As we enter the last month of 2023, we take a look at recent news items that have appeared in this year’s final few weeks. We begin with the notable developments coming out of the COP28 climate summit hosted in Dubai. Next, we look at investors’ sentiments around the prospect of the Federal Reserve and other major central banks beginning interest rate cuts next year. Then, we examine the negative outlook on China’s credit rating from Moody’s and the perspective from Beijing. We also study the fate of Gaza’s civilians in Israel’s offensive against Hamas in the strip. Finally, we end this week’s newsletter with an examination of the late Henry Kissinger’s controversial legacy.

Significant Developments from COP28

Fossil fuel companies sign up to emissions reduction pact at COP28

Kenza Bryan, Simeon Kerr, Myles McCormick, & Attracta Mooney, Financial Times

COP28 Scores Early Win With $260 Million For Climate Damages

Jennifer Dlouhy & John Ainger, Bloomberg

Fifty of the largest fossil fuel companies announced their promise to reduce their own emissions by the middle of the century during the COP28 climate summit in Dubai. The group includes names such as ExxonMobil, TotalEnergies, BP, and Shell, along with state-owned energy firms. The group, which represents about a third of global oil and gas production, also promised to stop the flaring of excess gas and to work towards eliminating methane leaks by 2030. Despite the big promises, the pledge only covers about 15% of the total greenhouse gas emissions the energy sector contributes to global warming. Other commitments made included pledges to invest in renewable energies and other low-carbon solutions.

Another big piece of news coming from COP28 is that almost 200 countries have agreed on the terms of a fund that would help countries vulnerable to the negative effects of climate change deal with the damage. Rich countries committed $260 million to kickstart the program. The fund is to be hosted by the World Bank, and contributions so far have been made by the UAE ($100 million), Germany ($100 million), the UK ($50 million), and Japan ($10 million). John Kerry, the Biden administration’s climate czar, said that US President Joe Biden would work with Congress to contribute $17.5 million. The fund is expected to begin disbursing money next year.

Markets Hopeful for Rate Cuts

Markets Hopeful for Rate Cuts

Global Bonds Head for Best Month Since 2008 Financial Crisis

Garfield Reynolds, Bloomberg

Wall Street ‘fear gauge’ tumbles as investors spy end of Fed’s inflation fight

George Steer, Financial Times

Global bonds are doing their best since 2008, according to a Bloomberg gauge of global sovereign and corporate debt, which returned 4.9% in November. The boost is largely due to increasing expectations that the Federal Reserve and other central banks have finished raising interest rates and will begin lowering them in 2024. While the market has priced in quick rate cuts, some analysts believe such prospects are unrealistic; for example, the European Central Bank’s hawkishness on inflation may signal that rates will only start going down by the end of 2024.

The Wall Street ‘fear gauge’, a measurement of US stock market volatility called the VIX, has also fallen significantly in the face of expected interest rate cuts. The gauge is down to 12.4 this week from a high of over 20 in late October, its lowest since November of 2019. Traders are beginning to believe that the Federal Reserve will pull off a soft landing for the US economy, with interest rate hikes being just enough to lower inflation but not having gone overboard to induce a recession. American consumers have been resilient and corporate earnings in Q3 were healthy. However, some analysts warn that there are still too many ‘unknown unknowns’ to be too sure of a soft landing for the US economy.

China’s Financial Troubles

China’s Rising Debt Spurs Moody’s to Lower Credit Outlook

Keith Bradsher, The New York Times

The Future of China’s Financial System

Andrew Sheng & Xiao Geng, Project Syndicate

Moody’s credit ratings agency has downgraded China’s credit outlook, issuing a negative report on Beijing’s financial health. The agency’s main concern was the cost of bailing out over-borrowed local governments to the national government and has said that the country’s economy is settling into a long-term trend of slower growth as its property sector shrinks. However, this is only a credit rating outlook – not a downgrade of the credit rating itself. Moody’s kept China at the A1 level, which represents the middle of the scale for investment-grade risk. A negative outlook on a credit rating can signal that the A1 rating may not last. Ultimately, a credit downgrade is not likely to change much for China as it doesn’t rely on overseas borrowing and instead sells bonds to its own state-owned banks.

In the face of this downturn, China held its first Central Financial Work Conference since 2017 in Hong Kong last month. The conference is Beijing’s highest-level review of the country’s financial sector, which includes the world’s largest banking system (over $53 trillion in assets) and the second-largest (behind the US) by stock-market capitalization. The government has long supported the idea that the financial sector is to serve the real economy and that the government is responsible for maintaining economic stability. Beijing has to face declining consumer sentiment and the property sector crisis, and it has concluded that, while the role of finance is still to support the real economy, the private sector must continue opening up to foreign investment and private competition to enhance growth and development prospects.

Israel-Gaza War Continues

US warns that Israel risks ‘strategic defeat’ unless it protects civilians in Gaza

Felicia Schwartz, Financial Times

Shattered Israel-Hamas truce leaves Gaza’s civilians with nowhere left to run

Mai Khaled, Heba Saleh, & Mehul Srivastava, Financial Times

US Secretary of Defense Lloyd Austin has warned Israel that it faces strategic defeat if it fails to reduce civilian casualties among Palestinians in Gaza and open humanitarian corridors. The assessment comes from lessons learned from fighting ISIS in Iraq, where the militant group was deeply embedded in the populace and where significant civilian casualties turned the populace against the US and towards ISIS. While Secretary of State Antony Blinken has recently claimed to have been shown Israeli plans to minimize civilian casualties, the execution of those plans remains to be seen. To date, as many as 15,200 Palestinian civilians – half of whom are women and children – have been killed.

As the war turns away from northern Gaza and heads south, minimizing civilian casualties has become ever more difficult. In effect, the south has become crowded with all of the refugees from the north and now houses as many as 2.3 million people with nowhere else left to run. While Israel has encouraged Egypt to open the Rafah crossing and allow refugees to flow out of Gaza into Sinai, the Egyptian government has refused, accusing Israel of attempting to remove Palestinians from Gaza. As such, Palestinians are now caught between fears of a second Nakba, or mass displacement of their people, and of imminent Israeli attack with little space to avoid being caught in the crosshairs.

Henry Kissinger

Henry Kissinger

Kissinger’s Contradictions

Timothy Naftali, Foreign Affairs

The many legends of Henry Kissinger

Edward Luce, Financial Times

Henry Kissinger was a complex man with an outsized legacy that will be hard to repeat. Reviled by some and celebrated by others, Kissinger left his mark on US policy. His outstanding achievements during the Nixon administration included the opening of China, détente with the Soviets simultaneously, and his shuttle diplomacy during the Yom Kippur War. Yet, Kissinger simultaneously argued for actions such as the bombing of Cambodia that brought the Khmer Rouge to power and the support of a brutal Pakistani response to Bangladeshi separatism during the 1970s all in service to American strategic interests as he saw them.

Still, he was a statesman who, after losing his role as Secretary of State and National Security Advisor, converted his access into business success as a consultant who oversaw lucrative retainer fees. Through this, he advised every president from John F. Kennedy through Joe Biden and even spoke with foreign dictators such as Vladimir Putin and Xi Jinping. While the sum of his legacy, then, will remain up for debate, his achievements were significant and as such, Kissinger will remain an important figure who made history as a great US statesman.