Economy

A group of 37 island states, home to some 65 million people, “urgently need to increase their fiscal space to tackle the multiple challenges and crises facing them,” wrote Iolanda Fresnillo (LON:FRES), one of the authors of the European Network on Debt and Development (Eurodad) report.The Eurodad report found that the island states from Guinea-Bisseau to the Dominican Republic to Samoa received just $1.5 billion in climate finance between them between 2016-2020.Over the same period, 22 of the nations paid more than $26.6 billion to their external creditors, which comprises 50 non-governmental organisation, it said.Public debt levels in the island states had risen from an average of near 66% of GDP in 2019 to nearly 83% in 2020 and were set to remain above 70% until 2025, the report found. This in turn meant governments needed to spend more revenue on debt servicing, with countries like Belize, Cape Verde, Dominican Republic, Jamaica, Maldives, Grenada and Papua New Guinea allocating between 15%-40% to pay their external creditors, it said.More countries had turned to the International Monetary Fund for help, with the number of countries having programmes with the fund jumping from three in 2019 to 20 between 2020 and 2021. In June, the fund’s executive board approved a $60 million programme for Cape Verde while Barbados struck a deal for $293 million in late September. The report found that more than 80% of the island states were in debt difficulties under criteria established by the IMF and World Bank Debt Sustainability Analysis, or by civil society groups Debt Justice UK and Jubilee Germany.How to shore up fragile, smaller economies buckling under the strain of fallout from COVID-19 and Russia’s war in Ukraine is poised to garner much focus this week when policy makers from around the globe gather in Washington for the annual IMF/World Bank meeting until Oct. 16. More

WASHINGTON (Reuters) – The World Bank said on Monday it is launching a trust fund aimed at pooling public funds to provide grants for projects to reduce carbon emissions, including decommissioning coal-fired power plants.The Scaling Climate Action by Lowering Emissions (SCALE) fund will provide grants to developing countries as they deliver pre-agreed results in reducing greenhouse gas emissions, World Bank President David Malpass said in a LinkedIn post.SCALE will be the new umbrella trust fund for the bank’s results-based climate finance activities. Malpass said the World Bank was in the process of capitalizing the new fund, with the aim of launching it at the COP27 climate change conference in Egypt in November.In a paper provided to the World Bank’s and International Monetary Fund’s joint Development Committee, the bank said it has identified three areas that are particularly well suited to such results-based financing grants: natural climate solutions based on agriculture, forestry, land-use and oceans; sustainable infrastructure such as energy and transport; and fiscal and financial solutions that directly or indirectly mobilize resources for climate actions.The bank said the SCALE fund will bring new resources to emissions reduction projects in low- and middle-income countries, help generate larger projects, generate high-quality carbon credit assets and help countries enhance access to international carbon markets.The World Bank did not identify a projected size for the new fund. The world’s biggest multilateral development lender in fiscal 2022, ending on June 30, delivered over $30 billion in climate-related finance.But U.S. Treasury Secretary Janet Yellen last Thursday urged the World Bank and other multilateral development banks to shift their business models beyond country-specific project finance and to dramatically boost lending to address climate change and other pressing global needs. More

(Reuters) – The dollar loomed large over fragile financial markets on Tuesday, with worries about rising interest rates, global growth and geopolitical tensions unsettling investors, while the yen was testing levels that have prompted official intervention. The yen hit 145.80 per dollar overnight, just 10 pips short of the 24-year trough it made before the Japanese government stepped in to prop it up three weeks ago. Japan returned from a holiday on Tuesday and the yen sat at 145.65. Strong U.S. labour data and an expectation of inflation figures due on Thursday to remain stubbornly high have all but dashed bets on anything but high interest rates through 2023 and are driving the dollar back toward multi-decade highs.Russia rained missiles upon Ukraine’s cities on Monday in retaliation for blast that damaged the only bridge linking Russia to the annexed Crimean peninsula, with the escalation putting markets in a risk-averse mood. The risk-sensitive Australian dollar made a 2-1/2 year low of $0.6275 on Monday and hovered at $0.6296 early on Tuesday. Analysts at the National Australia Bank (OTC:NABZY) said the Aussie was the market’s “whipping boy” in a sell off and that further lows were possible in the near term as sentiment is fragile.The New Zealand dollar also made a 2-1/2 year low at $0.5545 on Monday and is close to breaking its pandemic trough, with weak data from China further souring the mood. “Our expectation for the world economy to enter recession next year is consistent with further gains in the dollar,” said Commonwealth Bank of Australia (OTC:CMWAY) strategist Carol Kong.U.S. dollar index was up 0.053% at 113.12, not far off the 20-year high of 114.78 it touched late last month.Britain’s markets remain on edge and not exactly soothed by the Bank of England stepping up bond buying and finance minister Kwasi Kwarteng promising to bring forward some budget announcements.Gilts sold sharply overnight and sterling was wobbly, sliding to a 10-day low of $1.1027 on Monday. The pound was up 0.28% at $1.1090 on Tuesday. ========================================================Currency bid prices at 0029 GMTDescription RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Euro/Dollar $0.9719 $0.9703 +0.15% -14.52% +0.9719 +0.9700 Dollar/Yen 145.5700 145.7300 +0.02% +26.73% +145.7350 +145.7600 Euro/Yen 141.47 141.39 +0.06% +8.56% +141.5200 +141.3600 Dollar/Swiss 0.9989 0.9994 +0.10% +9.66% +1.0002 +0.9994 Sterling/Dollar 1.1090 1.1060 +0.28% -17.99% +1.1091 +1.1056 Dollar/Canadian 1.3782 1.3780 +0.02% +9.01% +1.3795 +1.3771 Aussie/Dollar 0.6297 0.6299 -0.02% -13.37% +0.6300 +0.6284 NZ 0.5574 0.5566 +0.15% -18.56% +0.5574 +0.5559 Dollar/Dollar All spotsTokyo spotsEurope spots Volatilities Tokyo Forex market info from BOJ More

HONG KONG (Reuters) – The hedge funds that have managed to weather and outperform China’s bumpy stock markets so far this year say betting on big-picture macroeconomic changes have helped them.One such fund is Stanley Tao’s $230 million Golden Nest Greater China Fund. The hedge fund posted approximately a 2.4% net return for September, according to internal estimates, and is down 1.2% for the first nine months.That compares with MSCI China’s roughly 30% decline in the nine months to September, marking the worst first nine months since 2008. The Shanghai Composite Index shed 16% during the same period and fell 5.5% in September alone.Extreme risk aversion and bearish bets on internet, real estate and healthcare sectors helped the fund navigate the strong headwinds, Tao, founder and CIO at Golden Nest Capital Management, said. Tao said his fund started cutting exposure to technology stocks and turned bearish since late 2020 after monitoring regulatory developments, external risks from an audit dispute with U.S. regulators, and recognising that the Chinese government was resolute about fixing a “disorderly expansion of capital” at technology firms.China-focused long-short equity funds were down 13.5% by the end of August, in sharp contrast to a 1.1% gain by China macro managers, according to Eurekahedge data from With Intelligence.Macro strategies are the biggest winners this year, with hedge funds cashing in on the volatility spawned by the differing pace of global rate rises and regulatory changes — seizing opportunities that didn’t exist during a decade of uniform easy monetary policies everywhere. For stock-pickers, top-down research is also a key factor in winning or not.”Ignoring the importance of macro research could be a big mistake for some fundamental investors,” said Tao, adding such macro research stops funds from rushing into markets at the end of a bull run, or bottom fishing when a bear market begins.The $1.8 billion Shanghai Chongyang Investment Management, another hedge fund, reduced exposure to stocks twice in the first quarter to about 60% of assets, thus partially avoiding the panic selling that ensued during China’s stringent COVID-19 lockdowns.Partial or full lockdowns were imposed in major centres across the country from March to May, including the most populous city Shanghai, and snap lockdowns continue to be implemented in some areas to stamp out outbreaks.”We turned cautious in February and seized the window of a sharp market rally at end-March to further reduce our positions,” said Wang Qing, chairman at Shanghai Chongyang.The market didn’t fully price in the downside risks to economic growth and corporate earnings at the time, Wang said.China’s economy braked sharply in the second quarter as lockdowns hit consumption and factory output, but there is growing optimism that pandemic restrictions will ease.Chongyang has decided the fourth quarter is the time to become positive and has started to add some tech and consumer stocks to its portfolio in the past few months.Its yuan-denominated Chongyang I fund dipped 1.4%, while an offshore U.S. dollar product Chongyang Dynamic Value Fund was down 8.6% by the end of August.Wang believes market sentiment will improve in three months, expecting China will ease COVID-19 restrictions after the October Communist Party Congress, and U.S. inflation should have fallen for 4 to 5 months by then.Golden Nest’s Tao, however, will remain cautious until next March when China outlines its economic policy direction during the ‘Two Sessions’ — meetings of the top decision-making bodies, the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC). More

JPMorgan Chase CEO Jamie Dimon told CNBC Monday that the U.S. should forge ahead in pumping more oil and gas to help alleviate the global energy crisis.
Likening the situation to a national security risk of war-level proportions, Dimon said Western allies should support the U.S. in shoring up supply.
“”America needs to play a real leadership role. America is the swing producer, not Saudi Arabia,” Dimon told CNBC’s Julianna Tatelbaum.

Dimon said in June that he was preparing the bank for an economic “hurricane” caused by the Federal Reserve and Russia’s war in Ukraine.
Al Drago | Bloomberg | Getty Images

JPMorgan Chase CEO Jamie Dimon said Monday that the U.S. should forge ahead in pumping more oil and gas to help alleviate the global energy crisis, likening the situation to a national security risk of war-level proportions.
Speaking to CNBC, Dimon dubbed the crisis “pretty predictable” — occurring as it has from Europe’s historic overdependence on Russian energy — and urged Western allies to support the U.S. in taking a lead role in international energy security.

“In my view, America should have been pumping more oil and gas and it should have been supported,” Dimon told CNBC’s Julianna Tatelbaum at the JPM Techstars conference in London.
“America needs to play a real leadership role. America is the swing producer, not Saudi Arabia. We should have gotten that right starting in March,” he continued, referring to the onset of the energy crisis following Russia’s invasion of Ukraine on Feb. 24.

This should be treated almost as a matter of war at this point, nothing short of that.

Jamie Dimon
CEO, JPMorgan Chase

Europe — once a major importer of Russian energy, relying on the country for up to 45% of its natural gas needs — has been at the forefront of that crisis; facing higher prices and dwindling supply as a result of sanctions levied against the Kremlin.
And while EU nations have hit targets to shore up gas supplies over the coming winter months, Dimon said leaders should now be looking ahead to future energy security concerns.
“We have a longer-term problem now, which is the world is not producing enough oil and gas to reduce coal, make the transition [to green energy], produce security for people,” he said.

“I would put it in the critical category. This should be treated almost as a matter of war at this point, nothing short of that,” he added.

‘It’s Pearl Harbor’

Referring to the war in Ukraine more broadly, Dimon dubbed it an attack of similar magnitude to that of Pearl Harbor or the invasion of Czechoslovakia in 1968.
“It’s Pearl Harbor, it’s Czechoslovakia, and it’s really an attack on the Western world,” he said.
However, the CEO said it also presented an opportunity for the West to “get its act together” and defend its values in the face of autocratic regimes.
“The autocratic world thinks that the Western world is a little lazy and incompetent — and there’s a little bit of truth to that,” said Dimon.
“This is the chance to get our act together and to solidify the Western, free, democratic, capitalist, free people, free movements, freedom of speech, free religion for the next century,” he continued.
“Because if we don’t get this one right, that kind of chaos you can see around the world for the next 50 years.”

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LONDON (Reuters) – British finance minister Kwasi Kwarteng needs to make 62 billion pounds ($69 billion) of spending cuts or tax rises to stop public debt growing ever-larger as a share of the economy, the Institute for Fiscal Studies (IFS) said in a report on Tuesday.Interest rates for new long-term government borrowing leapt to a 20-year high last month, after Kwarteng announced 45 billion pounds of unfunded tax cuts, on top of even greater short-term support for households’ and businesses’ energy bills.Kwarteng has sought to regain market confidence by scrapping a plan to axe Britain’s top rate of income tax – saving 2 billion pounds – and bringing forward plans for new forecasts and a debt reduction plan to Oct. 31.But the IFS think tank – whose views on budget policy are closely watched in Britain – said Kwarteng would face an uphill struggle to convince sceptical markets that his plans will boost growth to 2.5% a year promised by Prime Minister Liz Truss.”The Chancellor should not rely on over-optimistic growth forecasts or promises of unspecified spending cuts. To do so would risk his plans lacking the credibility which recent events have shown to be so important,” IFS director Paul Johnson said.British government borrowing looks on course to hit 194 billion pounds this financial year and to still be 103 billion pounds in 2026/27 – 71 billion more than government forecasters predicted in March, the IFS said.The IFS budget projections are based on relatively downbeat growth forecasts from U.S. bank Citi, which estimates that the British economy will grow by an average of just 0.8% a year over the next five years.However, even if the economy grew a quarter of a percent faster each year, the government would still need to tighten fiscal policy by 41 billion pounds for debt to fall as a share of gross domestic product (GDP), the IFS said.COSTLY DEBTDebt interest would cost 106 billion pounds this year and 103 billion pounds in 2023/24, the IFS predicted, due to the large amount of finance raised in years gone by through issuing bonds that pay interest that rises as inflation goes up.Citi economist Ben Nabarro, who presented the forecasts alongside the IFS, said Britain’s large current account deficit made it vulnerable to a loss of confidence.”The funding basis for that is increasingly precarious,” he said. “Institutional credibility is an absolute must for the UK and any doubts about that risk being hugely destructive.”Sterling fell to a record low below $1.04 against the U.S. dollar on Sept. 26, and many British government bonds recorded their biggest monthly falls on record.Debt rising as a share of GDP was acceptable during economic crises – such as those caused by COVID-19 or the recent surge in energy prices – but was not sustainable long term, the IFS said.”There are constraints that can bite. And it looks as if we are running up against them, perhaps for the first time in a long time,” the IFS said.If Kwarteng was unwilling to raise taxes, the IFS said one way to achieve 62 billion pounds of cuts would be to raise working-age benefits in line with wages, not prices, for the next two years; to limit public investment to 2% of GDP rather than 3%; and to cut spending on public services outside health and defence by 15%.”Such spending cuts could be done, but would be far from easy,” the IFS said.($1 = 0.9048 pounds) More

Vladimir Putin has described Russia’s air strikes on Ukraine, its most extensive since the early weeks of his seven-month invasion, as retaliation for the bombing of the bridge linking Russia to the Ukrainian peninsula of Crimea. Speaking at a meeting of his security council yesterday, the Russian president accused Kyiv of a “terrorist attack” at the Kerch bridge, damaged by an explosion on Saturday, and said “leaving such a crime without a response is just impossible”. Though Putin claimed the targets were military, energy and communications assets, early footage and evidence of the damage showed that a playground and a bridge in central Kyiv were hit, as well as civilian infrastructure across the country. Russia’s defence ministry said its strikes “hit all the assigned targets”. The Russian army has been losing ground in regions of south-eastern Ukraine that Putin unilaterally claimed as part of Russia last month. On Saturday, Moscow suffered a blow to its prestige after the attack on the bridge, a symbol of the 2014 Russian annexation of Crimea, which it had claimed to be well guarded. The strikes killed at least 10 people and injured at least 60, Maryanna Reva, a spokesperson for Ukraine’s police, said on state television, citing preliminary details.

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Thanks for reading FirstFT Asia. Now, here is the rest of today’s news — EmilyFive more stories in the news1. China chip stocks fall hard owing to US export controls Shares in top Chinese chipmakers shed $8.6bn in market value yesterday as new US export controls threatened to obstruct Beijing’s plans for technological self-sufficiency.2. EY accused of whitewashing suspicious trades Whistleblowers have accused EY of whitewashing suspicions of money laundering and tax evasion in an investigation it conducted this year for longstanding client Leonteq. The fintech company said it had “a strict zero tolerance policy regarding non-compliant business behaviour” and that all allegations were “managed, monitored and reported with due care and process”.3. Tesla hits China sales record Tesla’s sales in China have hit a new monthly high, reportedly selling 83,000 cars in September, just as Elon Musk garnered praise from Beijing for proposing to resolve the geopolitical crisis over Taiwan by placing it in a special administrative zone similar to Hong Kong.4. Iranian celebrities fan flames of anti-regime protests Protests over the death of Mahsa Amini have widened to include calls for a secular, democratic government. The unrest has been amplified by social media and, in some cases, celebrities with large online followings.5. Ex-Fed chair Bernanke wins Nobel economics prize Ben Bernanke, the former US Federal Reserve chair, has been awarded this year’s Nobel prize in economics together with Douglas Diamond of the University of Chicago and Philip Dybvig of Washington University, for their work on the role of banks in the economy and financial crises.More US economy news: JPMorgan Chase chief executive Jamie Dimon predicted the US economy will probably tip into a recession next year, warning the downturn threatened to spark “panic” in credit markets.The day aheadG7 call with Ukrainian president Leaders will hold an emergency meeting with president Volodymyr Zelenskyy to discuss Monday’s Russian missile attacks on Ukrainian cities.UAE president to meet Putin Sheikh Mohammed bin Zayed al-Nahyan will travel to Moscow to meet his Russian counterpart Vladimir Putin today, the UAE state news agency has reported. The visit comes days after Opec’s oil output cut, which was made in spite of US pressure against the move.Meta Platforms’ Connect event The company will hold its annual showcase of new augmented and virtual reality products, including the much touted headset codenamed Project Cambria. (TechCrunch) Global Financial Stability Report IMF publishes its report assessing the global financial system and markets. What else we’re readingThe threat to freedom of expression in India India’s clamorous public square and disquisitive journalistic and intellectual culture has been a point of pride for many citizens. But some now decry a clampdown on freedom of expression that, they say, has widened beyond media organisations and journalists to public intellectuals, think-tanks and comedians, too.Why I’d rather have Liz Truss than Xi Jinping as a leader The 20th national congress of the Chinese Communist party will be everything that the Tory party conference was not: choreographed, disciplined and united in support for an all-powerful leader. But the democratic British mess is preferable to China’s authoritarian model, writes Gideon Rachman.The new rules for business in a post-neoliberal world Over 40 years ago, the Reagan-Thatcher revolution was born. Taxes were slashed, unions were squashed, markets were deregulated and global capital unleashed. But economic pendulums swing and, over the past couple of weeks, it’s become quite clear that anything remotely related to trickle-down theory is now political Kryptonite, writes Rana Foroohar. Chinese tech groups bank on virtual influencers Virtual idols are having a moment. Over the past year, Chinese investment and tech groups have ploughed hundreds of millions of dollars into companies that develop digital influencers, which considered a safer option than human celebrities who could be deemed too politically outspoken or having questionable morals.Why Musk didn’t exit his Twitter bid Before suddenly indicating last week that he wanted to complete the buyout on the original terms, Elon Musk had apparently been wavering on his deal to buy Twitter. But the US court ruling over generic drugmaker Akorn serves as a lesson of how hard it would be for any corporate acquirer in similar circumstances, to walk away, writes Sujeet Indap.PodcastThe Prince, Sue-Lin Wong’s chilling series about the Chinese president Xi Jinping, is “a Machiavellian story of power”. The new podcast from the Economist charts Xi’s rise through the ranks and the main world events, from the Tiananmen Square massacre to the fall of the Soviet Union, that helped shape his world view. More

After an earlier announcement sent markets into a tailspin, the prime minister and the chancellor are under pressure to restore fiscal credibility.After days of confusion, Britain’s government said on Monday that the date for its next fiscal policy announcement would be moved up nearly a month and that it would provide, at the same time, a much-anticipated independent assessment of the policies’ impact on the nation’s economy and public finances.The chancellor of the Exchequer, Kwasi Kwarteng, said he would publish his “medium-term fiscal plan” on Oct. 31, which would show how the government, under the new prime minister, Liz Truss, would bring down debt levels despite large spending plans and tax cuts that would be funded by borrowing.New economic and fiscal forecasts from the Office for Budget Responsibility, a government watchdog, are to be published the same day.The move is aimed to reassure financial markets and the public of the new government’s fiscal credibility. Its first major economic announcement, a speech by Mr. Kwarteng on Sept. 23, was dominated by unfunded tax cuts at a time of high inflation, and it quickly sent markets into a tailspin: The British pound hit a record low against the dollar, and turmoil in the bond market led to higher mortgage rates and intervention from the Bank of England to protect pension funds.Since then, the government has canceled its plan to abolish the top income tax rate for the highest earners — the most surprising tax-cutting measure announced last month — and tried to restore its fiscal credibility, while maintaining its commitment to an agenda of using tax cuts and deregulation to speed economic growth.Rising Inflation in BritainInflation Slows Slightly: Consumer prices are still rising at about the fastest pace in 40 years, despite a small drop to 9.9 percent in August.Interest Rates: On Sept. 22, the Bank of England raised its key rate by another half a percentage point, to 2.25 percent, as it tries to keep high inflation from becoming embedded in the nation’s economy.Truss’s Experiment Stumbles: Prime Minister Liz Truss says a mix of tax cuts and deregulation is needed to jump-start Britain’s sluggish economy. Investors, economists and some in her own party disagree.Mortgage Market: The uptick in interest rates roiled Britain’s mortgage market, leaving many homeowners calculating their potential future mortgage payments with alarm.Part of this rehabilitation effort included a promise to publish a more detailed fiscal plan focused on reducing debt and provide an independent analysis by the Office for Budget Responsibility. But the date was set for Nov. 23 — too long to wait, said fellow Conservative Party members, opposition lawmakers and investors.Liz Truss, the prime minister, with Mr. Kwarteng visiting a construction site last week. Pool photo by Stefan RousseauLast week, it was widely reported that the date would be moved forward, and Mr. Kwarteng denied this. On Monday, he confirmed that the announcement would indeed arrive on Oct. 31.Two weeks ago, in the immediate aftermath of Mr. Kwarteng’s policy speech, the pound plummeted to $1.035 and speculation grew that it could reach parity with the dollar. The cancellation of the top tax rate cut, which the government argued had become a distraction from its overall growth plan, helped the currency rebound a bit.But that recovery has stalled. On Monday, the pound was trading around $1.10 amid skepticism that the government’s plan would expand the economy as promised, and that instead large public spending cuts would be necessary.Fitch Ratings said on Monday that it expected the British economy to contract 1 percent next year, after “extreme volatility” in British financial markets and the prospect of “sharply higher” interest rates. Last month, it forecast a 0.2 percent decline for next year.“Rising funding costs, tighter financing conditions, including for mortgage borrowers, and increased uncertainty will outweigh the impact of looser fiscal policy” next year, analysts at the ratings agency wrote. They expect Britain’s economy to enter a recession in this quarter. The agency has already changed its ratings outlook for Britain to negative.That was just one of many rebukes of the government’s plans. For example, the International Monetary Fund encouraged the government to re-evaluate the tax cuts, which it said would increase inequality.But Ms. Truss, seeking to reverse years of sluggish growth and weak productivity, has been clear that she wants to run the economy differently than her predecessors. One early decision was to fire the top civil servant in the Treasury, Tom Scholar, a move that rattled some analysts. On Monday, the government announced his successor, James Bowler, who will transfer from the international trade department but spent two decades at the Treasury previously.Even as the government makes conciliatory moves, there are signs of distress in financial markets. On Monday, the Bank of England said it would expand its intervention in the bond market. The bank will increase the size of the daily auctions in a bond-buying program that was set up to support pensions funds, after tumult in this market threatened Britain’s financial stability.Over the last eight trading days, the bank bought only about 5 billion pounds of long-dated government bonds in total, despite setting a limit of £5 billion a day. With markets wondering what will happen when the bond-buying operation ends on Friday, the central bank announced that it would expand its support. As well as increasing the auction sizes, it will set up a new collateral facility to try to ease liquidity problems faced by the pension funds. That facility will continue beyond this week.The announcement appeared to do little to ease the markets. On Monday, Britain’s bond prices kept falling, while the yield on 30-year bonds rose to 4.72 percent, once again approaching highs seen during the worst of the bond rout after the last fiscal statement.The financial district in London. The new government’s first major economic announcement, on Sept. 23, quickly sent markets into a tailspin.Alex Ingram for The New York Times More