Economy

A moment of cheer ahead of the UN climate summit in Egypt was provided by Luiz Inácio Lula da Silva, who put protecting the Amazon rainforest at the heart of his winning campaign for the Brazilian presidency. But as delegates from nearly 200 countries prepare for the start of the COP27 conference on Sunday, the mood is one of gloom, reflecting the clouds that have gathered since the last summit a year ago in Glasgow.Russia’s war in Ukraine has ignited an energy crisis that has stoked inflation and threatened food security. Squeezed budgets in wealthy countries are testing their willingness to pay poorer nations to ditch polluting fossil fuels that contribute to dangerous climate change. Serious debt problems are afflicting a number of big developing nations. “There’s no doubt that the ‘polycrises’ . . . could all combine to make it very difficult to make progress,” said Alden Meyer, senior associate at think-tank E3G.The Sharm el-Sheikh summit is set to be a more low-key and procedural affair than the plenary that led to the Glasgow Climate Pact, or the summit in Paris seven years ago that produced the deal to limit the global temperature rise to 1.5C. Temperatures have already risen at least 1.1C since pre-industrial times.Glasgow’s objective to “keep 1.5C alive” looks increasingly in jeopardy after the latest UNEP report concluded that national emissions reduction pledges implied a rise of between 2.4C and 2.6C.Nonetheless, the next fortnight is expected to play a key role as a forum for turning words into action and building support for more ambitious climate commitments.Egypt has billed the summit as an the “implementation COP” where climate promises will begin to be delivered. But the hosts will need deft negotiating skills to stage-manage a meeting at which decisions are made by consensus.“We gather this year at a critical time of cascading risks and overlapping crises,” incoming COP27 president Sameh Shoukry said this week.The world leaders expected include US president Joe Biden and French counterpart Emmanuel Macron. New UK prime minister Rishi Sunak will attend, reversing his earlier decision. Lula will also make an appearance, despite not taking over as Brazil’s president until January.Africa’s presence will be larger than at previous summits, which observers say should put a greater focus on the needs of developing nations. Russia is also expected to send a delegation. The to-do list for negotiators is lengthy. Countries must work out how to make good on existing pledges, including a promise by rich nations to deliver $100bn in climate finance annually by 2020 to developing countries. The total deployed in 2020 was about $83.3bn, according to the OECD. New decisions to be made include agreeing on a “work programme” for countries to co-operate better and cut emissions faster over the next seven years.The most vulnerable nations are also pushing for a new pot of money to compensate for destruction already wrought by climate change. UN secretary-general António Guterres said the creation of a “time-bound road map” to address this would be a “litmus test for success at COP27”.While big polluters, led by the US, have resisted the notion of “loss and damage” financing, this stance has softened amid an outcry from poorer economies. US climate envoy John Kerry this week said he was “anxious to see the loss and damage issue dealt with.”After a year of floods, fires and heatwaves, the urgency of the climate crisis is clear. Yet the geopolitics of COP27 remain awkward.Europe, one of the largest emitters, faces accusations of hypocrisy over its rush to replace the gas that it is no longer buying from Russia, potentially undermining its ability to act as a bridge-builder between developed and developing nationsOne test of co-operation between rich and poorer countries will be the release of the blueprint for how the wealthiest economies will help South Africa transition from coal to clean energy. Another concern is the breakdown in US-China relations since House speaker Nancy Pelosi’s visit to Taiwan enraged Beijing. “Traditionally, China-America relationships have been crucial to realising outcomes at climate COPs,” said Jennifer Allan, strategic adviser at the International Institute for Sustainable Development.Neither the US nor China, the world’s two largest emitters, have updated their emissions reduction targets this year and Beijing has yet to publish a plan for cutting methane emissions that it committed to developing.The US boosted its credibility with a $369bn climate package to spur domestic green technology development and cut emissions, but the exclusion of foreign industry from the schemes has drawn complaints.Yet neither the US nor China want to be seen as impeding progress and Kerry maintains dialogue with his Beijing counterpart Xie Zhenhua. Then there is the gas lobby, which looks set to have a larger presence this year and at next year’s summit in the United Arab Emirates. At the Gas Exporting Countries Forum in Egypt last month, officials concluded that the two COPs “present a great opportunity to make a case for gas in the energy transition”.Despite the challenges, there had been a welcome shift in how the links between climate and issues such as energy security were understood, said Laurence Tubiana, chief executive of the European Climate Foundation, who was a key architect of the Paris agreement.“We’ve had bad geopolitics before,” she said, such as when the US withdrew from the Paris accord only to later rejoin. “The value [now] is that climate is now perceived as more connected with other crises.”Additional reporting by Aime Williams in Washington and Alice Hancock in Brussels More

Meanwhile, China will release a deluge of data as markets try to read the runes on how Beijing might shape its COVID policy in future. Here’s a look at the week ahead in markets from Tom Westbrook in Singapore, Ira Iosebashvili in New York, and Dhara Ranasinghe and Simon Jessop in London. 1/WHO’S IN CHARGE?Don’t forget the politics as the U.S. gears up for midterm elections on Nov. 8 where control of Congress and President Joe Biden’s agenda for the two years remaining in his term are at stake. U.S. stocks have performed better in periods of divided government, a result that seems increasingly likely with Republicans favoured to wrest control of the House of Representatives, and possibly the Senate. Average annual S&P 500 returns have been 14% in a split Congress and 13% in a Republican-held Congress under a Democratic president, compared with 10% when Democrats controlled both presidency and Congress.Midterms have also historically ushered in a long period of gains in U.S. stocks – a development many would cheer after the past year’s tumble in the S&P 500.(Post-midterm perfection for U.S. stocks https://graphics.reuters.com/USA-STOCKS/MIDTERMS/gdpzqrdoqvw/chart.png) 2/PRICE PRESSURES On Thursday, it’s time for U.S. inflation numbers – a data set that’s proven to be an important turning point for markets this year as consumer prices surged to decades high peaks. Investors will once again be looking for signs that price pressures are slowing after a barrage of rate hikes. Yet the world’s foremost central bank just said the ultimate benchmark policy rate level will likely be higher than previously estimated to tame inflation, underlining the threat that rising prices pose to the economy. A stronger-than-expected reading will likely weigh on stocks and bonds, potentially ramping up expectations that policymakers will need to get even more hawkish. A Reuters poll showed analysts expecting inflation to rise by 0.7% month-on-month. (Inflation nation https://graphics.reuters.com/GLOBAL-MARKETS/zjvqjqmxmpx/chart.png)3/MORE, BUT LESSAfter over 2,300 basis points worth of rate hikes in the current tightening cycle from ten big developed economies, markets had hoped for a dovish pivot to take away the sting.No chance. The Fed and Bank of England just delivered big 75 basis point (bps) rate increases and with inflation stubbornly high, the message from central banks is clear – more hikes are needed. But just maybe those moves could be less aggressive, as comments from Fed chief Jerome Powell suggested. Australia’s central bank has already slowed the pace of its rate hikes and delivered a mere 25 bps hike on Tuesday. Data and central bank comments in days ahead will remain under scrutiny. The much-hoped for dovish pivot remains elusive and battered world markets may have to settle for more but less for now.  (The race to raise rates https://graphics.reuters.com/GLOBAL-MARKETS/zjpqjqmkxvx/chart.png) 4/THE PRICE OF STABILITY Reopening rumours made an excuse for buying China in recent days, but the weight of money is on the sidelines watching for the economy – especially sentiment and spending – to show signs of a turning point. Trade, inflation and credit data due in days to come may give a glimpse of that progress. But the most intense focus may fall on foreign exchange reserves, which are being soaked up as authorities seek to put the brakes on a currency heading for its worst year since 1994. Down eight months in a row, China’s reserves are within a whisker of the psychological $3 trillion level. A drop below would be a mirror on dollar strength, and perhaps the depth of resolve to resist it in North Asia, where reserves are draining from Seoul to Taipei and Tokyo.(China’s shrinking reserves https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/znpnbdmyypl/chart.png)5/ALL ABOUT CLIMATE Climate issues take centre-stage as world leaders kick off the COP27 talks on reining in emissions in Egypt’s coastal resort of Sharm el-Sheikh on Monday.    With the conflict in Ukraine, food and energy supply issues and surging inflation dominating the agenda, expectations for progress have focused less on fresh commitments to lower emissions and more on keeping the show on the road.Crucial to that will be what steps the developed world takes towards helping poorer countries cut emissions and adapt their economies to its effects and pay for damage caused.    Also expected are updates and new commitments on a range of pledges made last year in Glasgow, including on deforestation, methane and carbon markets.(Africa and developing countries lose out on climate finance https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/gkplwmzmyvb/chart.png) More

President Nicolas Maduro’s government has tapped the brakes on inflation with orthodox economic policies aimed at exchange-rate stabilization, reduced public spending and tax hikes. Year-on-year inflation stood at 155.79%, according to Reuters calculations based on central bank figures, the highest in the Latin American region.The sectors with the largest price jumps in October compared with the previous month were education services, which saw an 18.3% rise, and communications, which saw a 9.6% increase, according to official data.In September, prices rose sharply as the government disbursed more resources and the bolivar depreciated for several weeks, forcing authorities to adjust spending and sell more foreign currency in cash to local banks, analysts said.Official policy, which limits credit authorizations, has led some entrepreneurs to seek loans abroad.High prices coupled with a de facto dollarization in some sectors have severely widened wage gaps between public and private sector workers. The minimum wage is equivalent to about $15 per month and has not been revised since last March. More

Job growth is slowing but remains stronger than comfortable for the Federal Reserve, which is trying to tame high inflation.Monthly change in jobs More

(Reuters) -Arta Finance, a fintech that aims to replicate the family office experience for a wider audience through artificial intelligence, debuted on Wednesday with $90 million in funding from investors who include Betsy Cohen and former Google (NASDAQ:GOOGL) chief Eric Schmidt. Calling the operation a “digital family office,” Arta CEO Caesar Sengupta, who led Google’s payments initiatives until 2021, said the startup will offer AI-personalized portfolios and alternative investments to accredited investors in the United States, with the aim of eventually expanding to non-accredited investors on a global scale.While family offices cater to those with hundreds of millions in assets, Arta is targeting those with $100,000 to several million dollars in investable assets, Sengupta said.”Technology and AI have gotten to the point where we can take a lot of what these family offices do, and using technology, scale it in a way that it can be offered to everyone,” he said.The venture, which is also funded by Ribbit Capital, Coatue Management and Sequoia Capital India, will be jointly based in Mountain View, California, and Singapore. BNY Mellon (NYSE:BK)’s Pershing will serve as Arta’s broker and custodian and offer credit lines to eligible investors. “It’s pretty exciting for us as a 238-year-old bank… to be on the leading edge of something as innovative as Arta [Finance] is,” said Pershing CEO Jim Crowley. Although Arta is still finalizing its fees, it aims to offer performance-based pricing.Though high inflation and rising interest rates are challenging for a startup, they underscore the need for a platform like Arta, said Sengupta and Crowley. “We’re actually really trying hard to scale as much as we can to get to as many people who we can serve,” said Sengupta. More

ROME (Reuters) -Italy’s new government unveiled its first public finance targets on Friday, hiking borrowing to finance support measures for families and firms struggling with sky-high energy costs.The Treasury’s annual Economic and Financial Document (DEF) approved by Giorgia Meloni’s cabinet set the 2023 fiscal deficit at 4.5% of gross domestic product, up from a 3.4% forecast made in September by the previous government of Mario Draghi.The new figures give Meloni room for measures worth around 1.1% of GDP to expand the economy next year, while keeping the deficit-to-GDP ratio on a downward trajectory from one year to the next.This year’s ratio is hiked to 5.6% from 5.1%, allowing Meloni, who took office last month at the head of a conservative coalition, to immediately take steps to tackle the problem of surging gas and electricity bills.She told reporters she would spend more than nine billion euros on an anti-inflation package in a decree next week.”For 2023 …we are freeing up 22 or 23 billion which will also be used exclusively to address the energy question,” she said at a news conference.After winning a Sept. 25 election the hard-right leader quickly made clear that most of her coalition’s more ambitious election pledges such swingeing tax cuts and higher pensions would have to wait until better economic times.The government raised Italy’s GDP growth forecast for this year to 3.7% from 3.3% on the back of stronger expected expansion in the third quarter, while leaving the 2023 forecast unchanged at 0.6%.Economy Minister Giancarlo Giorgetti, speaking at the same news conference, said recession risks were growing in Europe “and could also touch the Italian economy.”RECORD INFLATIONThe Treasury’s targets will form the framework for the 2023 budget that Meloni will present to parliament this month for approval by the end of the year. Public finances this year have gone better than forecast, with value added tax revenues and excise duties boosted by inflation and surging energy prices.Inflation, which under the EU-harmonised index hit 12.8% in October and marked the highest reading since the series was introduced in 1996, has also helped cut Italy’s huge public debt.Moreover, the European Union’s fiscal rules are still suspended to help the bloc’s economies recover from the COVID-19 pandemic, giving Meloni valuable breathing space.The DEF projected the deficit to decline in 2024 and said in 2025 it would fall to 3.0%, the ceiling set by the EU’s Stability Pact before it was suspended.Giorgetti said Italy’s public debt, proportionally the highest in the euro zone after Greece’s, will fall steadily from the 150.3% of GDP level registered in 2021 to 141.2% in 2025. Figures for the intermediate years were not immediately available.($1 = 1.0091 euros) More

WASHINGTON (Reuters) -The White House on Friday said it has released $185 billion in funding from the $1 trillion infrastructure bill that seeks to fix crumbling roads, expand broadband internet, replace lead pipes and improve the electrical grid.White House Infrastructure Implementation Coordinator Mitch Landrieu said the administration had already identified 6,200 projects for funding and hired more than 3,000 new federal workers to oversee the massive five-year infrastructure spending law signed by President Joe Biden in November 2021. “There’s a lot of pressure to go fast and to do more,” Landrieu told reporters, saying the administration had gotten about one-fifth of the funds in the first year “out the door… I think our pace is pretty good.”The department plans to soon award MEGA, RURAL and Bridge investment large grants after previously announcing $3.7 billion for various projects.Landrieu said the administration was focused on ensuring the money was properly spent. Biden is “building for the future… because he is intent on changing America and helping build a better America.”Last week, the U.S. Transportation Department (USDOT) awarded $703 million for 41 port infrastructure projects. In September, it awarded $104.7 million to help fund turning a Detroit interstate highway whose construction devastated two historically Black neighborhoods into an urban boulevard.The infrastructure law includes $110 billion for roads, bridges and major projects; $65 billion to expand high-speed broadband internet access and affordability; $66 billion for rail; $55 billion for water infrastructure; $25 billion for airports; $39.2 billion in new transit spending; and $5 billion for electric vehicle charging stations.”We’re just a year in so nobody should have reasonably expected that within a year we were going to spend more money than has ever been spent in the history of the country — and if we did would have wasted 90% of it,” Landrieu said. “We’ll let the results speak for itself.”The law funds 375 programs at more than a dozen federal agencies, including more than 125 new programs. More

(Reuters) -Even as global central banks rapidly tightened financial conditions this year, U.S. households, banks and businesses have so far been able to adapt, Federal Reserve Vice Chair Lael Brainard said as the Fed released its semiannual report on financial stability.”Over the period, household and business indebtedness has remained generally stable, and on aggregate households and businesses have maintained the ability to cover debt servicing, despite rising interest rates,” Brainard said on Friday. In written comments released along with the report, she restated concerns that the “rapid synchronous global monetary policy tightening,” along with surging inflation, the ongoing war in Ukraine and other risks, “could lead to the amplification of vulnerabilities, for instance due to strained liquidity in core financial markets or hidden leverage.”The turbulent state of the world was captured in a survey of researchers and market participants who flagged an array of emerging concerns associated with the changes both in market conditions over the past year, and the worsening geopolitical situation.More than half of those participating in the survey cited market liquidity and stress as a “salient risk,” an issue not mentioned at all in the Fed’s May financial stability report. Concern over Ukraine, inflation and oil prices remained high, but added to that is now potential conflict between China and Taiwan, cited by 42% of survey respondents.Overall, however, the document described an economy adjusting, if sometimes fitfully, to the Fed’s rate hikes.Banks maintained adequate capital, and while equity prices fell the report noted that real estate prices had largely held up.”On balance, vulnerabilities arising from borrowing by nonfinancial businesses and households were little changed over the first half of 2022 and remained at moderate levels,” the report said. “Borrowing by businesses remained at high levels relative to gross domestic product (GDP) in the first half of 2022, but some measures of their ability to service that debt improved as the effects of rising interest rates were offset by higher business earnings.”TREASURY MARKET CONCERNS REVISITEDThe report noted deteriorating liquidity in the Treasury market, but said that overall it had functioned smoothly over the last few months.”The likely predominant driver of recent low liquidity appears to be elevated uncertainty about the economic situation and the outlook for monetary policy,” the report concluded.Liquidity conditions were particularly poor for older vintages of bonds – so-called “off the run” securities – and for Treasury Inflation Protected Securities, the report found. “That said, market participants are not reporting major problems obtaining quotes or executing trades.”The Inter-Agency Working Group on Treasury Market Surveillance – comprising officials from the Fed Board, Treasury, New York Fed, Securities and Exchange Commission and Commodity Futures Trading Commission – is expected to provide an update on its progress toward enhancing the resilience of the Treasury market, the Fed said, though it did not provide a timeline for that.INTERNATIONAL TURBULENCEThe report also took note of the weakening economic conditions abroad from the war in Ukraine, China’s ongoing “zero-COVID” policy and its problematic property market, as well as persistent inflation, that could foster negative spillovers back to the U.S. economy or financial system in certain circumstances.”Lower growth trajectories and rapidly rising interest rates as central banks respond to inflation have led to bouts of market volatility, and the dollar has appreciated significantly against most foreign currencies,” the report said.During the long period of low and stable interest rates, some financial institutions increased their use of leverage and derivatives, putting them at risk of facing strains with rates now rising rapidly and volatility on the rise, the report said.The Fed nodded to the recent market upheaval in the United Kingdom, where in September a sharp rise in government yields forced pension funds that had taken on leveraged interest-rate positions to liquidate assets to meet margin calls, pushing yields up further. “This adverse feedback loop prompted the Bank of England to introduce a temporary bond purchase program to improve market functioning,” the report said. “More broadly, periods of market volatility may raise concerns about funding pressures for some financial institutions.””Modern financial markets are interconnected, so stresses abroad could lead to strains in U.S. markets and challenges for U.S. financial institutions,” the report concluded. More