynical move to terminate the Black Sea Grain initiative, despite UN and Turkey’s efforts,” she said in a statement on Twitter. “EU is working to ensure food security for the world’s vulnerable.”An EU official said: “We see that in their communication they are still leaving the door open,” said an EU official briefed on the talks. “We see a window of opportunity to continue negotiations.“It looks like a suspension,” they added.Russia also lost interest in the deal after efforts to ease pathways for its own food and fertiliser exports ran aground of western sanctions.Though the US and EU introduced carve-outs for Russia’s agricultural exporters and backdoors to facilitate payments to a large Russian state bank, Moscow complained not enough had been done to allow its exports back on the market.“Absolutely nothing has been done — I want to stress that. It’s one-way traffic. Not a single point linked to the fact Russia has its own interests has been fulfilled,” Putin said last week. David Harland, director of the Geneva-based Centre for Humanitarian Dialogue, which helped broker the grain talks, said: “Russia just felt that it wasn’t getting much in return, and might as well continue to squeeze Ukraine.“Turkey could still persuade Russia to resurrect it, as it has a lot of leverage over Moscow. But it would have to lean hard.”Russia’s complaints over the sanctions have been a key element in rallying sympathy for its position on the war from countries in the global south, particularly in Africa, which has been hit hard by the war’s impact on food and fertiliser prices.A delegation of African leaders, headed by South African president Cyril Ramaphosa, visited Kyiv and St Petersburg last month in an effort to mediate an end to the war and help secure agricultural supplies. But Putin told Ramaphosa on Saturday that barriers to Russia’s agricultural exports had not been lifted and complained that “the main goal of the deal, which is grain supplies to countries that need it, including in Africa, has not been realised,” according to a Kremlin readout of the call. More

The EU and the Mercosur bloc of South American economies hope to finalise a long-delayed trade deal this year, leaders on both sides said, though it remained unclear how officials would resolve significant differences over environmental safeguards.President Luiz Inácio Lula da Silva of Brazil, the biggest of the four Mercosur members, said on Monday that a “balanced deal” would “open new horizons” — references to Brazil and Argentina’s refusal to accept additional environmental demands and their desire to be allowed to protect domestic industry.European Commission President Ursula von der Leyen, who has set a year-end deadline to finalise the deal, said it was “within reach” as she met Lula ahead of an EU summit with Latin America and the Caribbean (Celac) leaders aimed at rebuilding Europe’s standing in the region.“Our ambition is to settle any remaining differences as soon as possible,” she said. Diplomats say there is a narrow window to try to finalise the deal in the second half of this year, when Spain holds the rotating presidency of the EU Council and before a new Argentine government takes office in December.The deal stalled after the EU demanded additional guarantees on deforestation and labour rights in an agreement concluded after 20 years of negotiations in 2019. Mercosur, which consists of Brazil, Argentina, Uruguay and Paraguay, is formulating a counterproposal that will be presented to the EU within weeks, a senior Brazilian diplomat said last week.Lula has frequently attacked the EU demands, calling them a “threat”. On Monday he made clear that any deal must take account of the interests of both sides. “We want an agreement that preserves the capacity of the parties and that responds to present and future challenges,” he said.Mercosur leaders view the EU conditions as unacceptable, arguing they have already signed up to relevant international agreements to protect the rainforest and labour standards.Those countries pushing most strongly for the additional safeguards — France, Ireland and the Netherlands — have large dairy and beef industries that would face lower-cost competition from South America if the deal was ratified.The Greens in the European parliament and NGOs say the deal would encourage farmers to clear forests to plant soyabeans or graze cattle to send to Europe. But Jordi Cañas, a Spanish MEP who chairs the European parliament’s Mercosur delegation, told the Financial Times that Lula’s government should be trusted to protect the Amazon. “He is right. The additional instrument is just a justification to block the agreement for other reasons. “If you want to stop deforestation, sign the accord. You have more influence to combat deforestation.”The first EU-Celac summit in eight years was billed as an opportunity to revive Europe’s long-neglected relations with Latin America and the Caribbean. China has grown in the past decade to become South America’s largest trading partner, and the EU is now seeking better access to the region’s abundant raw materials for green technology.Another key area of tension is the Ukraine war. While Brussels has wanted Latin American and Caribbean governments to criticise Russian aggression, some countries are unhappy at how the west has focused on supplying arms instead of pushing for a ceasefire, while others such as Cuba and Venezuela are close allies of Moscow.Diplomats were struggling on Monday to find common language for a joint communique after the summit on Tuesday. Celac asked to remove a condemnation of Russia’s invasion in the EU’s draft, and tried to add a demand for European reparations for the transatlantic slave trade. More