Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Bondholders stand to make profits of $14bn on resolutions of sovereign debt crises that broke out from Ukraine to Zambia in recent years, according to calculations by a UK debt campaigner.Restructurings under way or recently concluded in Ghana, Sri Lanka, Suriname, Ukraine and Zambia will provide more than $30bn in debt relief for the countries in the years ahead. They will also deliver sizeable gains to investors over time, if governments avoid further defaults, Debt Justice said.These profits could be worth more than a third of bondholders’ original outlay and are a sign that troubled economies are not being granted sufficient reductions in their borrowing, according to the campaign group.“Debtors, for whatever reason, do not have enough power in negotiations, and are not getting enough relief to avoid restructurings in future,” said Tim Jones, policy director at Debt Justice.The calculations will add to the debate on the success of initiatives in the past year to end a logjam in resolving a spate of sovereign defaults and Ukraine’s war financing in response to Russia’s invasion.In recent months Ghana and Zambia have exited lengthy bond defaults, and Ukraine replaced a wartime payment suspension, after holders of Kyiv’s US dollar debt agreed to cuts in the value of their holdings.Sri Lanka is also close to completing a long-delayed bond restructuring, while Suriname resolved a default last year.These countries have also been doing deals with official creditors and other private lenders, but unlike bondholders the terms have generally not been fully disclosed, making it difficult to assess what returns they will make.To arrive at the $14bn figure, Debt Justice assumed that investors bought half of their bonds when they were originally sold by governments, usually at face value, and half at market prices, which collapsed as defaults loomed and then in some cases took years to be resolved.The profits are compared to the returns investors would have made buying US government debt over the same period, as a safe asset, and reflect both high interest payments on bonds before defaults, and the benefit of buying defaulted debt at low prices, Debt Justice said.Theoretical profits would be as low as $1.9bn if all bonds were bought at face value and none of the upside payments were triggered, and as high as $26bn if all bonds were instead bought at low prices and attracted the maximum possible upside, according to the estimates.“The caveat is that the calculations assume that the restructured debt will be repaid. It’s not that they’ve realised the profit yet. We think there are dangers of countries having to restructure again in the future,” Jones said.The Debt Justice calculations underscore that “bondholders have got substantial upside” from Sri Lanka’s proposed restructuring and Zambia’s deal, said Brad Setser, senior fellow at the Council on Foreign Relations.Several of the recent restructurings outside Ghana contain provisions that will reward bondholders with higher payouts if their economies outperform targets in the years ahead.Triggers for these payments will typically be assessed at the point the countries are due to exit IMF bailouts in the next few years. That risks “debt levels that ironically create very real risks of distress, immediately after the programme periods”, Setser said. While some of the restructurings such as Sri Lanka’s also have downside provisions to reduce payments in the event of future economic trouble, they do not go far enough, he added.Investors and advisers to governments have nevertheless said that these so-called “contingent” payments have been needed in order to bridge deep disagreements over official projections of the post-default path of countries, and get negotiations over the line. More

The People’s Bank of China (PBOC) said in a statement on its website on Friday that it urged participants to boost credit support for the real economy, and maintain reasonable growth in the total amount of money and credit.It also urged solid implementation of interest rate adjustments, as well as two funding schemes created to support the stock market.China’s banking and securities regulators also chaired the meeting, and participants included banks, brokerages and fund companies. More

TOKYO (Reuters) – Japan’s top currency diplomat, Atsushi Mimura, said on Friday that recent currency moves are “somewhat one-sided and rapid,” in a fresh warning against speculative trading as the yen fell past the key 150 line against the dollar. “We as Japanese authorities are closely watching foreign exchange moves, including speculative ones, with a high sense of urgency,” Mimura told reporters.The dollar touched 150 yen for the first time since Aug. 1 after solid U.S. retail sales data reinforced expectations that the Federal Reserve will pursue modest interest rate cuts over the next year-and-a-half as the world’s largest economy remained resilient. More

SINGAPORE (Reuters) – The dollar headed for a third weekly gain in a row on Friday, helped by a dovish European Central Bank and strong U.S. data that is pushing out expectations for how fast U.S. rates can fall, particularly if Donald Trump wins the presidency.The euro is down almost 1% for the week so far, has fallen through its 200-day moving average, and at $1.0828 in early Asia trade is parked near a 2-1/2 month low.On a rolling basis, the dollar’s 3.1% three-week gain on the euro is the sharpest rally since the middle of 2022, and it has forged to the strong side of 150 yen for the first time since early August. It last bought 150.24 yen.On Thursday, data showed U.S. retail sales growth was higher than expected and the ECB cut interest rates by 25 basis points.Four sources close to the matter told Reuters the ECB was likely to cut again in December unless economic data suggests otherwise.Meanwhile, markets have been disappointed at the lack of detail offered by Chinese authorities on plans to revive the slowing economy, and the yuan is headed for its largest weekly fall in more than 13 months. [CNY/]”All of that has played in to a stronger dollar,” said Jason Wong, senior strategist at BNZ in Wellington.”There’s also been a Trump trade going on in the background,” he said, with the dollar tracking Trump’s newfound lead in election prediction markets, since his tariff and tax policies are seen as likely to keep U.S. interest rates high.Trump’s prospects have also set bitcoin rallying since his administration is seen as taking a softer line on cryptocurrency regulation. It was last at $67,335, up 13% since Oct. 10. The U.S. goes to the polls on Nov. 5.Later on Friday, Chinese growth and activity data is due and is likely to show a slowdown that puts this year’s economic growth target of around 5% at risk.The Australian dollar, sensitive to China’s outlook owing to commodity exports, steadied at $0.6697 on Friday for a fall of around 0.8% on the week. [AUD/]It had received a boost on Thursday when stronger-than-expected jobs data reduced bets on interest rates cuts. The New Zealand dollar is also down 0.8% on the week and was a fraction lower at $0.6055 early in the Asia session.Israel said it had killed Hamas leader Yahya Sinwar in Gaza, a mastermind of the Oct. 7, 2023, attack that triggered war.Israel’s shekel rose and touched a two-week high after the news, though Israeli Prime Minister Benjamin Netanyahu said fighting would go on and broader markets had little immediate reaction.Sterling regained the $1.30 level overnight but is also headed for a weekly loss after a bigger-than-expected drop in British inflation raised bets the Bank of England might cut interest rates twice before the end of the year. [GBP/]British retail sales and U.S. housing starts data are due later on Friday, as are plans from Japan’s largest union group, Rengo, for the year’s wage negotiations. Data showed Japan’s core consumer prices were up 2.4% year-on-year in September, a bit higher than expected. The U.S. dollar index hit a 2-1/2 month high on Thursday at 103.76 and is up 0.8% this week.China’s yuan hovered at 7.1370 in offshore trade, ahead of the onshore open. More

BEIJING (Reuters) – China’s economy is expected to have slowed in the third quarter, dragged by a prolonged property downturn and weak consumption, maintaining pressure on policymakers as they consider more stimulus steps to revitalise growth.Data released on Friday is forecast to show the world’s second-largest economy grew 4.5% year-on-year in July-September, slowing from 4.7% in the second quarter and hitting the weakest pace since the first quarter of 2023, according to a Reuters poll.Beijing will report the latest figures at a time when authorities have started to sharply increase stimulus measures in an effort to ensure the economy meets the government’s 2024 growth target of around 5%.The Reuters poll showed China’s economy is likely to expand 4.8% in 2024, undershooting Beijing’s target, and growth could cool further to 4.5% in 2025.China’s economy has stuttered through uneven growth this year, with industrial production outstripping domestic consumption, fanning deflationary risks amid the property downturn and mounting local government debt.Policymakers, who have traditionally leaned on infrastructure and manufacturing investment to drive growth, have pledged to shift focus towards stimulating consumption, but markets are awaiting further details of a planned fiscal stimulus package.On a quarterly basis, the economy is forecast to have expanded 1.0% in the third quarter, compared with 0.7% growth in April-June, the poll showed.GDP data is due on Friday at 0200 GMT. Separate data on September activity is expected to paint a mixed picture, with retail sales picking up while investment slowing.Recent data raised the risk of China sliding into an entrenched phase of deflationary pressures as prospects for exports, the economy’s lone bright spot this year, look to be dimming amid foreign trade curbs.China’s export growth slowed sharply in September while imports also decelerated, undershooting forecasts by big margins and suggesting manufacturers are slashing prices to move inventory ahead of tariffs from several trade partners.China’s consumer inflation unexpectedly eased in September, while producer price deflation deepened, heightening pressures on Beijing to take steps to spur demand as exports lose steam.Last week, China’s finance minister pledged to “significantly increase” debt to revive growth, but left investors guessing on the overall size of the stimulus package.China may raise an additional 6 trillion yuan ($842.60 billion) from special treasury bonds over three years to help bolster the sagging economy through expanded fiscal stimulus, Caixin Global reported, citing multiple sources with knowledge of the matter.Reuters reported last month that China plans to issue special sovereign bonds worth about 2 trillion yuan this year as part of fresh fiscal stimulus. The central bank in late September announced the most aggressive monetary support measures since the COVID-19 pandemic, including interest rate cuts, a 1 trillion yuan liquidity injection and other steps to support the property and stock markets.Analysts polled by Reuters expect a 20-basis points cut in China’s one-year loan prime rate, the benchmark lending rate, as well as a 25-basis points cut in banks’ reserve requirement ratio in the fourth quarter.($1 = 7.1208 Chinese yuan renminbi) More

WASHINGTON (Reuters) – International Monetary Fund Managing Director Kristalina Georgieva said on Thursday that she expected U.S. presidential candidates Donald Trump and Kamala Harris would both take a “very pragmatic” approach to the IMF and the World Bank.Georgieva told Reuters in an interview that it was up to the American people to choose their leader on Nov. 5, and that she has had a positive experience working with current and past U.S. administrations, including former President Trump’s.As global finance leaders gather in Washington next week for IMF and World Bank annual meetings, a huge question on their minds will be the future of U.S. leadership at the institutions given the close contest between Republican candidate Trump and Democratic candidate Harris.Trump has promised massive tariff increases on Chinese goods and other imports, part of a return to his “America First” retreat from multilateralism.The conservative Republican “Project 2025″ agenda, from which Trump has distanced himself, calls for U.S. withdrawal from the IMF and World Bank to pursue only bilateral development and financial aid in line with U.S. interests.Georgieva presented a more sanguine view of potential U.S. election outcomes.”My experience with the U.S. – any administration – has been always very positive,” Georgieva said. “The U.S. is very pragmatic. It brings a can-do attitude. It is demanding, and I like that.”She worked with the Trump administration as the CEO of the World Bank in 2018 to land a $13 billion capital increase, and later, as head of the IMF, to channel rapid COVID-19 relief financing to struggling economies across the world.The U.S. Treasury at the time was complaining about excessive World Bank lending to China, and Georgieva said the Trump administration had demanded reforms to raise borrowing costs for larger middle-income countries to discourage such loans in exchange for backing the capital increase. “So from that perspective, I think we can see the same very practical, pragmatic attitude in the future,” from U.S. administrations, she added.On Tuesday, World Bank President Ajay Banga cited the 2018 capital hike as evidence that Trump recognizes the value of U.S. leadership of the two institutions. He added that the World Bank can multiply development dollars and can help turn poor countries into thriving markets for U.S. companies. The U.S. is the largest shareholder in both the IMF and the World Bank and holds effective veto power over major structural decisions.Georgieva said rather than denouncing proposed new trade restrictions as “wrong,” the IMF was working to understand the impetus for increased trade restrictions, particularly in advanced economies like the U.S. and Europe.”Let’s try to understand the drivers in each and every country, and then analyze what is the possible response and what are the costs and benefits, and then work with our members to bring forward more rational decision-making,” she said. More

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WASHINGTON (Reuters) – The United States will use restrictive tools like tariffs to push back against China’s practice of making far more goods than it needs in order to dominate global markets, White House official Daleep Singh said on Thursday.Singh, deputy national security adviser for international economics, said the Asian giant has amassed growing market power that it uses for economic and geopolitical leverage, and Washington viewed the costs as unacceptable.”So that’s the problem, and it’s not abstract. You can see it in the numbers,” Singh told an event hosted by the Alliance for American Manufacturing. “They’re a big outlier and we’ve got to do something about it.”Beijing and Washington have had tense relations for years due to multiple issues ranging from trade tariffs and the origins of COVID-19 to human rights, intellectual property and Taiwan. Singh gave no details on any new measures being considered by Washington.Data showed that China had a significant overcapacity relative to projected demand for electric vehicles, batteries or semiconductors, Singh said, noting that Chinese producers were reporting “persistent losses.””We’re seeing an unrivaled level and rate of growth in China’s subsidies, and … forget about the numbers, look at their public pronouncements to dominate key sectors and diffuse them with military pre-eminence,” Singh said at the event, a week before finance officials from around the world gather in Washington for the annual meetings of the International Monetary Fund and World Bank.Singh said that “a growing number of countries”, including Brazil, India, South Africa and the European Union, were starting to see industrial overcapacity as a major problem like the U.S. did, adding China was using production to gain dominance in a number of sectors.”China is flooding strategic sectors with supply that’s well beyond what global demand can plausibly absorb, and therefore wiping out the competition,” he said.He said China had long used the same tactics for two decades to gain dominance in steel and solar and medical devices, but the trend was now “broadening and intensifying” to include electric vehicles, batteries and semiconductors, where Washington has been investing heavily.Washington has previously said the U.S. may need to take further and “more creative” actions beyond tariffs to protect U.S. industries and workers against China’s growing excess industrial capacity.U.S. Treasury Secretary Janet Yellen, speaking at a separate Council on Foreign Relations event in New York, said every province in China is competing to try to invest more in advanced manufacturing sectors, such as clean energy and semiconductors. “So the level of subsidization is utterly enormous. There are many profit-losing firms that are kept in existence. And so there is a gigantic amount of overcapacity that is threatening our own attempts to build in these areas,” she said. More