TATM 3- WEEK 1

China rally runs on hope; bonds bet on slowdown

Tom WestbrookAugust 29, 202311:58 AM GMT+7Updated an hour
ago

People walk past a screen displaying the Hang Seng stock index at
Central district, in Hong Kong, China October 25, 2022.
REUTERS/Lam Yik/File Photo Acquire Licensing Rights

SINGAPORE, Aug 29 (Reuters) - China stocks led Asian shares higher

on Tuesday with investors welcoming Beijing's efforts at supporting
markets, while bonds rallied and the dollar dipped on possibly softening
U.S. data.

MSCI's broadest index of Asia-Pacific shares outside

Japan (.MIAPJ0000PUS)rose 1%, with the Hang Seng (.HSI) in Hong
Kong up more than 2% and mainland China blue chips (.CSI300) up
1.5%.
China has halved stock trading stamp duty, loosened margin loan rules,
put the brakes on new listings and approved new retail funds in recent
days -- signalling, at least, resolve to steady the market even if it does
little to support the sputtering economy.

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After selling into Monday's initial bounce, after the measures were
announced over the weekend, foreign investors were net buyers of about
$500 million in Chinese stocks on Tuesday perhaps in the hope that
more substantive aid will follow.

"We doubt these policies per se can turn around confidence or determine
the market direction," said Bank of America analysts

"Financial markets are only a reflection of the underlying economy, and

we need policies that can address the fundamental economic issues ... in
our view, the next 2-3 weeks is still an important window for policy
actions."

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Embattled Chinese developer Country Garden (2007.HK) led gains in

Hong Kong, along with electric vehicle maker BYD , which reported
a tripling in first-half profit.

Pressure remained on China Evergrande (3333.HK), and the builder

which once traded above HK$30 a share fell 10% to HK$0.31 in its
second session back from suspension - highlighting the heavy doubts
that remain over the country's debt-stricken property sector.

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U.S. futures were flat. European futures rose 0.2% and FTSE futures
rose 0.8% to point to a positive return from a day's holiday in London.

SLOWING
Elsewhere in Asia, investors' focus was on U.S. data that may determine
whether or not interest rates need to rise further.

Job openings figures are due later on Tuesday, followed by broader

labour data and the ISM survey on Friday, and bond traders were
positioning for a soft turn in the numbers.

"There's anticipation of a bit of a slowing in the labour market and

cooling of the inflationary pulse," said Ryan Felsman, senior economist
at the Commonwealth Bank of Australia in Sydney.

U.S. Treasuries extended overnight gains, driving two-year yields down

five basis points (bps) to 5% and 10-year yields down two bps to
4.1922%.

That put some gentle pressure on the dollar, which has slipped below its
200-day moving average to $1.0833 per euro and was slightly lower on
other majors.

The Australian dollar inched 0.3% higher to $0.6440, with incoming

central bank governor Michelle Bullock due to speak later in the day.

The yen remained pinned near Monday's 10-month low, for a loss of
some 10% on the dollar this year.

Traders are wary that its weakness might soon prompt government
intervention, and at 146.30 per dollar it was barely moved by a
government report suggesting an inflection point in the country's years-
long battle with deflation.

In commodities, Brent crude futures slipped 0.2% to $84.27 a barrel.

European gas prices might be set for a volatile session on a deepening

standoffover pay and conditions at Australian gas rigs, with workers
planning stoppages from next week. Benchmark Dutch prices are up
40% for August so far.
Additional reporting by Jason Xue in Shanghai; Editing by Sam Holmes
and Kim Coghill

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///////////
EU deforestation rules risk ‘catastrophic’ impact on global trade,
says ITC chief
Head of International Trade Centre warns move favours big companies
that can trace where their produce was grown

August 20 2023

The legislation, which will come into force at the end of next year, is the
first in the world to ban imports of products linked to deforestation ©
Ulet Ifansasti/Getty Images

EU rules to curb deforestation could have a “catastrophic” impact on

global trade if the bloc does not help small producers and developing
nations to adapt, the head of the multilateral International Trade Centre
has said.
Pamela Coke-Hamilton, executive director of the ITC, a joint agency of
the UN and World Trade Organization, told the Financial Times that a
ban on goods linked to deforestation from entering the EU favoured big
companies that can trace where their produce had been grown and risked
“cutting off” smaller suppliers.

“What the biggest producers may do is, not being able to do the
traceability for these small farmers, simply cut them off,” she said.

Countries such as Brazil or Honduras, among the main suppliers of

coffee to the bloc, or Indonesia and Malaysia, key palm oil and rubber
exporters, are among those most affected by the regulation.

Coke-Hamilton warned that exporters from those countries could try to

sidestep the regulation by sending goods to countries with less stringent
import rules, which would disrupt trade flows.

Depending on how well the EU addressed its outreach to developing

countries the impact of the law on global trade could be “catastrophic or
it could be OK”, she added.

The legislation, which will come into force at the end of next year, is the
first in the world to ban imports of products linked to deforestation,
including cattle, cocoa, coffee, palm oil, soya, wood and rubber.

It is part of an ambitious environmental agenda set out by the European

Commission’s president Ursula von der Leyen in 2019 that gives the
bloc the target of reaching net zero greenhouse gas emissions by 2050.

Ministers from Indonesia and Malaysia, concerned for their palm oil
industry, are among those that have urged the EU to ease the new rules.

If small producers could not meet the requirements for exporting goods
covered by the law this risked “a vicious cycle”, Coke-Hamilton said.
“Once you have loss of market share, you have loss of income, then you
will have lots of increased poverty, then increased deforestation because
at the root of deforestation is poverty.
“We [risk] falling into the trap of reinforcing something that we’re
trying to change,” she added. The ITC provides technical support on
trade matters to smaller countries.

The law will benchmark countries according to whether they have a low,
“standard” or high risk of deforestation or degraded forests. More goods
that come from high-risk areas will be checked by customs officers.

The EU’s 27 member states will be responsible for carrying out checks
and refusing goods that come from areas where forests have been cut
down or damaged since 2020.

The UN’s Food and Agriculture Organization estimated that 420mn

hectares of forest — an area larger than the EU — had been lost
worldwide between 1990 and 2020. Every year the world continues to
lose an additional 10mn hectares of forested land, according to the
commission.

The law states that “when sourcing products, reasonable efforts should
be undertaken to ensure that a fair price is paid to producers, in
particular smallholders, so as to enable a living income and effectively
address poverty as a root cause of deforestation”.

The commission has held meetings with stakeholders from various

countries, including one at the WTO in June.

Coke-Hamilton said that, given the acute climate crisis, she was
supportive of the act’s intentions. But despite leniency being applied to
small producers, information requirements and the obligation to use
geolocation technology still presented too much of a burden.

“Many [smallholders] are trying to just keep up with post-Covid, the

cost of living crisis, climate change. They’re just caught in this
maelstrom of survival,” she added.

Climate Capital
Where climate change meets business, markets and politics. Explore the
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commitments? Find out more about our science-based targets here

The commission said the regulation “applies to commodities, not

countries, and is neither punitive nor protectionist, but creates a level
playing field. It will be implemented in an even-handed manner that
does not constitute arbitrary or unjustifiable discrimination for third-
country producers, or a disguised restriction to trade.”

It added that the law should be “fully compatible” with WTO rules and
was “expected to boost market opportunities for sustainable producers
regardless of their size”.

Brussels must review the law and its effect, particularly on smallholders
and indigenous communities, by June 2028.

////////
Post-pandemic, world facing gloomy stew of debt, trade wars and
poor productivity
Howard SchneiderAugust 28, 202311:49 PM GMT+7Updated 7 hours
ago

Men work at the construction site of an apartment building in Beijing,

China, July 29, 2023. REUTERS/Thomas Peter Acquire Licensing
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JACKSON HOLE, Wyoming, Aug 28 (Reuters) - Record levels of

government debt, geopolitical tensions that threaten to split the global
trading system, and the likely persistence of weak productivity gains
may saddle the world with a slow-growth future that stunts development
in some countries even before it starts.

That sobering view of a post-pandemic global economy emerged from

research organized by the Kansas City Federal Reserve and debated here
this past weekend. It explored issues like the outlook for technological
innovation, public debt, and the state of international trade at a time
when the Russian invasion of Ukraine and conflict between the U.S. and
China have eroded a once-broad global agreement, at least in theory, to
boost the free flow of goods and services.

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"Countries are now in a more fragile environment. They've used a lot of

their fiscal resources to deal with a pandemic...Then you have policy-
driven forces, geoeconomic fragmentation, trade tensions, the
decoupling between the West and China," International Monetary Fund
chief economist Pierre-Olivier Gourinchas said in an interview on the
sidelines of an annual Fed conference here. "If we get to a point where
part of the world is stuck without catching up and has large amounts of
population, that creates tremendous demographic pressures and
migration pressures."

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Gourinchas said it is possible that global growth settles into a trend of

around 3% annually, a figure far below rates above 4% seen when rapid
advances in China's economy drove global output higher and which
some economists consider borderline recessionary in a world where
quick gains should still be achievable in large, less-developed countries.

But in the emerging pandemic economy, "the global growth

environment has become very challenging," said Maurice Obstfeld, a
former IMF chief economist and now a fellow at the Peterson Institute
for International Economics in Washington.

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China is now suffering what may be chronic economic problems along

with a shrinking population. Emerging industrial policies in the U.S. and
elsewhere are reordering global production chains in ways that may be
more durable or serve national security ends, but also be less efficient.

The symposium is among the first major attempts to take stock of

longer-term economic developments after the pandemic and amid
renewed geopolitical tensions after years in which officials were at first
preoccupied with fighting COVID-19 itself, then had to focus on a
global breakout of inflation.

Economists and policymakers here appeared in rough consensus that two

trends from before the pandemic, both with global-growth implications,
had been intensified by the health crisis and other recent events.

After rocketing higher during the Global Financial Crisis 15 years ago,
the ratio of public debt to world economic output has grown to 60%
from 40% thanks to pandemic spending and is likely now at a level
where serious debt reduction is not politically feasible, Serkan
Arslanalp, an economist at the International Monetary Fund, and Barry
Eichengreen, an economics professor at the University of California,
Berkeley, wrote in a paper.

The implications of public debt that is "here to stay" varies by country,

they said, with higher-debt but higher-income nations like the U.S. likely
able to muddle through over time, while smaller nations perhaps face
future debt crises or binding fiscal constraints.

Globally the fallout could be severe if public borrowing steers capital

from countries that still have growing populations and less developed
economies, said Cornell University economics professor Eswar Prasad.

"This puts us in a bleak setting, thinking about the parts of the world that
are labor rich but capital poor," he said. While the populations of major
European nations, Japan, China and the U.S. are all aging, some African
nations like Nigeria continue to grow fast.

'A MORE NAIVE TIME'

The other pre-pandemic trend that has endured and intensified is a rising
openness to policies that range from the outright protectionist tariffs
imposed under former U.S. President Donald Trump to Biden
administration efforts to steer production of things like computer chips
back to the U.S.

White House Council of Economic Advisers Chair Jared Bernstein said

at the symposium Biden administration industrial policies weren't
necessarily tilted either for or against more international trade, since
many of the intermediate goods needed to make silicon chips, for
example, would be imported.

"In my view the strategies we are pursuing despite a lot of heated

rhetoric implies neither more nor less trade," Bernstein said during one
discussion.

Others noted the Russian invasion of Ukraine, and the fast follow-on
divorce of the European power grid from Russian energy, fractured one
of the key precepts behind the spread of globalization: Trade would
create durable partnerships, if not outright allies.

"I do remember a time, maybe a more naive time...when more trade

would create friends," said Ben Broadbent, deputy governor of the Bank
of England.

But World Trade Organization Director-General Ngozi Okonjo-Iweala

said while the pandemic raised reasonable issues around global supply
resilience, particularly for sensitive items like pharmaceuticals, the move
to reorder global production patterns risked leaving growth opportunities
on the table.

"From a political point of view you can understand how attractive it is to

say we see the vulnerabilities so we are going to try to do business with
those who have the same values as we do," she said. But whatever the
strategy - "nearshoring," "friendshoring," "reshoring" - she argued that
"maybe you need to go a little bit further...If you are going to diversify
anyway...spread it to those who have been at the margins of the global
system."
"Friends," she noted, can change, a pointed statement at a time when
Trump, who aimed tariffs at Europe, is running again and recently raised
the idea of an across-the-board tax on imports.

If there was a potential bright spot, it was around the discussion of

advances in artificial intelligence as a possible driver of higher
productivity.

Yet even that was weighed against the possible damage the technologies
may do, and against research findings showing innovation was getting
exponentially harder.

Even beyond that, any benefits may be slow in coming.

"I think of ChatGPT like Peloton," said Nela Richardson, chief

economist for payroll processor ADP, comparing the AI innovator with
the maker of upscale exercise bike systems. "You can put as many as
you want in a home office. If doesn't mean people are going to use it."

Reporting by Howard Schneider; Editing by Dan Burns and Andrea

Ricci

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Covers the U.S. Federal Reserve, monetary policy and the economy, a
graduate of the University of Maryland and Johns Hopkins University
with previous experience as a foreign correspondent, economics
reporter and on the local staff of the Washington Post.