Category Archives: Economy

By Mei Mei Chu, Joe Cash and Ellen Zhang

BEIJING (Reuters) -Beijing, as a vote on EU duties on China-made electric vehicles looms, employed a carrot-and-stick approach to deal with the 27-strong bloc, threatening trade retaliation while cajoling key EU states into one-on-one talks on deals and investments. 

The potential blow of counter-tariffs on EU goods will fall mostly on states such as Spain, France and Italy that have voiced support for the EV duties, with pork, dairy and brandy exports to the world’s second-biggest economy at stake. 

European Union members such as Germany, Finland and Sweden that have not pushed for the tariffs would feel less impact, with little exposure to the export items singled out by China. 

China’s tactics appear to be working. 

Spanish Prime Minister Pedro Sanchez wrapped up a China visit this week by sitting in a Chinese EV and saying it was an “honour”. He then unexpectedly urged the EU to reconsider its position. 

According to a Spanish government source, Sanchez’s delegation came away feeling “Spain is more important now”, and that an agreement over tariffs on its pork products was close. 

As a sweetener, a Chinese company agreed to build a $1 billion plant in Spain to make machinery used for hydrogen production, in apparent backing for Spain’s green ambitions. 

With pork and dairy, China maximises the “domestic political cost” to the countries voting to impose EV tariffs, said Beijing-based economist Mei Xinyu, with the agricultural sector often playing a role in EU politics. 

“These products count on China as one of their top export markets,” he said. 

Pork, dairy and brandy exports from the EU to China totalled about $10 billion in 2023, although not all products in those categories would be subject to tariffs. The bloc’s exports to China last year totalled over $280 billion. 

CRUNCH TIME 

Still feeling the pinch of U.S. tariffs imposed during the Trump era, China does not want a trade war with the EU. But Beijing has made it clear it would fight if Brussels imposes additional EV tariffs of up to 35.3%. 

China-made EVs exported to Europe rose 38% in 2023 to 656,000 units, including shipments non-EU countries. Europe accounted for more than 40% of EVs shipped out of China last year, according to Reuters calculations based on data from the China Passenger Car Association. 

Chinese Commerce Minister Wang Wentao will visit Europe next week and hold talks with EU trade chief, Valdis Dombrovskis. 

Wang will also visit Italy, which supports the EV tariffs while also seeking Chinese investment to build EV production capacity. 

China needs at least 15 EU members representing 65% of the EU population to oppose the tariffs at a vote in October. 

But positions within the EU remain diverse. Some smaller states are keeping their heads down. Others are prioritising ties closer to home. 

“Ireland’s exports to China are only a small fraction (of its exports), so Ireland will prioritise the EU market and relationship over China,” said an Irish trade representative in China, speaking on condition of anonymity. 

“China is still important, but business with China is hard and not growing as well as expected.” 

Ireland is the fifth most exposed EU producer in China’s dairy investigation and sixth worst off in its pork probe. 

‘SHOCK AND AWE’ 

In contrast, China appears to allow no room for negotiations or concessions with Canada, hitting it on Monday with a probe into its rapeseed exports after Ottawa introduced a 100% tariff on Chinese EVs in August, accusing Beijing of unfair competition.

Unlike with Brussels, Beijing gave Ottawa no public prior warning of how it might hit back, signals often conveyed in Chinese state media such as Global Times. 

He Yongqian, a Chinese commerce ministry spokesperson, said “evidence” showed Canada’s rapeseed exports to China had been dumped and had damaged domestic industry, when asked to explain the difference in approach. 

Canadian rapeseed producers play by a rules-based global trading order, a spokesperson for Global Affairs Canada told Reuters.

“We are following this closely,” said the spokesperson.

On the contrary, Beijing has clearly been open to negotiation with the EU, said Even Pay, an analyst at Beijing-based Trivium China who specialises in agriculture. 

“With Canada, they went straight for shock and awe,” Pay said. 

HAVANA (Reuters) – Water shortages in Cuba are increasingly flaring tempers, including in capital Havana, as problems mount for hundreds of thousands of residents already ragged from shortfalls in food, fuel and electricity.

Upwards of 600,000 people – more than 1 in 20 on the Caribbean island of 10 million citizens – are suffering from water supply issues, officials said earlier this month.

Havana is the worst affected by water shortages, though most of the country’s largest cities report over 30,000 customers without water, the government has said.

Officials blame the growing problems on crumbling infrastructure and a persistent lack of fuel, symptoms of a festering economic crisis that has blighted growth and left the Communist-run country nearly bankrupt.

Rachel Trimiño, 32, said the root causes are no mystery, even in her Havana neighborhood of Vedado, a comparatively upscale district of the capital.

“All of the streets are full of leaking pipes, clean running water … but nothing in our homes,” she said.

The problem defies quick fixes.

Spare parts for outdated water infrastructure, like pipes and pumps, are in short supply, officials said. And without fuel and adequate transportation, even emergency water supply by cistern truck has been limited, according to residents.

Frequent blackouts only make matters worse.

“When they cut off power, we can’t give water,” said San Miguel de Padron resident Pedro Martino, who works with a church group that offers residents small quantities to stem the shortfall. “One thing depends on the other, and that’s the game we play.”

Isolated protests have erupted in some areas, as residents overwhelmed by the growing list of problems and shortages lose patience in the still blistering heat of the tropical summer.

Cuba’s economy has been decimated by a combination of factors, including the COVID-19 pandemic, stiffened U.S. sanctions and a state-dominated business model plagued by bureaucracy, mismanagement and corruption.

The social and economic crisis is widely seen as among the worst since Fidel Castro’s 1959 revolution, leading to a record-breaking exodus of Cuban migrants in the past two years.

By Andy Bruce

(Reuters) – An interest rate cut from the Bank of England next week looks unlikely but investors will be watching its September meeting for clues about future moves, as well as a decision over the pace of its bond sales – a hot political topic.

All 65 economists in a Reuters poll said the BoE will likely hold rates at 5.0% on Sept. 19, after cutting from a 16-year high of 5.25% in August.

News on price pressures has been mixed. Wage growth cooled as members of the Monetary Policy Committee expected last month and the economy failed to grow in July.

But the Decision Maker Panel – a business survey favoured by the MPC – showed wage growth expectations stopped falling, and data on Wednesday will likely show inflation above the central bank’s 2% target.

Markets on Thursday priced in a roughly one-in-five chance of an interest rate cut next week, with a 0.25 percentage point reduction fully priced for November.

With British wage growth and services inflation riding high, investors think the BoE will loosen policy by less than the U.S. Federal Reserve over the next year and similarly to the European Central Bank – although the ECB has already cut rates twice this year, including a day ago.

Economists at Nomura said the BoE’s close 5-4 vote in August and healthy business surveys pointed to a hold next Thursday.

“We see the MPC skipping this month’s meeting and cutting interest rates again only in November,” they said, adding that the MPC’s Swati Dhingra was likely to be the sole voice for a cut this time.

QT TO THE CHASE

Bond investors are hotly anticipating Thursday’s annual decision on the pace of the BoE’s quantitative tightening (QT) programme – the reversal of hundreds of billions of pounds of British government bond purchases from past attempts to stimulate the economy.

Last year the MPC voted to run down its stock of gilts by 100 billion pounds ($131 billion) through a combination of active sales and allowing bonds to mature.

Lawmakers have criticised the QT programme because it brings forward losses sustained by the BoE, which purchased gilts in past years at much higher prices than their current sale value. Those losses are paid for by already-stretched taxpayers.

Nonethelesss, the BoE could on Thursday announce an acceleration of its QT programme, reflecting the fact that it holds 87 billion pounds of gilts that are due to mature naturally over the next year, leaving little room for active gilt sales at the current pace.

“The vote on the pace of QT could be the more important one,” Andrew Goodwin, chief UK economist at Oxford Economics consultancy, said.

BoE Governor Andrew Bailey has said QT is needed to restore the central bank’s firepower if it has to stimulate the economy with bond purchases again.

Goodwin and most other forecasters think the BoE is likely to keep QT running at 100 billion pounds per year, but he said an increase to 115-120 billion pounds was a plausible scenario.

Given its impact on the state’s budget, finance minister Rachel Reeves will take a keen interest in Thursday’s QT decision. Last week she said QT was an operational matter for the BoE when pressed by lawmakers about the scale of taxpayer losses.

Reeves will likely change Britain’s fiscal rules to exclude the impact of the BoE’s QT programme in her inaugural budget, due on Oct. 30, Goodwin said.

“This change would increase her fiscal headroom considerably,” he said.

($1 = 0.7648 pounds)

By Nate Raymond

BOSTON (Reuters) -An employee of French drugmaker Ipsen has agreed to plead guilty to illegally making more than $262,000 by trading on inside information he learned about his company’s plans to acquire cancer drug developer Epizyme (NASDAQ:) in 2022.

Dishant Gupta, Ipsen’s director of data strategy and operations, plans to plead guilty to securities fraud and is settling related claims by the U.S. Securities and Exchange Commission, according to filings in Boston federal court on Tuesday.

A plea hearing is set for Oct. 8. Jeffrey Lichtman, a lawyer for the 40-year-old New Jersey resident, in an email said his client was working to resolve the case.

Ipsen said it does not comment on legal matters concerning current or former employees and was focused on compliance with applicable laws.

Prosecutors said that an Ipsen executive during a meeting in Cambridge, Massachusetts, in March 2022 asked Gupta to help him put together materials related to a potential acquisition of a cancer drug and an unidentified drug company’s assets.

Days later, he met with Ipsen executives to discuss possible acquisitions in the oncology market, and by April 7, 2022, Gupta knew the cancer drug and assets Ipsen wanted to acquire belonged to Cambridge-based biotech Epizyme, the maker of the cancer medication Tazverik, prosecutors said.

That day, he began buying Epizyme shares in his wife’s brokerage account, according to charging documents. He bought more in the days that followed as the companies discussed a potential outright acquisition of Epizyme, prosecutors said.

Gupta began conducting frequent internet searches that authorities said showed his awareness of a potential deal, with searches for “Epizyme buyout” and “Epizyme takeover,” according to prosecutors and the SEC.

Ipsen announced its $247 million acquisition of Epizyme on June 27, 2022. Gupta then sold all of his Epizyme shares, netting him a profit of more than $262,000, prosecutors said.

By Jamie McGeever

ORLANDO, Florida (Reuters) -After grappling with the strongest U.S. price pressures in four decades, it’s hard for investors to adjust to the notion that inflation could soon undershoot the Federal Reserve’s 2% target.

    But they should.

    While traversing the “last mile” in inflation’s retreat to 2% is proving to be typically arduous, warning signs are flashing that the biggest risk for markets and policymakers is not “higher-for-longer” inflation, but the virtual disappearance of price pressures.

    Falling short-term average inflation metrics, slumping commodities prices, a softening labor market, and cooling wage pressures are all pointing one way: disinflation.

While the August employment report on Friday added some fuel to this fire – payrolls growth came in under expectations even as wage growth accelerated and the unemployment rate ticked lower – the reaction in financial markets added a lot more.

    Bond yields tumbled, the yield curve steepened sharply and oil prices slumped. At one point, rates futures markets were leaning towards the Fed cutting rates by 50 basis points later this month and by almost 250 bps by the end of next year, a sign of the disinflationary forces traders were pricing in.

This response is in keeping with history. The Fed has conducted easing cycles of 250 basis points or more four times since former Fed Chair Alan Greenspan took over as head of the U.S. central bank in 1987. Every one has been associated with a rapid decline in inflation, three of them ending in significant undershoots of the Fed’s 2% target.

COMMODITY WARNING BELLS RING

Globally, disinflationary pressures have been intensifying for some time, especially in the euro zone and some key emerging markets, like India and Indonesia. And China is battling against outright deflation. 

Meanwhile, futures have posted their lowest close since December 2021. Remarkably, oil is down almost 25% from a year ago – a significant fall that will help depress overall price pressures when imputed into next year’s inflation calculations.

Oil and commodity prices have less of a direct impact on U.S. inflation than they did 20 or 30 years ago. The economy is more services-oriented and less industry-intensive than it used to be, and the U.S. is now a net oil exporter. Still, U.S. gasoline futures are at their lowest level since March 2021, having fallen nearly 15% last week alone.

Price swoons like that cannot be ignored and will put downward pressure on inflation. So will wages, the biggest single cost for most companies in America, as the labor market deteriorates.

BALANCE OF RISKS

Of course, there are counter signals indicating that U.S. growth is still humming along at a remarkably strong pace considering where we are in the economic cycle.

    The dominant services sector continues to expand at a healthy clip, retail sales in July rose more than three times faster than expected, and the Atlanta Fed’s GDPNow model is still pointing to GDP growth of 2.1% in the third quarter.

At the same time, shelter inflation – a proxy for the cost of housing – is still running at a sticky 5%. The longer headline and core annual inflation remain above 2%, the greater the risk that consumer inflation expectations will stay elevated.

    But when considering where the majority of trends are pointing, it is clear the balance of risks is shifting away from inflation and toward growth.

    “If it is a ‘soft landing,’ the return to 2% will be gradual. If it is something more damaging, the risk of an undershoot will be significant,” says James Knightley, chief international economist at ING.

PARADIGM SHIFT?

It is also worth remembering how much the Fed – and other developed market central banks – struggled to get inflation back up to 2% in the decade following the Global Financial Crisis. Many of the trends believed to underlie that struggle – like ageing demographics – have not changed.

And while spending on technology could spur growth in the years ahead, advancements in artificial intelligence should, in theory, put downward pressure on prices. So in order to accept that U.S. inflationary dynamics truly have shifted, one needs to believe that globalization is in sharp retreat, energy markets will continue to fracture and protectionism will keep rising.

That could be true, but it is hardly an open-and-shut case. The notion that U.S. inflation could undershoot the Fed’s target – and stay low – has been virtually unthinkable for much of the post-pandemic period, but it is now very much in the realm of possibility.

    (The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever; Editing by Paul Simao)

By David Lawder

(Reuters) -U.S. Treasury Secretary Janet Yellen said on Saturday that she is “probably done” serving at the highest levels of government after President Joe Biden’s term ends in January, but will likely meet again soon with her Chinese counterpart.

Asked at the Texas Tribune Festival in Austin, Texas whether she was “done” when a new administration takes over in January, or might continue in her job or take on a new administration role, Yellen said: “Probably done, but … we’ll see.”

The comments are the closest that Yellen, 78, has come to announcing her future plans as the presidential race between Vice President Kamala Harris and former president Donald Trump heats up. Yellen has been the first woman to serve as Treasury Secretary, Federal Reserve Chair and director of the White House National Economic Council.

Yellen told the event in Austin that she still has a lot of work to do at Treasury in coming months, including another likely meeting with Chinese Vice Premier He Lifeng, her Beijing counterpart, to try to manage an often tense relationship.

The two met in April in Beijing, where Yellen warned China to rein in excess industrial capacity ahead of Biden’s decision to impose steep tariff increases on Chinese-made electric vehicles, batteries, solar products and semiconductors.

Yellen said she would welcome a visit to the U.S. but also may return to China herself, adding: “My guess is that we will have, one way or another, a visit.”

The Treasury’s top economic diplomat, Undersecretary Jay Shambaugh, will lead a delegation to Beijing “very soon” to discuss economic issues. Shambaugh leads a U.S.-China economic working group that has made addressing China’s excess factory production a top issue

Yellen said the U.S.-China relationship “needs to be prioritized and nurtured” by the next U.S. administration, with discussions at the highest levels and among agency staffs.

“We have enough differences and without a chance to discuss them and put them in context, it’s certainly possible for tensions to rise,” Yellen said. “So this is something that really requires ongoing attention. I hope that it would get it.”

‘SOLID ECONOMY’

Yellen also said the U.S. economy has largely reached a “soft landing” with lower inflation after U.S. August jobs data on Friday showed a slight decline in the unemployment rate despite slower hiring.

“When you see pace of job creation diminishing over time, what I love to see is that it stabilizes roughly where it is now, and we have to be careful to make sure that it’s not going to weaken further,” Yellen said.

She said consumer spending remains “quite solid” and while there is “less frenzy” in hiring, there are not meaningful layoffs

“I’m attentive to downside risks now on the employment side, but I what I think we’re seeing, we will continue to see, is a good, solid economy,” Yellen said.