By Jonathan Landay

WASHINGTON (Reuters) - The United States must prepare for possible simultaneous wars with Russia and China by expanding its conventional forces, strengthening alliances and enhancing its nuclear weapons modernization program, a congressionally appointed bipartisan panel said on Thursday.

The report from the Strategic Posture Commission comes amid tensions with China over Taiwan and other issues and worsening frictions with Russia over its invasion of Ukraine.

A senior official involved in the report declined to say if the panel's intelligence briefings showed any Chinese and Russian nuclear weapons cooperation.

"We worry ... there may be ultimate coordination between them in some way, which gets us to this two-war construct," the official said on condition of anonymity.

The findings would upend current U.S. national security strategy calling for winning one conflict while deterring another and require huge defense spending increases with uncertain congressional support.

"We do recognize budget realities, but we also believe the nation must make these investments," the Democratic chair, Madelyn Creedon, a former deputy head of the agency that oversees U.S. nuclear weapons, and the vice chair, Jon Kyl, a retired Republican senator, said in the report's preface.

Addressing a briefing held to release the report, Kyl said the president and Congress must "take the case to the American people" that higher defense spending is a small price to pay "to hopefully preclude" a possible nuclear war involving the United States, China and Russia.

The report contrasts with U.S. President Joe Biden's position that the current U.S. nuclear arsenal is sufficient to deter the combined forces of Russia and China.

The arsenal's makeup "still exceeds what is necessary to hold a sufficient number of adversary targets at risk so as to deter enemy nuclear attack," the Arms Control Association advocacy group said in response to the report.

"The United States and its allies must be ready to deter and defeat both adversaries simultaneously," the Strategic Posture Commission said. "The U.S.-led international order and the values it upholds are at risk from the Chinese and Russian authoritarian regimes."

Congress in 2022 created the panel of six Democrats and six Republicans to assess long-term threats to the United States and recommend changes in U.S. conventional and nuclear forces.

The panel accepted a Pentagon forecast that China's rapid nuclear arsenal expansion likely will give it 1,500 nuclear warheads by 2035, confronting the United States with a second major nuclear-armed rival for the first time.

The Chinese and Russian threats will become acute in the 2027-2035 timeframe so "decisions need to be made now in order for the nation to be prepared," said the 145-page report.

The report said the 30-year U.S. nuclear arms modernization program, which began in 2010 and was estimated in 2017 to cost around $400 billion by 2046, must be fully funded to upgrade all warheads, delivery systems and infrastructure on schedule.

Other recommendations included deploying more tactical nuclear weapons in Asia and Europe, developing plans to deploy some or all reserve U.S. nuclear warheads, and production of more B-21 stealth bombers and new Columbia-class nuclear submarines beyond the numbers now planned.

The panel also called for boosting the "size, type, and posture" of U.S. and allied conventional forces. If such measures are not taken, the United States "will likely" have to increase its reliance on nuclear weapons, the report said.

Thursday, October 12, 2023 - U.S. mortgage rates have climbed for the fifth successive week amid market and geopolitical uncertainty, reaching an average of 7.57% for a fixed 30-year mortgage, the highest level since late 2000, according to Sam Khater, Freddie Mac 's chief economist. This marks a 0.08 percentage point increase from last week's average of 7.49%.

Despite robust economic and income growth, significant affordability issues continue to plague the housing market, resulting in a three-decade low in purchase demand. The surge in home prices coupled with escalating mortgage rates has deterred many potential buyers. Yet, those relocating from high-cost areas to more affordable regions remain active participants in the market.

In the context of the current market, Freddie Mac (FMCC (OTC:FMCC)) has shown some interesting financial metrics. According to real-time data from InvestingPro, Freddie Mac has a market cap of 2020M USD, with a P/E ratio of 74.58, indicating a high valuation compared to earnings. The company has also demonstrated a significant return over the last three months, with a 40.23% increase in price. This aligns with an InvestingPro Tip that highlights the company's strong return over the same period.

In addition to this, there has been a notable rise in applications for adjustable-rate mortgages (ARMs), with a 15% application surge last week as buyers seek to decrease their short-term monthly payments amidst rates exceeding 7%. Bob Broeksmit, president of the Mortgage Bankers Association, pointed out that the average interest rate on 5/1 ARMs was at a considerably lower 6.33% last week.

The PMMS survey by Freddie Mac focused on conventional home purchase loans for borrowers who put down 20 percent and have excellent credit. It revealed that the 15-year fixed-rate mortgage (FRM) also increased to an average of 6.89 percent from last week's 6.78 percent.

Lawrence Yun, the National Association of Realtors’ chief economist, expects mortgage rates might reach 8% soon and stay at that level through the end of the year. Freddie Mac continues to promote liquidity, stability, affordability, and equity in the housing market through all economic cycles since 1970. This commitment is reflected in the company's high earnings quality, with free cash flow exceeding net income, as pointed out by another InvestingPro Tip.

Freddie Mac's Chief Economist Sam Khater has been closely monitoring these trends and can provide further insights. Angela Waugaman, a representative of Freddie Mac, is also available for additional information at (703)714-0644 or [email protected]. Freddie Mac maintains a strong presence across various social media platforms.

For more detailed insights and tips on Freddie Mac and other companies, consider checking out InvestingPro's premium service, which includes numerous additional tips for a variety of companies. Find out more at InvestingPro Pricing.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

By Andrea Shalal

MARRAKECH, Morocco (Reuters) - World Trade Organization chief Ngozi Okonjo-Iweala said she hoped the Israel-Hamas conflict could be ended quickly, warning it would have a "really big impact" on already weak global trade flows if it widened throughout the region.

Okonjo-Iweala, in Morocco for this week's annual meetings of the International Monetary Fund and World Bank, said Middle East violence could add to factors throttling trade growth, including higher interest rates, a strained Chinese property market and Russia's war in Ukraine.

"We hope this ends soon and it's contained. Our biggest fear is if it widens, because that will then have a really big impact on trade," she said in an interview. "Everybody's on eggshells and hoping for the best."

Okonjo-Iweala said global uncertainty was already limiting growth in trade, but that would be exacerbated by the sudden onset of war between Israel and the Islamist Hamas group that controls the Gaza Strip

"There is uncertainty about whether this is going to spread further to the whole region, which could impact very much on global economic growth," she said. "We hope it will end because it does create this uncertainty. It's another dark cloud on the horizon."

The Geneva-based trade body last week halved its growth forecast for global goods trade this year, citing persistent inflation, higher interest rates, the slowing Chinese economy and the war in Ukraine.

The WTO said merchandise trade volumes would increase by just 0.8% in 2023, compared with its April estimate of 1.7%.

For 2024, it said goods trade growth would be 3.3%, a forecast virtually unchanged from its April estimate of 3.2%.

The 164-member organization repeated its warning that it saw some signs of trade fragmentation linked to global tensions, but no evidence of a broader de-globalization that could threaten its 2024 forecast.

By Uditha Jayasinghe

COLOMBO (Reuters) -Sri Lanka has reached an agreement with the Export-Import Bank of China to cover about $4.2 billion of the island nation's outstanding debt, its finance ministry said in a statement on Thursday.

Sri Lanka is struggling with its worst financial crisis in more than seven decades after its foreign exchange dwindled to record lows, forcing the country to default on its foreign debt last May.

China is Sri Lanka's largest bilateral creditor, owing about $7 billion.

Sri Lanka started negotiating with its bondholders and key bilateral creditors including China, Japan and India last September, parallel to moving forward on a $2.9 billion bailout from the International Monetary Fund (IMF).

The agreement with China EXIM Bank will assist Sri Lanka in getting past the first review of the IMF programme in the coming weeks and in securing the release of the second IMF tranche of about $334 million, the statement said.

"This agreement constitutes a key milestone in Sri Lanka’s ongoing efforts to foster its economic recovery,” the statement added. "In the next few weeks, the Sri Lankan authorities and China EXIM bank will actively work on formalizing and implementing the agreed parameters of the debt treatment."

A debt rework deal between Sri Lanka and countries including Japan, India and France was expected this week. But those countries and the IMF were surprised on Tuesday when Sri Lanka made a deal with China.

Japan, France and India, which are co-chairs of a creditor committee for Sri Lanka, may need to see details of the agreement Sri Lanka has made with China EXIM Bank to proceed with debt restructuring negotiations.

SEOUL (Reuters) - South Korea's household borrowing grew in September for a sixth straight month, but by a smaller amount than the month before, central bank data showed on Thursday.

Total household borrowing from banks stood at 1,079.8 trillion won ($806.12 billion) at the end of September, up 4.9 trillion won from end-August, according to the Bank of Korea (BOK).

The rise was smaller than the 6.9 trillion won increase in August and it also marked the first slowdown in growth since household debt started to climb in April.

Growth in mortgage loans softened as financial institutions tightened loan criteria, while other loans fell at a faster pace due to seasonal factors such as holiday bonuses, the BOK said.

($1 = 1,339.5000 won)

(Reuters) - Goldman Sachs Group (NYSE:GS) sued Malaysia in a UK court on Wednesday, as tensions escalate over a settlement agreement on the bank's role in the multi-billion dollar 1MDB corruption scandal.

"Today, we filed for arbitration against the Government of Malaysia for violating its obligations to appropriately credit assets against the guarantee provided by Goldman Sachs in our settlement agreement and to recover other assets," a spokesperson for the bank told Reuters.

The arbitration has been filed with the London Court of International Arbitration, a source told Reuters. The lawsuit was earlier reported by Bloomberg News.

The office of Malaysian Prime Minister Anwar Ibrahim and the Attorney General's Chambers did not immediately respond to a request for comment.

The lawsuit comes less than two months after Anwar threatened to take Goldman to court.

The two sides are in disagreement over a 2020 settlement agreement, in which Goldman Sachs had agreed to pay $3.9 billion to settle Malaysia's criminal probe over its role in the scandal.

Goldman is also required to make a one-time interim payment of $250 million if the Malaysian government has not received at least $500 million in assets and proceeds by August 2022, the bank said in a regulatory filing earlier this year.

The two parties disagreed over whether Malaysia recovered at least $500 million as of August 2022 and whether any interim payment was due, Goldman has said.

Malaysian and U.S. authorities estimated $4.5 billion was stolen from sovereign wealth fund 1MDB in an elaborate scheme that spanned the globe and implicated high-level officials in the fund, former Malaysian Prime Minister Najib Razak, Goldman staff and others.

Prosecutors have said Goldman helped 1MDB raise $6.5 billion through bond sales, and earned $600 million in fees.

The United States has been returning funds it has recovered from seized assets that were allegedly bought with stolen 1MDB money.

By Tim Kelly

TOKYO (Reuters) - Most Japanese companies expect a slowdown in China's economy to persist into 2025, with nearly two thirds of firms that operate there looking to shift some production elsewhere in search of sales in other markets, according to a Reuters monthly poll.

That cautious outlook comes even though recent data suggests that an economy weighed down by infrastructure project debt and a downturn in property values has bottomed out. China's factory activity in September expanded for the first time in six months, with sales growth accelerating in August.

Of 502 major Japanese companies surveyed by Reuters, 52% said they expected the slowdown in China to continue into 2025, with 17% predicting weaker economic growth to persist until the end of 2024. Only 5% said they expected a rebound by the end of the first quarter next year.

"Cargo shipments are stagnant, and it's difficult for cargo handlers to take measures to tackle that," a representative from a transport company said, on condition the company was not identified.

More than two thirds of household wealth in China is tied up in the property market, and with youth unemployment rising, consumers and companies have been reluctant to spend.

Analysts polled separately by Reuters last month, predicted the World's No. 2 economy will grow by 5% this year and by 4.5% next year.

China is Japan's biggest trading partner. The value of that cross-border economic activity jumped 14% to 43.8 trillion yen ($294 billion) last year, according to the Japanese government. Japanese companies also operate from more than 31,000 locations in the country.

Some 45% of the firms that responded to the survey said the slowdown in China had affected their businesses. In addition to those companies shifting production out of China, 12% said they were curbing capital investment there.

In Japan, 86% of the companies said they want Prime Minister Fumio Kishida to boost the economy with a stimulus package worth more than 10 trillion yen, with nearly a fifth calling for at least 30 trillion yen of spending, including on measures to tackle price rises and to help companies raise wages.

"Priority should be given to creating an environment where wages can be increased over the medium to long term on the assumption that prices will continue to rise," said a manager at a wholesaler.

The Reuters Corporate Survey, conducted for Reuters by Nikkei Research between Sept. 27 and Oct. 6, canvassed 502 big non-financial Japanese firms.

They were polled on condition of anonymity, allowing respondents to speak more freely.

($1 = 148.8700 yen)

By Andrea Shalal and David Lawder

MARRAKECH, Morocco (Reuters) - U.S. Treasury Secretary Janet Yellen said the unprecedented attacks on Israel by Palestinian Islamist group Hamas posed additional risks to an already tepid global economic outlook, but the United States still appeared headed for a soft landing.

Yellen joined other top financial leaders in condemning Saturday's massive incursion into Israel from Gaza launched by Hamas and pledged Washington's strong support for Israel "in any way that's necessary."

Israel's declaration of war on Hamas and its pounding of Gaza following Saturday's devastating attack hung over the annual meetings of the International Monetary Fund and World Bank in Marrakech, Morocco, although the world's top financial experts said it was too soon to draw clear conclusions.

The sudden outbreak of war in the Middle East added a further risk factor to a global economy already strained by increasing economic fragmentation into two blocs led by the United States on one hand, and China and Russia on the other.

"The world has become more shock-prone, with increased risks to growth, development, jobs, and living standards that widen inequalities within and across countries," the IMF and World Bank, joined by Morocco's finance minister and central bank governor, said in a "Marrakech Proclamation" on Wednesday.

"We need to stand together, united in the goal of protecting our future prosperity and ending extreme poverty."

INFLATIONARY IMPACT

IMF first deputy managing director Gita Gopinath said the war could hit the economy if it expanded. "If it turns into a wider conflict and that causes oil prices to go up, that does have an effect on the economies," she told Bloomberg Television, adding that a 10% increase in oil prices could depress global output 0.15 percentage point the following year.

In its latest World Economic Outlook, released on Tuesday, the IMF left its forecast for global real GDP growth in 2023 unchanged at 3.0% but cut its 2024 forecast to 2.9% from its July forecast of 3.0%. World output grew 3.5% in 2022.

Yellen told a news conference that funding for Ukraine and "resources" for Israel were an "absolute top priority" for the Biden administration, a message also aimed at assuaging concerns that the Gaza war would siphon off resources urgently needed by Kyiv to advance its fight against Russia's invasion.

In Washington, the White House described active discussions with Congress about additional funding for Israel and Ukraine.

Crude oil prices jumped and safe-haven currencies like the yen rose as Israeli warplanes bombed Gaza neighborhoods ahead of a potential ground offensive and a U.S. aircraft carrier strike group arrived in the eastern Mediterranean Sea.

Yellen acknowledged the potential impact of exogenous shocks on the global economy, including Russia's invasion of Ukraine in February 2022, but downplayed the potential for the Gaza war to batter the global economy.

"Thus far, I don't think we've seen anything suggesting it would be very significant," she said, adding that she continued to expect a soft landing for the U.S. economy.

"Of course the situation in Israel causes additional concerns. I'm not saying soft landing is an absolutely sure thing. But I continue to think it's the most likely path," due to the resilience in the labour market and moderating wage pressure, Yellen told a briefing.

World Bank President Ajay Banga told a separate news conference the conflict would complicate the global economy's path: "I believe that wars are completely, extremely challenging for central banks who are trying to find their way through a very difficult situation, to a relatively soft landing."

SANCTIONS OPTION

Yellen said she had nothing to announce on whether the United States would impose new sanctions on Iran if evidence emerged that the country was involved in the attack, and said Washington also had sanctions in place on Hamas and Hezbollah.

"This is something that we have been constantly looking at, and using information that becomes available to tighten sanctions," she said. "We will continue to do that."

Asked whether Washington could reverse its decision to unfreeze $6 billion in Iranian funds as part of a U.S.-Iran prisoner swap in September, Yellen said those funds had not yet been touched, and Washington was keeping its options open.

"These are funds that are sitting in Qatar that were made available purely for humanitarian purposes, funds that have not been touched. I wouldn't take anything off the table in terms of future possible actions."

U.S. Secretary of State Antony Blinken has said he had "not yet seen evidence that Iran directed or was behind this particular attack, but there’s certainly a long relationship."

The World Bank's chief economist has issued a warning about an impending global economic slowdown, primarily driven by high public and private debt levels accumulated in the aftermath of the Covid pandemic. The warning was issued on Wednesday, indicating that developing countries with high debt, like India, could be significantly affected.

The economist also raised concerns about the impact of rising US interest rates on countries that have borrowed internationally. This situation, coupled with slower trade growth and escalating global protectionist measures, could pose severe challenges for the global economy. The potential for oil crises further exacerbates these risks.

The urgency of managing inflation was emphasized, particularly in developing countries where its effects can be most damaging. The economist warned that unchecked inflation could derail economic recovery efforts and lead to instability.

Despite the overall concerns, the chief economist appreciated India's robust economic management over the past decade. He noted India's progress in infrastructure development, technological innovation, and effective implementation of Goods and Services Tax (GST) reforms. However, he criticized India's high debt-to-GDP ratio and its low female labor force participation rate, which is only half of China's.

The economist expressed disappointment over India's failure to capitalize on the "China Plus One" strategy. This strategy encourages businesses to diversify their supply chains by adding another country alongside China as a trading partner, thereby boosting trade. The inability to leverage this opportunity could limit India's potential economic growth.

In conclusion, the World Bank's chief economist urged nations to address high debt levels and manage inflation effectively to mitigate the risk of a global economic slowdown. He stressed that timely action is critical to ensure sustainable economic recovery and growth.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

In the wake of escalating operational risks and retaliatory measures from China, G7 nations, along with businesses such as Dell (NYSE:DELL), Apple (NASDAQ:AAPL), HP (NYSE:HPQ), and Mattel (NASDAQ:MAT), have started shifting their supply chains from China to friend-shoring and nearshoring countries like India, Thailand, Vietnam, Mexico, and Canada. This significant shift has been observed on Wednesday.

The retaliatory measures from China have had a profound impact on companies such as Micron Technology (NASDAQ:MU) and led to an iPhone ban, resulting in a sales decline for US brands since 2018. Notably, GM experienced a significant market share drop due to these developments.

De-risking efforts have inadvertently increased operational risks such as supply chain complexity and lack of transparency. Companies like South Korea’s SK Hynix and Boeing (NYSE:BA) have been affected by these challenges. Boeing's 787 aircraft production has faced setbacks due to these complications.

To mitigate the potential fallouts of this shift, several measures have been put in place. Government support has been extended in the form of the $52.7 billion US Chips Act subsidies. International agreements like the Indo-Pacific Economic Framework and CPTPP have also been implemented to help navigate these changes.

Another significant factor influencing supply chain decisions is the US Uyghur Forced Labor Protection Act. The legislation has further complicated the global supply chain landscape, adding another layer of consideration for companies as they make strategic decisions about their operations.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.