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Retail Disappointments, Energy Decline Hit Wall Street

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Stocks dropped again Tuesday as losses mounted for the world’s largest technology companies. Retailers also fell, and energy companies plunged with oil prices as the market sank back into the red for the year. 

 

Oil prices tumbled another 6.6 percent as Wall Street reacted to rising oil supplies and concerns that global economic growth will slow down, a worry that’s intensified because of the trade tensions between the U.S. and China. 

 

Technology companies were hit after the Trump administration proposed new national security regulations that could limit exports of high-tech products in fields such as quantum computing, machine learning and artificial intelligence. 

 

Retailers also skidded. Target’s profit disappointed investors as it spends more money to revamp its stores and its website, while Ross Stores, TJX and Kohl’s also fell on disappointing forecasts. 

 

The S&P 500 index lost 48.84 points, or 1.8 percent, to 2,641.89. The Dow Jones industrial average sank 551.80 points, or 2.2 percent, to 24,465.64. 

 

The tech-heavy Nasdaq composite lost 119.65 points, or 1.7 percent, to 6,908.82. The Russell 2000 index of smaller-company stocks shed 27.53 points, or 1.8 percent, to 1,469.01. 

 

The Dow industrials have lost 3.7 percent in the last two days, and the S&P 500 is off 3.4 percent. The Nasdaq is off 4.7 percent. The S&P 500 index has fallen 9.9 percent from the record high it set exactly two months ago. 

 

Investors are measuring several headwinds and increasingly playing it safe. The global economy is showing signs of weakening, with the United States, China and Europe all facing the rising threat of a slowdown, which can hurt demand for commodities such as oil and threaten company profits. Trade tensions between the U.S. and China appear to be getting worse instead of improving, contributing to the sell-off in tech stocks and multinational industrial companies. 

 

For much of this year, investors were hopeful the U.S. and China would easily resolve their differences on trade. That hope has faded in the last two months. While U.S. President Donald Trump and Chinese President Xi Jinping are expected to meet this month at a gathering of the Group of 20 major economies, the proposed limits on tech exports were one more reason to worry. 

 

“A resolution doesn’t seem to be coming in the short term,” said Katie Nixon, the chief investment officer for Northern Trust Wealth Management. “A lot of the companies that are front and center [like] Alphabet, Apple, IBM … could be significantly limited in the way they export their technology.” 

 

Apple fell 4.8 percent to $176.98 and is down 23.7 percent from the peak it reached Oct. 3, though it’s still up almost 5 percent this year. Microsoft lost 2.8 percent to $101.71 and IBM fell 2.6 percent to $117.20. 

 

As the tech giants swoon, investors have lately turned to safer bets such as utilities, real estate companies and makers of household goods. They’ve also sought the safety of U.S. Treasuries. 

 

The price of oil has been falling sharply in recent weeks and is now down 30 percent since Oct. 3. 

 

Saudi Arabia and other countries started producing more oil after the Trump administration announced renewed sanctions on Iran, Nixon noted. The administration granted waivers to several countries that allowed them to continue importing oil from Iran, creating a supply glut that pushed prices dramatically lower. 

 

Nixon said OPEC countries will probably cut back on oil production, but some investors are worried that the buildup in crude stockpiles is a sign the global economy isn’t doing as well as expected. 

 

Earnings from retailers didn’t help investors’ mood. Target plunged 10.5 percent to $69.03 after reporting earnings that missed Wall Street’s estimates because of higher expenses. Ross Stores, TJX and Kohl’s also fell on disappointing forecasts. 

 

Tech stocks were among the biggest losers in Europe, too. Nokia and Ericsson, two top suppliers of telecom networks, each fell about 3 percent. European indexes fell, with Germany’s DAX index dropping 1.6 percent and the French CAC 30 falling 1.2 percent. Britain’s FTSE 100 lost 0.8 percent. 

 

Stocks also declined in Asia. Japan’s Nikkei 225 lost 1.1 percent and Hong Kong’s Hang Seng shed 2 percent. 

 

Benchmark U.S. crude lost 6.6 percent to $53.43 a barrel in New York. Brent crude, used to price international oils, fell 6.4 percent to $62.53 per barrel in London. Oil prices have nosedived since early October. 

 

Wholesale gasoline fell 5.5 percent to $1.50 a gallon and heating oil skidded 4.6 percent to $1.99 a gallon. Natural gas dipped 3.8 percent to $4.52 per 1,000 cubic feet. 

 

Bond prices were steady. The yield on the 10-year Treasury note remained at 3.06 percent. 

 

Gold slipped 0.3 percent to $1,221.20 an ounce. Silver fell 0.9 percent to $14.27 an ounce. Copper slid 1.2 percent to $2.77 a pound. 

 

The dollar fell to 112.40 yen from 112.54 yen. The euro fell to $1.1399 from $1.1453. 

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Boeing Cancels Call to Discuss Issues With Its Newest Plane 

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Analysts say Boeing Co. is canceling a conference call that it scheduled to discuss issues around its newest plane, which has come under scrutiny since a deadly crash in Indonesia. 

The company didn’t immediately give an explanation Tuesday. 

CFRA Research analyst Jim Corridore said canceling the call as “a bad look for the company” when it’s facing questions about potential problems with sensors on the 737 MAX. 

U.S. airline pilots say they weren’t told about a new feature that could pitch the nose down automatically if sensors indicate the plane is about to stall. 

On Oct. 29, a Lion Air MAX 8 plunged into the Java Sea, killing all 189 people on board. 

Boeing shares are down about 13 percent since Nov. 9. 

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Nissan Says Chairman Arrested for Financial Misconduct in Japan

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Shares in automakers Nissan, Mitsubishi and Renault fell sharply Tuesday after the arrest of executive Carlos Ghosn on allegations of “significant acts” of financial misconduct.

All three firms are considering replacing him as chairman.

Nissan, one of the world’s biggest automakers, said Ghosn falsified reports about his compensation “over many years” and that its internal investigation also found he had used company assets for personal purposes.

Japanese media reported Monday that Ghosn is being questioned by Tokyo prosecutors, suspected of failing to report millions of dollars in income. 

Nissan said that based on a report by a whistleblower, it conducted an internal investigation of Ghosn and Representative Director Greg Kelly and shared its findings with public prosecutors. The company said both men had been arrested.

The automaker said its investigation showed that Ghosn had underreported his income to the Tokyo Stock Exchange by more than $40 million over five years.

The Ashai newspaper reported that prosecutors have raided Nissan’s headquarters in Yokohama. 

The Brazilian-born Ghosn, who is of Lebanese descent and a French citizen, was the rare foreign top executive in Japan.

Ghosn was sent to Nissan in the late 1990s by Renault SA of France, after it bought a controlling stake of Nissan. He is credited with rescuing Nissan from the brink of bankruptcy.

In 2016, Ghosn also took control of Mitsubishi, after Nissan bought a one-third stake in the company, following Mitsubishi’s mileage-cheating scandal. 

Together, the three automakers comprise the biggest global carmaking alliance, manufacturing one of every nine cars sold around the world. The three companies employ more than 470,000 people in nearly 200 countries.

Before Ghosn’s arrest, Satoru Takada, an analyst at TIW, a Tokyo-based research and consulting firm, said his detention would “rock the Renault-Nissan-Mitsubishi alliance as he is the keystone of the alliance.”

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Apple, Trade Woes Sink Stocks; Growth Worries Drag on Dollar

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World stock markets fell Monday as worries about softening demand for the iPhone dragged down shares of Apple Inc and persistent trade tensions between China and the United States sapped investor sentiment.

Concerns about slowing economic growth also pushed down the dollar.

The U.S. benchmark S&P 500 stock index dropped 1.7 percent following a decline in shares of Apple and its suppliers. The Wall Street Journal reported Apple had cut production orders in recent weeks for iPhone models it launched in September.

Renewed tensions between China and the United States also weighed. At an Asia-Pacific Economic Cooperative meeting in Papua New Guinea over the weekend, the issue prevented leaders from agreeing on a communique, the first time such an impasse had occurred in the group’s history.

U.S. Vice President Mike Pence said in a blunt speech Saturday that there would be no end to U.S. tariffs on $250 billion of Chinese goods until China changed its ways.

“That APEC was unable to issue a final statement clearly indicates that China versus the rest of the world isn’t just about the United States,” said Brad McMillan, chief investment officer for Commonwealth Financial Network in Waltham, Massachusetts. “It’s a widening of trade concerns that are already rattling markets.”

The Dow Jones Industrial Average fell 395.78 points, or 1.56 percent, to 25,017.44, the S&P 500 lost 45.54 points, or 1.66 percent, to 2,690.73 and the Nasdaq Composite dropped 219.40 points, or 3.03 percent, to 7,028.48.

MSCI’s gauge of stocks across the globe gained 0.30 percent.

Mixed signals regarding the Federal Reserve’s course of rate hikes in the face of a potential economic slowdown also weighed on markets, investors said.

Federal Reserve policymakers have recently raised concern about a potential global slowdown, leading some market watchers to suspect the tightening cycle may not have much further to run.

Data released Monday by the National Association of Home Builders showed weakening sentiment in the U.S. housing market, adding to concerns over economic growth.

Still, New York Fed President John Williams stated that the U.S. central bank is moving ahead with its plans for gradual rate hikes as it marches toward a more normal policy stance.

“There’s a widening gap between the Fed and what the markets think is the right course,” McMillan said.

Reflecting economic growth concerns, the dollar dropped to a two-week low Monday. The dollar index fell 0.3 percent.

In similar fashion, the 10-year U.S. Treasury yield hit its lowest level in more than a month. Benchmark 10-year notes last rose 3/32 in price to yield 3.0628 percent, from 3.074 percent late Friday.

Boosted by the drop in the dollar, gold added 0.2 percent to $1,223.56 an ounce.

Oil prices edged up, finding support from a reported drawdown of U.S. inventories, potential European Union sanctions on Iran and possible OPEC production cuts.

Brent crude futures settled at $66.79 a barrel, up 3 cents. U.S. crude futures settled at $56.76 a barrel, up 30 cents.

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UN: Afghan Opium Cultivation Down 20 Percent

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A new United Nations survey finds that opium cultivation in Afghanistan has decreased by 20 percent in 2018 compared to the previous year, citing a severe drought and falling prices of dry opium at the national level.

The total opium-poppy cultivation area decreased to 263,000 hectares, from 328,000 hectares estimated in 2017, but it was

still the second highest measurement for Afghanistan since the U.N. Office on Drugs and Crime (UNODC) began monitoring in 1994.

The potential opium production decreased by 29 percent to 6,400 tons from an estimated 9,000 tons in 2017.

The UNODC country representative, Mark Colhoun, while explaining factors behind the reduction told reporters in Kabul the farm-gate prices of dry opium at the harvest time fell to $94 per kilogram, the lowest since 2004.

The decreases, in particular in the northern and western Afghan regions, were mainly attributed to the severe drought that hit the country during the course of the last year, he added.

“Despite these decreases, the overall area under opium-poppy cultivation is still the highest ever recorded. This is a clear challenge to security and safety for the region and beyond. It is also a threat to all countries to and through which these drugs are trafficked as well as to Afghanistan itself,” said Colhoun.

He warned that more high-quality low-cost heroin will reach consumer markets across the world, with increased consumption and related harms as a further likely consequence.

“The significant levels of opium-poppy cultivation and illicit trafficking of opiates will further fuel instability, insurgency and increase funding to terrorist groups in Afghanistan,” he said.

Colhoun noted that while there is no single explanation for the continuing high levels of opium-poppy cultivation, rule of law-related challenges such as political instability, lack of government control and security as well as corruption have been found to be among the main drivers of illicit cultivation.

The UNODC survey estimated that the total farm-gate value of opium production decreased by 56 percent to $604 million, which is equivalent to three percent of Afghanistan’s GDP, from $1.4 billion in 2017. The lowest prices strongly undermined the income earned from opium cultivation by farmers.

The study finds that 24 out of the 34 Afghan provinces grew the opium-poppy in 2018, the same number as in the previous year.

The survey found that 69 percent of the opium poppy cultivation took place in southern Afghanistan and the largest province of Helmand remained the leading opium-poppy cultivating region followed by neighboring Kandahar and Uruzgan and Nangarhar in the east.

It noted that opium poppy weeding and harvesting provided for the equivalent of up to 354,000 full-time jobs to rural areas in 2017.

A U.S. government agency, the Special Inspector General for Afghanistan Reconstruction (SIGAR), has noted in its latest report that as of September 30, Washington’s counternarcotics-related appropriations for the country had reached almost $9 billion.

“Despite the importance of the threat narcotics pose to reconstruction and despite massive expenditures for programs including poppy-crop eradication, drug seizures and interdictions, alternative-livelihood support, aviation support, and incentives for provincial governments, the drug trade remains entrenched in Afghanistan, and is growing,” said Sigar, which monitors U.S. civilian and military spendings in the country.

 

 

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Nissan Chairman Faces Arrest In Japan

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Japanese automaker Nissan says it has determined that its chairman, Carlos Ghosn, falsified reports about his compensation “over many years.” The company said its internal investigation also found Ghosn had used company assets for personal purposes.

Japanese media are reporting Monday that Ghosn is being questioned by Tokyo prosecutors on allegations that he underreported his income and that he will likely be arrested.

Ghosn is suspected of failing to report hundreds of millions of dollars in income.

Nissan says Ghosn will be dismissed from the company.

The Ashai newspaper reported that prosecutors have raided Nissan’s headquarters in Yokohama.

The Brazilian-born Ghosn, who is of Lebanese descent and a French citizen, was the rare foreign top executive in Japan.

Ghosn was sent to Nissan in the late 1990s by Renault SA of France, after it bought a controlling stake of Nissan. He is credited with rescuing Nissan from the brink of bankruptcy.

In 2016, Ghosn also took control of Mitsubishi, after Nissan bought a one-third stake in the company, following Mitsubishi’s mileage-cheating scandal.

“If he is arrested, it’s going to rock the Renault-Nissan-Mitsubishi alliance as he is the keystone of the alliance,” said Satoru Takada, an analyst at TIW, a Tokyo-based research and consulting firm.

Shares in Renault fell more than 12 percent in late morning trading in Paris after the news about Ghosn came out.

 

 

 

 

 

 

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Pence, Xi Sell Competing Views to Asian Regional Economies

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The United States and China offered competing views to regional leaders at the Asia Pacific Economic Cooperation (APEC) meetings in Papua New Guinea, trading sharp words over trade, investment, and regional security.  Washington said it can provide a better option for regional allies under is “Free and Open Indo-Pacific” strategy.  as VOA’s State Department correspondent Nike Ching reports, the APEC gathering ended without a formal leaders’ statement.

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Federal Reserve Policymakers See Rate Hikes Ahead, Note Worries

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Federal Reserve policymakers on Friday signaled further interest rate  increases ahead, but raised relatively muted concerns over a potential global  slowdown that has markets betting heavily that the Fed’s rate hike cycle will soon peter out.

The widening chasm between market expectations and the rate path the Fed laid out just two months ago underscores the biggest question in front of U.S. central bankers: How much weight to give a growing number of potential red flags, even as U.S. economic growth continues to push down unemployment and create new jobs?

“We are at a point now where we really need to be especially data dependent,” Richard Clarida, the newly appointed vice chair of the Federal Reserve, said in a CNBC interview. “I think certainly where the economy is today, and the Fed’s projection of where it’s going, that being at neutral would make sense,” he added, defining “neutral” as interest rates somewhere between 2.5 percent and 3.5 percent.

But that range that implies anywhere from two more to six more rate hikes, and Clarida declined to say how many more increases he would prefer.

He did say he is optimistic that U.S. productivity is rising, a view that suggests he would not see faster economic or wage growth as necessarily feeding into higher inflation or, necessarily, requiring higher interest rates. But he also

sounded a mild warning.

“There is some evidence of global slowing,” Clarida said. “That’s something that is going to be relevant as I think about the outlook for the U.S. economy, because it impacts big parts of the economy through trade and through capital markets and the like.”

Federal Reserve Bank of Dallas President Robert Kaplan, in a separate interview with Fox Business, also said he is seeing a growth slowdown in Europe and China.

“It’s my own judgment that global growth is going to be a little bit of a headwind, and it may spill over to the United States,” Kaplan said. .

The Fed raised interest rates three times this year and is expected to raise its target again next month, to a range of 2.25 percent to 2.5 percent. As of September, Fed policymakers expected to need to increase rates three more times next year, a view they will update next month.

Over the last week, betting in contracts tied to the Fed’s policy suggests that even two rate hikes might be a stretch. The yield on fed fund futures maturing in January 2020, seen by some as an end-point for the Fed’s current rate-hike cycle, dropped sharply to just 2.76 percent over six trading days.

At the same time, long-term inflation expectations have been dropping quickly as well. The so-called breakeven inflation rate on Treasury Inflation Protected Securities, or TIPS, has fallen sharply in the last month. The breakeven rate on five-year TIPS hit the lowest since late 2017 earlier this week.

Those market moves together suggest traders are taking the prospect of a slowdown seriously, limiting how far the Fed will end up raising rates.

But not all policymakers seemed that worried. Sitting with his back to a map of the world in a ballroom in Chicago’s Waldorf Astoria Hotel, Chicago Federal Reserve Bank President Charles Evans downplayed risks to his outlook, noting that the leveraged loans that some of his colleagues have raised concerns about are being taken out by “big boys and girls” who

understand the risks.

He told reporters he still believes rates should rise to about 3.25 percent so as to mildly restrain growth and bring unemployment, now at 3.7 percent, back up to a more sustainable level.

Asked about risks from the global slowdown, he said he hears more talk about it but that it is not really in the numbers yet.

But the next six months, he said, bear close watching.

“There’s not a great headline” about risks to the economy right now, Evans told reporters. “International is a little slower; Brexit — nobody’s asked me about that, thank you; [the slowing] housing market: I think all of those are in the mix for uncertainties that everybody’s facing,” he said.

“But at the moment, it’s not enough to upset or adjust the trajectory that I have in mind.”

Still, Evans added, the risks should not be counted out: “They could take on more life more easily because they are sort of more top of mind, if not in the forecast.”

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South Africa Cannabis Ruling Leads to Pot-Themed Products

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Now that South Africa’s highest court has relaxed the nation’s laws on marijuana, local entrepreneurs are trying to cash in on the popular herb. Among the latest entries to the market: several highly popular cannabis-laced alcohol products, which deliver the unique taste, though without the signature high. Marijuana activists say this could just be the beginning and that the famous plant could do much more for the national economy. VOA’s Anita Powell reports from Johannesburg.

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Experts: Without Proof of Ownership, Land Laws Worthless

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Land laws mean nothing unless communities can prove their ownership, researchers said Thursday, calling for better tools to map the land and stave off conflict over property.

From South Africa to the Amazon rainforest, battles over land and who owns it are unleashing unprecedented conflict and labyrinthine legal cases as governments and companies seek to exploit ever more of the world’s natural resources, from trees to minerals to rubber.

With an estimated 70 percent of the world unmapped, more than 5 billion people lack proof of ownership, according to the Lima-based Institute for Liberty and Democracy.

Laws no safeguard

Speaking at the Thomson Reuters Foundation’s annual two-day Trust Conference, which focuses on a host of human rights issues, experts said the existence of laws in itself was no safeguard against abuse.

South Africa enshrines security of tenure in its constitution but the government rides roughshod over locals by promoting controversial mining deals, said Aninka Claassens, director of the University of Cape Town’s Land and Accountability Research Center.

More than two decades after the end of apartheid, whites still own most of the land in resource-rich South Africa and ownership remains a highly emotive subject ahead of next year’s national election.

“Our constitution means nothing unless people affected can prove their land rights, that’s why recorded rights are so important,” she said. “Mining is destroying livelihoods and land.”

Who owns what, where

Mapping property rights is crucial to understand “who owns what, where and how,” said Anne Girardin, land surveyor at the Cadasta Foundation, which develops digital tools to document and analyze land and resource rights information.

“That allows you to monitor changes in land resources, but also to better protect them,” she added.

More than 200 activists protecting their land and environment were killed in 2017, according to a survey of 22 countries by Global Witness, marking the deadliest year since the human rights group began collecting data.

Better and more coordinated information is needed to ward off more deadly conflicts, the experts said, citing satellite images and smartphones as tools that could document land.

Technology is plentiful but resources are scattered, Girardin said.

“It would take all the land surveyors we have 200-300 years to map the world’s undocumented land, so we need to be more pragmatic and work together,” she said.

Communities document land

Rampant deforestation means communities should rush to document their own land rather than wait for governments to act, said Nonette Royo, executive director of the International Land and Forest Tenure Facility, which helps indigenous people.

“In the world, forest area the size of Belgium disappears every year,” she said.

For Claassens, land rights should be mapped and recorded in accordance with who uses land as well as who actually owns it.

“Who uses the land? Most often, it’s women,” she said, adding that women were often excluded from property records.

Women are key in the fight for land rights from Brazil to Cambodia, often deployed at the frontline to ward off development and protect family plots, fields and villages.

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Upset by Trump’s Iran Waivers, Saudis Push for Deep Oil Output Cut

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When U.S. President Donald Trump asked Saudi Arabia this summer to raise oil production to compensate for lower crude exports from Iran, Riyadh swiftly told Washington it would do so.

But Saudi Arabia did not receive advance warning when Trump made a U-turn by offering generous waivers that are keeping more Iranian crude in the market instead of driving exports from Riyadh’s arch-rival down to zero, OPEC and industry sources say.

Angered by the U.S. move that has raised worries about over supply, Saudi Arabia is now considering cutting output with OPEC and its allies by about 1.4 million barrels per day (bpd) or 1.5 percent of global supply, sources told Reuters this week.

“The Saudis are very angry at Trump. They don’t trust him anymore and feel very strongly about a cut. They had no heads-up about the waivers,” said one senior source briefed on Saudi energy policies.

Washington has said the waivers are a temporary concession to allies that imported Iranian crude and might have struggled to find other supplies quickly when U.S. sanctions were imposed on November 4.

U.S. Secretary of State Mike Pompeo said on November 5 that cutting Iranian exports “to zero immediately” would have shocked the market. “I don’t want to lift oil prices,” he said.

A U.S. source with knowledge of the matter said: “The Saudis were going to be angry either way with the waivers, pre-briefed or even after the announcement.”

A U.S. State Department official said: “We don’t discuss diplomatic communications.”

The U.S. shift towards offering waivers adds to tension between the United States and Saudi Arabia, as Washington pushes for Riyadh to shed full light on the murder of Saudi journalist Jamal Khashoggi in the Saudi consulate in Turkey.

“The Saudis feel they were completely snookered by Trump. They did everything to raise supplies assuming Washington would push for very harsh Iranian sanctions. And they didn’t get any heads up from the U.S. that Iran will get softer sanctions,” said a second source briefed on Saudi oil thinking.

Saudi energy ministry did not respond to a Reuters request for comment.

Since the summer, Riyadh has led the Organization of the Petroleum Exporting Countries, Russia and other producers to hike supplies by over 1 million bpd to keep a lid on prices as U.S. sanctions were imposed.

Brent oil had surged above $86 a barrel in October on tight supply worries, but prices have since slid to $66 on concerns about oversupply.

Unexpected waivers

Trump had wanted lower oil prices before the U.S. midterm elections earlier this month. Washington gave waivers in November to eight buyers to purchase Iranian oil for 180 days.

This was more waivers than were initially expected. Saudi Crown Prince Mohammed bin Salman, a key Trump administration ally, wants prices at $80 or more for his economic reforms, sources familiar with Saudi thinking say.

“The waivers were totally unexpected, especially after calls to raise output. A few people are upset,” said a senior Gulf oil source familiar with the discussions among OPEC and its allies on output policy.

While the United States set a time limit for the waivers, it did not tell the eight recipients how much oil they could buy and has not eased payment restrictions, complicating purchases.

Iran’s oil exports are expected to drop sharply to about 1 million bpd in November from a peak of 2.8 million bpd earlier this year. Although output is expected to recover from December thanks to waivers, it is still not clear by how much.

Riyadh’s concern is to avoid the kind of oversupply in the market that led to a price collapse in 2014 to below $30.

But the lack of clarity about the level of Iran’s supplies makes it tough for Saudi Arabia to work out appropriate production levels, especially after Russia raised output steeply in recent months and has said it wanted to produce more in 2019.

Saudi Arabia would need to convince Russia to join in any move for new supply cuts.

“First the Saudis let oil prices rise to $86 per barrel and then flooded the market. Can they now cut back enough going into a seasonally weak time of the year? Without Russia it won’t be credible,” said Gary Ross, CEO of Black Gold investors.

Saudi Arabia must also contend with rising U.S. production that has hit record levels above 11 million bpd and is set to climb further next year. U.S. exports could surge from the second part of 2019 when new pipeline infrastructure opens.

Rapidan Energy Group said it saw a supply glut now lasting much more than just a few months in 2019.

“Now that the market has correctly priced weaker-than-anticipated Iran sanctions and much bigger inventory builds next year, we wish to emphasize that ‘OPEC plus’ officials face more than a single-year supply tsunami in 2019,” Rapidan said.

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US Envoy for Iran Warns EU Banks, Firms Against Non-Dollar Iran Trade

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European banks and firms which engage in a special European Union initiative to protect trade with Iran will be at risk from newly reimposed U.S. sanctions, the U.S. special envoy for Iran warned on Thursday.

It is “no surprise” that EU efforts to establish a so-called Special Purpose Vehicle (SPV) for non-dollar trade with Iran were floundering over fear in EU capitals that hosting it would incur U.S. punishment, Special Representative Brian Hook said.

“European banks and European companies know that we will vigorously enforce sanctions against this brutal and violent regime,” he said in a telephone briefing with reporters.

“Any major European company will always choose the American market over the Iranian market.”

The SPV is seen as the lynchpin of European efforts to salvage the 2015 nuclear accord with Iran from which U.S. President Donald Trump, who took office after the deal was sealed, withdrew in May.

Iran has warned it could scrap the agreement, which curbed its disputed program in exchange for sanctions relief, if the EU fails to preserve the deal’s economic benefits.

The SPV was conceived as a clearing house that could be used to help match Iranian oil and gas exports against purchases of EU goods in an effective barter arrangement circumventing U.S. sanctions, based on global use of the dollar for oil sales.

Brussels had wanted to have the SPV set up by this month, but no country has offered to host it, six diplomats told Reuters this week.

Their reluctance arises from fears that SPV reliance on local banks to smooth trade with Iran may trigger U.S. penalties, severing the lenders’ access to U.S. financial markets, diplomats said.

Criticizing EU efforts to bypass sanctions, Hook reiterated a warning that such an EU effort sent “the wrong signal, at the wrong time.”

However, he added that waivers from sanctions granted to eight of Iran’s biggest oil importers were to ensure the U.S. measures did not harm allies or raise oil prices.

“We have looked at these on a case by case basis, taking into account the unique needs of friends and partners, and also ensuring that as we impose sanctions on Iran’s oil sector that we do not lift the price of oil,” Hook said.

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High-Level China US Trade Talks Resume

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China’s Ministry of Commerce says high-level trade talks between officials from the world’s two biggest economies have resumed.  But whether or not Washington and Beijing will be able to strike a deal and avoid a looming sharp hike in tariffs on $200 billion in Chinese goods remains uncertain.

 

Commerce ministry spokesman Gao Feng says the resumption of talks began after U.S. President Donald Trump and Chinese leader Xi Jinping spoke on the phone on November 1st.

 

“Working groups [of both sides] are keeping close contact to carefully carry out a consensus that the two leaders reached during the call,” Gao Feng said Thursday.  He added that companies in both the United States and China have been affected and are responding to the trade dispute, which has triggered tit-for-tat in tariffs on goods.

 

After the phone call earlier this month, Trump said he thought the two could make a deal, but added Washington is prepared to levy more tariffs on Chinese goods if no progress is made.

 

On January 1, Washington’s 10 percent tariff rate on $200 billion in Chinese goods is set to rise to 25 percent.  Trump has also said that if the two can’t reach a deal, Washington would impose tariffs on all remaining Chinese imports, about $267 billion worth. 

 

Trump and Xi are scheduled to meet in the coming weeks on the sidelines of a leaders summit for the Group of 20 nations in Buenos Aires, Argentina.  Earlier this week, there were reports that Chinese Vice Premier Liu He, the country’s top trade negotiator would travel to Washington.

 

According to a Reuters report Thursday that quotes three U.S. government sources, China has delivered a written response to U.S. demands for wide-ranging trade reforms.

 

It was not immediately clear if the response could help bridge a wide gap between the two on trade or meet Trump’s demands for change.

 

The U.S. president has repeatedly criticized Chinese practices of industrial subsidies, intellectual property theft, the lack of a level playing field for U.S. companies in China and the trade deficit.

 

What happens next depends on Beijing’s attitude, said Darson Chiu, a research fellow at the Taiwan Institute for Economic Research.

 

“If Beijing is willing, on the one hand, to reduce the scope of unequal bilateral trade and guarantee that U.S. intellectual property rights will not be infringed upon or forced to hand over technology, there is a good chance the two can reach a consensus,” he said.

 

One way Beijing could do that is by offering to reach a bilateral free trade deal with Washington that includes all of the concerns Trump has addressed: be it currency manipulation, intellectual property rights, concerns about state-owned enterprises.

 

“That way Trump would have to accept [the offer],” Chiu said.  “And at the same time, it would help get those with vested interests out of the way and remove longstanding obstacles to reform that policymakers in China face.”

 

Chiu admits that such a solution is easier said than done and there are many with less liberal views in China.  Those with vested interests, the heads of state-owned enterprises also keep arguing that they can help China weather the storm.

 

At the very least, what the two could hope for is a sort of lowering of tensions, some analysts note.  China is willing to make some concessions, as long as the demands are not too excessive, said Shi Yinhong, a political scientist at Renmin University.

 

“China has long agreed to make concessions: import as many U.S. goods as possible and greatly relax local market access for U.S. companies.  But these may not please Trump, who wants China to fundamentally restructure its economic model and major industrial policies,” Shi said.

 

The United States could also create a monitoring mechanism to ensure China walks its talk this time, he adds.

 

Shi said that while China wants reform too, in his view, the best that could be hoped for is a trade war ceasefire.

 

What that means is the United States would suspend its tariff hike on $200 billion in Chinese goods in exchange for concrete concessions from China, including those Beijing made during negotiations in July.  At the same time, Washington is unlikely to drop its restrictions or increased scrutiny of Chinese high-tech firms, Shi said.