Brussels has told British Prime Minister Andy Burnham that the United Kingdom needs to lift tariffs on Chinese cars and move closer to the European Union's trade policy, in order to avoid its main exports facing potential obstacles under the "Made in Europe" rules that the bloc is developing, according to a report by the Financial Times.
According to the report, which was based on two sources familiar with the discussions, the European Union informed London, in response to its demands for similar treatment for European products, that the best solution lies in Britain joining the European Customs Union, according to Reuters.
The newspaper quoted a European official as saying, “The customs union would solve most of the problems associated with the ‘Made in Europe’ rules, and it would also address the issue of differences in customs duties, which raises concerns about the possibility of Chinese companies circumventing European duties by directing their exports through the United Kingdom.”
This week, Burnham confirmed his intention to demand that Britain be considered a “reliable partner” within the proposed rules of the “Made in the European Union” policy, warning that excluding the United Kingdom could harm the British automobile industry.
The new European policy aims to reduce dependence on Chinese components by giving priority to goods manufactured within Europe, which raises concerns for the British automotive sector, which supplies European supply chains with components and sells its cars in various EU markets.
In a related context, European Commission President Ursula von der Leyen stressed, during her “State of the Union” speech this month, that the European Union will use all available tools to reduce the trade deficit, which she described as “unsustainable” with China.
Government bond yields in the euro zone are heading towards recording a seventh consecutive weekly rise, in light of rising energy prices and increasing hawkish indicators from central banks, which has strengthened market expectations regarding interest rates.
Oil prices fell slightly on Friday, but crude prices are heading to end the week with an increase of 1.3 percent, according to Reuters.
Benchmark German bond yields (the Bund) fell by 3.5 basis points, after recording 3.6114 percent on Thursday, their highest level since June 2009, but they are heading to record a weekly rise of 5.5 basis points.
The two-year German bond yield, which is most sensitive to interest rate expectations, also fell by two basis points to 3.27 percent, after touching 3.3269 percent the previous day, its highest level since September 2023.
French and Italian bonds witnessed different paths this week, as French debt remained under pressure, while Italian government bonds witnessed a slight recovery.
Investors intensified their bets on raising interest rates, which led to an increase in borrowing costs and raised questions about the ability of the most indebted economies in the euro zone to bear their debt burdens.
Money market pricing indicates expectations that the European Central Bank's deposit interest rate will reach 2.86 percent by December, which means an expected rate hike of a quarter of a percentage point, with a probability of just under 50 percent for a second hike.
Markets also expect the interest rate to reach 3.46 percent by late 2027, compared to the current level of 2.50 percent.
The spread between French and German government bond yields, a market measure of the risk premium that investors require to hold French debt, is on track to record a fourth consecutive weekly rise. The spread widened by 4 basis points after touching 114.06 basis points, its highest level since June 2012, compared to 106.50 points on Friday.
On the other hand, the Italian difference tended to shrink slightly on a weekly basis, after it reached 99.90 points, which is its widest range since March 2016, before recording in the latest reading 91.50 points.
Indian government bonds fell in early trading on Friday, heading for a sixth consecutive weekly loss, while the benchmark 10-year bond yield stabilized near its highest level in four months, affected by a sharp selling wave of US Treasury bonds that negatively affected investor sentiment, ahead of a large debt auction.
New Delhi intends to issue 10-year bonds worth 340 billion rupees ($3.54 billion) later today, in a test of demand within a market already under pressure due to expectations of tightening monetary policy, rising inflation driven by oil prices, and the rise in bond yields globally, according to Reuters.
The yield on standard bonds due in 2036, with an interest rate of 6.94 percent, reached about 7.1391 percent at 11:15 a.m. local time, which is its highest level during the session since May 20, compared to 7.1067 percent at the close on Thursday.
The yield has risen by about 7 basis points since the beginning of the week, after jumping by more than 30 basis points during the previous five weeks.
The global sell-off in debt markets worsened overnight, with the 10-year US Treasury bond yield rising above 5.20 percent, recording its highest level since 2007. The 10-year Japanese bond yield also rose to 3.115 percent, a level not recorded since August 1996, while the 10-year German bond yield, which is a benchmark for the euro zone market, reached a 17-year high at 3.5798. percent.
Brent crude prices stabilized near $105 per barrel, keeping inflation risks high for India, which relies on oil imports, while investors evaluate the possibilities of reaching a truce between the United States and Iran.
After annual retail inflation in India accelerated to 4.82 percent during August, coupled with the US Federal Reserve raising interest rates earlier in the month, the majority of market participants now expect the Reserve Bank of India to raise interest rates on October 7.
A senior official at a government bank said: “It seems that raising interest rates in October is a done thing.” "It would be surprising if it didn't happen, and then returns would jump."
The Reserve Bank of India continues to withdraw excess liquidity from the financial system through open market sales, variable rate reverse repo operations, and put/call type FX swaps, in preparation for a tighter monetary policy.
Deutsche Bank said that more such operations are likely, while increasing the mandatory cash reserve ratio by 50 basis points remains a last option.
Interest rates
Overnight index swap rates have varied, while yield curves are already heavily priced in on expectations of interest rate hikes, limiting upside potential and attracting investor interest in interest-bearing trades.
The one-year swap rate fell by 1.25 basis points to 6.16 percent, while the two-year term settled at 6.38 percent, while the five-year term rate rose slightly to 6.6450 percent.
