Economy

BEIJING (Reuters) – China will step up the implementation of macro policies as the downward pressure on the economy is increasing, state media on Monday quoted Premier Li Keqiang as saying.Authorities should be highly vigilant of changes in the domestic and international environment that have exceeded expectations, Li was quoted as saying. More

“The Russian Federal Air Transport Agency has allowed Russian airlines to operate hundreds of foreign-owned aircraft without a valid certificate of airworthiness,” Commissioner for Transport Adina Valean said.”The Russian airlines concerned have knowingly done so in breach of relevant international safety standards. This …poses an immediate safety threat,” she said.She said the decision to ban the airlines certified in Russia, which include Aeroflot, was not another sanction against Moscow for its invasion of Ukraine, but a measure taken only on the basis of technical and safety grounds.The Commission said that after the addition of the 21 Russian airlines, the EU black list of carriers banned from EU skies now contained 117 companies. More

The title of my note today is taken from a new book by former Australian prime minister Kevin Rudd, which has become ever more timely since it was published a couple of months ago. I had the chance to hear Rudd — who speaks fluent Mandarin and is, for my money, one of the smartest westerners to opine regularly on China — talk last week about his book, as well as how Beijing may be thinking about decoupling at an Asia Society virtual event. Here are the five most interesting points he made:1. The 2020s will be the “decade of living dangerously”, as China tries to bolster not only its military strength but also its ability to fight any future western financial sanctions. Rudd pointed out that China is determined not to be vulnerable in either area, particularly in relation to Taiwan. But in lieu of any kind of managed competition, with clear red lines for the west and China in regards to Taiwan, the South China Sea, cyber security and space, the risk of accidental confrontation is high.2. Rudd himself argues for managed competition, in which both sides duke it out on everything apart from security issues — economics, foreign policy, finance, trade (he thinks that where supply chains go, currency does too), talent markets and the marketplace of ideas. All these areas are, in his view, open to battles. He believes that the victory will come down to a competition of values, between liberal democracy and authoritarianism, and “may the best system win”.3. There are potential areas of collaboration — such as climate, global finance, and vaccines and future pandemic prevention. But in order to leverage those, Washington and Beijing need executive-level co-ordination and a line directly into top leadership (meaning the president’s or premier’s office) at all times.4. China’s hope is that it can simply use the “gravitational pull” (a direct expression by President Xi Jinping) of its economic might to pull the west and Europe, in particular, into its orbit without triggering a hot conflict with the US. Beijing knows that it has alienated Europe with its stance regarding Russia’s war in Ukraine. “But there’s a deep, cynical, pragmatism in Beijing about the war” and a belief that European desire not to lose out on Chinese and other Asian high-growth markets will create a “selective amnesia” about the war by this time next year, he says. 5. Rudd, who has met Xi a number of times, says he’s “not somebody I’d like to cross”. Xi’s father was persecuted by Mao Zedong, and he knows what it’s like to be on the outside within the system. Rudd says Xi makes sure to purge any potential threats to his power before they even have a chance to become threats. “He’s a man of ideology, politics, and history” with a “resilience of steel”.What do I take from all this? Well, for starters, decoupling is clearly inevitable. Rudd, like me, believes that regionalisation is the future, though both the US and China will try to limit it to areas that won’t hurt them too much economically or geopolitically. Secondly, if I were US national security adviser Jake Sullivan, I’d definitely be trying to create some behind-the-scenes red lines around the hot-button issues. I think Rudd is quite right that in lieu of those, the risks of an accidental conflict are simply too high for comfort. But on the Chinese side, I wonder given Xi’s reputation, if there is reluctance to engage — the Chinese never take well to public pressure and even the hint of US secondary sanctions must surely be backfiring in Beijing.Finally, I’m not sure Rudd is quite right on Europe. While I wouldn’t want to underestimate the lobbying abilities of European multinationals in Brussels (particularly German exporters who are desperate to keep access to Chinese markets), I think it will be very difficult for the EU, which has taken such a tough stance on digital rights and technology regulation, to make peace with state surveillance, and the assumption that there is no data privacy to be had in China. Ed, would you agree, and what do you make of Rudd’s take?Recommended readingIt’s always tough to slog through an economics paper, but this one, co-written by one of my very favourite academics, the Massachusetts Institute of Technology’s Daron Acemoglu, is a must read particularly for any business school deans out there. It basically quantifies what I’ve long suspected (and wrote about in my first book), which is that people who have MBAs actually reduce the wages of the workers they oversee, whereas managers that come from outside the business sector do just the opposite. What’s more, MBAs do nothing more than non-MBAs to improve the sales and profitability of their companies. Save the $200k, I’d say, and just go straight to doing what you love.On that note, perhaps we could even save a couple of years of college and just make high school better — see this New York Times opinion piece by John McWhorter, which argues for the sort of “6 in 4” programmes that I’ve written about in the past as an alternative to just defaulting to four-year college for everyone.Also, in the FT, don’t miss the terrific “tick-tock” piece about the new era of financial warfare.Edward Luce responds Rana, I agree that Kevin Rudd is a first class observer of China and I look forward to reading his book. I also agree with his forecast that the 2020s will be “the decade of living dangerously”. As for what all this means for the future of western democracy, I find it very hard to forecast. Will Europe decouple from China? I doubt any region of the world will fully decouple from China given its centrality to global growth. But there will be ever-tighter restrictions on China’s strategic investments in western high tech and national security-related sectors, as we have seen happening on both sides of the Atlantic in the last few years. My concern is that the strategic need to curb China’s growing artificial intelligence-fuelled military and surveillance capacities will bleed into an unrelated anti-globalisation agenda. The rest of Asia is not China and it wants to see more western economic engagement to counter-balance China’s growing dominance in the region, not less. We would be foolish to cede the field to China. I am also concerned about our lack of engagement with the rest of the world. Dozens of low and middle-income countries in Africa, south Asia, the Middle East and Latin America are at risk of debt default in the next year. As Adam Tooze writes in this sharp essay in Foreign Policy, the developing world will feel the most pain from the coming credit tightening in the west. In all these debates about whether and how to decouple from China, we are forgetting that the other side of the coin must be to re-engage with the rest of the world, which has been economically devastated by the pandemic and now faces a monetary blow that could cripple their ability to recover. If the west is to think strategically about the rocky decade ahead, the rest of the world should feature much more prominently in its calculations. Your feedback And now a word from our Swampians . . . In response to ‘The politicisation of the Supreme Court’:“The politicisation of the Supreme Court is an existential problem for the US, and any modern society. However, the Clarence-Ginni Thomas problem is overblown . . . The existential problem for America is the toxic partisanship defining how justices are confirmed. Constitutional democracy is not sustainable without a credible, trusted judiciary. The court has no army or means of enforcement other than moral authority. That authority has been earned, not granted and nurtured for more than 200 years. Partisanship today is the real threat. Antonin Scalia — hard right — and Ruth Bader Ginsburg — hard left — were voted in with at least 98 affirmative votes because they were recognised by all as undeniably worthy of the appointment. The system works. Fewer than 20 per cent of Scotus decisions are 5-4. The majority of the rest are decided 9-0. Justices have proven worthy of the ‘highly qualified’ label they all have received. But the craven partisanship in the Senate has reduced the consent process to adolescent bickering. It broadcasts belief in the partisanship of judges and the court. Over time it will sap trust in the system and cheapen the court itself. The rule of law is western civilisation’s greatest legacy. Once lost, it is near impossible to rebuild.” — Robert A Rogowsky, Leesburg, Virginia More

KATHMANDU (Reuters) -Nepal is tightening imports of cars, gold and cosmetics as its foreign exchange reserves have fallen, a central bank official said on Monday, after the government suspended the central bank governor and named his deputy the interim chief.The Himalayan country’s foreign reserves have been hit by a slump in tourism in Asia during the pandemic, a problem that has also hit Sri Lanka which is going through a crippling economic crisis due to a shortage of tourist revenue and other funds.”Nepal Rastra Bank (NRB, the central bank) feels the country’s foreign exchange reserves are under pressure and something must be done to restrict the import of non-essential goods, without affecting the supply of essential goods,” NRB deputy spokesperson Narayan Prasad Pokharel told Reuters.He said importers would be issued letters of credit to bring in 50 “luxurious goods” only with full upfront payments with the bank, declining to name all the items.”We have already directed all the border customs points about the new arrangements for the import of these goods,” he said. “This is not banning the imports but discouraging them.”A spokesperson for the central bank referred questions about the governor’s suspension to the finance ministry.A ministry spokesperson said he did not know why NRB Governor Maha Prasad Adhikari was suspended on Friday but that a government panel would investigate the matter.A government official said on condition of anonymity that Adhikari was accused of leaking sensitive financial information to the media. Reuters could not immediately contact Adhikari, whose mobile phone was switched off.With tourism struggling to resume after two years of the COVID-19 pandemic, Nepal’s gross foreign exchange reserves fell to $9.75 billion as of mid-February, down 17% from mid-July last year when its financial year started.The current reserves are sufficient to support imports for about six months for the country of some 29 million people, where India and China jostle for influence.Data from the central bank shows remittances from overseas fell 5.8% to $4.53 billion between mid-July to mid-February.The balance of payments had a deficit of $2.07 billion in the first seven months of the current financial year, compared with a surplus of $817.6 million in the same period the previous year.Opposition parties have criticised Prime Minister Sher Bahadur Deuba’s government for suspending the central bank governor when the economy is weak.”He was doing a good job and his removal at a time when economic indicators are not good is a wrong decision,” said Surendra Pandey, a senior leader and lawmaker of the opposition Communist Unified Marxist-Leninist party.The Asian Development Bank said this month that Nepal’s government debt increased to 41.4% of gross domestic product in the 2021 fiscal year, from an average of 25.1% between 2016 and 2019 due to increased spending during the pandemic.The Philippines-based bank predicted Nepal’s current account deficit would widen to 9.7% of GDP in this fiscal year from 8% last year. More

Investing.com — Bond yields rise to fresh three-year highs ahead of potentially dramatic U.S. inflation numbers on Tuesday. There’s the usual host of Fed speakers ready to comment on that. Elon Musk changes his mind about joining Twitter’s board and continues to snipe about the social media company on its own platform. Emmanuel Macron is set for a tight run-off against right-wing leader Marine Le Pen in France’s presidential elections, and Russia relaxes capital controls as the west’s sanctions prove to be more bark than bite. Here’s what you need to know in financial markets on Monday, 11th April.1. Bond yields hit news highs ahead of March CPI dataThe bellwether 10-Year U.S. bond yield hit 2.75% for the first time since March 2019, at the start of a week likely to be dominated by consumer inflation data for March, which are set to post another 40-year high.By 6:15 AM ET (1015 GMT), the 10-year was at 2.75%, having eased 3 basis points from its overnight high. The 2-Year yield, which is more sensitive to expectations for short-term interest rates, was up 6 basis points from late Friday at 2.58%.Ahead of Tuesday’s data, there will be another salvo of Fed-speak: regional presidents Raphael Bostic, John Williams and Charles Evans are all due to speak in the course of the day, as is DC-based governor Michelle Bowman.The global inflation phenomenon was in evidence overnight: Chinese producer and consumer prices both came in ahead of expectations, although were off their peaks. China’s credit aggregates and money supply also grew more strongly than expected in March. The central bank is still expected to announce an easing of monetary policy in the course of this week, however.2. Musk jilts Twitter boardElon Musk won’t be joining Twitter’s board after all. CEO Parag Agrawal said on Saturday that Musk had declined the board’s offer of a seat, hinting that there was too much of a conflict between the board’s goals and the Tesla CEO’s.Twitter (NYSE:TWTR) stock fell over 4% in premarket trading, having risen as much as 25% last week in response to the news that Musk had built a stake of 9.2%.It’s not clear how Musk intends to proceed now. He has styled his holding as ‘passive’ but spent much of last week and the weekend tweeting about how the company could improve its service and its financials. An ‘activist’ investor is usually required to disclose more about his or her intentions through the usual regulatory channels. Musk – whose activity on the site has already brought him grief from the SEC more than once – hasn’t done that yet.3. Stocks set to open lower; Nio suspends productionU.S. stock markets are set to open lower later, amid ongoing unease at the rise in bond yields and their ability to generate some unpleasant surprises in the upcoming first quarter earnings season.JPMorgan (NYSE:JPM) and others get that ball rolling on Wednesday.By 6:15 AM ET, Dow Jones futures were down 15 points, or less than 0.1%, but S&P 500 futures were down 0.3%, and Nasdaq 100 futures were down 0.7%.The NASDAQ came under renewed pressure last week as the need to factor higher discount rates into stock valuations again weighed disproportionately on technology stocks who aren’t expected to generate positive cash flow for some years yet.Stocks likely to be in focus later include the ADRs of Chinese electric vehicle maker Nio (NYSE:NIO), which said at the weekend it will suspend production due to COVID-19 lockdown-related disruptions. It’s also raising prices for its three SUV models. Also in focus will be JetBlue (NASDAQ:JBLU), which pruned its summer schedule at the weekend in an effort to cut the risk of disruptions.4. Macron set for tight run-off with Le PenIncumbent Emmanuel Macron emerged on top from the first round of voting in France’s Presidential elections, just under four points ahead of the populist right-wing leader Marine Le Pen.The two will now face off in a second round of voting in two weeks’ time. Macron had won a similar face-off by 66%-34% in 2017 but faces a much tighter contest this time after Le Pen scored heavily with a campaign that focused on the cost-of-living crisis and on Macron’s unpopular plans to raise the pension age.Eurozone bond markets and the euro itself both staged a modest relief rally, mindful that Le Pen has the greater momentum. Opinion polls suggest that she has narrowed the gap to Macron from over 30% a month ago to less than 4% now.Elsewhere in Europe, Germany waved through the creation of financial support measures for its energy companies, while data showed the U.K. economy slowed to a crawl in February.5. Russia relaxes capital controlsRussia’s central bank relaxed some of its most onerous capital controls in a further sign that its economy is adapting to the sanctions imposed on it by the U.S., EU, U.K., Japan, and Australia.The central bank will suspend the 12% surcharge on foreign exchange transactions that it had imposed at the end of February to stop panic buying of dollars and euros by the population.The ruble’s official rate fell some 2.6% in response, but its signal value has been undermined by the sanctions, which still restrict the free buying and selling of currency. Elsewhere, the French bank Societe Generale (PA:SOGN) effectively gave back its Russian unit Rosbank to its original owner, the oligarch Vladimir Potanin. More

After taxpayers bailed out money market funds, a key source of short-term corporate and municipal funding, for the second time in 12 years during the pandemic-induced turmoil of 2020, the industry is facing renewed regulatory scrutiny.Money market funds invest in high-quality short-term debt instruments and offer daily redemptions. Investors expect immediate liquidity with little price volatility and are spooked when those expectations are not met during market stress. As the pandemic shut down the economy in March 2020, investors pulled more than $130 billion from some money market funds, contributing to stress in the short-term funding markets, according to a Treasury analysis that is disputed by the funds industry. In December, the Securities and Exchange Commission (SEC) proposed boosting money market funds’ resilience by, among other measures, adjusting a funds’ value in line with trading activity so that redeeming investors bear the costs of exiting a fund and don’t dilute remaining investors. In theory, this “swing pricing” reduces the incentive to run to the exit first. The deadline to submit comments is Monday and the industry is pushing back hard on the swing pricing measures, arguing they would be operationally challenging, impose excessive costs on fund sponsors, and reduce daily liquidity for investors. “We really do believe that it would kill the product,” said Jane Heinrichs, associate general counsel at the Investment Company Institute, which represents the asset managers. “Funds would determine it’s not worth the changes necessary to make it work for a product that will no longer meet the needs of investors.”The SEC has provided no data to support the idea, Heinrichs said. While swing pricing is used by some European funds, it is an unfamiliar concept to U.S. investors, said Peter Yi, a director at Northern Trust (NASDAQ:NTRS) Asset Management. “Without a doubt, swing pricing is going to be very difficult for investors to understand.” An SEC spokesperson did not immediately provide comment. To calm fleeing investors and stem a broader crisis, the Treasury and Federal Reserve in March 2020 launched emergency liquidity facilities to backstop the market. The panic was reminiscent of 2008, when a run on money market funds likewise prompted the U.S. government to prop up the market.That bailout led the SEC in 2010 and 2014 to introduce rules aimed at reducing the risk of investor runs. But 2020 showed those changes were inadequate, said regulatory experts.Advocacy groups say money market funds are operating with an implicit government guarantee, without the stringent capital and liquidity requirements such guarantees usually require. “The government is literally giving private business – the money market fund sponsors – billions and billions a year for nothing,” said Dennis Kelleher, president of the Washington-based advocacy group Better Markets. “And then when there’s market stress, they don’t have to cover the downside.”His group is calling for wholesale reforms that go further than the SEC’s proposal, including bank-like capital buffers. While the Investment Company Institute opposes swing pricing, it supports in principle the SEC’s proposal to raise funds’ liquidity requirements, and to allow fund boards more flexibility to charge for or suspend redemptions during stress, known a fund “gate.”In 2020, investor runs accelerated as funds approached a minimum liquidity threshold that, under the current rules, allows fund boards to gate redemptions. The SEC rule would eliminate that bright line. “By de-linking the fees and gates from the liquidity thresholds and increasing the liquidity levels, you directly address the issues from 2020,” Heinrichs said. More

“There can only be a technical, man-made default,” Kremlin spokesman Dmitry Peskov told reporters.”There are no objective reasons for such a default. Russia has everything it needs to fulfil all its obligations,” Peskov said. More

According to Japan’s Ministry of Finance data, domestic investors exited a net 2.36 trillion Japanese yen worth of overseas bonds last month, after selling a net 3.2 trillion in February.They also sold foreign equities worth $455.7 billion yen, after buying them in the previous month.”Selling of foreign bonds increased later in the month, indicating that they became more worried about a hawkish pivot from the Federal Reserve around the FOMC,” said Naka Matsuzawa, chief Japan macro strategist at Nomura. The big sales by local investors come despite a sharp decline in the Japanese yen in the last month.Japanese investments in overseas assets – https://tmsnrt.rs/3uqEav6″JPY collapsed in March, just at the time when local investors were bringing almost unprecedented amounts of capital home,” Adam Cole, chief currency strategist at RBC Capital Markets said in a note.He added that many of the bonds sold were likely held on an FX hedged basis, implying limited FX flow and reflecting the low cost of hedging in all G10 markets for the last two years.The cumulative sales of foreign bonds and equities in the first quarter of this year stood at 5.28 trillion yen, the biggest net selling in eight years. The Bank of Japan (BoJ) in its monetary policy meeting in March, maintained its massive stimulus amid uncertainty over the global outlook, reinforcing expectations it would remain an outlier in the global shift towards tighter monetary settings.The data from Bank of Japan showed Japanese investors sold U.S. bonds and equities worth 3.11 trillion yen and 127 billion yen, respectively, in the first two months of this year.However, they purchased 1.16 trillion worth of European bonds in the same period and sold 232 billion yen in European equities.Japanese investors also offloaded Chinese bonds of 294.69 billion yen and equities of 25.26 billion yen, data up to February showed.Japanese investments in US and European assets: https://tmsnrt.rs/3JmULEk($1 = 124.9900 yen) More