Economy

China has become Russia’s main trading partner as imports from the EU contracted sharply following sanctions imposed by western countries in response to Moscow’s invasion of Ukraine.The Germany-based Kiel Institute for the World Economy calculated that in June, July and August, Russia’s goods imports were 24 per cent lower than for the same period last year, leading to a monthly import gap worth $4.5bn.The fall was driven by contracting trade with the EU, down 43 per cent as a result of tough Brussels sanctions targeting the Russian economy, while Russian trade with China increased 23 per cent, making the world’s second-largest economy Russia’s top trading partner. Moscow stopped publishing most foreign trade data after the start of the war in February,“Since China’s exports are not sufficient to compensate for the drop of Russia’s trade with the EU, Russia’s efforts to replace slipping imports from Europe are proving increasingly difficult,” said Vincent Stamer, head of the Kiel Trade Indicator.“The sanctions imposed by the western alliance are apparently hitting the Russian economy hard and noticeably limiting the population’s consumption options,” he added.The institute, which tracks shipping loads of 57 countries and the EU, reported that in October, cargo unloaded at St Petersburg, an important hub for trade with Europe, was a tenth of the volumes for the same month last year.Separate official Chinese data released on Monday showed that the value of China’s imports and exports with Russia rose by an annual rate of 35 per cent in October. While this was a smaller annual rate than in the previous three months, the rise was in sharp contrast with China’s overall trade contraction. Russian goods exports and imports contracted in October, according to Kiel, falling 2.6 per cent and 0.4 per cent respectively month on month.Together with trade contraction in Germany and the US, monthly global trade volumes were down 0.8 per cent, according to Kiel analysis of worldwide shipments. “There is growing evidence that weakening demand in major economies is taking a toll on world trade,” said Leah Fahy, economist at the consultancy Capital Economics. She forecast that global trade would fall on an annual basis from next year as more countries suffer a recession. Germany’s export-focused economy continued to be hit by turmoil in global supply chains, as imports into the country fell 0.9 per cent and exports also declined slightly in October, Kiel said.However, there was some optimism for German manufacturers as freight rates on routes between China and the EU have fallen two-thirds since the start of the year, taking prices for a standard container below $5,000 for the first time in two years, it said.This followed an unexpected rise in German industrial production in September, despite output falling at the most energy-intensive manufacturers as they responded to soaring gas and electricity prices.Monthly production at German factories rose 0.6 per cent, driven by sharply higher automotive and pharmaceutical output. However, production in the country’s most energy-intensive sectors, such as chemicals, metals and glass, was down 0.9 per cent — taking the full-year fall to almost 10 per cent.New orders for German factories fell 4 per cent in September and analysts at Goldman Sachs warned they expected hard data on the German economy to “deteriorate significantly” from October, especially after Chinese exports to the EU dropped 9 per cent year on year. More

Welcome to today’s Trade Secrets, which looks at developments in American insistence on doing the green tech transition on its own — not just decoupled from China but without undue concern for allies such as the EU and Japan. In that context, it’s notable that Olaf Scholz last week continued the tradition of the German chancellor personally touring China accompanied by a phalanx of the country’s business representatives. Seen from Washington, especially given the dismal failure of Berlin’s trade-based foreign policy in the Russia case, the optics of a tour such as Scholz’s simply harden American determination to go it alone. Relatedly, today’s main piece is on the Biden administration encouraging the EU and other supposed allies to start a green subsidy war. (Not in so many words, but it’s definitely the vibe.) Charted waters looks at the uneven impact of climate change.Illegal handouts? So sue meWashington’s message to Brussels, Tokyo and Seoul over the now famous electric vehicle tax credits has become pretty clear: we aren’t giving your carmakers our subsidies, so you’d better start forking out for some yourself.Officially, as US trade representative Katherine Tai said in a Financial Times interview last week, the Biden administration is still considering the EU’s request that cars assembled in Europe become eligible for the credits in the Inflation Reduction Act (IRA). Those subsidies have already been extended to automakers in Canada and Mexico. As we reported in a story over the weekend, the EU is upping its level of complaint over a total of nine measures in the IRA it says are discriminatory, sending in a fairly cross submission to the US Treasury, which is writing the implementing legislation. Brussels concludes in a threatening but unspecific way that the act could provoke reciprocation or retaliation.In reality, certainly as regards the electric vehicle credits, the best way to read the EU’s harrumphing is an attempt to get loopholes written into the interpretations of the rules rather than reopen the law as such. Only the most optimistic EU officials genuinely think the law is going to be changed substantially to make European manufacturers eligible, and only the more hotheaded EU member states really want to plunge into a broad-based trade war at this stage.The US has made it clear privately that widening the charmed circle is highly unlikely to happen. It would constitute unpicking a carefully constructed political deal on Capitol Hill, a big risk even after this week’s congressional midterms are out of the way. Joe Manchin, the West Virginia senator who has modestly accepted the role that fate has handed him of micromanaging hundreds of billions of federal dollars according to personal whim, was reportedly persuaded to make the tax credits a Mexico-Canada thing by the lure of North American energy security (oil sands and pipelines and so on). The same logic doesn’t apply to a net energy importer such as the EU.The US tactic for trying to head off a trade war over this has been pragmatic rather than principled, telling the EU their producers wouldn’t benefit from the credit much anyway because the $55,000 retail price cap on eligible cars ($80,000 for SUVs and pick-up trucks) is below the value of most autos exported to the US from Europe. In fact there’s also a genuine question about how even many US-made EVs will manage to qualify, suggesting an element of industrial activism theatre about the entire thing. (There is also, of course, a big question over what happens to industrial policy altogether if the Republicans retake Congress tomorrow, though trade measures will remain a tool for onshoring even if the federal dollars dry up.)The one vaguely substantive thing Tai did say was that the EU should have its own green industrial policy and the two should co-ordinate. The problem is that there isn’t a binding mechanism for co-operation, particularly not for the practicalities of spending money and especially where Congress is concerned. The EU and US have now set up a task force to address subsidies in the IRA, but it’s going to be very hard to get Capitol Hill to pay attention.Traditionally Congress, more so than the White House, is instinctively more willing to ignore international trade law when writing policy, though it often unexpectedly found itself as the adult in the room during Donald Trump’s presidency. A piece of legislation such as the IRA, where the administration ceded so much influence to Congress, was always likely to contain some unilateral nasties. If the EU can afford a subsidy war (and interventionists such as internal markets commissioner Thierry Breton are certainly up for it), it’s likely to be an inefficient and duplicative one, with an increasing risk of spending being buttressed by Buy Europe domestic procurement provisions to match the US versions. The race has already started elsewhere with Canada last week announcing big tax credits for green tech investments to keep up with the US.There are excellent reasons to put public money into green technology, but not to waste resources by doubling up (or indeed tripling, quadrupling or quintupling) with countries supposedly on the same geopolitical side and starting a trade war along the way. Still, that’s where we’re going. Good work, everyone.As well as this newsletter, I write a Trade Secrets column for FT.com every Thursday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.Charted watersCOP27 is upon us, so it would seem remiss not to talk about the global impact of climate change on economies. As world leaders gather in Sharm el-Sheikh in Egypt, attention is focusing on who pays for the damage already done.

Heating up: research published ahead of COP27 shows the disparity in the impact of climate change between rich and poor nations

New research from the Climate Impact Lab, illustrated in the dynamic map above, concludes (perhaps unsurprisingly) that poorer countries are the hardest hit by global warming. Pressure is growing, backed by the FT’s editorial board, to make the richer countries help poorer nations fund the necessary changes to reduce carbon footprints. The data illustrates the need to do this. Politics is another matter. The question is whether a deal can be struck. (Jonathan Moules)Trade linksThis particularly good episode of the excellent Trade Talks podcast looks at the US semiconductor export ban and the intersections with trade and national security policy.Columbia University polyguru Adam Tooze’s Chartbook examines exactly how intertwined the German economy is with China. Chinese chipmakers are tweaking their products to slow processing speeds in order to avoid US sanctions.FT tech sage John Thornhill argues that the US and China are too intertwined to achieve radical economic decoupling without inflicting intolerable damage.Trade Secrets is edited by Jonathan Moules More

LONDON (Reuters) -Improving transparency of ‘non-banks’ such as pension funds is a first step in applying lessons from turmoil in Britain’s government bond market, Bank of England executive director Sarah Breeden said on Monday.The central bank had to intervene in UK bond markets in September after the 1.6 trillion pound Liability Driven Investment funds (LDI) sector – used by pension funds to help ensure future payouts – struggled to meet collateral calls after the previous government’s tax cut plans triggered a market rout.It shone a light on the less regulated global $200 trillion ‘non-bank’ sector which is made up of pension funds, insurers and different types of investment funds, and spans borders.Breeden said the LDI issues were a reminder of the “systemic risks” posed by poorly-managed leverage in the non-bank system where there is “all too often” excessive risk taking alongside improper liquidity risk management.”Transparency is an important first step. That enables the necessary next step of ensuring non-banks’ positions and interlinkages with the rest of the financial system can be comprehensively stress-tested and understood,” Breeden told an event held by derivatives industry body ISDA and hedge fund sector body AIMA.There have been numerous other examples of “systemic vulnerability” in non-banks, such as with money market funds and open-ended funds when economies went into lockdown to fight COVID in March 2020, and the failure of investment house Archegos in 2021, Breeden said.In the case of Archegos, individual counterparties had no view of the firm’s sizeable and concentrated swap positions, and therefore banks and clearing houses need access to more information of their non-bank clients to fully understand the risks, Breeden said.”Let me be clear. The onus for building resilience in the non-bank system sits first and foremost with the firms themselves,” Breeden added.ADEQUATE BUFFERSAdequate liquidity buffers at non-banks would significantly reduce the need for central bank intervention and regulators will need to consider how best to ensure leverage is well managed, Breeden said.This could include “broad market-wide measures such as market regulations to ensure excessive leverage is better controlled by market pricing and margins,” she said.Banks and non-banks also need to improve stress-testing for risks, she added.Jiri Krol, global head of government affairs at AIMA, said there was a need to be smarter in measuring leverage, and a more holistic approach was needed from regulators globally given it was “difficult to see the common thread”.”We believe regulators do need to get useful data when it comes to financial stability monitoring and systemic risk management,” Krol said.Toks Oyebode, executive director for regulatory affairs at JPMorgan (NYSE:JPM) bank, said steps outlined by Breeden and other regulators, such as regarding margining, were timely.A single country has limited influence over a global non-bank sector, but the G20’s Financial Stability Board is due on Thursday to report on vulnerabilities in non-banks and put forward international policy proposals.”This will take time and effort. It’s really important that the FSB approaches this with vigour,” Breeden said. More

Investing.com — Covid-19 wreaks havoc with the biggest iPhone production hub in the world; forcing Apple (NASDAQ:AAPL) to warn about holiday season shipments. China’s exports fall for the first time in two and a half years as the war in Ukraine and the end of the pandemic hit demand in western markets. Facebook (NASDAQ:META) owner Meta Platforms is set to lay off thousands of staff in an effort to restore profitability. Stocks are set to build on their post-payroll gains on Friday. And there’s trouble in crypto-land as Binance takes aim at rival FTX. Here’s what you need to know in financial markets on Monday, 7th November.1. Apple warns on holiday shipments as Covid disrupts iPhone factory in ChinaApple confirmed that it will ship fewer iPhones than expected in the key holiday quarter, owing to a Covid-19 outbreak that has badly disrupted operations at contractor FoxConn’s biggest assembly plant for the iPhone in Zhengzhou. Reports from Zhengzhou have depicted a chaotic scene, with thousands of workers either quarantined or hastily relocated to other plants.“We now expect lower. . .shipments than we previously anticipated and customers will experience longer wait times to receive their new products,” the company warned in a statement at the weekend.The news is a stark contrast with the rumors of an impending liberalization of China’s Covid-Zero policy, which continue to push local markets higher. Real-time data also point to an increasing economic slowdown as key export markets in North America and Europe struggle with high inflation. Chinese exports fell in year-on-year terms for the first time in over two years in October, according to data released on Monday.2. Meta set to announce huge layoffsMeta Platforms, the owner of Facebook, is expected to join the list of big tech companies making big job cuts this week, The Wall Street Journal reported.The layoffs will represent a landmark moment for the company, which has never downsized in all of its (admittedly brief history). They represent CEO Mark Zuckerberg’s reaction to a sharp slowdown in revenue growth and an explosion in operating costs due to heavy and – as yet – unproven investments in the so-called Metaverse.The absolute number of layoffs could dwarf those seen at Twitter last week in absolute terms, given that Meta employs over 10 times Twitter’s workforce. However, Zuckerberg is not expected to lay off half of the workforce as Elon Musk did last week. Various reports have suggested that Twitter will face legal action – especially outside the U.S. – for what appears to have been a flagrant breach of labor law in several jurisdictions.Meta stock rose 3.4% in premarket on hopes that the measures will restore its shrinking profit margins.3. U.S. stocks set to open higher as labor market report encourages Fed hopes; FanDuel ruling in focusU.S. stock markets are set to open higher later, building on the gains they made in response to the labor market report on Friday. The report had added to evidence of a slowdown in hiring and in wage growth that analysts said brought the end of Federal Reserve policy tightening a little closer.By 06:00 ET (11:00 GMT), Dow Jones futures were up 165 points, or 0.5%, while S&P 500 futures and Nasdaq 100 futures were up broadly in parallel. The three main cash indices had all risen by between 1.2% and 1.4% on Friday.Aside from Big Tech, the stocks likely to be in focus later include Walgreens Boots Alliance (NASDAQ:WBA), which is moving past last week’s agreement to draw a line under the opioids scandal with a deal to buy Summit Health for around $9 billion including debt, according to the WSJ. Also in focus will be Fox (NASDAQ:FOX) and U.K.-based gambling group Flutter Entertainment (LON:FLTRF), after an arbitration tribunal ruled that Rupert Murdoch’s group would have to pay $4.1 billion to exercise its option on an 18.6% stake in its FanDuel unit.4. Binance pulls liquidity from FTX in bust-up over FTTCrypto stress is back.FTX’s native token FTT slumped 15% over the weekend after Binance, its biggest rival and sometime backer, said it will pull all of its remaining funds from the group, a process that Binance founder and CEO Changpeng Zhao said will likely take several months.Zhao said the move wasn’t hostile but also carped that “we won’t support people who lobby against other industry players behind their backs.”The move followed a Coindesk report last week that hinted that Alameda Research, a hedge fund affiliated to FTX, had taken a massive long position in FTT to support its value as of June. Alameda CEO Caroline Ellison and FTX owner Sam Bankman-Fried dismissed the report as misleading.5. Oil shrugs as COP-27 beginsCrude oil prices were broadly flat after pushing higher for most of last week in hopes of China’s Covid-Zero policy being relaxed.By 06:20 ET, U.S. crude futures were down 0.2% at $92.47 a barrel, while Brent futures were down 0.1% at $98.48 a barrel.The market has appeared untroubled by the COP-27 climate conference, which has kicked off against a backdrop of a sharp rebound in carbon dioxide emissions this year. The world economy has had to resort increasingly to coal to fill a supply gap left by the suspension of Russian gas shipments to Europe and by droughts that have badly hit hydropower output from China to France and Latin America. More

SHARM EL-SHEIKH, Egypt (Reuters) – The price of carbon needs to average at least $75 a ton globally by the end of the decade for global climate goals to succeed, the head of the International Monetary Fund told Reuters.Speaking on the sidelines of the COP27 climate talks in the Egyptian coastal resort town of Sharm el-Sheikh, IMF Managing Director Kristalina Georgieva said the pace of change in the real economy was still “way too slow”.Recent analysis by the World Bank-affiliated group suggests the sum total of global national commitments on reducing climate-damaging emissions would see them fall just 11% by mid-century.”Unless we price carbon predictably on a trajectory that gets us at least to (a) $75 average price per ton of carbon in 2030, we simply don’t create the incentive for businesses and consumers to shift,” she said.While some regions such as the European Union already price carbon at above that level – the EU’s benchmark price is around 76 euros a tonne – other regions such as the U.S. state of California see carbon allowances selling for just under $30 per ton, while some have no price at all.”The problem is that in many countries, not only in poor countries, across the world, the acceptance of pricing pollution is still low,” she said, a situation made worse by the current environment of high living costs.But Georgieva said there were different routes a country could take. The world’s second biggest emitter, the United States, for example is unlikely to establish a national price on carbon given stiff political opposition to carbon taxes and ‘cap-and-trade’ systems. “Just focus on equivalency. Whether the U.S. opts to impose a carbon cost through regulation and rebates rather than through tax or trade, that should not matter. What should matter is the price equivalent.”She cited the IMF’s proposal for a carbon price floor and the proposal floated by Germany of a ‘carbon club’ of the world’s biggest economies, which would coordinate how members measure and price carbon emissions and enable cooperation in slashing emissions in the largest industrial sectors. “Whether there would be a breakthrough at this COP or after, it has to be soon because we are virtually running out of time to be successful in this transition.” More

HANOI (Reuters) – Vietnam’s garment industry is expected to face a decline in orders from its key markets over the next two quarters, the country’s textile and apparel association said on Monday, amid high inflation that is dampening global demand. Textiles and garments are the Southeast Asian country’s second-largest export earner, after smartphones. The country is among the world’s largest manufacturers for brands like Nike (NYSE:NKE), Calvin Klein, Mango, Zara and H&M.”We are concerned that firms will face more difficulties in the fourth quarter this year and first quarter of 2023 due to the impacts of weakening demand globally,” Vietnam Textile and Apparel Association General Secretary Truong Van Cam told Reuters in an interview.He added however that exports this year were still expected to reach the target of $43.0 billion-$43.5 billion. The industry’s exports in the first 10 months of this year totalled $37.7 billion, up 16.9% from a year earlier and accounting for 12% of the country’s total exports, according to official data.”High inflation in many of Vietnam’s key markets such as the United States, the EU and Japan have hurt demand, including the demand for Vietnam’s garment and textile products,” he said, noting that local companies had to cut about 10%-15% of their production and many had been forced to cut their workforce. The weakening of the dong currency has also added to the difficulties faced by some garment makers, as imports of their raw materials are more expensive, he said. But he added that exchange rate impacts are limited as the garment industry is now registering a trade surplus. Vietnam’s dong currency has lost 8% against dollar so far this year. Earlier this week, Taiwanese shoemaker Footgearmex Footwear Co. Ltd. said in a note to its employees that it was preparing to lay off two-thirds of the workforce at its Ho Chi Minh City plant, citing a “drying up of orders and financial issues.” More

LONDON (Reuters) – The recent crisis in Britain’s government bond market means smaller UK pension schemes may fork out more money for a bespoke liability-driven investment (LDI) strategy in future to ensure better protection, industry sources say.LDI products, sold by asset managers such as BlackRock (NYSE:BLK), Legal & General and Schroders (LON:SDR) to pension funds, use derivatives to help them “match” assets and liabilities so there is no risk of shortfall in money to pay pensioners.Pension funds, who must post cash as collateral against their LDI derivatives in case they turn sour, were caught out in late September by a sharp rise in UK bond yields after the market took fright at government plans to fund tax cuts by borrowing.As pension funds scrambled for cash to meet margin calls, the Bank of England intervened to stabilise the market and avoid the collapse of some LDI-exposed funds.Smaller private sector pension schemes exposed to LDI – those looking to hedge up to 400 million-500 million pounds ($452 million-$565 million) of overall assets, have typically held assets together with other schemes in pooled LDI funds, while larger schemes have their own funds, or segregated mandates.Industry analysts say some smaller schemes may now consider switching to tailor-made LDI products as that could protect them more effectively from another market rout. But the higher cost will reduce their scope to invest in the higher-returning assets that boost funding positions, they add. LDI hedging costs through a personalised arrangement for a small pension fund would currently cost around 50% more than through a pooled fund, according to one consultant who declined to be named.RIGID DEMANDSLDI funds have become popular as years of low interest rates put some corporate defined benefit pension schemes, which provide retirement income for millions of people, into deficit. Out of more than 5,000 defined benefit, or final salary pension schemes in Britain, around 3,000 use LDI, and around 1,800 of those use pooled funds, according to The Pensions Regulator. Pooled funds are more rigid in demands for cash than bespoke funds, making it tougher for pension schemes using such funds to meet recent margin calls, industry sources say.”There were significant advantages of having segregated accounts versus pooled funds,” said Steve Hodder, partner at LCP, of the recent rout in UK bonds, also known as gilts. Pooled funds are cheaper because managers were able to pool fund set-up and documentation costs, but segregated funds meet the needs of individual schemes more closely, he added.”I wouldn’t be surprised if over the months ahead we advise some schemes to make this switch.”Pub operator Mitchells & Butlers uses a segregated mandate for its 2 billion pound pension scheme and its chair of trustees Jonathan Duck told Reuters the scheme did not have a problem in the recent gilt turmoil as it had “shedloads of liquidity”.But pension schemes that could not meet margin calls in time – many of them smaller schemes – had their positions liquidated by LDI fund managers. This meant they were no longer hedged against sharp moves in bond yields.The recent drop back in yields has worsened their funding positions as lower interest payments mean they need to set aside more money now to pay future pensions.Edi Truell, CEO of pensions consolidator The Pension SuperFund, said a drop in long-term yields of one percentage point could equate to “about a 10% loss” in a scheme’s funding position. Larger schemes in segregated funds were more likely to have retained their hedges, industry sources said.REGULATORY SCRUTINYMany pensions still want hedges, even though the positions are becoming more expensive as LDI funds reduce leverage, or borrowing, amid the prospect of more regulatory scrutiny.A Bfinance survey of 21 UK investors in October showed all of them planned to maintain their existing LDI strategies.However, the higher fees of a segregated fund may be beyond many schemes, consultants say. Large schemes in segregated funds pay lower fees for more volume – a benefit small schemes cannot enjoy. For example, a major LDI manager charges 4 basis points – or 0.04% – in management fees for a lower-risk “passive” mandate for schemes’ first one billion pounds in assets and 3 bps for the next billion, one consultant said.An alternative is a so-called “bespoke pooled fund”. This puts schemes in a “fund of one”, using generalised documents which make it cheaper than a segregated fund, though more expensive than a regular pooled fund, consultants said.LDI fund managers BlackRock and Insight Investment did not respond to requests for comment. Legal & General Investment Management and Schroders declined to comment.Some pensions, however, are balking at the cost and considering lowering their LDI exposure, particularly as yields remain higher than they were a year ago, which reduces the risk of staying unhedged. With LDI funds expected to offer lower leverage in future, pensions will also have to tie up more of their investments in lower-yielding assets such as gilts to match their liabilities.”All of that makes LDI less attractive than it was before,” said Andrew Overend, partner at consultants First Actuarial.($1 = 0.8852 pounds) More

Inflation has surged to levels not seen in several decades, prompting a third of G20 countries to identify rising prices as their top concern, the Executive Opinion Survey conducted by the World Economic Forum’s Centre for the New Economy and Society showed. Although central banks worldwide have embarked on a path of aggressive monetary policy tightening, their efforts to tame inflation run the risk of tipping the global economy into a recession.The survey, which comes ahead of the COP27 in Egypt and the G20 summit in Indonesia later this month, also showed that environmental concerns took a back seat for the first time in years, as the world attends to more immediate socio-economic problems ranging from the fallout of the Ukraine war to the cost of living crisis.”The transition to net zero has dropped too far down on the short-term agendas of many business leaders,” said Peter Giger, group chief risk officer at Zurich Insurance. “Yet the impacts of climate change are both short-term and long-term.”Despite increased instances of data breach and technology-based security threats, cyber attacks were among the least commonly cited risks in the survey.Marsh McLennan (NYSE:MMC) and Zurich were partners on the research. More