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Mexico, Nicaragua cut ties with Ecuador after embassy raid

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Mexico has severed diplomatic ties with Ecuador and vowed to take the country to international court after police broke into its embassy in the capital, Quito, and detained a former Ecuadorian vice-president who had sought refuge there after being convicted of corruption.

The right-wing government of President Daniel Noboa ordered police to enter the embassy building after Mexico’s social democratic government granted asylum to Jorge Glas, Ecuador’s vice president from 2013-18, who was recently sentenced to 14 years in prison.

Police entered the embassy late on Friday night as heavily armed soldiers stood guard outside. Video posted on social media showed two black police jeeps leaving the diplomatic compound with sirens blaring and Mexico’s acting ambassador, Roberto Canseco, shouting. “No, no, no, this is a violation, this is not possible!” Canseco said, and was forced to the ground by police.

Canseco later told reporters: “This is absolutely unacceptable. They hit me, they pushed me to the ground. I physically tried to stop them from getting in. They searched the Mexican embassy in Quito like criminals,” he said.

Mexican President Andrés Manuel López Obrador accused Ecuador of ‘flagrant violations of international law and Mexican sovereignty’ and said he had ordered the immediate suspension of diplomatic relations.

Mexican minister: Even dictator Pinochet did not dare

The 1961 Vienna Convention guarantees the inviolability of diplomatic premises, stating that ‘representatives of the receiving State may not enter them without the consent of the head of mission’. Even under military dictatorships, forced entry into an embassy by the host government was almost unheard of.

In Latin America, there has not been a serious attack on a national embassy since the 1980s. In 1980, the Spanish embassy in Guatemala City was burned down, killing 37 people, and the Colombian guerrilla group M-19 took diplomats hostage in the Dominican Republic’s embassy in Bogotá.

Mexican Foreign Minister Alicia Bárcena thanked the returning diplomats for “protecting our embassy in Quito, even at the risk of their own physical health”.

“Not even the dictator Pinochet dared to enter the Mexican embassy in Chile. They entered by force and without authorisation and physically attacked (the diplomats). We condemn this in the strongest possible terms,” he said.

Bárcena said he would take the case to the International Court of Justice ‘to denounce Ecuador’s responsibility for violations of international law’. Several Mexican diplomats were injured in the raid, the minister added.

Ecuadorian leader defends raid

Ecuadorian leader Noboa argued that the immunity and privileges granted to the diplomatic mission hosting Jorge Glas had been ‘abused’ and that his political asylum was ‘contrary to the legal framework’.

“Ecuador is a sovereign country and we will not allow any criminal to go unpunished,” Noboa added.

Glas was transferred on Saturday morning to a maximum security prison known as ‘The Rock’ in Ecuador’s main port city of Guayaquil, according to a statement from the country’s prison service. Videos posted on social media earlier showed him being transported in an armoured convoy from a detention centre in Quito.The dispute between Ecuador and Mexico has been ongoing since Glas took refuge in the embassy in December.He fled to the embassy after prosecutors published chat messages suggesting that a prominent Ecuadorian drug trafficker had been released early from a long prison sentence in 2022 after bribing a judge.

Glas was part of Correa’s team

López Obrador angered the Ecuadorian government this week by suggesting that Noboa’s election victory over a leftist opponent last year was due to his opponent being falsely accused of murdering another candidate during the campaign. Ecuador decided to expel the Mexican ambassador in response to the comments. Glas was Rafael Correa’s vice-president and was backed by Luisa González de Correa, who lost to Noboa last year. In a statement on Saturday, González called on Noboa to resign. Rafael Correa took refuge in Belgium in 2018, due to an arrest warrant issued against him on corruption charges.

Ecuador’s right-wing President Noboa

Noboa, 36, enjoys growing popularity among Ecuadorians and strong support from Washington after declaring an all-out war on drug trafficking. Born into a wealthy banana-exporting family, Noboa has used emergency powers to put troops on the streets and sent the army to take control of gang-ridden prisons – tactics borrowed in part from El Salvador’s strongman leader Nayib Bukele. Last October, Noboa announced that Israel would help him design ‘maximum security’ prisons.

Last February, Noboa approved two military cooperation agreements with the United States, including one for joint naval operations.One of the agreements allows Ecuador to conduct joint operations with the United States to combat illegal activities such as drug trafficking, arms and human trafficking, and illegal fishing.

Noboa came to power in November after President Guillermo Lasso, who was facing impeachment for embezzlement, called for early elections. Noboa will remain in office until May 2025, the remainder of Lasso’s term.

After taking office, Noboa drafted an emergency tax bill that raised the value-added tax by three percentage points to 15% and gave the green light to thousands of environmental permits for oil and mining companies, measures he said would help boost both the economy and state coffers.The new president also planned to cut petrol subsidies and liberalise the labour market to make it more employer-friendly.The Noboa government also asked the US and EU to restructure the country’s foreign debt as part of its ‘war on gangs’.

Noboa made his first visit to Washington as president-elect. Focusing on securing financing mechanisms to implement his campaign promises, Noboa met with representatives of the International Monetary Fund (IMF), the World Bank, the Organisation of American States, the US Chamber of Commerce and the Inter-American Development Bank.

Latin American nations condemn Ecuador

Condemnations from Latin American governments were not slow in coming. The governments of Cuba, Venezuela and Honduras criticised Ecuador’s actions, while Nicaragua followed Mexico in cutting diplomatic ties with Quito on Saturday.

Brazil’s foreign ministry said the raid ‘sets a serious precedent and must be firmly rejected, whatever the justification for its implementation’. The right-wing governments of Argentina and Uruguay also criticised Ecuador.

Colombia’s leftist President Gustavo Petro said Glas’s right to political asylum had been ‘barbarically violated’ and called on regional multilateral organisations, including the Organisation of American States (OAS), to take up the case.

In a statement on Saturday, the OAS General Secretariat criticised Ecuador and said it ‘rejects any action that violates or threatens the inviolability of diplomatic mission premises’. The OAS also called for ‘dialogue between the parties to resolve their differences’.

In a statement on Saturday, the US State Department condemned any violation of the Vienna Convention and said both countries were ‘important partners’.

“We encourage the two countries to resolve their differences in accordance with international norms,” it said.

AMERICA

Fed cuts interest rates, dollar surges to two-year high

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The U.S. Federal Reserve reduced interest rates by a quarter percentage point but signaled a slower pace of easing next year. This move drove the U.S. dollar to its highest level in two years and triggered a sell-off in both domestic and international stock markets.

The Federal Open Market Committee (FOMC) voted on Wednesday to lower the benchmark interest rate to 4.25–4.5%, marking the third consecutive cut. The lone dissenting vote came from Cleveland Fed President Beth Hammack, who favored maintaining the current rates.

Officials highlighted concerns about persistent inflation, projecting fewer rate cuts for 2025 than previously expected. Reflecting these worries, policymakers also raised their inflation forecasts for the coming year. Following the announcement, Fed Chair Jay Powell remarked that the current policy settings were “significantly less restrictive,” indicating the Fed’s inclination to adopt a more cautious approach to further easing.

“This decision was a ‘closer call’ than prior meetings,” Powell noted, emphasizing that inflation trends remain “sideways” while risks to the labor market are “diminishing.”

Aditya Bhave, senior U.S. economist at Bank of America, described the Fed’s message as “unabashedly hawkish.” He pointed to the shift in officials’ 2025 forecasts, which now anticipate just two quarter-point rate cuts instead of three, calling it a “wholesale shift.”

JPMorgan Chase, a key player in U.S. bond markets, noted that money markets are pricing in only a 0.31 percentage point rate cut in 2025. This outlook, significantly tighter than the bank’s earlier 0.75-point forecast, underscores the magnitude of the Fed’s policy shift.

The decision triggered a sharp sell-off on Wall Street, with the S&P 500 falling 3% and the tech-heavy Nasdaq Composite dropping 3.6%. High-profile winners of the 2024 rally were hit hard, including: Tesla, down 8.3%; Meta (Facebook’s parent company), down 3.6%; Amazon, down 4.6%.

Smaller companies, often seen as more sensitive to US economic fluctuations, also suffered. The Russell 2000 index declined 4.4%.

In Asia, stocks fell in early Thursday trading. Benchmarks in South Korea and Taiwan dropped 1.8% and 1.6%, respectively. Meanwhile, U.S. government bond prices fell, driving the yield on two-year Treasuries—sensitive to Fed policy—up by 0.11 percentage points to 4.35%.

The U.S. dollar surged 1.2% against a basket of six major currencies, reaching its strongest level since November 2022. According to Wells Fargo senior economist Mike Pugliese, the currency had already been rising on expectations of inflationary pressures following Donald Trump’s election victory last month. However, Wednesday’s Fed decision “poured more petrol on the fire.”

The South Korean won dropped to a 15-year low against the dollar, while the Japanese yen weakened 0.5%.

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AMERICA

Amazon pledges $1 billion to Trump inauguration fund

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Amazon confirmed on Thursday that it will contribute $1 million to Donald Trump’s inauguration fund, a move mirroring similar actions by other major tech companies, including Meta, the parent company of Facebook and Instagram. Amazon also plans to broadcast Trump’s inauguration via its Prime Video service.

This announcement comes as major tech executives seek to establish ties with the incoming U.S. president, despite Trump’s longstanding criticisms of Big Tech. Trump has frequently accused technology companies of censorship and bias against conservative media.

Jeff Bezos, Amazon’s founder and CEO, is reportedly planning to meet Trump at his Mar-a-Lago resort next week, according to The Wall Street Journal, which first reported Amazon’s donation. Similarly, Google CEO Sundar Pichai and Apple CEO Tim Cook have expressed their congratulations to Trump since his election victory in November.

Trump’s relationship with Amazon has been fraught with challenges. During his first term, he accused the company of undercutting competition and criticized its tax policies. In 2018, Trump ordered a review of U.S. Postal Service package pricing, claiming the agency acted as Amazon’s “courier.”

Apple, meanwhile, faces potential risks from Trump’s proposed tariff policies, which could disrupt critical supply chains in China. However, during Trump’s first term, Cook secured exemptions for certain Apple products.

Meta’s CEO, Mark Zuckerberg, and other tech leaders have also engaged with Trump. According to The Information, Zuckerberg dined with Trump after the election. Pichai is also expected to meet Trump this week.

While Trump scrutinized Big Tech during his presidency, Amazon now faces mounting regulatory pressure under President Joe Biden. The U.S. Federal Trade Commission (FTC), led by Lina Khan, has been investigating Amazon for alleged monopoly practices, with several states filing lawsuits last year. The FTC is also examining major cloud service providers, including Amazon, over partnerships in artificial intelligence.

Despite earlier conflicts, Bezos recently praised Trump for his “tremendous grace and courage under real fire” in a post on X (formerly Twitter) following an assassination attempt. Bezos, who also owns The Washington Post, reportedly prevented the newspaper from endorsing Trump’s Democratic opponent Kamala Harris in the 2024 election.

Speculation about a tacit agreement between Bezos and Trump has surfaced, allegedly tied to Blue Origin, Bezos’s rocket company competing with Elon Musk’s SpaceX.

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AMERICA

Investors poured $140 billion into U.S. equities following Trump’s victory

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Nearly $140 billion has flowed into U.S. equity funds since last month’s election, as investors anticipate Donald Trump’s administration will implement sweeping tax cuts and regulatory reforms.

According to the Financial Times (FT), which cites data from EPFR, U.S. equity funds have seen inflows totaling $139.5 billion since Trump’s victory on November 5. This surge in investment made November the busiest month for equity inflows since records began in 2000.

The massive influx of funds has driven major U.S. stock indexes to a series of record highs, as investors appeared to shrug off concerns about potential economic risks, including inflation and its implications for the Federal Reserve’s interest rate policy.

“The growth agenda that Trump has put on the table is being fully embraced,” said Dec Mullarkey, Chief Executive of SLC Management. He added that Trump’s picks for top administration posts have been seen as “very market friendly.”

Trump has promised to fill his administration with financial experts, including Scott Bessent as Treasury Secretary, and Paul Atkins, a cryptocurrency advocate, as Chairman of the Securities and Exchange Commission (SEC).

The president-elect has outlined a pro-growth agenda, emphasizing reduced taxes, deregulation, and economic expansion. These proposals have spurred optimism among investors, fueling a rally in the market.

The S&P 500, Wall Street’s primary stock market indicator, has risen 5.3% since Election Day, bringing its total gains for the year to 28%. Smaller companies, which are often seen as more responsive to changes in the U.S. economy, have outperformed larger firms during this period. The Russell 2000 index recently hit a record high for the first time in three years.

While U.S. equity funds have enjoyed record inflows, other global markets have experienced outflows emerging market funds have seen net withdrawals of $8 billion, with China-focused funds accounting for $4 billion; funds investing in Western Europe have lost $14 billion; and Japan-focused funds have seen outflows of approximately $6 billion.

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