EURUSD: The Correction is not yet complete

It's been an underwhelming start to the week in financial markets with the eternal optimism of investors clashing with the reality of Chinese economic data.

There's a ​ bizarre willingness to turn a blind eye to the economic reality at the moment as long as the Fed doesn't raise rates too fast. That doesn't feel particularly sustainable but as we've seen so often before, it can last much longer than you may expect.

The economic data from China overnight was very disappointing, to put it mildly. Combined with the lending figures on Friday, it does not paint a good picture of domestic demand or the growth outlook. Retail sales were particularly weak, while fixed asset investment and industrial production were also well below the consensus. It seems the reopening boost was both uninspiring and short-lived.

And yet the PBOCs decision to cut the MLF and 7-day reverse repo rates by 10 basis points overnight came as quite the surprise. It seems no one saw that coming and it's understandable why. Loan demand isn't struggling because of high rates, it's Covid lockdowns, ongoing property market uncertainty and the global environment. This rate cut won't change any of that. But it does mean a cut to the LPR is now almost certain.Japan recovering as inventories hold back Q2 GDP

The reopening in Japan boosted spending in the second quarter, although the GDP reading slightly missed expectations thanks to a decline in inventories which lifted the reading in Q1. These fluctuations can largely be ignored and the underlying picture remains positive for the Japanese economy. Of course, the global picture is increasingly gloomy and uncertain which could weigh into next year.Eye-watering profits for Saudi Aramco

Saudi Aramco is the latest oil company to report record quarterly profits and as the biggest, the numbers are that much more eye-watering. Net income rose 90% from last year to $48.4 billion but the dividend remained the same at $18.8 billion as the company remains committed to investing in further expanding production. That naturally won't stop political pressure from mounting around the world as people struggle with the concept of soaring energy costs destroying household budgets and threatening the global economy at the same time as staggering record profits.

One area where traders are paying attention to the Chinese data is clearly commodity markets, with crude off 2% on Monday. The figures from China really are a concern and the authorities have a big job on their hands arresting flagging domestic demand. That doesn't bode well for oil demand especially when the country remains so committed to zero-Covid. And with cases continuing to rise, the downward pressure on oil prices could intensify.

Throw in a deal between the US and Iran and we may be able to wave goodbye to triple-digit oil prices for a while. Of course, it doesn't matter how close the two are, a deal can never be assumed to be done until it's signed. If it does get over the line, we could see oil slip below $90 and perhaps even stay there.

Gold has tried and failed again to sustainably break above $1,800 despite closing slightly above here on Friday. The yellow metal has slipped almost 1% so far today to trade back around $1,785 amid a strengthening dollar. This could just be a technical move, with the dollar seeing some support after pulling more than 4% off its highs. Similarly, it's been a strong rebound in gold and $1,800 is looking like an increasingly significant barrier.

Bitcoin has tested the water above $25,000 and been pushed back on the first attempt. It seems the cryptocurrency, like many other instruments, is testing a potentially significant barrier following the recent recovery and we may be seeing some profit-taking. Whether that becomes a full rotation lower isn't clear yet but it doesn't appear to have the momentum for a breakout at this time.

Name the region: a group of internally diverse states, lying across strategically significant maritime passages, whose cultures and political systems have been profoundly shaped by colonialism and conflict, and who now seek to overcome chronic development challenges in partnership with major economic powers while avoiding becoming pawns in their geopolitical competition.

Indonesia's Foreign Minister Retno Marsudi, greets Fiji's Prime Minister and Foreign Minister Josaia Voreqe Bainimarama upon arrival at the the G20 Foreign Ministers' Meeting in Nusa Dua, Bali, Indonesia, 8 July 2022

If you guessed either 'the Pacific' or 'Southeast Asia', well, you'd surely be right.

Anna Powles and Joanne Wallis highlight some parallels between the South Pacific and Southeast Asian regions in our lead article this week. They canvass possibilities for entrenching the momentum of the Pacific and its major-power stakeholders in shoring up Pacific regionalism at the recent Pacific Islands Forum in Fiji. They propose that Forum members 'might look for inspiration from [its] Southeast Asian counterpart, ASEAN, for ideas on how to act as both a buffer and a bulwark in the face of geopolitical rivalry', possibly via a new platform for Pacific Islands Forum dialogue partners to join with core members in a dialogue on security issues, similar to that of the the ASEAN Regional Forum.

For all its faults, 'ASEAN has played a significant role, despite criticism, in acting as a fulcrum around which big power jostling is stabilised'. Critics may scoff at the lip service paid to ASEAN centrality, but ASEAN centrality has the effect of binding external stakeholders into ASEAN's modus operandi. To a considerable extent the rhetoric creates its own reality. But its external partners 'have been slower to recognise the centrality of the Pacific Forum', they warn.

ASEAN centrality comes from the member states creating a grouping that is larger than the sum of its parts and using it to manage their relationships with large and powerful neighbours. Both rich Singapore and large Indonesia use ASEAN to maintain strategic policy space: through ASEAN they avoid narrowing their options. The organising principles of multipolarity and multilateralism that mean equal treatment among ASEAN members and equal treatment between ASEAN states and their dialogue partners help to sustain intra and extra-regional cooperation. The Pacific has a lot to learn from how ASEAN organises itself around its Treaty of Amity and Cooperation. The Treaty of Rarotonga, which formalises a nuclear-free weapons zone in the South Pacific and bans the use, testing and possession of nuclear weapons within the region, is a potentially powerful framework on which to premise dealings with outside powers. So too is the region's abiding concern about the impact of climate change on the security of its peoples.

Certainly, the building blocks of Pacific regionalism — the member states — are not as sturdy as in Southeast Asia. The immensity of their development challenges, well-understood by regional political elites, necessitates engagement with outside partners who can deliver the infrastructure needed to kickstart activity in sustainable natural resource extraction and tourism, the industries most likely to give the region's poorest economies an economic boost. The principal outside partner in this respect is undoubtedly China — and in Powles and Wallis' judgement, 'Western partners fail to recognise that China is a longstanding partner in the Pacific that cannot be ignored'.

Western stakeholders now see an expanding Chinese aid and investment footprint entirely as a vector for PRC state influence. It is. But the correct response is not to waste diplomatic capital or resources trying to deter Pacific countries from expanding the commercial and aid relationships with China that are going to be such an important part of building their economies into the future. Do Western officials really look like they have their Pacific interlocutors' best interests in mind whenever they tell them to keep China at arm's length in spite of those economic opportunities?

The best — and probably the only — realistic option for Western stakeholders is to equip Pacific governments and civil society with the tools to ensure that individual governments' engagement with China is conducted on terms that maximise the benefits for Pacific economies while mitigating the impacts on local sovereignty and their natural environments. The relationship, in either direction, between democracy and Chinese influence across Asia isn't at all clear-cut — but the Pacific is one place where healthy democracies, if they act collectively, will be a bulwark against the excesses of Chinese investors' and state bodies' behaviour and where there is still an important chance to engage Chinese government support and goodwill in ameliorating these problems. The best show of solidarity with Pacific Island societies that Australia, New Zealand, the United States or Japan can extend is to redouble their support for building robust governance standards as well as healthy civil societies and strong independent media across the Pacific and building the local skills and capacity through greater access to higher education and labour markets.

The other priority is to maintain respect for Pacific leadership in consolidating the norms and institutions of Pacific regionalism — even if that means accepting, as it certainly will, a role for China as a stakeholder in this process if the region desires it. The worry, Powles and Wallis write, is that 'new mechanisms such as the Partners in the Blue Pacific initiative — designed to facilitate cooperation between the United States, Australia, New Zealand, the United Kingdom and Japan — risk sidelining or duplicating regional solutions' out of an eagerness to write China out of such processes.

The analogies with the Quad, which some worry undercuts its members' rhetorical commitments to ASEAN centrality, draw themselves. With Pacific regionalism still inchoate by comparison, all parties have much to learn about what to avoid as well as what to pursue from comparison to the decades-long experiment in regionalism to the Pacific's northwest.

Looming fears of a global recession are threatening the growth of India's IT industry.

Still, businesses in the sector remain confident that they can weather the storm, as companies worldwide continue to plough investment into digital transformation efforts.

"We expect some corrections and slowness [later in the year], due to a volatile global environment and businesses slowing down a bit," says Kapil Sharma, chief executive of FiveS Digital, a technology-led business process management company based in Rajasthan.

India has long been a vital market for IT services solutions for global corporations. The IT and business process management sector makes up 9 per cent of the South Asian country's gross domestic product and 56 per cent of the global outsourcing market, according to India Brand Equity Foundation.

The sector has been enjoying stellar growth, as companies ranging from financial services to telecom invest heavily in digital products and services.

India's IT industry reaped $227 billion in revenue in the last financial year on the back of a rise in global technology spending, including by clients within the domestic market, according to a report by the National Association of Software and Services Companies (Nasscom).

"Tech spending continues to be a vital area of focus as banks and financial services firms are in the early stages or in the midst of a tech upgrade journey," according to a research note on India's IT services sector by Kotak Institutional Equities. "Benefits are visible, spurring further investments in new products and services as well as cloud migration and modernisation of legacy stack," Kotak analysts said.

"A weak economic prognosis has led to a re-look on costs, both tech and non-tech related, and can lead to a slowdown in spending."

However, India's IT sector depends heavily on clients based in North America and Europe. Those markets would be affected if the global economy slides into a recession as the International Monetary Fund has warned.

There are already signs that there may be cracks appearing for the sector.

Last month, India's Tata Consultancy Services (TCS), one of the country's biggest IT services companies, based in Mumbai, missed analysts' expectations for its second-quarter earnings.

It reported a net profit of 94.78 billion rupees ($1.18bn) in the three months to the end of June, up from about 90bn rupees in the same period in 2021, but down from the 99bn rupees projected in a Bloomberg survey.

The company cited "macro-level uncertainties" amid risks of a global recession and rising employee costs.

IT companies are becoming increasingly concerned about the employee churn rate in India amid high demand for tech professionals in the sector, which employs about five million.

TCS shares have slumped more than 10 per cent since the start of the year. Another IT titan, Infosys, has seen its stock price fall more than 15 per cent during the same period.

However, despite all the challenges, many players in the industry are hopeful that the sector will continue on its growth trajectory.

"Growth continues to be strong on the back of macro trends of digital acceleration and cloud adoption," said Vinay Mony, vice president of analytics and technology services business Ugam, a Merkle company.

He said he remained hopeful that a global recession might not be as deep or as widespread as some fear.

While many sectors were battered by the impact of the Covid-19 pandemic and some are still on the path to recovery, India's IT sector proved to be relatively resilient. It gained from companies increasingly adopting digital strategies amid remote working and consumers' greater dependence on technology.

"One such industry which has only seen growth is the IT industry, with digital transformation being the key driver for its growth," says Radha Basu, founder and chief executive of iMerit, an artificial intelligence data solutions company.

"The ongoing trends in the Indian IT ecosystem in areas like the metaverse, 5G, artificial intelligence, drone and satellite imagery capabilities to collect data … are shaping the future of technology and present a wider scope for the growth in the industry in the coming years," she said.

TCS shares have slumped more than 10 per cent since the start of the year. Another IT titan, Infosys, has seen its stock price fall more than 15 per cent during the same period.

However, despite all the challenges, many players in the industry are hopeful that the sector will continue on its growth trajectory.

"Growth continues to be strong on the back of macro trends of digital acceleration and cloud adoption," said Vinay Mony, vice president of analytics and technology services business Ugam, a Merkle company.

He said he remained hopeful that a global recession might not be as deep or as widespread as some fear.

While many sectors were battered by the impact of the Covid-19 pandemic and some are still on the path to recovery, India's IT sector proved to be relatively resilient. It gained from companies increasingly adopting digital strategies amid remote working and consumers' greater dependence on technology.

"One such industry which has only seen growth is the IT industry, with digital transformation being the key driver for its growth," says Radha Basu, founder and chief executive of iMerit, an artificial intelligence data solutions company.

"The ongoing trends in the Indian IT ecosystem in areas like the metaverse, 5G, artificial intelligence, drone and satellite imagery capabilities to collect data … are shaping the future of technology and present a wider scope for the growth in the industry in the coming years," she said.

Mr. Mony said that one of his main concerns was the battle for staff in the sector.

"Talent supply still remains the biggest bottleneck, with an ongoing talent war to meet this demand," he said.

Others in the sector echo Mr. Mony's view.

"Yes, it is definitely challenging to find the right talent for a job opening," said Ms Iyengar.

The IT sector's costs have been increasing as employers try to attract and retain skilled staff.

Daya Prakash, founder of TalentOnLease, which works with IT clients to help them find skilled employees, said numerous factors were leading to staffing issues in the sector, as companies globally increase their adoption of technology, fuelling demand for technology and software professionals in India.

"Among the factors that make it difficult to recruit new employees are international employment giving local candidates access to opportunities abroad, lack of trained personnel in skills in demand, including artificial intelligence and machine learning, virtual reality, IoT, robotics, data analytics, cloud and security, to name a few," said Mr. Prakash.

The rapid growth of India's start-up sector, which is attracting high levels of funding, is only adding to the fierce competition for skilled IT workers, he said.

As companies gear up for further growth in the years to come, despite concerns that a recession may be ahead, Mr. Prakash and many IT leaders see staffing as a growing obstacle.

Earnings at major securities firms here appear to have plummeted in the first half of this year, as steep rate hikes and fears of an economic downturn deterred the influx of capital into the local stock market.

Korea's top 10 brokerages, including Mirae Asset Securities, Korea Investment & Securities and Samsung Securities, are estimated to have chalked up a combined net profit of 2.68 trillion won ($2.05 billion) between January and June, down 42.4 percent from a year ago, according to industry data.

Most of them suffered drastic earnings falls due to a drop in their stock trading commission profits. The uncertain financial outlook here and abroad froze market sentiment. The daily transaction volume in the local stock market reached 18.47 trillion won in the first half of 2022, down 38.7 percent from a year earlier.

The benchmark KOSPI soared to a historic high of more than 3,300 points in June of last year, fueled by post-pandemic market liquidity. But with the U.S. Fed and the Bank of Korea taking aggressive steps for monetary tightening from March, the main bourse tumbled to below 2,400 points until recently.

NH Investment & Securities was among the major securities firms hit hardest by the earnings fall in the second quarter. The company reported an operating profit of 154.2 billion during the same period, down 60.8 percent from a year ago.

But market analysts said securities firms should see earnings shocks weaken in the second half, as shown by the recent stock market rebound.

"Korean stocks are showing signs of a rebound on a recent buying spree by foreign investors," Yuanta Securities analyst Kang Dae-seok said. "The KOSPI achieved a recovery to 2,523 points as of the market's close on Aug. 11, and this is a rise of 10.9 percent from a low seen early last month."

The Korean stock market will be considered by many foreign investors as an attractive investment area, as the won-dollar exchange rate is showing signs of stabilizing, according to the analyst. The U.S. dollar gained ground against the Korean won, with the exchange rate hitting this year's new high of more than 1,320 last month. But it has since declined to around 1,300 won per dollar.

The Democratic Republic of Congo is offering crypto firms an opportunity to bid for oil and gas exploration areas.

This auction comes as western governments desperate to shore up additional oil production call on the African nation to boost its output.

Minister of Hydrocarbons Didier Budimbu said that auctioning off the exploration areas could generate the income necessary for building schools, offices, and road infrastructure. He added that it was his nation's prerogative to exploit its natural resources as a sovereign country.

The central African nation has concentrated its oil and gas operations on exploration blocks lining its west coast. It produces about 25,000 barrels of crude oil per day.

Calls for greater output came after U.S. president Joe Biden visited Saudi Arabia in the wake of the Russia-Ukraine war to convince leaders to pump more oil. Corruption and environmental concerns held back further exploration in the DRC.

But now, the hydrocarbons minister says nothing will stop the country from auctioning off tracts of environmentally significant land in the Virunga National Park and a major carbon sink, the Curvette Central.

While the auction is geared toward oil and natural gas giants, Budimbu said that the country would accept bids from crypto and carbon-credit firms provided the companies had reliable financial support.

Flowcarbon, a company co-founded by disgraced WeWork co-founder Adam Neumann, is interested in the project. Flowcarbon aims to issue tokens to companies purchasing carbon credits, which can be burned when a company retires its credits. Last month, the company announced a delay in the token launch due to current market conditions.

Project developers issue carbon credits to major companies looking to offset their carbon emissions. The sale of one carbon credit is a pledge that the company.

With the DRC block auction in mind, Flowcarbon amassed staff and resources to operate RedemptionDAO, a decentralized autonomous organization dedicated to buying an auctioned block for issuing "avoided emissions" credits. While the DAO hopes to raise $50 million, it has thus far amassed only $2.57 million with $74,000 in pledges. Contributions and pledges were made in USDC, a type of crypto stablecoin pegged to the U.S. dollar. The DAO has until February 2023 to raise funding.

While Flowcarbon was an early proponent of carbon-credit tokenization, no precedent exists for bringing avoided oil and gas exploration credits to market. According to analysts, developing such a method could take up to two years. Furthermore, one analyst pointed out that companies involved in the business could soon face cash flow problems, considering the high cost of acquiring blocks.

KlimaDAO and Toucan Protocol Association began tokenizing carbon credits in 2021, creating a supply-and-demand market with greater price transparency.

Whether or not Tehran and Washington accept a European Union "final" offer to revive the 2015 Iran nuclear deal, neither is likely to declare the pact dead because keeping it alive serves both sides' interests, diplomats, analysts and officials said.

Their reasons, however, are radically different.

For U.S. President Joe Biden's administration, there are no obvious or easy ways to rein in Iran's nuclear program other than the agreement, under which Iran had restrained its atomic program in return for relief from U.S., U.N. and EU economic sanctions.

Using economic pressure to coerce Iran to further limit its atomic program, as Biden's predecessor Donald Trump attempted after abandoning the deal in 2018, will be difficult when countries such as China and India continue to buy Iranian oil.

The rise in oil prices brought on by Russia's invasion of Ukraine and Moscow's public support for Tehran have thrown Iran economic and political lifelines that have helped to convince Iranian officials that they can afford to wait.

"Both sides are happy to endure the status quo," said a European diplomat who spoke on condition of anonymity.

"We are in no rush," said a senior Iranian official who spoke on condition of anonymity.

"We are selling our oil, we have reasonable trade with many countries, including neighboring countries, we have our friends like Russia and China that both are at odds with Washington ... our (nuclear) program is advancing. Why should we retreat?"

When Trump reneged on the deal he argued it was too generous to Iran and he reimposed harsh U.S. sanctions designed to choke off Iran's oil exports as part of a "maximum pressure" campaign.

After waiting about a year, Iran began violating the deal's nuclear restrictions, amassing a larger stockpile of enriched uranium, enriching uranium to 60% purity - well above the pact's 3.67% limit - and using increasingly sophisticated centrifuges.

After 16 months of fitful, indirect U.S.-Iranian talks, with the EU shuttling between the parties, a senior EU official on Aug. 8 said they had laid down a "final" offer and expected a response within "very, very few weeks."

Regional diplomats said the EU told the parties it expected an answer on Aug. 15, though that has not been confirmed. There are no signs if Iran intends to comply or to accept the draft EU text. The United States has said it is ready to quickly conclude a deal based on the EU proposals, is studying the text and will respond "as asked."

"The Ukraine war, high oil prices, the rising tension between Washington and China, have changed the political equilibrium. Therefore, time is not of the essence for Iran," said a second senior Iranian official.

After months of saying time was running out, U.S. officials have changed tack, saying they will pursue a deal as long as it is in U.S. national security interests, a formulation with no deadline.

Biden, a Democrat, is sure to be criticized by Republicans if he revives the deal before the Nov. 8 midterm elections in which his party could lose control of both houses of Congress.

"If the Iranians tomorrow came in and said, 'OK, we'll take the deal that's on the table,' we would do it notwithstanding the midterms," said Dennis Ross, a veteran U.S. diplomat now at the Washington Institute for Near East Policy.

"It's not like the administration is out there touting this as a great arms control deal. Their position is that it's the least bad of the alternatives that are available," he added.

While Biden has said he would take military action as a last resort to keep Iran from getting a nuclear weapon, Washington is loathe to do so given the risk of sparking a wider regional war or of Iran attacking the United States or its allies elsewhere.

Domestic criticism of the administration is likely to be fiercer after last week's indictment of an Iranian man on U.S. charges of plotting to kill former White House national security adviser John Bolton and the knife attack on novelist Salman Rushdie. The writer has lived under an Iranian fatwa, or religious edict, calling on Muslims to kill him for his novel "The Satanic Verses," viewed by some as blasphemous.

The lack of better policy options for Washington, and Tehran's view that time is on its side, could leave the deal dangling.

"Both the US and Iran have compelling reasons to keep the prospect of a deal alive, even though neither appears willing to make the concessions that would actually facilitate its revival," said Eurasia Group analyst Henry Rome.

"It is unclear whether Iranian leaders have decided not to revive the deal or have not made a definitive decision, but either way, continuing this limbo period likely serves their interests," Rome said.

"The fact that the West has long threatened that time was running short has likely undermined its credibility in insisting that the deal on the table is final and non-negotiable," he said.