June 23, 2018

China cuts US investments by 92% amid escalating trade war

Chinese investments totaled $1.8 billion from January through May, representing a 92-percent drop against the same period a year ago. That’s the lowest level in seven years, according to the latest report by Rhodium Group, a research provider that tracks Chinese foreign investment.

Russia dumped US treasuries to keep reserves safe – central bank

Chinese corporations that had been pumping cash into the US to cement ties over a long period have cut their investments in recent years. In 2017, investments declined by 36 percent to $29.7 billion from $46.5 billion during the previous year.

“The more confrontational approach of the Trump administration toward economic relations with China has cast some doubt, in these companies’ minds, about their position here,” said Thilo Hanemann, a director at Rhodium Group, as quoted by CNN Money.

The plunge was reportedly triggered by an ongoing trade conflict between Washington and Beijing, in which the US administration has taken an aggressive stance towards Chinese trade policies. Last week, the White House introduced 25-percent tariffs targeting $50 billion of Chinese imports to the country. US President Donald Trump threatened to hit another $200-billion of Chinese goods with an extra 10-percent tariff after Beijing retaliated.

Trump has persistently slammed Chinese trade practices, calling them unfair. The US president has also accused Chinese companies of stealing American technology and intellectual property. As a part of restrictive measures in March, the US imposed tariffs on imports of steel and aluminum from China along with other countries including India and Russia. Earlier this month, that measure was extended to some of the US’ traditional allies – the EU, Canada and Mexico.

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Iran looks to veto Saudi, Russian oil production proposal

Saudi Arabia and Russia will propose an increase in production beginning from July 1, with the range of the suggested increase at between 500,000 barrels per day (bpd) and 1.5 million bpd. However, “Three OPEC founders are going to stop it,” Hossein Kazempour Ardebili told Bloomberg, adding “If the Kingdom of Saudi Arabia and Russia want to increase production, this requires unanimity. If the two want to act alone, that’s a breach of the cooperation agreement.”

China can substitute US oil with Iranian crude to ‘infuriate Trump’ – analyst

The warning comes on the heels of an announcement by Russia’s Alexander Novak that Moscow and Riyadh had agreed to make their oil market partnership permanent, with a clause in their bilateral agreement stipulating that they could intervene to raise or lower production as they see fit.

Yet it is easier for Saudi Arabia and Russia to start pumping more since they are now producing below capacity. Venezuela, however, is already struggling with an inexorable decline in its oil production, which to a significant extent drove the over-compliance of the OPEC+ bloc with the agreed production cuts.

Iran will also find it difficult to increase production, especially in the face of renewed US sanctions. Iraq, for its part, is eager to expand its production capacity but it will take time to do so.

So, right now these three OPEC members are at a clear disadvantage to those capable of quickly restoring pre-agreement production levels. Since any decision by OPEC needs to be unanimous, and the chances of that happening are slim, what we are increasingly likely to see on Friday is what Ardebili referred to as “a breach of the cooperation agreement.”

This article was originally published on Oilprice.com

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Russia & India ditching US dollar in defense deals

The paper reports that US sanctions are hampering $2 billion in defense deals between Russia and India, as payments are getting stuck. The countries are seeking to avoid this by switching to settlements in domestic currencies and ditching the greenback.

India Iran drop dollar in oil trade to bypass US sanctions – report

India is one of the largest buyers of military equipment from Russia. Since the 1960s, the countries have signed military contracts worth $65 billion.

Now, trade deals between the countries are estimated at $12 billion. India is ready to purchase Russia’s S400 air-defense system in a $5-billion deal. However, the sale is being heavily opposed by the United States, which is also trying to stop a similar deal between Russia and Turkey.

Defense deals between Russia and India are currently denominated in US dollars. The countries have discussed various ways of bypassing US sanctions, including payment in third currencies like the Singapore dollar. Talks are being conducted between Vijaya Bank and Indian Bank on the Indian side and Russia’s top creditor Sberbank.

An option that is now ruled out is paying in US dollars to non-sanctioned Russian entities. “This option was decided against as it would have opened up a lot of legal and audit issues, especially as defense deals are looked at very closely. No one wanted to take a chance,” a top official involved in the talks told the Indian daily.

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Escalating trade war between US & China sends shock waves through markets

China vowed to protect its interests, countering any US tariffs imposed on its goods with a mirror response.

“This practice of extreme pressure and blackmail” will be met with other comprehensive quantitative and qualitative measures, the country’s Commerce Ministry warned.

Trump raises stakes in trade war with China, targets further $200bn-worth of imports with tariff

“The United States has initiated a trade war that violates market laws and is not in accordance with current global development trends,” it added.

Last week, Washington announced tariffs on 1,102 separate categories of Chinese products, to come into effect on July 6. Beijing immediately retaliated with a 25-percent tariff on 545 American products worth $50 billion, which will come into force on the same day. Chinese authorities also pledged to add another 114 product categories to the existing list.

The growing trade spat between Beijing and Washington has dragged global markets down as investors opt to get rid of riskier assets. China’s stock market dropped 2.7 percent, while Japan’s Nikkei ended down by 1.7 percent.

The Hong Kong Hang Seng index lost 2.8 percent as Shanghai Composite dropped 3.78 percent. The Indian NIFTY 50 fell by 0.68 percent.

European stocks slid as well, with the FTSE 100 hitting a six-week low in early trading. The German DAX dropped 1.66 percent, while the French CAC 40 fell by 1.18 percent. Miners’ shares were among the big losers, with Anglo American down three percent. Anglo-Swiss multinational Glencore is down 2.6 percent, while British technology firm Micro Focus also shed nearly three percent.

US stocks are set to open lower on Tuesday with Dow futures indicating heavy losses of over 300 points. The Nasdaq and the SP 500 futures are also pointing lower before the opening bell.

American corporate giants that rely on huge revenues from business in China, such as Boeing, Caterpillar, Intel and 3M, are among the biggest losers on the Dow.

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Hit ‘em where it hurts: Chinese tariffs target American nuts & hundreds of other products

China will set a 25-percent tariff on 545 American products worth $50 billion in agriculture products, cars, and seafood, according to Chinese state-run Xinhua News Agency. The decision on the remaining 114 items, including chemicals, medical equipment, and energy industry products, will be “announced later.”

Tit-for-tat: Beijing vows ‘immediate’ response as Trump backs $50bn in tariffs on Chinese goods

Last week, the White House announced import levies targeting $50 billion of goods from China, aiming to curb unfair trade practices by Beijing. The measure, which comes into effect on July 6, targets 1,102 separate product categories, with the first package of tariffs to be applied to $34 billion of Chinese goods.

China, the world’s largest commodities consumer, started levying additional taxes on American fruit, nuts, pork, and wine in retaliation to US President Donald Trump’s tariffs on steel and aluminum. Back then, Beijing imposed taxes on soybean, corn, wheat, rice, sorghum, beef, pork, poultry, fish, dairy products, nuts and vegetables. The new list covers more agricultural products, including dairy, alfalfa, and seafood.

The US coal industry may become the next casualty in the ongoing trade war between the world’s two biggest economies. American miners are deeply dependent on foreign markets. In 2017, US coal exports jumped by 61 percent as shipments to Asia more than doubled, Bloomberg reported. Meanwhile, China reportedly purchased 271 million tons from overseas.

The US share of Chinese coal imports amounted to 2.9 million tons, according to Energy Information Administration. The total value of US coal sold to China in 2017 was about $395 million. Ninety percent of the amount was metallurgical coal aimed at making steel.

Since the US lifted its 40-year ban on crude exports, China has become one of the key buyers of American oil, helping to drive a significant surge in exports from the country. In March alone, China bought 18.4 million barrels of crude and oil products from the US, becoming its third-biggest customer behind Mexico and Canada.

China, which is expected to become the world’s largest importer of liquefied natural gas (LNG) over the next decade, has also pledged to place tariffs on natural gas imports. However, the measure is reportedly set to affect the fuel in gaseous form, not LNG. So far, Chinese energy corporations have signed several deals with American oil and gas firms amid growing cooperation between the countries.

Fresh Chinese tariffs also pose a significant threat to BMW and Daimler’s American factories. At the same time, Tesla’s revenue from deliveries to China reportedly increased 90 percent in 2017 to $2.03 billion. The retaliation could put at risk affordability in the producer’s second-biggest market.

American bourbon-makers may also lose some of their revenues after the tariffs come into force. In 2017, China imported $12.8 million worth of US spirits, about 70 percent of which was whisky, according to data from the Distilled Spirits Council.

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Bitcoin can cause massive internet shutdown – report

“To process the number of digital retail transactions currently handled by selected national retail payment systems, even under optimistic assumptions, the size of the ledger would swell well beyond the storage capacity of a typical smartphone in a matter of days, beyond that of a typical personal computer in a matter of weeks and beyond that of servers in a matter of months,” the report said.

© Artur DebatBitcoin’s skyrocketing growth was ‘fraud and manipulation’ – report

Records of cryptocurrency transactions are kept on a digital ledger. With every money transfer, the ledger swells in size.

Then, users of cryptocurrencies will face other problems with transactions, according to the report. “Only supercomputers could keep up with verification of the incoming transactions. The associated communication volumes could bring the internet to a halt, as millions of users exchanged files on the order of magnitude of a terabyte,” BIS wrote.

The BIS also criticizes the mounting transaction fees of cryptos. When bitcoin peaked at $20,000 in December, a single operation with the digital currency cost additional $57. “Just imagine, if you bought a $2 coffee with bitcoin, you would have had to pay $57 to make that transaction go through,” said Hyun Song Shin, the bank’s head of research. Some people don’t hold cryptocurrencies as money, but are speculating on its price, he added.

Founded in 1930, the Bank for International Settlements is the oldest global financial institution, and is known as the bank for central banks because it is where they hold accounts. It provides gold and foreign exchange transactions for them and holds central bank reserves. The BIS is also a banker and fund manager for other international financial institutions.

The BIS has consistently called on central banks to clamp down on bitcoin and other cryptocurrencies to stop them “piggybacking” on mainstream institutions and becoming a “threat to financial stability.”

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Audi boss arrested in Germany over diesel emissions scandal

“As part of an investigation into diesel affairs and Audi engines, the Munich prosecutor’s office executed an arrest warrant against Mr Professor Rupert Stadler on June 18, 2018,” the Munich prosecutor’s office said in a statement.

The arrest comes a week after the top manager’s apartment in Ingolstadt was raided by investigators. According to the prosecutors, Stadler was detained amid concerns that he could hinder or obstruct an ongoing investigation that plunged Volkswagen (VW) into a massive leadership crisis.

Dieselgate: Volkswagen ex-CEO charged with fraud in emissions scandal

The detention also comes as VW’s new group CEO, Herbert Diess, is planning to introduce a new leadership structure for the world’s second biggest automaker. The revamped top management reportedly includes Stadler.

The scandal – which stretches back to 2008 when the corporation started selling vehicles with test-rigging software in the UK – also forced the company to swiftly shift to electric cars.

Stadler’s arrest will be discussed at a supervisory board meeting on Monday, a spokesman for Porsche SE, the company that controls VW and Audi, told Reuters.

In 2015, VW acknowledged using illegal software to cheat US emissions tests on diesel engines. The step triggered outrage across the world, dragging the automaker into the biggest crisis in its history. The scandal led to a massive regulatory crackdown across the entire car-building sector.

In May, US authorities filed criminal charges against former VW CEO Martin Winterkorn. However, he is not likely to appear before a US court, as the German authorities do not extradite nationals to countries outside the EU.

Last year, former senior Volkswagen manager Oliver Schmidt was arrested in Florida while returning to Germany from a vacation. A Detroit judge found Schmidt guilty and sentenced him to seven years in prison and fined him $400,000.

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Russia holds less US debt than Bermuda after dumping half its holdings

US Treasury Department in Washington DC © Alexey Agarishev Russia dumps half of its US Treasury bonds

That month, Russia sold $47.4 billion out of the $96.1 billion held in March. The latest statistics released by the US Treasury on Friday showed that, Russia had only $48.7 billion investment in American debt, dropping from 16th to the 22nd place of major foreign holders of US T-bills. Russia now holds less US debt than Bermuda.

The sell-off should continue, since Russia and the US are barely trade partners, and Washington can always impose sanctions on the Russian holdings of its debt, Vladimir Rojankovski, investment analyst at Global FX said in a comment e-mailed to RT.

“In the era of sanctions investments in US Treasuries sooner or later can fall under sanctions. The volume of foreign trade with the US has only 3.5 percent share in Russia’s foreign trade. Countries usually hold bonds of their trading partners, so it is unreasonable to hold more than 10 percent of Russia’s foreign reserves in US Treasuries,” he said. Russian foreign reserves were $456 billion in May.

Since 2011, Russia has cut its holdings of US Treasuries by more than two-thirds, from over $150 billion to the current less than $50 billion.

Other countries are also slashing their investments in US debt. Turkey, which has been repatriating its gold from the US, has almost halved its US Treasury holdings from almost $62 billion in November to $38.2 billion in April.

Non-EU member Norway has cut its holding by 40 percent since September 2017, from $64.1 billion to $39.3 billion in April.

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Russian corporations ditching London for Moscow amid expanding sanctions

Cherkizovo Group, one of Russia’s major producers and processors of poultry and pork, is considering a move to MOEX after the firm delisted from London last year, reports Bloomberg. TMK, Russia’s largest manufacturer of steel pipes for the energy sector is mulling a similar move, according to the deputy chief executive officer of the company, as quoted by the media.

Aluminium ingots made at the RUSAL (Russian Aluminum) Krasnoyarsk aluminium smelter © Ilya NaymushinRothschild to help sanctioned Russian billionaire Deripaska to sell stake in company

“It really doesn’t make sense for Russian companies to list abroad in the current environment,” Ekaterina Iliouchenko, a money manager at Frankfurt-based Union Investment Privatfonds GmbH told the agency. The analyst stressed that the new round of sanctions could force foreign exchanges to block transactions with their liquidity to “drop dramatically as foreigners exit.”

The Moscow Exchange has been rapidly revamping over the recent years with its operations significantly improved. At the same time, the Russian central bank policy has become more predictable and transparent with the risks of capital controls disappeared. The bourse currently handles some 60 percent of the trading volume of dual-listed stocks against 44 percent four years ago.

“It doesn’t really make much sense to trade via GDRs [global depository receipts],” Pavel Laberko, a London-based money manager at Union Bancaire Privee, said.

The trend of fleeing from foreign stock exchanges has been spurred by the EN+ Group’s suspension from trading on the LSE after the company and its owner Oleg Deripaska were sanctioned by the US earlier this year. The Russian firm was hit by US sanctions five months after a $1.5 billion listing in London and Moscow.

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India, China look to form ‘Oil Buyers Club’

They will be looking to import more US crude oil in order to reduce OPEC’s sway, both over the global oil market and over prices, India’s Petroleum Ministry said on Wednesday.

China plans to create a $78bn natural gas giant

“With oil producers’ cartel OPEC playing havoc with prices, India discussed with China the possibility of forming an ‘oil buyers club’ that can negotiate better terms with sellers as well as getting more US crude oil to cut dominance of the oil block,”tweet from the Petroleum Ministry’s Twitter account reads.

India has been saying for months that oil prices have risen too much to be sustainable for many oil-importing countries.

Last month, as Brent Crude prices briefly broke above $80 a barrel—the highest since late 2014—gasoline and diesel prices in India surged to a five-year-high, also due to a weakening rupee against the US dollar.

India is concerned that the rallying oil prices are hurting its economy, and its Petroleum Minister Dharmendra Pradhan reiterated the need for “stable and moderate” prices in a phone conversation with Saudi Arabia’s Energy Minister Khalid al-Falih in the middle of May.

Russia’s oil sector is facing a massive tax overhaul

On Thursday, Pradhan met with ambassadors of OPEC countries to India and “discussed India’s growing position in the world energy demand the need for responsible pricing which balances the interests of both the producer consumer countries,” the Indian minister tweeted today, adding that he had also suggested creating transparent and flexible markets for both oil and gas.

Read more on Oilprice.com: Oil Prices Rebound On Crude, Gasoline Inventory Draws

“Further also raised the issue of discriminatory pricing in global oil gas trade through measures such as Asian Premium. Urged the OPEC Ambassadors to reconsider these discriminatory measures in the overall interest of all the countries work together for a sustainable future,” Pradhan added.

The Indian oil minister plans to visit Vienna next week to take part in the 7th OPEC International Seminar to further discuss the oil market and pricing issues with OPEC’s Secretary General Mohammad Barkindo and with ministers from OPEC countries, the Indian government said in a statement today.

This article was originally published on Oilprice.com

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