COMMODITY FETISH

Chinese Vase Sells for 4,000 Times Its Value in France

By Jonita Simmons
October 5, 2022

Auction of tianqiuping-style porcelain vase at Osenat Auction House.

Photo Credit: Facebook / Osenat

A Chinese vase has sold for over four thousand times its estimated value after a frenzied bidding war in France. The item, believed to be a rare 18th century artifact, was bought for €7.7 million. The winning bidder paid €9.2 million in all with seller’s fees, which, according to the auction house, made it more expensive than Napoleon’s sword, bought for €6.4 million in 2007.

It is not unusual, however, for rare items at auction to exceed the set price. Experts had valued it at only €2,000, dating it to the 20th century. That would make it quite ordinary indeed.

The seller was not present for the auctioning of the fifty-four centimeter-tall Tianquiping-style Chine vase, decorated in blue and white dragons, but it had belonged to her grandmother and mother who had lived in Brittany, France. After the latter’s passing, her decision was to simply consign it to an auctioneer at the Osenat Auction House in Fontainbleau, France and sell it sight-unseen to a buyer. Her grandmother owned the vase for over thirty years and had been a collector in Paris, hence the apparent excitement.

Auction of tianqiuping-style porcelain vase at Osenat Auction House. 

Credit: Facebook / Osenat

The world’s most expensive 20th century vase?

Jean-Pierre Osenat called the frenzied bidding a “crazy story,” according to news sources. “From the moment the catalogue was published we saw there was enormous interest with more and more Chinese people coming to see the vase,” Cédric Laborde, the director at Osenat, explained. “Our expert still thinks it’s not old.”

The Chinese cherish the Tiaquiping vase, called “Celestial Spheres” due to its spherical shape because of its extraordinary beauty and history. In Laborde’s words “The Chinese are passionate about their history and proud to take possession of their history.”

There were evidently fifteen bids by telephone and another fifteen in person although around three hundred to four hundred people initially expressed their desire to participate in the bidding. Osenat only allows up to thirty bidders, however, each of whom pays a deposit to join the auction.

Although the Chinese vase auctioned at Osenat is evidently not rare, its buyers seem to believe it is highly valuable. What is rare about what happened at Osenat, however, is the sheer number of those willing to pay such an enormous sum for something auctioneers themselves had estimated at a much lower value.

As Osenat himself said, “I think the market has spoken.” He is now convinced the vase might actually be from the 18th century.



Auctions bring out the competitiveness in people coupled with human desire for the possession of a particular object. Recently, for example, an island in Greece sold for $4.3 million. Earlier, in 2013, the first Greek art sale in a London auction house raised an impressive €2.4 million. While the art world may applaud such success, for others, the illicit sale of illegally obtained ancient Greek antiquities which continues to this day is still majorly problematic.

America’s Global Dominance Is Ending: What Comes Next?

Globalization within a multipolar order will increasingly favour regional autonomy and a struggle to define a new balance of power.

Daniel Araya
October 5, 2022

A tattered American flag is seen at a cemetery in Bayou La Batre, 

Alabama, November 10, 2009. (Carlos Barria/REUTERS)

According to Oxford historian Peter Frankopan, we are witnessing the unravelling of the global order. In a period of history marked by a Western financial crisis, a global coronavirus pandemic, war in Europe, rising government debt and political instability across advanced democracies, the Western era is winding down. Indeed, the global order has been steadily moving toward a “post-American World” or “post-Western World” for some time. At the heart of this shift is the rise of China and the emergence of a multipolar system.

While we have grown used to thinking of globalization in terms of liberal democracy and Western-led multilateralism, globalization within a multipolar order will increasingly favour regional autonomy and a struggle to define a new balance of power. Taken together, China, India, Russia, Turkey, Iran, Indonesia, Saudi Arabia and Brazil are becoming regional powers within a loosely coupled global system.

What is clear is that we are living through an interregnum — a period in history that bridges a fading industrial era dominated by Western countries and a new digital era underwritten by the rise of China and a vast Asian trading system. Since the end of the Second World War, American predominance has depended on a network of alliances overseen by a sprawling US military. But, as American researchers Alexander Cooley and Daniel Nexon explain, the world is exiting US hegemony. As the US-led order winds down, Western influence over the global system will wane.
Competitive Multilateralism

Rapid shifts in the distribution of power have transformed the global system from the bipolar order of the Cold War (1945 to 1989) to the unipolar order of “American empire” (1989 to 2008) to the current multipolar order typified by the rise of China. Deepening ties between China and other emerging economies and the rise of Asia as the centre of world trade are reshaping the global balance of power. As Asia returns to the patterns of commerce and cultural exchange that thrived before the “age of exploration,” a new period of history is taking shape.

In the decades ahead, frontier technologies including artificial intelligence, robotics, quantum computing, 6G (sixth-generation) telecommunications, genetic engineering, renewables and nanotechnology will be the basic building blocks of a competitive multipolar order. This future includes a return to hard-power diplomacy and the competition for resources. Together, China’s increasing dominance over the world’s supply chains and Russia’s regional ambitions mark a new period of “competitive multilateralism.”

Where many Western countries cling to the post-1945 Bretton Woods system, China’s government is reimagining the world as a single complex network of supply chains and trade arteries. Fuelled by commodities from around the world, China is now the keystone of the global economy and the principal engine of globalization. As the country’s immense state-led production capacity continues to focus on frontier technologies, its power to displace the United States as the world’s centre of gravity will grow. Indeed, leveraging this “geotechnological” shift is China’s grand strategy.
A New Modus Vivendi Is Needed

In the United States, competition with China in the pursuit of US primacy has become the main driver of national policy. Politically, this includes a desire to remain the world’s police, using its enormous military to manage conflict. Economically, this includes a desire to remain the world’s largest market, underwriting globalization. Culturally, this includes a desire to remain at the centre of ideas, driving the world’s imagination, values and cultural exchange. None of this seems likely going forward.

Across emerging economies, Chinese-led globalization has already begun displacing America’s “rules-based order.” This is reflected in the rise of multilateral institutions such as the Regional Comprehensive Economic Partnership, the Asian Infrastructure Investment Bank, the Shanghai Cooperation Organisation, the Eurasian Economic Union, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and the New Development Bank of Brazil, Russia, India, China and South Africa (BRICS). As it leverages this system of multilateral institutions, China will grow its sphere of influence, tipping the balance of power in its favour.

In addition to political disruption, climate events have begun accelerating changes in global demography. According to American geographer Parag Khanna, climate disasters are set to drive millions of refugees across the Indian subcontinent, Southeast Asia, Central Africa, West Asia and Central America to seek life elsewhere. Aging and underpopulated northern regions across Canada, Scandinavia and Russia will invariably become destinations for large populations escaping drought, flooding and wildfire.

Navigating this new multipolar system will be daunting. Over the past century, multilateral institutions such as the United Nations, the World Trade Organization and the World Bank have served as pillars of Western-led globalization. But the growing weight of emerging economies now requires proper representation. Reforming the UN system to reflect these changes will be critical to maintaining global stability.

All of which suggests the need for a new generation of multilateral coordination. In the West, multilateralism is often equated with defending the “liberal international order” — a term coined by international relations scholar John Ikenberry in the 1990s. But in the face of economic, technological and ecological disruption, multilateral governance will increasingly be shaped by competing interests. It’s clear that a Western monopoly on leadership is no longer possible. As geopolitical rivalry fuels regional competition, multilateral cooperation will become increasingly precarious. A new modus vivendi is needed.


The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.

ABOUT THE AUTHOR
Daniel Araya is a CIGI senior fellow, a senior partner with the World Legal Summit, and a consultant and an adviser with a special interest in artificial intelligence, technology policy and governance.

Brexit Britain is all alone in a senseless pursuit of disaster capitalism

As other nations return to state-led investment, Truss and Kwarteng act to weaken our democracy, economy and rights

Adam Ramsay
4 October 2022, 



UK prime minister and Chancellor Liz Truss and Kwasi Kwarteng |


PA Images / Alamy Stock Photo

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When Britain's new chancellor Kwasi Kwarteng stood up on stage at the Conservative Party conference yesterday, he was a lonely figure.

Only a few days earlier, his French counterpart had announced a budget that included significant spending boosts for the ministries of labour, health, ecological transition and education.

Meanwhile, Germany’s federal government is “investing in the future”, pouring billions of euros into “climate protection, digitalisation, education and research as well as the infrastructure required.” Over the summer, in a bid to get the economy back on track after the pandemic, Germany’s state-owned rail company slashed the price of rail fares – offering unlimited local and regional journeys for just nine euros a month.

In Spain, everyone turning 18 this year is being given €400 to spend on books, concerts, theatre tickets or other cultural activities to give the arts a post-pandemic boost, while train travel on large chunks of the national railway network is currently free.

Looking further afield, in the US the Inflation Reduction Act will pump hundreds of billions of government money into low-carbon transition and healthcare, including slashing the cost of prescriptions and cancelling $10,000 of student loans for millions of graduates. This is part of an attempt to, as the White House christened the proposals from which the legislation was born, ‘build back better’ – with president Joe Biden telling Congress, “trickle-down economics has never worked. It’s time to grow the economy from the bottom and the middle out”.

In Brazil, the day before Kwarteng gave his speech, the left-wing former president, Lula De Silva, who ran on promises to scrap the government’s spending cap and invest in infrastructure, nudged ahead of far-Right incumbent Jair Bolsonaro in the first round of the country’s presidential election, the most significant vote of 2022. While Lula isn’t yet over the line, he is the clear favourite.

Across the Western world, state-led investment is back. Limping out of a pandemic and into a European war, looking ahead to increasing climate chaos and back at a decade of stagnant wages and soaring billionaire wealth, most governments, most citizens, can see that a 40-year experiment with radically free markets was a disaster. Most can see the need to pull together, that collective action is required to navigate the current omnicrisis.

But in Britain, we’ve got a return to tax cuts for the rich and austerity for the rest. Rather than putting money into the pockets of ordinary people, Kwarteng is cutting corporation tax by £19bn, promoting a free-for-all on bankers’ bonuses and launching what Gordon Brown has called a “tax avoiders’ charter”, slashing tax for employees who are able to declare themselves self-employed.

Two decades ago, Kwarteng’s ideas were wrong, but they were at least in vogue. Now, Brexit Britain stands alone.

In Britain, we’ve got a return to tax cuts for the rich and austerity for the rest

In his speech yesterday, Kwarteng said he had abandoned his cut in income tax for the richest because it was distracting from his broader plans. But it’s precisely his broader plans that are the problem.

As well as slashing tax for the rich, he wants to get rid of regulations for the rich, promising to “review, replace or repeal retained EU law holding our country back”.

Much of the rhetoric was the vague nonsense of wilting neoliberal ideologues, but he did give some specifics.

“On childcare, agriculture, immigration, planning, energy, broadband, business, financial services,” he said, “Sensible, economic reforms to produce more of the products and services we need to drive down costs.”

What this means in reality is a massive attack on safety and standards. Proposals to abolish Ofsted accreditation for childminders don’t do anything to solve the problems faced by parents who desperately need better-funded childcare, but will make it harder for parents to know their child is being well cared for, and easier for profiteering agencies.

The reference to agriculture seems to be a nod to the chaos around England’s attempts to replace the EU’s Common Agriculture Policy. Under Boris Johnson, with Michael Gove as environment secretary, there were some genuine attempts to ensure that farmers’ subsidies were given in exchange for environmental goods, via a policy known as the Environmental Land Management Scheme. This could have gone some of the way towards slowing the biodiversity crisis in the UK – one of the most nature-depleted countries on earth.

But it looks like Liz Truss and her environment secretary, Ranil Jayawardena, are scrapping all of this namby-pamby ‘not killing the planet’ nonsense, and restoring lump sum payments to agribusinesses based on how much land they have – the richer they are, the more they get.

Or perhaps Kwarteng was talking about Britain’s new-found power to decide which pesticides agribusinesses should be allowed to spray on our land and leach into our water – various poisons banned across the EU are already allowed in Britain.

As my colleague and housing economics expert Laurie Macfarlane has argued, Tory attempts to reform planning laws in recent years have represented “a ferocious attack on democracy”, stripping power from elected representatives and handing it to developers. Without proper planning, cities become suburban sprawl, with lengthy commutes, traffic jams and deep economic inefficiencies. Thriving cities require thoughtful consideration from authorities with a broad view of different needs, resulting in communities joined up with public transport, schools and doctors’ surgeries, not endless mazes of cul de sacs and traffic jams.

Related story

‘Fantastic’: What Truss’s allies said about budget that crashed UK economy
29 September 2022 | Adam Bychawski

Think tanks celebrated Kwasi Kwarteng’s mini-budget as ‘welcome’ and ‘a boost’ in a series of now-awkward briefings

When Kwarteng talks about energy, what he means is not that he’ll lift England’s absurd ban on onshore wind farms – in fact, Truss seems to want to extend it to include solar farms, too – but rather, to bend to the will of the fossil fuel lobby, and bring back fracking.

And when he talks about financial service deregulation, we don’t need to be very old to remember where that led in 2008.

To push all of this through, the chancellor made another important pledge – this time to increase regulation, specifically the regulation of workers.

“Pernicious strike action disrupts the lives of the British people and it slows down our economy,” he said. “So, we will introduce important reforms to stop strike action from derailing our daily lives.”

We shouldn’t be surprised by this agenda. It’s the deregulated corporate playground that was promised when Britain voted for Brexit. But the problem for the government is that it’s entirely out of step with much of the rest of the world.

If Britain allows its fields to be soaked in chemical poisons and its chickens to be chlorinated, its exports to undercut safety standards and its financial services to side-step regulations, then the EU isn’t going to allow itself to be undercut. The bloc will simply ban inferior British produce. And the much-mooted US trade deal looks unlikely – Biden hasn’t exactly shown himself to be a fan of the Brexit agenda.

The British government is already scrambling around the other side of the world looking for partners – as the prime minister announced in her recent UN speech, the UK is in the process of acceding to the Trans-Pacific Partnership. But you can’t just wish away ten thousand miles.

In the past, I would have described Truss’s government’s agenda as shock doctrine, or disaster capitalism – an audacious attempt to use the various crises of the day to strip away vestiges of democracy and workers’ power, and to advance corporate power. And in one sense, it is. But, in the past, with neoliberalism on the march, it would have felt like part of a global project. Now, they just look like fools, standing on the prow of a boat that’s abandoned its fleet, and pissing into the winds of history, only to find they are getting themselves wet.

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PODCAST, THE TAKE

After hurricanes, when to rebuild and when to retreat

Is this hurricane season a tipping point?

A flooded trailer park is seen after Hurricane Ian caused widespread destruction in Arcadia, Florida, United States, on October 4, 2022 [Marco Bello/Reuters]

Published On 5 Oct 20225 Oct 2022

There are tough questions about rebuilding in the United States after Hurricane Ian in Florida and Hurricane Fiona in Puerto Rico. In Florida, the damage is in the tens of billions of dollars, and a crisis for insurance companies means that recovery will only be more difficult. So how do you decide when it is better not to rebuild, but to start again somewhere else?end of list

In this episode: 

• Jesse M. Keenan (@Jesse_M_Keenan), Associate professor of sustainable real estate, Tulane University
• Fernando Rivera (@Prof_Rivera), Professor of sociology, University of Central Florida

Episode credits:

This episode was produced by Alexandra Locke with Chloe K Li and our host, Halla Moheiddeen. Chloe K Li and Ashish Malhotra fact-checked this episode. Our production team includes Chloe K Li, Alexandra Locke, Ashish Malhotra, Negin Owliaei, Amy Walters, and Ruby Zaman. Our sound designer is Alex Roldan. Tim St Clair mixed this episode. Aya Elmileik and Adam Abou-Gad are our engagement producers. Ney Alvarez is Al Jazeera’s head of audio.

In Nigeria's food basket state, floods wash away homes, crops and hope

Victoria Okonkwo sits in a canoe as neighbours paddle her away from her house in Nigeria's food basket, Benue state, which is now under water – along with more than 100,000 hectares (247,100 acres) of farmland. "It was last week that it started, so I left thinking that the water will not be this much," Okonkwo, 45, told Reuters.

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Reuters | Abuja | Updated: 05-10-2022

• Country:
• Nigeria

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Victoria Okonkwo sits in a canoe as neighbours paddle her away from her house in Nigeria's food basket, Benue state, which is now under water – along with more than 100,000 hectares (247,100 acres) of farmland.

"It was last week that it started, so I left thinking that the water will not be this much," Okonkwo, 45, told Reuters. "Now I am displaced with my children." Okonkwo is among at least half a million Nigerians affected by flooding in 29 of Nigeria's 36 states this year. Farmers say the rising waters will push food bills higher in a nation where millions have fallen into food poverty in the past two years.

Farming was constrained by flooding and food shortages and COVID-19 restrictions in 2020. Prices shot higher due to this year's war in Ukraine and nationwide insecurity that has pushed thousands of farmers off their land. "This is a catastrophe indeed," said Dimieari Von Kemedi, chief executive of Alluvial Agriculture, a farm collective. "All of these wrong things are happening at the same time."

Farmer Tersoo Deei, 39, said 2 hectares (5 acres) of her rice and nearly all her soybeans in Benue were underwater. What she had harvested she has to sell now, before it has dried, because her house washed away. "I do not have any option but to sell my rice paddy because there is nowhere to keep it," the mother of four told Reuters.

Nigeria-based commodities exchange AFEX estimates flooding and other factors will cut maize output by 12% year on year, and rice by 21%. That is a serious problem for a nation where inflation hit a 17-year high in August, led by food inflation at 23.12%. "What we are seeing currently is the worst case... at least in the last decade," David Ibidapo, AFEX's head of market data and research, said of the flooding. "This is a very big challenge to food security."

World Bank says goal of ending extreme poverty by 2030 unlikely to be met

Wed, October 5, 2022 
By Andrea Shalal

WASHINGTON, Oct 5 (Reuters) - Shocks related to the COVID-19 pandemic and the war in Ukraine mean the world is unlikely to meet a longstanding goal of ending extreme poverty by 2030, the World Bank said in a new report released on Wednesday.

The COVID-19 pandemic marked a historic turning point after decades of poverty reduction, the report said, with 71 million more people living in extreme poverty in 2020.

That meant 719 million people - or about 9.3% of the world's population - were living on just $2.15 a day, and the ongoing war, reduced growth in China and higher food and energy prices threatened to further stall efforts to reduce poverty, it said.

Barring sharp growth gains, an estimated 574 million people, or about 7% of the world's population, would still be subsisting at that same income level by 2030, mostly in Africa, it said.

World Bank President David Malpass said the new Poverty and Shared Prosperity report showed the grim outlook facing tens of million of people, and called for major policy changes to boost growth and help jumpstart efforts to eradicate poverty.

"Progress in reducing extreme poverty has essentially halted in tandem with subdued global economic growth," he said in a statement, blaming inflation, currency depreciations and broader overlapping crises for the rise in extreme poverty.

Indermit Gill, the World Bank's chief economist, said failure to reduce poverty in developing countries would have profound implications for the world's broader ability to combat climate change and could unleash large new flows of migrants.

It would also limit growth in advanced economies, since extreme poverty rates would prevent these often heavily populated developing countries from becoming bigger consumers of goods on the global market.

"If you care about prosperity in advanced economies, sooner or later you want these countries to have large markets, countries like India, countries like China," he said. "You also want these countries to grow so they actually start to become sources of demand and not just supply."

To change course, the World Bank said countries should boost cooperation, avoid broad subsidies, focus on long-term growth and adopt measures such as property taxes and carbon taxes that could help raise revenue without hurting the poorest people.

It said poverty reduction had already slowed in the five years leading up to the pandemic, and the poorest people clearly bore its steepest costs. The poorest 40% of people saw average income losses of 4% during the pandemic, twice the losses experienced by the wealthiest 20%, the World Bank said.

Government spending and emergency support helped avert even bigger increases in poverty rates, the report showed, but the economic recovery had been uneven, with developing economies with fewer resources spending less and achieving less.

Extreme poverty was now concentrated in sub-Saharan Africa, which has a poverty rate of about 35% and accounts for 60% of all people in extreme poverty, the report said. 

(Reporting by Andrea Shalal; Editing by Kim Coghill and Paul Simao)

Volatility in Europe's oil and gas market ‘is thwarting global climate targets’

Woodside CEO calls Nord Stream incident a setback for cutting methane emissions

Meg O'Neill, chief executive and managing director of Woodside Energy, 

said disruption to oil and gas supplies in Europe has caused concern in Asia. Bloomberg

Laura O'Callaghan
Oct 05, 2022

Disruption to Europe's oil and gas supplies due to the war in Ukraine and the sabotage of the Nord Stream pipelines has resulted in knock-on negative effects for the global effort to lower methane emissions, climate delegates were told on Wednesday.

Russia has denied it was behind recent leaks in the pipelines under the Baltic Sea which saw colossal amounts of methane emitted into the atmosphere. President Vladimir Putin accused the US of "sabotaging" the vital infrastructure.

Methane can represent more than 80 times the warming power of CO2 over the first 20 years after it reaches the environment. The drive to reduce methane emissions was discussed by delegates at the Energy Intelligence Forum in London on Wednesday, where speakers pointed out it was the best opportunity the industry has to slow the rate of global warming.

READ MORE

UK Royal Navy frigate sent to North Sea to protect underwater cables

Meg O’Neill, chief executive and managing director of energy giant Woodside Energy, said the geopolitical challenges gripping Europe have had a ripple effect across other markets and caused coal use to increase elsewhere.

“It’s been really interesting watching what’s been happening in the world, particularly over the last six months,” she said.

“One of the things that we've seen as energy flows to Europe have been disrupted [is that] most of our businesses in Australia and Asia … are very, very concerned about energy security. They are taking steps to try to strengthen their inner energy, their diversity of supply source and where they can, their ability to self-generate.

“From a climate perspective, this has had the outcome of many nations using more coal, so it's not a good outcome. What's happening today with respect to the supply side upsets is driving bad outcomes from a climate perspective.”

Woodside Energy, one of Australia’s largest oil and gas companies, is striving to honour a pledge to achieve zero methane emissions by 2030.

It is one of a string of companies who have latched on to the international movement spearheaded by fossil fuel industry figures.

Ms O’Neill stressed the importance of collaboration between firms and customers “to help them understand the pathway to execute an energy transition and how to do that in an orderly way”.

One of the challenges en route to net zero is that policymakers will always be concerned about the short-term energy needs of their people and thus be drawn towards instant solutions which are not always eco-friendly.

“At the end of the day, all politics are local and politicians are concerned about how do I keep the lights on for my community, how do I keep energy bills down for the citizens that live here,” Ms O’Neill said.

“Unfortunately, that's leading to some outcomes that are not positive from a climate perspective. So we have a role to play to continue to provide the energy that the world is using today in a way that is reliable and affordable, and to work with our customer nations in terms of carbon emissions.”

Australia under pressure to revise tax cuts following UK chaos

Ben Westcott

Bloomberg

October 05, 2022 

-A+A

CANBERRA (Oct 5): The Australian government is under pressure to reconsider tax cuts for high-income earners due in mid-2024 after the chaotic fallout from the UK's planned fiscal boost via the abolition of its top rate.

Australia intends to scrap its 37% tax rate in favour of a 30% bracket for people earning between A$45,000 and A$200,000 (RM134,723 and RM598,769) annually at an estimated cost of more than A$200 billion over 10 years. The upper 45% tax rate would remain in place.

The cuts were legislated in 2018 and 2019 under the previous centre-right Liberal-National government and the Labor party pledged to keep them prior to winning the May 2022 election.

Pressure to scrap or revise the cuts intensified after the UK was forced to abandon plans to abolish its 45% top rate shortly after Prime Minister Liz Truss took office.

Her government's unfunded proposal sparked a plunge in the pound and criticism from the International Monetary Fund as it threatened to exacerbate inflationary pressures that central banks are rapidly hiking interest rates to try to rein in.

The Australian Financial Review reported on Wednesday on growing pressure inside the Labor government to at least modify the tax cuts in the budget. Left-wing parties that hold the power to pass or block legislation in the Senate, or upper house, have been calling for the policy to be ditched since May.

Treasurer Jim Chalmers, who delivers his first budget on Oct 25, said this week that the UK was a "cautionary tale" about what happens when fiscal and monetary policies run at cross purposes.

Chalmers said while he was standing by the tax cuts for now, "any responsible government sees what's happening in the UK and factors that into their own considerations".

Rate hike bonanza among major central banks hits two decade peak in September


Tue, October 4, 2022 
By Karin Strohecker and Vincent Flasseur

LONDON (Reuters) - Major developed central banks delivered in September rate hikes at a pace and scale not seen in at least two decades, ramping up their fight against multi-decade high inflation with little let-up in sight.

Central banks overseeing eight of the 10 most heavily traded currencies delivered 550 basis points of rate hikes between them last month, bringing the total volume of rate hikes in 2022 from the G10 central banks to 1,850 basis points.

"For sure, central banks are focused on killing the inflation beast," said Vincent Chaigneau, head of research at Generali in a quarterly outlook.

"But inflation lags the economic cycle. The risk is that hysteresis forces in the inflation cycle keep central banks on a war path for too long, causing policy overshooting."

Graphics: Developed markets interest rates https://graphics.reuters.com/GLOBAL-MARKETS/byvrjzkylve/DEVMKTWDGT220930-1.1.gif

Growth fears over major central banks ramping up rates too fast and potentially too far had seen markets gyrate in the third quarter and cast a pall over the month ahead.

September central bank decisions did little to soothe these fears with the Federal Reserve hiking interest rates by 75 basis points for a third straight time and chair Jerome Powell vowing to "keep at it" while the Bank of England also raised rates.

Both the European Central Bank and Canada lifted benchmark rates, while policymakers in Switzerland effectively ended a decade of negative interest rates in Europe with their rate hike in September while Sweden's central bank delivered the biggest rate increase in four decades.

There are signs though that some are looking to take the foot off the pedal. Norway predicted smaller hikes ahead after delivering a 50-bps rise on Sept. 22, while Australia, having lifted rates to seven-year highs in early September, surprised markets with a smaller-than-expected move in October, the first bank out of the starting block in the fourth quarter.

Across emerging markets, signs of the rate hike cycle coming to an end were more prominent. Ten out of 18 central banks delivered 600 bps of rate hikes in September, well below the monthly tally of 800-plus basis points in both June and July.

Graphics: Emerging markets interest rates https://graphics.reuters.com/GLOBAL-MARKETS/jnvweqxdqvw/EMRGMKTWDGT220930-1.1.gif

Hungary delivered a larger-than-expected 125 bps rise to end its tightening cycle in September while uber-hiker Brazil took a breather in September. Both central banks have delivered around 1,200 bps each of hikes since early 2021, emblematic of the early hiking efforts undertaken by policymakers in both emerging Europe and in Latin America, while Asia was still somewhat earlier in the cycle.

In total, emerging market central banks have raised interest rates by a total 6,340 bps year-to-date, more than double the 2,745 bps for the whole of 2021, calculations show.

"Emerging markets are way ahead of many developed markets' central banks including the Fed, the ECB and Bank of England," Claudia Calich, head of emerging markets debt at M&G Investments.

"From the rates perspective, we are towards the end of the tightening cycle."

(Reporting by Karin Strohecker and Vincent Flasseur in London, additional reporting by Jorgelina do Rosario in London; Editing by Emelia Sithole-Matarise)

Analysis | The Bank of England Promotes Moral Hazard — Again.

Back in the 20th century, banks formed the foundation of the global financial system. No more. If there were any doubts about the shifts that have taken place in finance in the past several decades, recent events in the UK should dispel them.

The Bank of England made two important interventions in the past two weeks to support financial stability; neither of them directly involved banks. In response to violent moves in long-dated gilts — following the government’s since-discarded proposal to cut income taxes for the highest earners — the central bank hastily rolled out a program to buy up to £65 billion ($74 billion) of the government bonds. And, in partnership with the UK Treasury, it announced £40 billion of emergency funding for energy companies struggling to meet margin calls.

Together, they reflect the evolution at the heart of the global financial order: No longer is the system based around banks; rather, it is increasingly centered around markets. It’s an important distinction, with wide-ranging implications.

When banks served as gatekeepers, central bankers had a simpler life. To fulfill their obligation to ensure financial stability, they served as lenders of last resort to banks – a role they fulfilled extensively during the global financial crisis. By restricting the number of banking licenses, they maintained control of the sector and by extension the financial system.

But over the years, lenders ceded market share to a diverse roster of financial institutions. Twenty years ago, banks held 46% of global financial assets, according to data from the Financial Stability Board; that’s now down to 38%. In contrast, non-bank financial institutions – comprising insurance companies, pension funds and others – make up 48%, up from 41% in 2002. While the trend reversed briefly during the global financial crisis of 2008, it resumed its prior course at an accelerated rate shortly afterward.

To fund their operations, non-bank institutions rely on wholesale markets and, in particular, government bonds, which serve as collateral allowing them to borrow. Many also use the same collateral to support hedging programs.

The system has many merits, providing institutions ready access to financing and hedging solutions using the security of a safe, liquid asset. But it does have an unfortunate tendency towards pro-cyclicality: periods of market turbulence can drive sharply higher collateral requirements, which can prompt more turbulence if that leads to forced selling – such as we saw in the UK last week.

In the past, banks may have stepped in to manage the fallout, but due largely to tighter post-crisis rules on trading and capital, their balance sheets have been left very small relative to the size of collateral markets. In the UK, for example, the assets of UK government bond market makers have fallen by 25% since 2008 at the same time as the stock of UK government bonds outstanding has increased by 2.7 times.

So when the gilt market wobbled last week, there was no one left other than the Bank of England with the firepower to intervene.

Fortunately, the BOE had already laid the groundwork. In January 2021, its executive director for markets, Andrew Hauser, made a speech in London outlining a case for its role as “market maker of last resort.” Central banks had already broadened their focus from backstopping banks to backstopping markets. But given the shifting sands under the overall system, he warned that the pace may increase: “There is every reason to believe that, absent further action, we will see more frequent periods of dysfunction in the very markets increasingly relied on by households and firms.”

When it came, that dysfunction didn’t show up only in gilt markets but in energy markets, too, where greater volatility strained funding among participating companies. Here, the bank had a ready-made solution borrowed from its traditional playbook: Any energy company “in sound financial health” would be able to approach the bank as a lender of last resort.

All the features of Walter Bagehot’s famous dictum are evident in the scheme: The bank will lend freely, to sound institutions, against good collateral, at rates materially higher than those prevailing in normal conditions. The only difference is that banks won’t be the ultimate beneficiary of the funding (even though they may be used as conduits) – rather, it’ll be firms that “make a material contribution to the liquidity of UK energy markets.”

While central banks have adapted to the new reality of markets, other participants remain fixated by the old paradigm, where the vulnerability lies with intermediaries rather than markets themselves. The widening of Credit Suisse Group AG credit spreads and the plunge in its stock price aren’t great news for its investors, but they are unlikely to presage a “Lehman moment.” Similarly, the selloff in UK life insurance stocks when the UK government bond market sold off last week reflected their role as intermediaries. BlackRock Inc., one of the largest managers of pension funds under pressure, put out a press release reminding investors that “we are not a trading counterparty to these risk-mitigation strategies.”

For years, we got used to the concept of moral hazard in banking – the lack of incentive for banks to guard against financial risk given their protection from potential consequences. Post-crisis reform may have tamed that hazard among banks, but it could be spreading elsewhere. A recent regulatory review of the policy response to market turmoil in March 2020 concluded that clients “varied in their level of preparedness for margin calls.”

In the event, even the ill-prepared benefited from central bank actions. If that’s the lesson others take away, it will have the effect of incentivizing risk not just in the UK, but everywhere.