SHANGHAI (Reuters) – Chinese firms are squirreling away even more dollars, pricing contracts in yuan and opening import lines to mitigate currency risks as trade tensions threaten to roil foreign exchange rates.

The trend shows exporters are preparing for a long-term shift in trade towards Asia, Latin America and Africa, and safeguarding against potential currency fluctuations like those seen during U.S. President-elect Donald Trump’s first term.

Knife-edge margins are also adding to companies’ anxieties, with spot markets already pushing the dollar about 2% higher on the yuan in the weeks since the U.S. election on Nov. 5.

“There’s an obvious spike in willingness to hold dollars offshore,” said David Jiang, founder of risk management consultancy Qian Jing.

    A business in eastern Jiangsu province, which earns $300 million in annual exports, wants help to protect 5% margins from currency risks as it must also navigate Trump’s threat of imposing 60% tariffs on Chinese goods, he said.

For now, most firms are holding on to their dollar earnings from exports and keeping them offshore, if possible. Onshore foreign-currency deposits swelled 6.6% to $836.5 billion over the 12 months to end-October, central bank data showed.

Analysts’ average forecast is for the yuan to fall to 7.3 per dollar by the end of next year from around 7.24 per dollar currently.

“The interest rate differential between the United States and China is wide and that will continue to persist for a prolonged period … holding dollar assets is natural for Chinese exporters,” said Liu Yang, general manager of the financial market business department at minerals exporter Zheshang Development Group.

High U.S. interest rates have pressured forwards such that it is un-economic for exporters to lock in future rates, though Liu said it was favourable for importers to do so and for exporters to sell call options at around 7.5.

CHANGING TRADE

Owning dollars has been a winning strategy. The currency has been kept strong by high U.S. rates and falling Chinese ones.

However, with the trade turmoil of Trump’s first presidency, Chinese businesses are preparing for future disruptions. The yuan rallied 10% through the first 18 months before sliding about 12% through his imposition of tariffs and the pandemic.

That experience has China more prepared this time and has already begun a re-shaping of global trade that is flowing through into financial markets, especially foreign exchange.

“A heavy tariff regime could also change the constitution of currency hedging flows in the long run,” said Nathan Swami, Asia-Pacific head of currency trading at Citi in Singapore.

“The renminbi‘s share of global payments and trade has been growing over the years and it is possible that some of that new trade could be non-USD denominated, thus changing the need for underlying currency hedging.”

The yuan’s share in global trade finance stood at 5.77% at the end of October – ranking it second behind the dollar – compared with about 2% in 2020, according to data from the global bank messaging network SWIFT.

The share of Chinese exports sent to the U.S. has steadily decreased in recent years, while increasing to Southeast Asia, India and Mexico, customs data shows.

Some exporters are already making their own attempts to cut out currency risks by quoting prices in yuan or taking positions in two-way trade flows.

Jacky Wang, a businessman based in southern Guangdong, who sells LED lights in South America and Africa, is setting his own FX deals with customers and says companies should reduce risks by striking up bilateral trades.

“That means using export proceeds to buy local products for imports into China, while converting profits into the U.S. dollar,” he said. “This is a simple, and basic way to manage currency risks,” he said, without using complex hedging tools.

The view was echoed by Han Changming, a car importer in southern Fujian province, who also exports commodities. “The two-way trade provides a natural hedge,” Han said.

While most businesses are not agile enough to lessen risks effectively, exporters are benefiting from a weakening currency as it increases global competitiveness and boosts profits when converted to yuan.

Still, advisers say the backdrop is putting hedging front of mind.

“When Chinese companies venture into new markets, they need to think seriously if they are at the table or on the menu,” said Joseph Liu, chief operating officer of consultancy FX Expert, noting companies were entering volatile FX countries.

    “While Trump … stirs short-term anxiety, the trend of going overseas is a long-term positive to my business.”

BRASILIA (Reuters) – Brazil’s Finance Minister said on Thursday that government will freeze $860 million in 2024 spending and maintain its yearly primary deficit goal, adding that a fiscal package with budget cuts for the next years could be announced as soon as Monday.

Speaking with journalists in Brasilia, minister Fernando Haddad said this year revenues have been performing as expected, but government will need to block or freeze some 5 billion reais ($859.9 million) in spending.

Brazilian government has until Friday to release a bi-monthly revenue and expenditure report with updates on its budget outlook for this year.

Haddad said the government will not change its primary deficit target for this year, which mandates zero deficit excluding interest payments, with a tolerance margin of 0.25 percentage points of GDP in either direction.

The minister also said that government would be ready to announce a fiscal package with broad spending cut measures for the next years as of Monday, when he will attend an internal meeting to finalize the plan.

Expectations for more details on the fiscal package impact have been driving Brazil’s assets in recent weeks, as investors await to see if the measures would be enough to end their worries on government’s ability to comply with its fiscal framework.

($1 = 5.8144 reais)

Investing.com — Hawkish-leaning Federal Reserve members have recently flagged fresh worries about the risk of a pick-up in inflation — and Macquarie believes these jitters may be justified as recent data is showing that inflation expectations are on the up and up since the U.S. election. 

“The Fed’s hawks, in effect, are right to worry a bit more about the resumption of some US inflation, following the US election,” the analysts said.

A second Donald Trump administration rolling out policies such as tariffs that are likely to be inflationary is also filtering into inflation expectations despite uncertainty about those policies. 

“The prospect that the coming policy agenda change can foster US inflation sooner than when the policies are actually implemented,” the analysts said, flagging a pick-up in inflation expectations.

“Five-year inflation break-evens… continue to climb toward that critical level of 2.5%, which marks the demarcation between consistency with the Fed’s 2.0% inflation target (on the PCE PI) and inconsistency with reaching that target,” they added.

Hawkish Fed members including Fed governor Michelle Bowman have suggested the central bank may need to slow the pace of rate cuts amid greater concerns about inflation and expectations that the end point for rate cuts may be closer than previously thought.

“I would prefer to proceed cautiously in bringing the policy rate down to better assess how far we are from the end point, while recognizing that we have not yet achieved our inflation goal and closely watching the evolution of the labor market,” Bowman said on Tuesday. 

The slew of less dovish Fed speak has shifted market expectations for Fed rate cuts recently.

The USD overnight index swap yield curve “now implies only a 35%-40% probability of a Fed rate cut in December, down from 60% at the beginning of November,” the analysts said.

This shift in expectations comes as the 2-year US Treasury yields have risen by 80 basis points relative to German Bund yields since the end of September, when Donald Trump’s electoral prospects began to recover.

WASHINGTON (Reuters) – Republican Marjorie Taylor Greene said on Thursday she will chair a U.S. House of Representatives panel on government efficiency, working with billionaire Elon Musk and Vivek Ramaswamy in their effort to streamline the U.S. government.

Musk, the billionaire CEO of Tesla (NASDAQ:TSLA) and SpaceX, and Ramaswamy, a former Republican presidential candidate and biotech executive, were tasked by President-elect Donald Trump with creating a panel of outside advisers to make recommendations on how to reduce the size of federal workforce and slash regulations.

Greene’s government efficiency subcommittee was created by House Oversight Committee chair James Comer to work with Musk and Ramaswamy.

“I’m thrilled to announce I’ll be chairing a brand new subcommittee to work hand-in-hand with @ElonMusk and @VivekGRamaswamy,” Greene wrote on X.

Trump, Musk and Ramaswamy have touted ambitious claims about the panel’s ability to transform the U.S. government and the effort has received widespread publicity and interest in how it will operate.

But details have been sparse. On Wednesday, Musk and Ramaswamy wrote an opinion piece saying they will use recent U.S. Supreme Court rulings to take power away from federal agencies and reduce regulations.

Trump has said the two will issue reports, and the new panel said it wants to bring on “high IQ” staff and hold weekly livestreams.

By Dietrich Knauth, Marie Mannes, Terje Solsvik

(Reuters) -Northvolt, the Swedish maker of battery cells for electric vehicles, said on Thursday it has filed for Chapter 11 bankruptcy protection in the U.S., dealing a blow to Europe’s hopes that its most developed battery player would reduce Western car makers’ reliance on Chinese rivals.

Northvolt said it has only enough cash to support operations for about a week and said it has secured $100 million in new financing for the bankruptcy process. It said operations will continue as normal during the bankruptcy.

“Northvolt’s liquidity picture has become dire,” the company said in its Chapter 11 petition, filed in U.S. Bankruptcy Court in Houston. The company, which has operations in California, has about $30 million of cash, which can support its operations for only about a week. It has $5.8 billion in debts.

Northvolt, which employs around 6,600 staff across seven countries, said it expects to complete the restructuring by the first quarter of 2025.

Northvolt transformed in a matter of months from Europe’s best shot at a homegrown electric-vehicle battery champion to a company struggling to stay afloat by slimming down, hobbled by production problems, the loss of a major customer and a lack of funding.

Europe has been hoping that Northvolt would reduce Western car makers’ reliance on Chinese rivals such as battery maker CATL and EV and battery maker BYD (SZ:002594).

Northvolt said the $100 million in a new loan is part of $245 million in financing support for the bankruptcy. Swedish truck maker Scania, a shareholder and its biggest customer, said on Thursday that it was loaning $100 million to Northvolt to support the manufacturing of electric vehicle battery cells in Skellefteå, northern Sweden.

“This decisive step will allow Northvolt to continue its mission to establish a homegrown, European industrial base for battery production,” Tom Johnstone, interim chairman of Northvolt’s board, said in a statement, noting the support Northvolt has received from existing lenders and customers.

As part of the restructuring, Northvolt will evaluate proposals for new money investment from strategic and financial investors, as well as existing lenders, shareholders and customers, he said.

Volkswagen (ETR:VOWG_p), Northvolt’s top shareholder with a 21% stake, said it had taken note of the filing and was in close contact with the Swedish firm. It declined to comment on potential repercussions on its own business.

STIFF COMPETITION

Investment group Vargas, a co-founder of Northvolt and one of its largest shareholders, said the bankruptcy would allow the company to address financial challenges and maintain its competitive edge in producing high-performance battery cells. 

Handelsbanken analyst Hampus Engellau said the bankruptcy filing would give the company some short-term breathing space. Even so, he said, “This tells us that they haven’t found investors and raised the capital needed to restructure their business.”

Northvolt had been discussing the possibility of filing for Chapter 11 bankruptcy protection in the United States as one of several options for survival, two sources familiar with the matter told Reuters last week.

Northvolt has led a wave of European startups investing tens of billions of dollars in battery production to serve the continent’s automakers as they switch from internal-combustion engines to EVs. 

But EV demand is growing at a slower pace than some in the industry had projected, and competition remains stiff from China, which controls 85% of global battery-cell production, according to International Energy Agency data.

A court hearing is likely in coming days when the Houston bankruptcy court judge will be asked to approve some routine steps, including allowing Northvolt to pay staff and draw the first $51 million of the Scania loan.

On Monday, Reuters reported that Northvolt had missed some in-house targets and curtailed production at its battery-cell plant in Skellefteå, underscoring the challenge of ramping up output.

The company’s court filing on Thursday said it had capacity to produce 300,000 batteries a year.

In October, Northvolt struck a deal that gave access to a small amount of money while talks on a bigger financing package continued, business daily DI reported.

Those talks had become more difficult in recent weeks, one of the sources familiar with the Chapter 11 plan said.

In recent years several Swedish companies have opted for Chapter 11 bankruptcy protection filings, such as Scandinavian airline SAS and debt collector Intrum, a process that allows management to retain control over the company and run operations.

Swedish Deputy Prime Minister Ebba Busch said on social media platform X that the government continues to support the EV battery industry and hopes that the restructuring will help turn around Northvolt’s fortunes.  Busch told Reuters on Tuesday that the Swedish government had no plans to take a stake in Northvolt.

Investing.com — Chicago Federal Reserve President Austan Goolsbee said Thursday eh continued to sees lower rates ahead, though cautioned that the pace of cuts may need to slow amid uncertainty about where the rate-cut cycle will eventually end. 

“[i]f we look out over the next year or so, it feels to me like rates will end up a fair bit lower than where they are today,” Goolsbee said in prepared remarks for an event at the Central Indiana Corporate Partnership in Indianapolis, Ind., on Thursday.

While the road lower to a neutral rate is paved with uncertainty amid ongoing debate about where rates will ultimately settle, Goolsbee said he sees rates over the next ending up “fair bit lower than where they are today.” 

The Fed cut rates in November to a range of 4.5% to 4.75% and is widely expected to deliver another 25bps cut in December.

The Chicago Fed chief also said that a longer view on the economy was needed following recent concerns about upside inflation and stronger labor market.   

“My view is that the long arc over the last year and a half shows inflation is way down and on its way to 2 percent. Labor markets have cooled to something close to stable full employment,” Goolsbee said. 

As the Fed inches closer toward its dual mandate goals of 2% inflation and maximum employment, Goolsbee believes it would appropriate for the central bank to “move rates to where we think they should settle, too.”

By Carolina Mandl

NEW YORK (Reuters) -Citadel’s founder Ken Griffin said on Thursday that he would be open to selling a small stake in his hedge fund at some point in the future.

Griffin, at an event hosted by the Economic Club of New York, said it made sense for him to sell a minority stake in his market maker Citadel Securities to Sequoia and Paradigm in 2022, in a deal that valued the firm at $22 billion.

His comments come days after reports about BlackRock Inc (NYSE:BLK) in talks with Citadel’s competitor Millennium for a potential tie-up, involving the acquisition of a minority stake in the hedge fund by the world’s largest asset manager.

“We take great pride in being in a private partnership. It has served us well for 30 years,” he said when asked about a potential consolidation in the hedge fund industry. Still, he said he “would be open to the possibility of selling a minority stake in Citadel at some point in the future.”

When asked about what kind of partner he would engage with, he said venture capital firm Sequoia would be an example. “We would look for a partner that feels like Sequoia, that’s going to push us to be better at what we do.”

Griffin said the focus on Citadel Securities now is on the growth of the business and that an initial public offering should not happen “in the foreseeable future.”

Griffin, a Republican supporter, criticized in a wide-ranging interview President-elect Donald Trump’s plans for deportation of immigrants in the U.S. illegally, tax cuts and tariffs implementation, saying some of his policies could increase the U.S. deficit and make domestic companies less competitive and productive.

“We’ve got to put the fiscal house to order,” he said.

By Emma Farge

GENEVA (Reuters) – Swiss National Bank governing board member Petra Tschudin said on Thursday that inflation was comfortably within the range it hoped to see.

Inflation in October dropped to 0.6%, its lowest level since June 2021, stoking analyst expectations the SNB will press ahead with further rate cuts.

Asked about the risk of possible deflation at a banking event in Geneva, she said: “Inflation is now comfortably in the range of 0-2% where we want to see inflation (and) our definition of price stability.”

She declined to comment further on the outlook for monetary policy which she said will be decided at the SNB’s upcoming meeting on Dec. 12.

The central bank has been at the forefront of interest rate cuts this year, lowering borrowing costs three times in 2024 to 1%.

By David Latona

MADRID (Reuters) -Spanish lawmakers approved the government’s new tax plans, which include extending a modified temporary levy on banks by three years, in a last-minute deal with smaller parties on Thursday in the highly fragmented parliament.

The governing coalition constantly faces a balancing act as it weighs concessions to parties from across the spectrum, such as hard-left Podemos and centre-right Catalan separatists Junts.

The lower house backed the Socialist-led government’s plan by 178-171 votes.

The fiscal package’s centrepiece ensures that large Spain-based companies with an annual turnover of at least 750 million euros ($785 million) pay a minimum tax of 15% of their consolidated profits, in compliance with a European directive.

Following the bill’s passage, Prime Minister Pedro Sanchez described it as “landmark” legislation that would guarantee the disbursement of European recovery funds worth 7.2 billion euros.

In October, the European Commission sued Spain – along with Cyprus, Poland and Portugal – for failing to implement the rules designed to curb fiscal dumping by the end of 2023.

Government officials have previously said next year’s budget bill, yet to be unveiled, hinged on the package’s approval.

Spain had rolled over its 2023 spending plan after failing to pass a new budget last year, but Sanchez reiterated on Tuesday the government would eventually present the bill for 2025.

BANKING TAX

A three-year extension to the annual bank windfall tax, added to the bill’s amendments after the government clinched Junts’ support by ceding collection of the tax’s revenues to regional administrations, also got through.

Ranging between 1% and 7%, it will tax lenders’ net interest income and commissions in accordance with their lending income volumes, instead of the current fixed rate of 4.8%.

For lenders whose annual volumes surpass 5 billion euros, it sets a rate of 7%, affecting Santander (BME:SAN), BBVA (BME:BBVA) and Caixabank.

Banking associations AEB and CECA said they would take the measure, which they warned created legal uncertainty and hurt competitiveness, to court.

The Socialists were only able to pass the package after reaching a last-minute agreement with Podemos.

In exchange, they pledged to work on a permanent windfall tax on energy companies that was earlier dropped, or at least extend a temporary one by another year.

“Podemos will work to make this tax as ambitious as possible,” Podemos leader Ione Belarra said.

Utilities have warned that extending the tax would jeopardise 30 billion euros ($31.6 billion) in renewable energy investments.

($1 = 0.9548 euros)

WASHINGTON – Former Representative Matt Gaetz of Florida has announced his decision to withdraw his name from consideration for the position of Attorney General in President-elect Donald Trump’s administration. Gaetz, a Republican, cited the desire to avoid further distraction from the Trump/Vance Transition team’s work as the reason for his withdrawal.

The announcement follows what Gaetz described as “excellent meetings with Senators,” where he received feedback and support. Despite the momentum he felt, Gaetz acknowledged that his confirmation process was becoming a contentious issue in Washington, potentially delaying the establishment of Trump’s Department of Justice.

Gaetz expressed his continued support for Donald Trump, stating his commitment to help make Trump “the most successful President in history.” He also mentioned his honor in being nominated to lead the Department of Justice and expressed confidence in Trump’s ability to “Save America.”

The decision comes amid ongoing allegations of sexual impropriety, which have made Gaetz a controversial figure. Although the Republicans are set to hold a 53-47 majority in the U.S. Senate next year, it was uncertain whether there would be sufficient support from within the party to confirm his nomination.

This move by Gaetz to step back highlights the complexities of the confirmation process for key government positions, particularly when nominees face significant allegations. The withdrawal aims to expedite the readiness of the incoming administration’s Justice Department, emphasizing the need for a fully operational team from the outset of Trump’s term.

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