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Kemp: Beset By Coal Shortages, India"s Power Grid Struggles To Meet Demand

Kemp: Beset By Coal Shortages, India's Power Grid Struggles To Meet Demand By John Kemp, Reuters energy analyst and reporter. India has experienced persistent electricity shortages since the start of October as power generators have proved unable to meet resurgent demand as the economy rebounds from last year's coronavirus-driven recession. The country's power crisis stems from the same mismatch between rapidly growing demand and lagging supply that is also causing electricity shortages in China and soaring gas prices across much of Europe and Asia. Generation shortages are manifesting themselves in blackouts and rotating power cuts as well as persistent under-frequency on the country's transmission system.  The crisis has been building for some weeks, first in the form of a slide in coal stocks, then a deterioration in grid frequency, and now most obviously in blackouts hitting parts of the country. Grid controllers normally aim to keep frequency steady and very close to target, minimizing the size and duration of any deviations, which can damage generators as well as customer equipment. Below-target frequency indicates there is not enough generation to satisfy the total load on the transmission system (by contrast, above-target frequency indicates there is too much generation). India has a grid frequency target of 50 cycles per second (Hertz) with controllers tasked with keeping it steady between 49.90 Hz and 50.05 Hz to maintain the network in a safe and reliable condition. But average frequency has fallen well below target since the start of October, and the shortfalls have become larger and longer, indicating a chronic shortage of generation. On Monday, the average frequency fell to just 49.96 Hz, down from 50.03 two weeks earlier, and the proportion of time spent below the minimum target increased to 21%, from less than 1%. On Oct. 7, the worst day of the power shortages so far, the average frequency dropped to just 49.93 Hz, and the grid was below its minimum target for almost 28% of the day. Transmission controllers have been forced to inflict local blackouts to prevent frequency dropping even further and threatening the overall stability of the network. On Oct. 7, the nationwide shortage peaked at 11.7 Gigawatts and the day's total unmet electricity demand hit 114 million kilowatt-hours, equivalent to almost 3% of total demand. COAL SHORTAGE Thermal power generators, most of them fuelled by coal, have proved increasingly unable to keep up with customer demand and the generation plan. Cumulative power production since the start of April has fallen 21.5 Terawatt-hours (-2.9%) behind plan, worsening from a deficit of 11.6 TWh (-2.0%) at the end of August. Thermal power generation has now fallen 21.7 TWh (3.6%) behind plan, from a deficit of 9.7 TWh (-2.0%) at the end of August. The shortfall in coal-fired generation has become so large it can no longer be covered by the above-plan output from nuclear and hydro sources. Coal-fired power plants are encountering increasing problems securing enough fuel to meet planned generation owing to a combination of fuel shortages and transport problems. Coal-fired power plants have an average of just 4 days of fuel on hand compared with 19 days in October 2020 and 12 days before the pandemic in October 2019. Coal stocks are rated critically low at 116 out of 135 generating plants (86%) across the country and those power plants account for 142 GW of generating capacity out of a total of 165 GW (86%). Fifteen power plants have less than one day of fuel on hand and another 47 have only 1-2 days fuel in their yards, according to daily reports from the Central Electricity Authority (CEA). Power producers report coal shortages are currently responsible for forced outages or some loss of production at 60 generating units across the country ("Daily maintenance report", CEA, Oct. 11). Outages and losses are reported at coal-fired units in the states of Uttar Pradesh (14), Maharashtra (11), Gujarat (7), Rajasthan (6), Chhatisgarh (6), West Bengal (5), Punjab (4), Tamil Nadu (3), Karnataka (3) and Madhya Pradesh (1). Until fuel stocks improve and more coal-fired plants are able to return to full production the electricity grid will struggle to meet high levels of power demand. * * *  What's worse, the energy crisis rippling worldwide could be doomed to repeat in the US. For more on that, read: "Energy Crisis May Unleash Winter Blackouts Across US, Insider Warns."  Tyler Durden Wed, 10/13/2021 - 19:25.....»»

Category: blogSource: zerohedgeOct 13th, 2021

What the Labor Movement Needs to Keep ‘Striketober’ Going, According to New AFL-CIO Leader Liz Shuler

(To receive weekly emails of conversations with the world’s top CEOs and business decisionmakers, click here.) As a burgeoning labor shortage precipitated 10 million job openings and millions of Americans voluntarily leaving their jobs in August, AFL-CIO Secretary-Treasurer Liz Shuler was handed an extraordinary job at the nation’s largest labor union federation: Running it. She… (To receive weekly emails of conversations with the world’s top CEOs and business decisionmakers, click here.) As a burgeoning labor shortage precipitated 10 million job openings and millions of Americans voluntarily leaving their jobs in August, AFL-CIO Secretary-Treasurer Liz Shuler was handed an extraordinary job at the nation’s largest labor union federation: Running it. She was elected to fill the shoes of former AFL-CIO President Richard Trumka, a beloved third-generation coal miner who cemented strong ties with the last two Democratic Presidents and with the federation’s roughly 12.5 million members between 2009 and his unexpected death from a heart attack in August. [time-brightcove not-tgx=”true”] Shuler wasn’t merely taking the reins during a once-in-a-century pandemic, but also in the midst of a revolutionary inflection point, where workers are emboldened by nationwide labor shortages to exact better wages, hours and general working conditions from their employers. As a record-breaking 4.3 million laborers voluntarily quit, swaths more decided not to resign for better opportunities elsewhere—but to strike for them at their current jobs. Tens of thousands of cameramen, makeup artists, lighting technicians and other behind-the-scenes television show professionals represented by the International Alliance of Theatrical Stage Employees (IATSE) have threatened to strike for bigger profit shares from the streaming boom and more humane hours, in an effort that could result in the largest coordinated labor action in Hollywood since World War II. More than 10,000 United Auto Workers members from 14 John Deere facilities have walked off their job sites after rejecting the agricultural behemoth’s latest union contract offer. Over 14,000 workers from cereal giant Kellogg’s have been picketing for weeks over what they call an unfair, two-tier system of benefits. Meanwhile, more than 20,000 Kaiser Permanente employees authorized a strike earlier this month, and thousands more Nabisco workers recently returned to work after successfully striking for higher pay. “They’ve had enough,” Shuler says of the season, which many have dubbed “Striketober.” But as ripe as the current labor market conditions are for successful strikes, the current moment is also a critical juncture for the future existence of the very labor unions that make such revolts possible. Private sector union membership has fallen from roughly 32% in 1960 to 6% today, and stands to decline even more as older generations—who are more likely than younger ones to be in unions—near retirement age. “This is the challenge of our time. Something like 10,000 people a day are retiring,” Shuler says, “and that silver tsunami is about to hit us.” Shuler spoke with TIME about what the workers participating in this historic wave of strikes are fighting for, how union membership can help them get it, and what the AFL-CIO is doing to bolster its ranks—especially with young people—to preserve its collective bargaining power in the decades to come. (This interview has been condensed and edited for clarity.) It’s Striketober! Tens of thousands of workers have voted to authorize strikes in recent weeks, building on a year of extraordinary labor activism. A strike database from Cornell University shows more than 250 strikes have taken place since the start of this year. As the brand new chief of one of the biggest unions in the country, how do you capitalize on this momentum? I’m glad you actually started from the beginning, because this is a moment in time, but it’s been building for a while. And everywhere we go, every person we talk to on those picket lines are just fed up. I think if you could sum it up, it’s just that they’ve had enough. We have over 30 strikes happening right now. Around 100,000 workers are either on strike or have authorized a strike at this moment, and so it’s the culmination of going through this pandemic, where workers were told they were essential, and now are being treated as expendable. They’ve sacrificed so much, and then now are faced with takeaways, and a basic lack of respect and recognition. And so it’s both economic forces at play here with a broken economic system—wages have been flat for so long—and the growing gulf that we’re seeing in the economy, but also just the recognition, the basic respect of being able to come to a workplace, have a decent paying job, have safety protections from a pandemic, and be able to return home safely at night back to their families. But at the same time, overall union membership is still roughly half of what it was in the 1980s. Do you think that this current wave of labor activism marks an inflection point of a possible union resurgence? Yes, the answer is absolutely yes. And if anything, working people in the country are now seeing the labor movement in a different way, we’re more relevant than we’ve ever been before. We’re more popular than we’ve ever been. You probably have seen the recent polling—68% of the public supports unions, 77% of young people [do]. They see unions fighting for change, and they see us out there fighting for better jobs. And so we do believe this is a moment where working people are feeling their power, and they’re ready to take risks and stand up more than ever before, because they’ve been the victims of a broken economic system for far too long. And we do have a shortage of good paying sustainable jobs that give people a fair share of the wealth that they’re helping create. They’re seeing CEOs being paid, like, 351 times what the average worker is making in the economy today. We just had a meeting this morning to talk about what we can do as a labor movement to bring more solidarity and support and unity to these fights, and the full breadth and power of labor movements to bear here because this is about our future. This is about preserving the middle class, and fighting back against rollbacks that are taking us back to times where we were fighting for the weekend. And in fact, in 2021, you saw the IATSE that was about to go on strike, they were fighting for meal and rest breaks, to not have to go to work after clocking out on a Friday night and then returning to work Saturday morning, less than eight hours later. So these are basic things that we’ve been fighting for for decades, that we should be far beyond in the year 2021. Read more: U.S. Workers Are Realizing It’s the Perfect Time to Go on Strike It’s also quite a moment for you individually. What has the transition to President of AFL-CIO been like for you in the wake of Richard Trumka’s unexpected death? It’s been exactly 60 days since I was elected. And it has been quite a responsibility to both step into some big shoes and to really keep this labor movement moving forward. Because we have such an opportunity in front of us, we can’t miss a beat. We’ve got this opportunity in Congress with all the investment that is poised to pass and create millions of good, well-paying jobs. And we have workers out in the streets, taking risks and looking for change, looking for hope. And the public sentiment is with us. I think that the labor movement can be the place where working people chart a path for a new future. A bold, dynamic, inclusive labor movement is going to be the path to that change. So we want to show every working person that they have a place in the labor movement, and that we are dynamic and relevant and are ready to meet the moment for this very diverse and changing work workforce, but also the economy that’s changing around us. When you were elected to replace Trumka, you said you were “humbled, honored and ready to guide this federation forward.” What does moving the union forward mean in real terms? Is it about becoming more accessible to young people, or ramping up social media outreach more? All of those things, yes. Of course, appealing to that next generation to show them that they can see themselves in our labor movement and rising into leadership, making the change that they want in their workplaces and using the labor movement as a vehicle for that change. To show women and people of color, who were in the emerging sectors of the economy that are growing that the labor movement is a place for them and that we make the difference in workplaces and close pay gaps for women and for people of color. And that as technology is changing our workplaces and disrupting the business model, we would be the place to have a voice and a seat at the table for working people to negotiate that change, and to not be sitting back waiting for it to happen. So we think the labor movement is the place where [we can manage] the big workplace changes that are on the horizon, but also the policy changes on Capitol Hill, and then to unleash unprecedented organizing, because the bottom line is we need to grow the labor movement, and represent more people to have more strength and to make that voice even louder. And especially with young people, the marquee of millennials and Gen Z is collaboration—they’re very civic-minded. They’re used to coming together and working in teams. That just naturally translates to the labor movement. We’ve seen some extraordinary grassroots movements take center stage in recent years, such as the global school strikes led by Greta Thunberg for climate activism and the nationwide Black Lives Matter protests after George Floyd’s murder. Is AFL-CIO taking inspiration from those movements? Are there any other movements that AFL-CIO is learning from? Yes, and in fact, many of our members are either at the front leading or very much active in those movements. Our headquarters is on what’s now called Black Lives Matter Plaza. And I remember coming down many times to join those protests and walk the streets, not only in DC, but in different parts of the country. And so we are learning from those movements, because they’re very dynamic. They’re led by young people, and we have so much in common, so it makes sense for us to be joining forces. In the labor movement, we have a network of state AFL-CIO [and] city level AFL-CIO bodies in over 400 cities that can actually make activism happen. Often, we work collaboratively with these various movements and partners and allies to make the change that so many of us are hungry for. We saw the Netflix walkout. And in the past, Google walkouts over sexual harassment. These are all workplace issues. Our job is to connect the dots—the change that people are hungry for can happen more effectively through the labor movement, because we have a permanence about our structure that really doesn’t happen anywhere else. When you walk out for a day, and then you go back to work the next day, it becomes very clear that it’s not sustainable unless you have a union that gives you the legal standing to sit across a table from the employers and demand change and actually have a mechanism to enforce the policies and bargain the change that you want to see. We’re seeing a lot of young people that are using collective bargaining as a tool for non-traditional subjects of bargaining, like the carbon footprint: You raised Greta. This is something that the labor movement has front and center where there are workers who are sitting down at the table saying, ‘What can we do as an organization as a company to address climate change more forcefully as an organization?’ A lot of people don’t understand collective bargaining. It is essentially that give-and-take process with an employer to negotiate, of course, better pay and benefits and working conditions, but also some of the social issues, [such as] civil and human rights; diversity, equity, inclusion; climate change and sexual harassment. These are some of the things that folks in our society and our economy care deeply about, but they don’t necessarily see unions as the path forward. That’s our challenge is to make that case to more working people outside of unions to see us as the path forward. Union membership rates continue to be highest among workers who are 45 to 64, and much lower among the younger generations. What can AFL-CIO—and unions more generally—do to recruit and retain the younger Americans? This is the challenge of our time, something like 10,000 people a day are retiring. And that silver tsunami is about to hit us. We are very much being intentional about engaging our young members. I think having young people in leadership helps show other young people that this labor movement is modern, and dynamic, and is interested in caring about the things they care about. When I first came to the AFL-CIO, we launched our Next Step program, which is our young worker program, and put together a pretty bold initiative to address economic issues that matter to young people. We [also] created a network of young worker organizations across the country at every central labor council in our network, so that young unionists could work with young activists on the ground in their communities to fight for change. We also started young worker groups at our affiliate unions so that within each union, they are looking at investing in young people, leadership training, making sure that we’re not just waiting around for years and years so that leaders are paying their dues and [saying], ‘You can’t lead until you’ve been here for 10 or 15 years.’ That’s not the case. Most of the young leaders that we have invested in during our Next Step program are actually now either on executive boards of their unions or running for political office, running for union office. That investment pays off because you invest early and then certainly those young people will be landing in positions of authority and power. We need to make sure that we’re doing the succession planning for our movement. Age aside, private sector union membership is still at its slowest rate in a century. The PRO Act, while it passed in the House with a little bit of Republican support, doesn’t seem likely to pass in the Senate, and some of the country’s largest companies—especially Amazon—continue to successfully squash unionization attempts. Despite these challenges, what is giving you hope that this is a potential turning point? When I walk the picket line with bakery workers and I see their determination, their tenacity, their courage, that’s what gives me hope. This is a moment. I think the PRO Act, of course, is very much needed legislation, because our labor laws are so broken in this country that it takes an act of absolute heroism to stand up and face down Goliath. That these companies are so powerful, they’ll throw millions of dollars to bust the unions, hire union busting consultants, they actually have a playbook that they operate from. And you saw it alive and well at Amazon, where they would go to no end to intimidate, harass, discriminate [against], bully, [and] fire workers who want to form a union. So we’re going to keep fighting for the PRO Act. But we’re also going to look for opportunities to get meaningful reforms in other vehicles that are moving. We want to make sure that the penalties for employers who break the law are meaningful. We’re working to try to make sure that gets passed in reconciliation. Read more: How Amazon Won the Preliminary Union Vote in Alabama A striking Kellogg’s employee of local 50G in Omaha likened Striketober to a second industrial revolution, citing record profits some companies are seeing but not passing down to their employees and the increasing wealth gap. Would you agree with his assessment? There’s no doubt that our economy is broken. He is absolutely right, that this is our chance to get it right—to invest in workers and to right the ship. This is unsustainable. Wages have been flat for over 30 years. Costs continue to go up. Health care gets more expensive. People have barely any retirement savings to rely on. The only way we can remedy that is to make a choice as a country that we are going to invest in the people that make this country hum. Certainly the essential workers throughout this pandemic are Exhibit A for why that’s important. Only by coming together collectively can we balance the scales of the economy and fight for the dignity and respect that we need on the job in addition to the pay and the benefits and the working conditions that are just absolute basic necessities for most working people. That’s all they want. They want to be treated fairly......»»

Category: topSource: timeOct 24th, 2021

Apis Flagship Fund 3Q21: “The Great SPAC-ulation”

Apis Flagship Fund commentary for the third quarter ended September 2021. Q3 2021 hedge fund letters, conferences and more Dear Partners, Our Flagship Fund was down 1.3% net in Q3 2021. During the past quarter, our longs detracted 4.5% (gross), while our shorts contributed 3.6% (gross). At the end of September, the Fund was approximately […] Apis Flagship Fund commentary for the third quarter ended September 2021. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more Dear Partners, Our Flagship Fund was down 1.3% net in Q3 2021. During the past quarter, our longs detracted 4.5% (gross), while our shorts contributed 3.6% (gross). At the end of September, the Fund was approximately 51% net long with the portfolio 87% long and 36% short. Performance Overview (Gross Returns) Strong relative performance in September brought overall performance in-line with global indices for the quarter. Long performance was hindered by relative underperformance in smaller capitalization stocks and some underperformance in value relative to growth. Offsetting weakness on the long side, short performance was excellent, aided by the aforementioned small-cap trends and several highly speculative names that have begun to receive scrutiny. Asia was awash with robust performance in Japan, counteracting weakness in the rest of the region. Elsewhere, upside in North America was driven by strong short performance. Still, again this was more than offset in Europe where a couple stock-specific issues and weak markets generally hit our longs there. Shorts were positive across all sectors, especially Consumer names while longs struggled, particularly in the Consumer and Financial sectors. Three of the top 4 long contributors came from Asia with Hansol Chemical adding almost 1% in the quarter, in addition to some Japanese names – BayCurrent Consulting and West Holdings – adding about 75 bps each. BayCurrent has experienced 20%+ growth for several years, with recent years accelerating as companies spend on so-called DX or “digital transformation” projects. Supported in many cases by tax incentives, companies are investing in sorely needed I.T. and BayCurrent provides specialized consulting in this area. Detractors in the quarter include Kambi (noted in our August letter), where we took our medicine. Another name dragging on performance was Cornerstone Building, a U.S. name that has meaningful share in several building products. While sales are not the issue and pricing power is high, Q2 profits proved disappointing as cost inflation could not be passed along to consumers fast enough. Generally, over the last 30 years, we’ve seen price improvements in cyclical areas such as housing provide a boost to margins. However, today’s cost inflation seems more complex than previous cycles, and managers are struggling to raise prices fast enough to keep pace. Short alpha was excellent, with our average short declining more than 10% in the quarter and many stocks falling 30% or more. One fertile area for shorting (no surprise) has been the hundreds of special purpose acquisition companies (SPACs). History suggests most of these companies will do very poorly. Given the unprecedented size and scope of this cycle, we firmly believe this era too will be remarkably bad. We highlight below a few names where the disconnect between value and reality is exceptional. Portfolio Outlook And Positioning Over the quarter, we have reduced net in the Fund roughly 10%, gradually taking exposure down through the quarter. This reflects both what’s working (shorts more than longs) and a recognition that there are macro issues percolating that argue for more caution. Commodity/energy prices are booming (see discussion below), supply chains are a mess, unemployment versus job openings data is difficult to understand, political tensions and dysfunction continue to rise, along with debt/deficits – future economists and social scientists will have some fascinating work to do explaining this period in our history! One simple economic axiom we subscribe to is, “you can’t have inflation without wage inflation.” Previous cyclical upticks in pricing proved fleeting as wages weren’t growing, but this cycle looks different as wage inflation appears everywhere. Quantitative easing is hard to justify, given high inflation and low unemployment but the U.S. Federal Reserve has excused this by saying inflation is “transitory” (would you expect them to admit otherwise?). We’re growing more skeptical as the burden of proof is shifting and can’t help but feel a Jimmy Carter sense of déjà vu. Tapering may be a catalyst, but eventually a Paul Volker-type will be needed to sort this mess out. As always, we remain pragmatic and know to stay in our “stock-picking” lane. Inflation beneficiaries are incredibly cheap and will see some incremental investment while overall gross and net exposures remain on the more modest side of our long-term ranges. Commodity/Energy Supply Constraints and Price Inflation The current commodity spike started a decade ago after prices collapsed following a raging China-led bull market. Everything from copper to coal was in sudden oversupply after significant overinvestment in the early 2000’s. In the decade following 2010, investors sold off their holdings and turned towards far more interesting opportunities, particularly in technology whose index rose 4x while energy was flat. Companies in the commodity markets were starved of capital and, punished with falling stock prices, they shifted their focus to cash flow with religious fervor. Capital for exploration plummeted, exemplified by copper, where 223 discoveries were made between 1990 and 2015, but only one since 2015. Examples like this abound across all the major and minor commodities. But for a few episodes of intermittent shortages, general commodity supply was sufficient pre-2020, and no one noticed the fading reserves as the decade progressed. Then came COVID-19 and the subsequent economic stimulus and recovery. The limited maintenance investment that was made turned to virtually nothing as prices for commodities went from bad to- in the case of oil- negative in 2020. Piling on to this was an intense focus on decarbonization & ESG, which meant that commodities were essentially uninvestable for vast swaths of the investment community. For example, Norway’s $1.4 trillion sovereign wealth fund, ironically built on the back of oil riches from the North Sea, declared it would sell its stock holdings in traditional energy. It is one of just many that have made similar policy changes. At the company level, bankruptcies were already happening pre-COVID, but the negative oil price was the final straw for many more. Drilling activity went from bad to non-existent in the U.S. as companies tried to minimize their cash burn. Similar stories can be told in the coal, gas and metals markets, fertilizers, food crops, and so on. None of this was a particular shock as warnings of shortages have been made for years. Those who tried to warn were met with a shrug and directed to look at the market price for the said commodity, which inevitably was plumbing new lows. Then came the economic recovery in late 2020, and suddenly the commodities needed were no longer available. Today, we see record-high prices, in many cases above the levels reached during the height of China’s import binge a decade+ ago. The potential implications are very, very big. Critically, there are broad macro and geopolitical issues if this price spike sustains or worsens. Look no further than the level of inflation or E.U.-Russia relations. Speculative stocks with long-duration cash flows are already struggling as investors contemplate higher discount rates and slower growth. The critical question is: how long does this last? A few points are worth making – This is global. Consider a supposedly local market like electric power. Prices are spiking by hundreds of percent in China, Japan, Korea, the U.K., the U.S., etc. Coal and natural gas shortages are being reported in India, Brazil, Europe, China, and many other countries. Calls for government intervention abound and will likely further retard these markets. Iron ore from Australia and Brazil cannot meet Chinese demand – remember the mine dam collapse in Brazil; who would want one of these in their country? The global nature of this shortage is evidence that runs counter to the argument that this is simply the result of a governmental policy error. This is happening across all kinds of commodities – we don’t have a shortage in just one thing. The causes vary but range from the closure of nuclear & coal in Europe & Japan, the reckless embrace of renewables, to a new government in Chile that has discouraged copper investment, and near-total closure of access to debt and equity financing. With EV adoption the average home will need a 25-50% increase in electric power which will result in copper shortages (and plenty of other commodities) for the next decade. This breadth of shortage historically only happened during decade-long episodes of price volatility and reordering of investment leadership. This leads us to the final observation – the market is acting like this episode is temporary. Commodity price spikes and crashes happen all the time, and company valuations knowingly incorporate this by appearing cheap when prices are exuberant and expensive when commodity prices crash. This is the market’s way of looking past temporary swings to something more balanced in the future. What is potentially unique about this cycle is the degree to which the market is “looking past this” and the possibility that this lasts a while. On the first point, look no further than the free cash flow yields, which in energy, for example, start at 20% and go up from there. In most cases, this figure is simply based on prices that could be achieved using the futures curve (e.g., companies could lock this return in for years, right now). In coal, there are companies on 50-100% cash flow yields, where the market is indicating to us that this shortage will resolve in months. As for the duration, as always, it’s complicated. While things like shipping congestion, weather disruptions, post-COVID restocking of inventories, etc., are probably transitory, there are other more permanent factors. These include management’s focus on cash flow, ESG hurdles such as permitting, decarbonization, the loss of access to financing, and the transition to renewables. These long-term hurdles are not likely to change. In a recent conversation with a sell-side analyst, we heard story after story of trillion-dollar investment managers, former clients of this analyst, who have formally abandoned energy. With Tesla accounting for 1.7% of the S&P and the entire energy sector, including companies like Exxon and Chevron, at just 2.6%, it could take a while to normalize the imbalance. Investment Highlights - Imdex Limited (ASX:IMD) (Australia – $780mm market cap) One investment that plays upon the commodity price phenomena is IMDEX, which offers products for the mineral drilling value chain. We came across this company through our work on the actual contract drilling companies like Major Drilling and Boart Longyear, which we’ve been familiar with for years. IMDEX provides consumables, tools, and technology to these contract drilling companies, as well as directly to the large miners. It is a “picks and shovels” play on increased metals exploration & development spend, with its products present on 70% of mineral drilling projects globally. These include drilling fluids, drilling and rig alignment technologies, downhole sensors, geological data interpretation software, and in-field sampling and analysis tools. 80% of its revenue is related to exploration spend versus only 20% related to mining production. As we mentioned earlier, exploration spend for many commodities has plummeted in recent years and is just now starting to tick back up to make up for years of underinvestment, in addition to structural growth in certain EV-related metals like cobalt, copper, and lithium. In fact, a recent report from Morgan Stanley shows that mining capex is expected to grow by 26% this year, the strongest growth since 2012. This is bolstered by junior miner equity raisings that are tracking 50-100% above pre-COVID levels, per a Jefferies analysis. IMDEX is well placed not only to benefit from increased mining exploration spend, but it also has some company-specific factors that will drive growth beyond just the cyclical upswing in its end markets. Its revenue from tool rentals and software has increased as a percent of total revenues, which bodes well for margins. Tool rental and software revenue rose to 57% of the total in the fiscal year ended this June, up from 44% four years ago. In turn, gross margins have risen by over 400 basis points, and EBIT margins have increased by almost 700 basis points over the same period. There is still plenty of room to grow the software portion of the business, as only approximately 60% of the top 100 clients are using the cloud-connected platform currently. As more customers use the cloud platform, they will upgrade to rent cloud-connected tools, which provides a revenue (and margin) uplift to IMDEX. The company has also been complementing its organic research & development efforts with selective M&A to expand its offerings. For example, it recently acquired a geological data modeling and 3D visualization software provider. We believe the few analysts that cover IMDEX are underestimating its growth potential. Revenue growth is forecasted at approximately 20% this fiscal year, which looks conservative. The company already reported 41% revenue growth in the first quarter, and activity in specific geographies remains hindered by COVID-19 related restrictions. Growth is forecasted to slow to high single digits next year, which seems too low given the metals supply and demand dynamics noted earlier in our letter, as well as the fact that even after 20-25% growth in 2021, exploration spend will remain nearly 50% below the prior peak seen in 2012. The company has a strong, net cash balance sheet which will enable it to continue to invest in new product development and M&A. We think the current valuation is reasonable at roughly 20x our forecasted FY 6/22 EPS, which is in-line with many capital-intensive heavy mining equipment providers, despite IMDEX having roughly double the margins. If we look at where the stock traded around the prior peak in its end markets in 2011/2012, we see potential for 70-80% upside. "The Great SPAC-ulation" As noted earlier, we feature a sampling of SPACs currently held on the short side. This opportunity has presented itself after a spectacular bubble formed in 2020, as illustrated in the chart below: SPAC #1 This SPAC focuses on auto insurance charged by the mile. As consumers, we certainly see the virtue in this approach. The reality, however, is that the market for this insurance is quite narrow and, more concerning, this SPAC’s competitors are far better financed and distributed. That has been reflected in the significant losses (simply put, their premiums don’t cover their losses) and meaningful reduction in company-guided financial targets. After running from $10 to $20 in Q4 2020 and Q1 2021, the threat of endless losses and capital raises has brought the shares down to just $3. The euphoria that levitated these shares late last year is now replaced by the fear that this may not be an ongoing business. SPAC #2 This $3bn market cap company offers a platform that integrates with mobile games, allowing players to compete for real money. The way it works is that players deposit cash into an account and then bet against each other in the various games that are integrated with the platform. The company typically keeps 15-20% of the total bet, which it shares with game developers, while the winning player receives the rest. In theory, this is an attractive proposition for mobile game developers as it offers an alternative means of monetization beyond the traditional methods such as advertising and in-app purchases. However, a deeper look at the company’s financials reveals a business model with questionable unit economics. At a high level, the company effectively spends $1.15 (and growing) in marketing costs for every $1 it generates in revenue. Nearly half of these marketing costs are in the form of “engagement marketing” which is a fancy way of saying free bonus cash. Furthermore, the company recognizes a portion of this bonus cash as revenue when players eventually bet with it, in effect paying themselves. These expenses as a percentage of revenue have only continued to grow in the business’s brief history as a publicly traded company. While the current cash position should enable the company to keep the treadmill going for several years, we believe this is clearly an unsustainable business model. SPAC #3 This $1.7bn market cap company was originally attempting to build a subscription-based “transportation as a service” using a fleet of stripped-down electric vehicles. But the Founder and CEO quit four months after the SPAC deal closed, followed quickly by the entire management team (CFO, Head of Strategy, Chief Legal Officer, Head of Development, etc.). The SEC opened an investigation the following month and, if this wasn’t enough, the new CEO immediately pivoted strategies from a capital-light, outsourced manufacturing model to a capital-intensive one, bringing manufacturing in-house. They significantly ramped up the expected cash burn and pulled all guidance, which had just been issued a few months prior. There are more than enough red flags to assume this SPAC won’t survive long. SPAC #4 This $1.2bn market cap company is a manufacturer of “Smart Glass” which is an electrified window that can adjust tint to darken or lighten. The theory is that it can reduce building electricity costs (the company claims 10% savings), but the reality is that those savings require 10x the upfront investment. Despite $2bn sunk costs and 15 years of R&D, gross margins remain negative(!) 150%, and cash continues to bleed out at a $200-300 million/year clip, leaving them about 18 months of runway. The SPAC itself removed a problem for Softbank, which had been stuck for years, adding to its ownership in several “down rounds” where V.C. investors add capital at lower and lower valuations. If that’s not enough, the company has delayed filing financial reports and is in violation of exchange rules as the auditing committee investigates disputed warranty accruals. We think this company is unviable and will eventually be worthless. SPAC #5 This $3.4bn market cap company bills themselves as a next-generation Medicare Advantage insurer by leveraging their machine learning platform to improve care and reduce costs, driving profitability and what they have coined their “virtuous growth cycle.” The reality is that this growth comes at the literal cost of the Medical Care Ratio (MCR), the percent of revenue they payout for enrollee care, which ballooned to 107.5% and 111% in the first two quarters of 2021, respectively. Behind the tarnished façade of a company losing more money by virtue of their growth (maybe that’s what they meant?) is a backdrop of alleged related-party transactions to boost sales, failure to disclose a U.S. Department of Justice investigation into inappropriate marketing practices, and an algorithm that seems more geared to find upcoding opportunities (to get a larger payout from CMS per patient) than optimizing patient care. Instead of a business on the path to profitability with a noble ethos, we expect this company to continue to lose money at a rate of $500-$700mm a year well into the future, requiring additional raises and increasingly diluting value to shareholders. As always, we encourage your questions and comments, so please do not hesitate to call our team here at Apis or Will Dombrowski at +1.203.409.6301. Sincerely, Daniel Barker Portfolio Manager & Managing Member Eric Almeraz Director of Research & Managing Member Updated on Oct 19, 2021, 4:03 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 19th, 2021

Futures Slide On Renewed China Slowdown, Rate Hike Fears

Futures Slide On Renewed China Slowdown, Rate Hike Fears US equity futures and world shares drifted lower following poor Chinese macro data which saw the country's GDP slide to a weaker than expected 4.9%, and as surging energy prices and inflation reinforced bets that central banks will be forced to react to rising inflation and hike rates faster than expected. Calls by China’s President Xi Jinping on Friday to make progress on a long-awaited property tax to help reduce wealth gaps also soured the mood. With WTI crude rising to a seven-year high, and Brent back over $85, investors remain concerned that living costs will be driven higher. The economic recovery also remains uneven with China’s gross domestic product slowing more than expected in the third quarter, increasing aversion to riskier assets. The dollar rose against all of its Group-of-10 peers as concerns about an acceleration in inflation damped risk appetite, while bircoin traded above $61K and just shy of an all time high ahead of the launch of the Proshares Bitcoin ETF on Tuesday. An MSCI gauge of global stocks was down 0.1% by 0808 GMT as losses in Asia and a weak open in Europe erased part of the gains seen last week on a strong start to the earnings season. U.S. stock futures were also lower with S&P 500 e-minis last down 0.2%, while Dow and Nasdaq e-minis were both down 0.3%. China’s gross domestic product grew 4.9% in the July-September quarter from a year earlier, its weakest pace since the third quarter of 2020. The world’s second-largest economy is grappling with power shortages, supply bottlenecks, sporadic COVID-19 outbreaks and debt problems in its property sector. Additionally, industrial output and fixed investment also missed expectations, while retail sales beat modestly (more here). Not even the latest attempt by China to ease Evergrande contagion fears was enough to offset worries about China's economy: on Sunday, PBOC Governor Yi Gang said authorities can contain risks posed to the Chinese economy and financial system from the struggles of China Evergrande Group. Because of course he will say that. Oil prices extended a recent rally amid a global energy shortage with U.S. crude touching a seven-year high while Brent was set to surpass its 2018 highs just above $86, as Russia kept a tight grip on Europe’s energy market, opting against sending more natural gas to the continent even after President Vladimir Putin said he was prepared to boost supplies. “The lingering energy crisis, while benefiting miners and other oil & gas related stocks, is otherwise weighing on the overall sentiment,” said ActivTrades’ Pierre Veyret. Investors will stay focused on macro news this week with major Chinese and U.S. releases as well as new monetary policy talks from Jerome Powell, he said. Investors continue to grapple with worries that energy shortages and supply-chain disruptions will drive up living costs in most economies. At the same time, the recovery remains patchy and central bankers are inching closer to paring back stimulus. U.S. consumer sentiment fell unexpectedly in early October, but retail sales advanced. “We are starting to see some cracks in the transitory narrative that we’ve been hearing for quite some time,” Meera Pandit, global market strategist at J.P. Morgan Asset Management, said on Bloomberg Radio. “Rates will continue to ground higher from where we are. But I don’t think from a Fed perspective, when you think about the short end of the curve, that they are going to move much earlier than 2023. They are going to be a little bit more patient than the market expects right now.” And then there were rates: the global bond selloff gathered pace, with U.K. yields surging after Bank of England Governor Andrew Bailey warned on the need to respond to price pressures. Rate-hike bets have also picked up in the U.S., Australia and New Zealand, where inflation accelerated to the fastest pace in 10 years. Ten-year Treasury yields extended a climb , rising as high as 1.62%. Mohammed El-Erian, the chief economic adviser at Allianz SE and a Bloomberg columnist, said investors should prepare for increased market volatility if the Federal Reserve pulls back on stimulus measures set in motion by the Covid-19 pandemic. On the other side of the argument, Goldman's flow trading desk said odds of a November meltup are rising as a result of a relentless appetite for stocks and an upcoming surge in stock buybacks. In any case, Virgin Galactic Holdings Inc. shares fell 3% in U.S. premarket, extending losses from Friday that came after the firm pushed back the start of commercial flights further into next year after rescheduling a test flight. Here are some of the other notable U.S. pre-movers today: Baidu (BIDU US) shares erased earlier losses and climbed as much as 4.3% in Hong Kong, as China debates rules to make hundreds of millions of articles on Tencent’s WeChat messaging app available via search engines like Baidu’s. Crypto-related stocks in action as Bitcoin leaps as much as 5.3% and is just shy of a fresh six- month high. Riot Blockchain (RIOT US), Marathon Digital (MARA US) and Coinbase (COIN US) are all up Tesla (TSLA US) shares rise 0.2% in premarket trading Monday, poised for 50% rally from a March 8 low, ahead of its third-quarter results on Wednesday Dynavax (DVAX US) shares rise as much as 10% in U.S. pretrading hours after the biopharmaceutical company announced that Valneva reported the trial of inactivated, adjuvanted Covid-19 vaccine candidate VLA2001 met its co-primary endpoints Disney (DIS US) drops in premarket trading after Barclays downgrades to equal-weight as the company faces a “tough” task to get to its long-term streaming subscription guidance NetApp (NTAP US) slips 2.2% in premarket trading after Goldman Sachs analyst Rod Hall cut the recommendation on NetApp Inc. to sell from neutral European stocks traded on the back foot from the open, with the benchmark Stoxx 600 Index down 0.4%, led by losses in retail stocks. The Euro Stoxx 50 dropped as much as 0.9%, FTSE 100 outperforms slightly. Mining stocks were among Europe's only gainers thanks to the ongoing metals rally: the Stoxx Europe 600 basic resources sub-index climbs for a third day for the first time since early September as the record rally of base metals is extended. The gauge rose 0.6%, outperforming main benchmark which trades 0.4% lower. Notable movers: Glencore +1.2%; BHP +1%; Norsk Hydro +2.5%; ArcelorMittal +0.9% Rio Tinto +0.3%. Offsetting these gains, European luxury stocks slipped after a Chinese Communist Party journal published a speech of President Xi Jinping that includes advancing legislation on property taxes. Here are some of the biggest European movers today: Playtech shares rise as much as 59% in London after the British gambling software developer agreed to be bought by Australia’s Aristocrat for $3.7 billion. Valneva SE shares rise as much as 42% as its experimental Covid-19 vaccine elicited better immunity than AstraZeneca Plc’s shot in a clinical trial that will pave the way for regulatory submissions. Shares of hydraulics manufacturer Concentric rise as much as 14%, the most since April 2020, after Danske Bank upgraded the stock to buy from hold, calling the company a strong performer in a difficult market. THG shares jump as much 12%, most since May 11, after founder and CEO Matthew Moulding confirmed his intention to cancel his special share rights. The removal of the special share points to the e-commerce company’s “willingness to engage on shareholder concerns,” according to Jefferies. Rational AG shares rise as much as 6.1%, the most since Aug. 5, after the German kitchen machinery maker is upgraded to buy from hold at Berenberg, which considers the shares “inexpensive” despite stretched multiples. Atrium European Real Estate share rises as much as 7.6% to the highest since March 2020 after controlling shareholder Gazit Globe raises the offer price to EU3.63 per Atrium share from EU3.35. Earlier in the session, Asian equities fell, putting them on track to snap a three-day rally, as China’s economic growth slowed and prospects of higher bond yields weighed on some tech shares. The MSCI Asia Pacific Index fell as much as 0.4%, with tech and consumer staples shares setting the pace for declines. TSMC and Sony Group were among the biggest drags. Official data showed that China’s economy weakened in the third quarter amid tighter restrictions on the property market and China Evergrande Group’s debt crisis. For Asia stock traders, the concerns about China are adding to persistent inflation worries and energy shortages, which are sending bond yields higher. While inflation worries are “alive and well,” Asian markets will be predominantly focused on China data today, Jeffrey Halley, senior market analyst at Oanda Asia Pacific, wrote in a note. The weak data print “will lift expectations of an imminent PBOC RRR rate cut,” he added. China’s benchmark underperformed as the country explored property- and consumption tax-related changes and international funds sold shares of Kweichow Moutai Co., the country’s largest stock by market value. Tencent, Meituan and Alibaba pared losses prompted by the Chinese government saying it will introduce more regulations on the tech sector. China is considering asking media companies from Tencent Holdings Ltd. to ByteDance Ltd. to let rivals access and display their content in search results, according to people familiar with the matter. India’s Sensex index bucked the regional trend and is on track to rise for the seventh day, the longest such streak since January, helped by easy money. Japanese equities declined, paring last week’s rally, weighed down by losses in electronics makers. The Topix dipped 0.2%, following a 3.2% gain last week. The Nikkei 225 fell 0.2%, with M3 Inc. and KDDI the biggest drags. Almost 30% of respondents to a Kyodo weekend poll said they plan to vote for the ruling Liberal Democratic Party in the proportional representation section of Japan’s Oct. 31 election. U.K. rates steal the limelight amid a violent selloff that saw 2y gilt yields rise as much as 17bps to trade close to 0.75%. Weekend comments from BOE’s Bailey triggered a snap lower in short-sterling futures and bear-flattening across the gilt curve. MPC-dated OIS rates price in ~20bps of hiking by the November meeting. Bunds and Treasuries follow gitls lower, peripheral spreads widen to core with Italy underperforming. Australian stocks closed higher as miners and banks advanced. The S&P/ASX 200 index rose 0.3% to close at 7,381.10, led by miners and banks. Nickel Mines surged after a subsidiary signed a limonite ore supply agreement with PT Huayue Nickel Cobalt. Domino’s was among the worst performers, closing at its lowest since Aug. 17. In New Zealand, the S&P/NZX 50 index fell 0.1% to 12,998.51. In FX, the Bloomberg Dollar Spot Index advanced as the dollar traded higher versus all of its Group-of-10 peers Traders pulled forward rate- hike bets after BoE governor Bailey said the central bank “will have to act” on inflation. U.K. money markets now see 36 basis points of BoE rate increases in December and are pricing 15 basis points of tightening next month. Traders are also now betting the BoE’s key rate will rise to 1% by August, from 0.1% currently. The euro struggled to recover after falling below the $1.16 handle in the Asian session; money markets are betting the ECB will hike the deposit rate to -0.4% in September as expectations for global central-bank policy tightening gather pace. Resilience in the spot market and a divergence with rate differentials in the past sessions has resulted in a flatter volatility skew for the euro. Commodity-linked currencies such as the Australian dollar and the Norwegian krone underperformed after Chinese data including third-quarter growth and September factory output trailed economists’ estimates. The kiwi rose to a one-month high versus the dollar, before giving up gains, and New Zealand’s bond yields rose across the curve after 3Q annual inflation rate surged, beating estimates. The yen steadied around a three-year low as U.S. yields extended their rise in Asian trading; the Japanese currency still held up best against the dollar among G-10 currencies, after performing worst last week. In rates, treasuries were under pressure led by belly of the curve as rate-hike premium continues to increase in global interest rates. Yields, though off session highs, remain cheaper by nearly 5bp in 5-year sector; 2s5s30s fly topped at -12.5bp, cheapest since 2018; 10-year is up 2.8bp around 1.60% vs 3.4bp increase for U.K. 10-year. Belly-led losses flattened U.S. 5s30s by as much as 5.4bp to tightest since April 2020 at around 86.1bp; U.K. 5s30s curve is flatter by ~8bp after its 5-year yield rose as much as 14bp. Gilts led the move, with U.K. 2-year yield climbing as much as 16.8bp to highest since May 2019 as money markets priced in more policy tightening after Governor Andrew Bailey said the Bank of England “will have to act” on inflation. With latest moves, U.S. swaps market prices in two Fed hikes by the end of 2022. In commodities, WTI rose 1%, trading just off session highs near $83.20; Brent holds above $85. Spot gold drifts lower near $1,762/oz. Most base metals are in the green with LME lead and tin outperforming. Looking at today's calendar, we have industrial production, US September industrial production, capacity utilisation, October NAHB housing market index. Fed speakers include Quarles, Kashkari. Market Snapshot S&P 500 futures down 0.2% to 4,451.75 STOXX Europe 600 down -1.6% to 467.76 MXAP down 0.2% to 198.11 MXAPJ little changed at 650.02 Nikkei down 0.1% to 29,025.46 Topix down 0.2% to 2,019.23 Hang Seng Index up 0.3% to 25,409.75 Shanghai Composite down 0.1% to 3,568.14 Sensex up 1.0% to 61,918.22 Australia S&P/ASX 200 up 0.3% to 7,381.07 Kospi down 0.3% to 3,006.68 Brent Futures up 0.9% to $85.65/bbl Gold spot down 0.3% to $1,762.70 U.S. Dollar Index up 0.17% to 94.10 German 10Y yield rose 3.5 bps to -0.132% Euro down 0.1% to $1.1586 Brent Futures up 0.9% to $85.65/bbl Top Overnight News from Bloomberg Germany’s prospective ruling coalition is targeting about 500 billion euros ($580 billion) in spending over the coming decade to address climate change and will seek loopholes in constitutional debt rules to raise the financing The ECB is exploring raising its limit on purchases of debt issued by international bodies such as the European Union from the current cap of 10%, the Financial Times reported, citing four ECB governing council members The ECB should keep some of the flexibility embedded in its pandemic bond-buying program for post-crisis stimulus measures, Governing Council member Ignazio Visco said People’s Bank of China Governor Yi Gang said authorities can contain risks posed to the Chinese economy and financial system from the struggles of China Evergrande Group A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded cautiously after disappointing Chinese GDP and Industrial Production data, while inflationary concerns lingered after the recent firmer than expected US Retail Sales data, a continued rally in oil prices and with New Zealand CPI at a decade high. Nonetheless, the ASX 200 (+0.1%) bucked the trend on reopening optimism with curbs in New South Wales to be further eased after having fully vaccinated 80% of the adult population and with the Victoria state capital of Melbourne set to lift its stay-at-home orders this week. Furthermore, the gains in the index were led by outperformance in the top-weighted financials sector, as well as strength in most mining names aside from gold miners after the precious metal’s retreat from the USD 1800/oz level. Nikkei 225 (-0.3%) was subdued after a pause in the recent advances for USD/JPY and with criticism of Japan after PM Kishida sent an offering to the controversial war shrine which sparked anger from both China and South Korea. Hang Seng (-0.5%) and Shanghai Comp. (-0.4%) were subdued after Chinese Q3 GDP data missed expectations with Y/Y growth at 4.9% vs exp. 5.2% and Industrial Production for September fell short of estimates at 3.1% vs exp. 4.5%, while the beat on Retail Sales at 4.4% vs exp. 3.3% provided little consolation. There was plenty of focus on China’s property sector with PBoC Governor Yi noting authorities can contain risks posed to the Chinese economy and financial system from the struggles of Evergrande, and with its unit is said to make onshore debt payments due tomorrow. However, attention remains on October 23rd which is the end of the grace period for its first payment miss that would officially place the Co. in default and it was also reported on Friday that China Properties Group defaulted on notes worth USD 226mln. Finally, 10yr JGBs were lower amid spillover selling from T-notes which were pressured after the recent stronger than expected Retail Sales data and higher oil prices boosted the inflation outlook, with demand for JGBs is also hampered amid the absence of BoJ purchases in the market today. Top Asian News Tesla Shares Roaring Back, Set for 50% Gain From March Lows Kishida’s Offering to Japan War Shrine Angers Neighbors Baidu Jumps as China Said to Weigh More Access to WeChat Content AirAsia X Proposes Paying Creditors 0.5% of $8 Billion Owed European equities (Eurostoxx 50 -0.7%; Stoxx 600 -0.4%) have kicked the week off on the backfoot as market participants digest disappointing Chinese GDP metrics, a continued rally in energy prices and subsequent inflationary concerns which has seen markets price in more aggressive tightening paths for major global central banks. Overnight, Chinese Q3 GDP data missed expectations with Y/Y growth at 4.9% vs exp. 5.2% and Industrial Production for September fell short of estimates at 3.1% vs exp. 4.5%, while the beat on Retail Sales at 4.4% vs exp. 3.3% provided little consolation. Stateside, index futures have conformed to the downbeat tone with the ES softer to the tune of -0.3%, whilst the RTY narrowly lags with losses of 0.4%. In a note this morning, JP Morgan has flagged that investor sentiment remains that “the upcoming reporting season will be challenging, given the combination of the activity slowdown, significant supply distortions impacting volumes, and the energy price acceleration that is seen to be hurting profit margins and consumer disposable incomes”. That said, the Bank is of the view that investors are likely braced for such disappointments. In Europe, sectors are mostly lower with Retail names lagging post-Chinese GDP as Kering (accounts for 28.7% of the Stoxx 600 Retail sector) sits at the foot of the CAC with losses of 3.2%; other laggards include LVMH (-2.7%) and Hermes (-2.3%). To the upside, Banking names are firmer and benefitting from the more favourable yield environment, whilst Basic Resources and Oil & Gas names are being supported by price action in their respective underlying commodities. In terms of individual movers, THG (+7.6%) sits at the top of the Stoxx 600 after confirming that it intends to move its listing to the 'premium segment' of the LSE in 2022; as part of this, CEO & Executive Chairman Moulding will surrender his 'founders share' next year. Finally, Umicore (-4.5%) sits at the foot of the Stoxx 600 after cutting its FY21 adj. EBIT outlook. Top European News Traders Ramp Up U.K. Rate-Hike Bets on Bailey Inflation Warning Nordea Equity Research Hires Pareto Analyst for Tech Team ECB’s Visco Says Flexible Policy Should Remain Part of Toolkit Scholz Coalition Eyes $580 Billion in Spending on German Reboot In FX, the broader Dollar and index has waned off its 94.174 pre-European cash open high but remains underpinned above 94.000 by risk aversion and firmer yields, with the US 10yr cash now hovering around 1.60%. Stateside, US President Biden confirmed that the reconciliation package will likely be less than USD 3.5trln, although this was widely expected in recent weeks. Aside from that, the Greenback awaits further catalysts but until then will likely derive its impetus from the yield and risk environment. From a tech standpoint, a breach of 94.000 to the downside could see a test of the 21 DMA (93.865) – which has proven to provide some support over the last two trading sessions, with Friday and Thursday’s lows at 93.847 and 93.759 respectively. The upside meanwhile sees the YTD high at 94.563, printed on the 12th of Oct. CNH - The offshore is relatively flat on the day in a contained 6.4265-4387 range following a set of overall downbeat Chinese activity metrics. GDP growth momentum waned more than expected whilst industrial production was lower than expected, largely impacted by the electricity crisis and local COVID outbreaks during Q3. Retail sales meanwhile rebounded more than expected – albeit due to reopening effects, with inflation a concern heading forward. The Chinese National Bureau of Stats later hit the wires suggesting that major economic data are seen in reasonable ranges from Q1-Q3. The PBoC governor meanwhile downplayed the current risks of spillover from default fears. AUD, NZD, CAD - The overall cautiousness across the market has pressured high-betas. The AUD fails to glean support from the firmer base metal prices and the surge in coal prices overnight, with overall downbeat Chinese data proving to be headwinds for the antipodean. The NZD is more cushioned as inflation topped forecasts and reinforced the RBNZ’s hawkishness, whilst AUD/NZD remains capped at around 1.0500. AUD/USD fell back under its 100 DMA (0.7409) from a 0.7437 peak, whilst NZD/USD hovers around 0.7050 (vs high 0.7100), with the 100 DMA at 0.7021. The Loonie narrowly lags as a pullback in oil adds further headwinds. USD/CAD aims for a firmer footing above 1.2400 from a 1.2348 base. EUR, GBP- The single currency and Sterling are relatively flat on the day and within tight ranges of 1.1572-1.1605 and 1.3720-65 respectively. The latter was unreactive to weekend commentary from the BoE governor, sounding cautious over rising inflation but ultimately labelling it temporary, although suggesting that monetary policy may have to step in if risks materialise. From a Brexit standpoint, nothing major to report in the runup to negotiations on the Northern Ireland protocol. Across the Channel, FT sources suggested that four ECB GC members would support upping the PSPP share of APP from the current 10% - with the plan to be discussed across two meetings next month and requiring a majority from the 25 members. All-in-all, the EUR was unswayed ahead of a plethora of ECB speakers during the week and as the clock ticks down to flash PMIs on Friday. JPY, CHF - The traditional safe-havens have fallen victim to the firmer Buck, with USD/JPY extending on gains north of 114.00 as it inches closer towards 114.50 – which also matches some highs dating back to 2017. The Swiss Franc is among the laggards after USD/CHF rebounded from its 50 DMA (0.9214) as it heads back towards 0.9300, with the weekly Sight deposits also seeing W/W increases. In commodities, WTI and Brent front-month futures have drifted from best levels as the cautious risk tone weighs on prices, but nonetheless, the complex remains overall firmer with the former within a USD 82.55-83.06 range and the latter in a 84.93-85.31 intraday parameter. Fresh catalysts remain quiet for the complex, while there were some comments over the weekend from Iraq's Oil Ministry which noted that prices above USD 80/bbl are a positive indicator. Elsewhere on the supply-side, Iran is to resume nuclear negotiations on October 21, an Iranian lawmaker said Sunday, although it is unclear how far talks will go as the US and Iran affirm their stances. It is also worth noting that a fire was reported at Kuwait's Mina al-Ahmadi (346k BPD) refinery, but refining and export operations are unaffected. UK nat gas futures meanwhile are relatively flat in a tight range, although prices remain elevated on either side of GBP 2.5/Thm. Elsewhere, spot gold and silver trade sideways amid a lack of catalysts, although the firmer found some support at 1,760/oz - matching its 21 DMA. Over to base metals, LME copper remains supported around USD 10,250/t. Overnight, Shanghai zinc and Zhengzhou coal hit a record high and limit up respectively, with some citing supply constraints. US Event Calendar 9:15am: Sept. Industrial Production MoM, est. 0.2%, prior 0.4%; Capacity Utilization, est. 76.5%, prior 76.4% Manufacturing (SIC) Production, est. 0.1%, prior 0.2% 10am: Oct. NAHB Housing Market Index, est. 75, prior 76 2:15pm: Fed’s Kashkari Discusses Improving Financial Inclusion 4pm: Aug. Total Net TIC Flows, prior $126b DB's Jim Reid concludes the overnight wrap Straight to China this morning where the monthly data dump has just landed. GDP expanded in Q3 by +4.9% on a year-on-year basis, which is a touch below the +5.0% consensus expectation and a shift down from the +7.9% expansion back in Q2. That’s come as their economy has faced multiple headwinds, ranging from the property market crisis with the issues surrounding Evergrande group and other developers, an energy crisis that’s forced factories to curb output, alongside a number of Covid-19 outbreaks that have led to tight restrictions as they seek to eliminate the virus from circulating domestically. Industrial production for September also came in beneath expectations with a +3.1% year-on-year expansion (vs. +3.8% expected), though retail sales outperformed in the same month with +4.4% year-on-year growth (vs. +3.5% expected), and the jobless rate also fell back to 4.9% (vs. 5.1% expected). That data release alongside continued concerns over inflation has sent Asian markets lower this morning, with the Shanghai Composite (-0.35%), Hang Seng (-0.36%), CSI (-1.40%) KOSPI (-0.01%), and the Nikkei (-0.16%) all trading lower. Speaking of inflation, there’ve also been fresh upward moves in commodity prices overnight, with WTI up a further +1.58% this morning to follow up a run of 8 successive weekly moves higher, which takes it to another post-2014 high, whilst Brent crude is also up +1.14%. Furthermore, data overnight has shown that New Zealand’s CPI surged to a 10-year high of +4.9% in Q3, which was some way above the +4.2% expected. Looking forward, equity futures in the US are pointing lower, with those on the S&P 500 down -0.11%. Another interesting weekend story comes again from the Bank of England, which seems to be using the weekends of late to prime the markets for imminent rate hikes. Governor Bailey yesterday said inflation “will last longer and it will of course get into the annual numbers for longer as a consequence… That raises for central banks the fear and concern of embedded expectations. That’s why we, at the Bank of England have signalled, and this is another signal, that we will have to act. But of course that action comes in our monetary policy meetings.” It’s difficult to get much more explicit than this and it’ll be interesting to see if we get even more priced into the very immediate front end this morning. For now, sterling has seen little change, weakening -0.13% against the US dollar, but markets were already pricing in an initial +15bps move up to 0.25% by the end of the year before the speech. Now the big China data is out of the way we’ll have to wait until Friday for the main releases of the week, namely the global flash PMIs. Outside of that, there’s plenty of Fedspeak as they approach the blackout period at the weekend ahead of their November 3rd meeting where they’re expected to announce the much discussed taper. On top of this, earnings season will ramp up further, with 78 companies in the S&P 500 reporting. Early season positive earnings across the board have definitely helped sentiment over the last few days. 18 out of 19 that reported last week beat expectations across varying sectors. As examples, freight firm JB Hunt climbed around 9% after beating, Alcoa over 15% and Goldman Sachs nearly 4%. So much for inflation squeezing margins. My view remains that we’re still seeing “growthflation” and not “stagflation”, particularly in the US even if there are obvious risks to growth. For now, there is still a buffer before we should get really worried. On the back of the decent earnings, the S&P 500 had its best week since July last week and is now only less than -1.5% off its record high from early September. Given that earnings season has made a difference the 78 companies in the S&P 500 and 58 from the Stoxx 600 will be important for sentiment this week. In terms of the highlights, tomorrow we’ll get reports from Johnson & Johnson, Procter & Gamble, Netflix, Philip Morris International and BNY Mellon. Then on Wednesday, releases include Tesla, ASML, Verizon Communications, Abbott Laboratories, NextEra Energy and IBM. On Thursday, there’s Intel, Danaher, AT&T, Union Pacific and Barclays. Lastly on Friday, well hear from Honeywell and American Express. It’ll also be worth watching out for the latest inflation data, with CPI releases for September from the UK, Canada (both Wednesday) and Japan (Friday). The UK is by far and away the most interesting given the recent pressures and likely imminent rate hike. This month is likely to be a bit of calm before the future storm though as expectations are broadly similar to last month. Given the recent rise in energy prices, this won’t last though. In terms of the main US data, today’s industrial production (consensus +0.2% vs. +0.4% previously) will be a window into supply-chain disruptions, particularly in the auto sector. Outside of that, you’ll see in the day-by-day week ahead guide at the end that there’s a bit of US housing data to be unveiled (NAHB today, housing starts and permits tomorrow). Housing was actually the most interesting part of the US CPI last week as rental inflation came in very strong, with primary rents and owners’ equivalent rent growing at the fastest pace since 2001 and 2006, respectively. The strength was regionalised (mainly in the South) but this push from recent housing market buoyancy into CPI, via rents, has been a big theme of ours in recent months. The models that my colleague Francis Yared has suggest that we could be at comfortably above 4% inflation on this measure by next year given the lags in the model. Rents and owners’ equivalent rent makes up around a third of US CPI. So will a third of US inflation be above 4% consistently next year before we even get to all the other things? Moving to Germany, formal coalition negotiations are set to commence soon between the SPD, the Greens and the FDP. They reached an agreement on Friday with some preliminary policies that will form the basis for talks, including the maintenance of the constitutional debt brake, a pledge not to raise taxes or impose new ones, along with an increase in the minimum wage to €12 per hour. There are also a number of environmental measures, including a faster shift away from coal that will be complete by 2030. The Green Party voted in favour of entering the formal negotiations over the weekend, with the SPD agreeing on Friday, and the FDP is expected to approve the talks today. Reviewing last week now and strong earnings, along with the rather precipitous decline in long-end real yields drove the S&P 500 +1.82% higher over the week (+0.75% Friday), while the STOXX 600 gained +2.65% (+0.74% Friday). No major sector ended the week lower in Europe, while only communications (-0.52%) were down in the U.S. Interest rate sensitive sectors were among the outperformers in each jurisdiction. The 2s10s yield curve twist flattened -11.7bps over the week, as investors brought forward the timing of an increase to the Fed’s policy rate, driving the 2-year +7.8bps higher (+3.5 bps Friday), whilst the 10-year declined -4.2 bps (+6.0bps Friday). This is consistent with our US econ team bringing forward their call for the Fed lift-off to late 2022. Markets are actually pricing in a 50/50 likelihood of a hike by June. Particularly notable was the decline in long-end real yields, with 10yr real yields finishing the week -9.5bps lower, and at one point closed beneath the -1.00% mark for the first time in a month. Hence breakevens were up +5.4bps to 2.565%, leaving them right around their year-to-date highs last reached in May. The curve flattening trend was a global one last week, with 2-year gilts yields up +3.7bps whilst the 10-year fell -5.2bps. The bund curve flattened mildly as well, with 2-year bunds increasing +2.6 bps and the 10-year -1.6 bps. 10-year breakevens increased +7.9 bps in the UK, and +7.3 bps in Germany, which marks the highest reading since 2008 in the UK and the highest in Germany since 2013. The increases in inflation compensation were matched by commodities. WTI and Brent futures increased +3.69% and +3.00%, respectively last week, whilst metals also posted strong gains, with copper up +10.62% and aluminium +6.93% higher on the week. On the data front, September retail sales were much stronger than expectations, with the prior month’s components being revised higher across the board as well. The University of Michigan consumer survey saw sentiment and 5yr inflation expectations dip, while year ahead inflation expectations inched up to 4.8%. Friday’s strong data brought a brief reprieve from the curve flattening exhibited the rest of the week. Tyler Durden Mon, 10/18/2021 - 07:41.....»»

Category: worldSource: nytOct 18th, 2021

Gold’s Journey Signals To Dollars Instability and Supply Chain Issues

Gold had an interesting week, as the start of the fourth quarter draws in mixed reports, stemming from weak jobs reports, continued COVID-19 restrictions, record-high oil prices, supply chain bottleneck, and inflation. The Fed continues to give mix signals as to what policies they will implement to help curb inflation and give a substantial boost […] Gold had an interesting week, as the start of the fourth quarter draws in mixed reports, stemming from weak jobs reports, continued COVID-19 restrictions, record-high oil prices, supply chain bottleneck, and inflation. The Fed continues to give mix signals as to what policies they will implement to help curb inflation and give a substantial boost to the economy. Recently, the Fed’s Jerome Powell mentioned the possibility of tapering COVID era policies, but yet, we do not know what tapering measures will be implemented. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more Government Spending In Washington, the battle continues between liberals and conservatives on issues about the debt ceiling, the massive $1.2 trillion infrastructure bill, and government funding. Conservatives believe the government cannot afford to fund the new proposed projects the Democrats are demanding. The US’s debt currently stands at $28.8 trillion. Some Democrats have even proposed the minting of a $1 trillion coin to be deposited in the US Treasury to fund the numerous amount of government services. Many economists believe that will have insignificant effects on curbing debt woes, saying that changing monetary policy is one solution to fixing our economic issues. U.S. Treasury Secretary Janet Yellen said she does not intend to mint a 1 trillion dollar coin to help pay for the government expenses. Labor Shortage Unemployment has increased in the weeks following the end of stimulus relief. Many low-paying salaried employees have decided to opt-out of returning to work. Many people in the service industry have not returned to work since the U.S shutdown of businesses last year, due to COVID restrictions. With the increased work from home phenomena and automation taking over menial jobs, there is no going back. Another factor to increased unemployment comes from newly enforced vaccination policies that have left many without a job. The Biden Administration is set to implement more COVID-19 vaccine mandates for employers by December. This fall season, with new impending COVID-19 regulations, labor shortages, and supply chain issues, businesses are struggling to stay afloat. Since 2020, over 200,000 businesses were forced to shutter, adding to the nation’s economic woes. Supply Chain Bottlenecks Are Aggravating Markets If the labor shortage wasn’t enough to aggravate markets, the supply chain issue is surely bringing on the pain. As inflation continues to increase at an alarming pace, many consumers are wondering when prices will cool off. Recently, the Fed stated that inflation is transitory and will cool off once supply chain issues are corrected. But is that exactly true? The Fed seems to overlook the fact that their unlimited supply of cheap money circulating the economy has increased demand for goods and services. More money people have to spend because of easy credit and extra money saved over the pandemic has lead consumers to purchase goods at very high rates. U.S. household wealth reached a high of $141.7 trillion. Homeowners saw their net worth increase with the housing market, with many people taking advantage of low-interest rates. As of Oct. 15, retail sales were up 0.7%. The chip shortage is another factor with the lack of highly demanded supplies like automobiles, electronics, machinery, and other high-tech equipment available. As a result, car prices, both new and used have skyrocketed. Car manufactures cannot keep up with production and have lead people to the used car market. Ps5s and gaming equipment has become scarce as well. Manufacturers are trying to keep up with production, but with the labor shortage, COVID-19 restrictions, and energy crisis, it seems like the problem will continue way into 2022. Energy Crisis Adding To Supply Chain Problem The current energy crisis is causing industrial powerhouses, China and India, to shut down factories in many of their provinces. China is struggling to source coal after several storms impeded coal production. Oil prices hit past $80 this week. The US, UK, and the EU have demanded OPEC+ to boost output but seems to fall on deaf ears. The U.S. has suggested using the nation’s emergency supply to help relieve record-high gas prices Americans are currently enduring. Analysts have voiced concerns, that if oil and gas demands aren’t meet, we can soon see oil prices hit above the $100 mark. Gold And Bitcoin Standing Tall As the dollar struggles to make significant gains, gold and Bitcoin have attracted many investors who worry about a dollar collapse. As of Oct. 15, Bitcoin passed to the $60,000 mark, with many saying that it will soon pass $70,000. The current rate of inflation is sounding an alarm bell with many suggesting that stagflation can certainly be upon us. Gold, silver, platinum, and palladium had an interesting week, with gold surging past $1,800. Seeing as the Fed is surely out of tools to stop the rate of inflation, many savvy investors are hedging their assets with gold as a way to protect their wealth. We will see what next week has in store for us. Updated on Oct 15, 2021, 4:26 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 15th, 2021

Goods that haven"t left China yet won"t be here in time for the holidays

It currently takes an average of 73 days for shipments from China to reach their destination in the US, but Christmas is in 71 days. AP Shipments from China to the US take about 73 days to reach their destination - two days after Christmas. The problem is only expected to get worse in the coming weeks as record backlogs meet soaring demand. Several major retailers have taken steps to side-step the issue, but it might not be enough. It might already be too late to start holiday shopping.The US receives much of its goods from overseas, in particular China, which serves as a primary source for anything from furniture and auto parts to tech and toys. It currently takes an average of 73 days for shipments from China to the US to reach their final destination, according to data from Freightos, an online freight marketplace. But, Christmas is in 71 days. What's more, delays are only expected to lengthen in the weeks leading up to the holiday season, rising from levels that are currently 83% higher than pre-pandemic shipping timelines. For consumers, the lengthened turnaround times mean the longer they wait to shop, the more likely they are to face shortages this holiday season. Shoppers who are ordering goods online might also not be able to receive their items until after the holiday season has passed. While many major retailers like Amazon and Walmart are known for their well-stocked warehouses - even large companies are racing to replenish diminished inventory levels since the pandemic started."Shortages are guaranteed," Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation, told Insider. "Retailers are taking a lot of steps, especially going into peak shopping season, but there's only so much you can do." Container ships wait off the coast of the congested ports of Los Angeles and Long Beach, in Long Beach, California, U.S., September 29, 2021. Mike Blake/REUTERS Earlier this week, the White House announced a 90-day plan to address the backlogs, but it is only expected to help move an extra 3,500 shipping containers a week from ports in Southern California. Meanwhile, the ports have about 500,000 shipping containers floating along the shore, waiting to dock and unload. Storms and power outages have also slowed down shipments out of China. In the US, massive backlogs at key ports, railroads, and warehouses have companies scrambling to find new ways to bring in goods. At the same time, the entire industry has been faced with a shortage of truckers and warehouse workers.UBS analysts noted Thursday that the supply chain has become so fragile since the coronavirus pandemic started that even minor disruptions of one to two weeks "could result in meaningful disruption" this holiday season. The CEO of a mid-sized toy company, Basic Fun, told Bloomberg earlier this month that his company has about $8 million or 140 shipping containers worth of goods waiting at a single factory in Shenzhen alone."I got Tonka trucks in the south and Care Bears in the north," Jay Foreman, Basic Fun's CEO, said. "We'll blow last year's numbers away [in sales], but the problem is we don't know if we'll get the last four months of the year shipped. The supply chain is a disaster, and it's only getting worse."A recent survey from UKG, a workforce-management group, found that about 85% of retailers expect supply-chain disruptions to affect customers.Many executives were warning customers to order their holiday shopping goods in August and September. Last month, Nike warned investors that they expected there would be shortages of popular products like sneakers due to factory shutdowns overseas and shipping delays. Getty Images/Sasin Tipchai "I half-jokingly tell people, 'Order your Christmas presents now because otherwise on Christmas Day, there may just be a picture of something that's not coming until February or March,'" UPS President Scott Price said in August. On Wednesday, Insider reported "supply chain" has become a hot topic in investor meetings. Several major companies have attempted to side-step supply-chain snags. Earlier this month, Coca-Cola announced it was chartering bulk shipping vessels usually reserved for transporting raw materials like coal and iron.Other companies like Walmart said they have started chartering smaller vessels to avoid backlogged ports like those in Southern California, while Home Depot, Nordstrom, and Levi have shifted to using more air cargo planes."Our intent is to meet consumer demand," Levi CFO Harmit Singh told investors earlier in October. "And economically, if you have to air freight, we will air freight to meet that."Read the original article on Business Insider.....»»

Category: worldSource: nytOct 15th, 2021

Futures Jump On Profit Optimism As Oil Tops $85; Bitcoin Nears $60,000

Futures Jump On Profit Optimism As Oil Tops $85; Bitcoin Nears $60,000 One day after the S&P posted its biggest one-day surge since March, index futures extended this week’s gains, helped by a stellar bank earnings, while the latest labor market data and inflation eased stagflation fears for the time being. . The 10-year Treasury yield rose and the dollar was steady. Goldman Sachs reports on Friday. At 715 a.m. ET, Dow e-minis were up 147 points, or 0.42%, S&P 500 e-minis were up 16.5 points, or 0.37%, and Nasdaq 100 e-minis were up 42.75 points, or 0.28%. Oil futures topped $85/bbl, jumping to their highest in three years amid an energy crunch that’s stoking inflationary pressures and prices for raw materials. A gauge of six industrial metals hit a record high on the London Metal Exchange.  Energy firms including Chevron and Exxon gained about half a percent each, tracking Brent crude prices that scaled the 3 year high. Solid earnings in the reporting season are tempering fears that rising costs and supply-chain snarls will hit corporate balance sheets and growth. At the same time, the wider debate about whether a stagflation-like backdrop looms remains unresolved. “We don’t sign up to the stagflation narrative that is doing the rounds,” said Hugh Gimber, global strategist at the perpetually optimistic J.P. Morgan Asset Management. “The economy is being supported by robust consumer balance sheets, rebounding business investment and a healthy labor market.” “After a choppy start to the week, equity markets appear to be leaning towards a narrative that companies can continue to grow profits, despite the combined pressures of higher energy prices and supply chain disruptions,” said Michael Hewson, chief market analyst at CMC Markets in London. Bitcoin and the crypto sector jumped after Bloomberg reported late on Thursday that the Securities and Exchange Commission is poised to allow the first U.S. Bitcoin futures exchange-traded fund to begin trading in a watershed moment for the cryptocurrency industry. Bitcoin traded off session highs having tested $60k during Asian hours, but will likely rise to new all time highs shortly. Also overnight, Joe Biden signed a bill providing a short-term increase in the debt limit, averting the imminent threat of a financial calamity. But it only allows the Treasury Department to meets its financial obligations until roughly Dec. 3, so the can has been kicked for less than two months - brace for more bitter partisan battles in the coming weeks. This week’s move into rate-sensitive FAAMG growth names looked set to continue, with their shares inching up. Moderna rose 3.0% after a U.S. FDA panel voted to recommend booster shots of its COVID-19 vaccine for Americans aged 65 and older and high-risk people. Western Digital slipped 2.5% as Goldman Sachs downgraded the storage hardware maker’s stock to “neutral” from “buy”. Here are some of the key premarket movers on Friday morning: Virgin Galactic (SPCE US) shares slump as much as 23% in U.S. premarket trading as the firm is pushing the start of commercial flights further into next year after rescheduling a test flight, disappointing investors with the unexpected delay to its space tourism business plans Cryptocurrency-exposed stocks rise in U.S. premarket trading after a report that the Securities and Exchange Commission is poised to allow the first U.S. Bitcoin futures exchange-traded fund to begin trading.  Bit Digital (BTBT US) +6.7%, Riot Blockchain (RIOT US) +4.6%, Marathon Digital (MARA US) +3.6% Alcoa (AA US) shares jump 5.6% in thin volumes after co. reported profits that beat the average analyst estimate and said it will be paying a dividend to its shareholders Moderna (MRNA US) extends Thursday’s gains; Piper Sandler recommendation on Moderna Inc. to overweight from neutral, a day after co.’s Covid-19 booster got FDA nod for use in older, high-risk people Duck Creek Technologies (DCT US) shares fell 12% in Thursday postmarket trading after the software company projected 2022 revenue that fell short of the average analyst estimate 23andMe Holdings (ME US) soared 14% in Thursday postmarket trading after EMJ Capital founder Eric Jackson called the genetics testing company “the next Roku” on CNBC Corsair Gaming (CRSR US) shares fell 3.7% in post-market trading after it cut its net revenue forecast for the full year Early on Friday, China's PBOC broke its silence on Evergrande, saying risks to the financial system are controllable and unlikely to spread. Authorities and local governments are resolving the situation, central bank official Zou Lan said. The bank has asked lenders to keep credit to the real estate sector stable and orderly. In Europe, gains for banks, travel companies and carmakers outweighed losses for utilities and telecommunications industries, pushing the Stoxx Europe 600 Index up 0.3%. Telefonica fell 3.3%, the most in more than four months, after Barclays cut the Spanish company to underweight. Temenos and Pearson both slumped more than 10% after their business updates disappointed investors. Here are some of the biggest European movers today: Devoteam shares rise as much as 25% after its controlling shareholder, Castillon, increased its stake in the IT consulting group to 85% and launched an offer for the remaining capital. QinetiQ rises as much as 5.4% following a plunge in the defense tech company’s stock on Thursday. Investec upgraded its recommendation to buy and Berenberg said the shares now look oversold. Hugo Boss climbs as much as 4.4% to the highest level since September 2019 after the German apparel maker reported 3Q results that exceeded expectations. Jefferies (hold) noted the FY guidance hike also was bigger than expected. Mediclinic rises as much as 7.7% to highest since May 26 after 1H results, which Morgan Stanley says showed strong underlying operating performance with “solid metrics.” Temenos sinks as much as 14% after the company delivered a “mixed bag” with its 3Q results, according to Baader (sell). Weakness in Europe raises questions about the firm’s outlook for a recovery in the region, the broker said. Pearson declines as much as 12%, with analysts flagging weaker trading in its U.S. higher education courseware business in its in-line results. Earlier in the session, Asian stocks headed for their best week in more than a month amid a list of positive factors including robust U.S. earnings, strong results at Taiwan Semiconductor Manufacturing Co. and easing home-loan restrictions in China.  The MSCI Asia Pacific Index gained as much as 1.3%, pushing its advance this week to more than 1.5%, the most since the period ended Sept. 3. Technology shares provided much of the boost after chip giant TSMC announced fourth-quarter guidance that beat analysts’ expectations and said it will build a fabrication facility for specialty chips in Japan. Shares in China rose as people familiar with the matter said the nation loosened restrictions on home loans at some of its largest banks.  Conditions are good for tech and growth shares now long-term U.S. yields have fallen following inflation data this week, Shogo Maekawa, a strategist at JPMorgan Asset Management in Tokyo. “If data going forward are able to provide an impression that demand is strong too -- on top of a sense of relief from easing supply chain worries -- it’ll be a reason for share prices to take another leap higher.”  Asia’s benchmark equity gauge is still 10% below its record-high set in February, as analysts stay on the lookout for higher bond yields and the impact of supply-chain issues on profit margins.  Japanese stocks rose, with the Topix halting a three-week losing streak, after Wall Street rallied on robust corporate earnings. The Topix rose 1.9% to close at 2,023.93, while the Nikkei 225 advanced 1.8% to 29,068.63. Keyence Corp. contributed the most to the Topix’s gain, increasing 3.7%. Out of 2,180 shares in the index, 1,986 rose and 155 fell, while 39 were unchanged. For the week, the Topix climbed 3.2% and the Nikkei added 3.6%. Semiconductor equipment and material makers rose after TSMC said it will build a fabrication facility for specialty chips in Japan and plans to begin production there in late 2024.  U.S. index futures held gains during Asia trading hours. The contracts climbed overnight after a report showed applications for state unemployment benefits fell last week to the lowest since March 2020.  “U.S. initial jobless claims fell sharply, and have returned to levels seen before the spread of the coronavirus,” said Nobuhiko Kuramochi, a market strategist at Mizuho Securities in Tokyo. “The fact that more people are returning to their jobs will help ease supply chain problems caused by the lack of workers.” Australian stocks also advanced, posting a second week of gains. The S&P/ASX 200 index rose 0.7% to close at 7,362.00, with most sectors ending higher.  The benchmark added 0.6% since Monday, climbing for a second week. Miners capped their best week since July 16 with a 3% advance. Hub24 jumped on Friday after Evans & Partners upgraded the stock to positive from neutral. Pendal Group tumbled after it reported net outflows for the fourth quarter of A$2.3 billion. In New Zealand, the S&P/NZX 50 index fell 0.3% to 13,012.19 In rates, the U.S. 10-year Treasury yield rose over 3bps to 1.54%. Treasuries traded heavy across long-end of the curve into early U.S. session amid earning-driven gains for U.S. stock futures. Yields are higher by more than 3bp across long-end of the curve, 10- year by 2.8bp at about 1.54%, paring its first weekly decline since August; weekly move has been led by gilts and euro-zone bonds, also under pressure Friday, with U.K. 10-year yields higher by 3.3bp. Today's bear-steepening move pares the weekly bull-flattening trend. U.S. session features a packed economic data slate and speeches by Fed’s Bullard and Williams.   In FX, the Bloomberg Dollar Spot Index was little changed even as the greenback weakened against most of its Group-of-10 peers; the euro hovered around $1.16 while European and U.S. yields rose, led by the long end. Norway’s krone led G-10 gains as oil jumped to $85 a barrel for the first time since late 2018 amid the global energy crunch; the currency rallied by as much as 0.6% to 8.4015 per dollar, the strongest level since June. New Zealand’s dollar advanced to a three-week high as bets on RBNZ’s tightening momentum build ahead of Monday’s inflation data; the currency is outperforming all G-10 peers this week. The yen dropped to a three-year low as rising equities in Asia damped demand for low-yielding haven assets. China’s offshore yuan advanced to its highest in four months while short-term borrowing costs eased after the central bank added enough medium-term funds into the financial system to maintain liquidity at existing levels. In commodities, crude futures trade off best levels. WTI slips back below $82, Brent fades after testing $85. Spot gold slips back through Thursday’s lows near $1,786/oz. Base metals extend the week’s rally with LME nickel and zinc gaining over 2%. Today's retail sales report, due at 08:30 a.m. ET, is expected to show retail sales fell in September amid continued shortages of motor vehicles and other goods. The data will come against the backdrop of climbing oil prices, labor shortages and supply chain disruptions, factors that have rattled investors and have led to recent choppiness in the market. Looking at the day ahead now, and US data releases include September retail sales, the University of Michigan’s preliminary consumer sentiment index for October, and the Empire State manufacturing survey for October. Central bank speakers include the Fed’s Bullard and Williams, and earnings releases include Charles Schwab and Goldman Sachs. Market Snapshot S&P 500 futures up 0.3% to 4,443.75 STOXX Europe 600 up 0.4% to 467.66 German 10Y yield up 2.4 bps to -0.166% Euro little changed at $1.1608 MXAP up 1.3% to 198.33 MXAPJ up 1.2% to 650.02 Nikkei up 1.8% to 29,068.63 Topix up 1.9% to 2,023.93 Hang Seng Index up 1.5% to 25,330.96 Shanghai Composite up 0.4% to 3,572.37 Sensex up 0.9% to 61,305.95 Australia S&P/ASX 200 up 0.7% to 7,361.98 Kospi up 0.9% to 3,015.06 Brent Futures up 1.0% to $84.83/bbl Gold spot down 0.5% to $1,787.54 U.S. Dollar Index little changed at 93.92 Top Overnight News from Bloomberg China’s central bank broke its silence on the crisis at China Evergrande Group, saying risks to the financial system stemming from the developer’s struggles are “controllable” and unlikely to spread The ECB has a good track record when it comes to flexibly deploying its monetary instruments and will continue that approach even after the pandemic crisis, according to policy maker Pierre Wunsch Italian Ministry of Economy and Finance says fourth issuance of BTP Futura to start on Nov. 8 until Nov. 12, according to a statement The world’s largest digital currency rose about 3% to more than $59,000 on Friday -- taking this month’s rally to over 35% -- after Bloomberg News reported the U.S. Securities and Exchange Commission looks poised to allow the country’s first futures-based cryptocurrency ETF Copper inventories available on the London Metal Exchange hit the lowest level since 1974, in a dramatic escalation of a squeeze on global supplies that’s sent spreads spiking and helped drive prices back above $10,000 a ton A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded higher amid tailwinds from the upbeat mood across global peers including the best day for the S&P 500 since March after strong US bank earnings, encouraging data and a decline in yields spurred risk appetite. The ASX 200 (+0.7%) was positive as the tech and mining sectors continued to spearhead the advances in the index in which the former took impetus from Wall St where the softer yield environment was conducive to the outperformance in tech, although mining giant Rio Tinto was among the laggards following weaker quarterly production results. The Nikkei 225 (+1.8%) was buoyed as exporters benefitted from the JPY-risk dynamic but with Fast Retailing failing to join in on the spoils despite an 88% jump in full-year net as its profit guidance underwhelmed with just 3% growth seen for the year ahead, while Taiwan's TAIEX (+2.2%) surged with the spotlight on TSMC earnings which reached a record high amid the chip crunch and with the Co. to also build a factory in Japan that could receive JPY 500bln of support from the Japanese government. The Hang Seng (+1.5%) and Shanghai Comp. (+0.4%) were initially indecisive amid the overhang from lingering developer default concerns although found some mild support from reports that China is to relax banks' mortgage limits through the rest of 2021. Focus was also on the PBoC which announced a CNY 500bln MLF operation, although this just matched the amount maturing this month and there are mixed views regarding prospects of a looming RRR cut with ANZ Bank's senior China strategist recently suggesting the potential for a 50bps cut in RRR or targeted MLF as early as today, although a recent poll showed analysts had pushed back their calls for a RRR cut from Q4 2021 to Q1 2022. Finally, 10yr JGBs marginally pulled back from this week’s advances after hitting resistance at the 151.50 level, with demand hampered amid the firm gains in Japanese stocks and the lack of BoJ purchases in the market today. Top Asian News Hong Kong Probes Going Concern Reporting of Evergrande U.S. Futures Hold Gains as Oil Hits 3-Year High: Markets Wrap Toyota Cuts November Outlook by 15% on Parts Shortage, Covid Yango Group Wires Repayment Fund for Onshore Bond Due Oct. 22 Bourses in Europe have held onto the modest gains seen at the cash open (Euro Stoxx 50 +0.4%; Stoxx 600 +0.3%), but the region is off its best levels with the upside momentum somewhat faded heading into the US open, and amidst a lack of fresh newsflow. US equity futures have remained in positive territory, although the latest leg lower in bonds has further capped the tech-laden NQ (+0.2%), which underperforms vs the ES (+0.3%), YM (+0.3%) and RTY (+0.7%), with traders on the lookout for another set of earnings, headlined by Goldman Sachs at 12:25BST/07:25EDT. Back to Europe, bourses see broad-based gains, whilst sectors are mostly in the green with clear underperformance experienced in defensives, with Telecoms, Utilities, Healthcare and Staples at the foot of the bunch. On the flipside, Banks reap rewards from the uptick in yields, closely followed by Travel & Leisure, Autos & Parts and Retail. Renault (+4%) drives the gains in Autos after unveiling a prototype version of the Renault Master van that will go on sale next year. Travel & Leisure is bolstered by the ongoing reopening trade with potential tailwinds heading into the Christmas period. Retail meanwhile is boosted by Hugo Boss (+1.8%) topping forecasts and upgrading its guidance. Top European News Autumn Heat May Curb European Gas Demand, Prices Next Week Bollore Looking for Buyers for Africa Logistics Ops: Le Monde U.K. Offers Foreign Butchers Visas After 6,000 Pigs Culled Europe’s Car-Sales Crash Points to Worse Year Than Poor 2020 In FX, the Greenback was already losing momentum after a relatively tame bounce on the back of Thursday’s upbeat US initial claims data, and the index failed to sustain its recovery to retest intraday highs or remain above 94.000 on a closing basis. However, the Buck did reclaim some significant and psychological levels against G10, EM currencies and Gold that was relishing the benign yield environment and the last DXY price was marginally better than the 21 DMA from an encouraging technical standpoint. Nevertheless, the Dollar remains weaker vs most majors and in need of further impetus that may come via retail sales, NY Fed manufacturing and/or preliminary Michigan Sentiment before the spotlight switches to today’s Fed speakers featuring arch hawk Bullard and the more neutral Williams. GBP/NZD/NOK - Sterling has refuelled and recharged regardless of the ongoing UK-EU rift over NI Protocol, though perhaps in part due to the fact that concessions from Brussels are believed to have been greeted with welcome surprise by some UK Ministers. Cable has reclaimed 1.3700+ status, breached the 50 DMA (at 1.3716 today) and yesterday’s best to set a marginal new w-t-d peak around 1.3739, while Eur/Gbp is edging closer to 0.8450 having clearly overcome resistance at 1.1800 in the reciprocal cross. Similarly, the Kiwi continues to derive impetus from the softer Greenback and Aud/Nzd flows as Nzd/Usd extends beyond 0.7050 and the Antipodean cross inches nearer 1.0500 from 1.0600+ highs. Elsewhere, the Norwegian Crown is aiming to add 9.7500 to its list of achievements relative to the Euro with a boost from Brent topping Usd 85/brl at one stage and a wider trade surplus. CAD - The Loonie is also profiting from oil as WTI crude rebounds through Usd 82 and pulling further away from 1.5 bn option expiry interest between 1.2415-00 in the process, with Usd/Cad towards the base of 1.2337-82 parameters. EUR/AUD/CHF/SEK - All narrowly mixed and rangy vs the Greenback, or Euro in the case of the latter, as Eur/Usd continues to straddle 1.1600, Aud/Usd churn on the 0.7400 handle, the Franc meander from 0.9219 to 0.9246 and Eur/Sek skirt 10.0000 having dipped below the round number briefly on Thursday. In commodities, WTI and Brent front month futures remain on a firmer footing, aided up the overall constructive risk appetite coupled with some bullish technical developments, as WTI Nov surpassed USD 82/bbl (vs 81.39/bbl low) and Brent Dec briefly topped USD 85/bbl (vs 84.16/bbl low). There has been little in terms of fresh fundamental catalysts to drive the price action, although Russia's Gazprom Neft CEO hit the wires earlier and suggested that reserve production capacity could meet the increase in oil demand, whilst a seasonal decline in oil consumption is possible and the oil market will stabilise in the nearest future. On the Iranian JCPOA front, Iran said it is finalising steps to completing its negotiating team but they are absolutely decided to go back to Vienna discussions and conclude the negotiations, WSJ's Norman. The crude complex seems to have (for now) overlooked reports that the White House is engaged in diplomacy" with OPEC+ members regarding output. UK nat gas prices were higher as European players entered the fray, but prices have since waned off best levels after Russian Deputy PM Novak suggested that gas production in Russia is running at maximum capacity. Elsewhere, spot gold has been trundling amid yield-play despite lower despite the Buck being on the softer side of today’s range. Spot gold failed to hold onto USD 1,800/oz status yesterday and has subsequently retreated below its 200 DMA (1,794/oz) and makes its way towards the 50 DMA (1,776/oz). LME copper prices are on a firmer footing with prices back above USD 10,000/t – supported by technicals and the overall risk tone, although participants are cognizant of potential Chinese state reserves releases. Conversely, Dalian iron ore futures fell for a third straight session, with Rio Tinto also cutting its 2021 iron ore shipment forecasts due to dampened Chinese demand. US Event Calendar 8:30am: Sept. Retail Sales Advance MoM, est. -0.2%, prior 0.7% 8:30am: Sept. Retail Sales Ex Auto MoM, est. 0.5%, prior 1.8% 8:30am: Sept. Retail Sales Control Group, est. 0.5%, prior 2.5% 8:30am: Sept. Retail Sales Ex Auto and Gas, est. 0.3%, prior 2.0% 8:30am: Oct. Empire Manufacturing, est. 25.0, prior 34.3 8:30am: Sept. Import Price Index MoM, est. 0.6%, prior -0.3%; YoY, est. 9.4%, prior 9.0% 8:30am: Sept. Export Price Index MoM, est. 0.7%, prior 0.4%; YoY, prior 16.8% 10am: Aug. Business Inventories, est. 0.6%, prior 0.5% 10am: Oct. U. of Mich. 1 Yr Inflation, est. 4.7%, prior 4.6%; 5-10 Yr Inflation, prior 3.0% 10am: Oct. U. of Mich. Sentiment, est. 73.1, prior 72.8 10am: Oct. U. of Mich. Current Conditions, est. 81.2, prior 80.1 10am: Oct. U. of Mich. Expectations, est. 69.1, prior 68.1 DB's Jim Ried concludes the overnight wrap A few people asked me what I thought of James Bond. I can’t say without spoilers so if anyone wants my two sentence review I will cut and paste it to all who care and reply! At my age I was just impressed I sat for over three hours (including trailers) without needing a comfort break. By the time you email I will have also listened to the new Adele single which dropped at midnight so happy to include that review as well for free. While we’re on the subject of music, risk assets feel a bit like the most famous Chumbawamba song at the moment. They get knocked down and they get up again. Come to think about it that’s like James Bond too. Yesterday was a strong day with the S&P 500 (+1.71%) moving back to within 2.2% of its all-time closing high from last month. If they can survive all that has been thrown at them of late then one wonders where they’d have been without any of it. The strong session came about thanks to decent corporate earnings releases, a mini-collapse in real yields, positive data on US jobless claims, as well as a further fall in global Covid-19 cases that leaves them on track for an 8th consecutive weekly decline. However, inflation remained very much on investors’ radars, with a range of key commodities taking another leg higher, even as US data on producer prices was weaker than expected. Starting with the good news, the equity strength was across the board with the S&P 500 experiencing its best daily performance since March, whilst Europe’s STOXX 600 (+1.20%) also put in solid gains. It was an incredibly broad-based move higher, with every sector group in both indices rising on the day, with a remarkable 479 gainers in the S&P 500, which is the second-highest number we’ve seen over the last 18 months. Every one of the 24 S&P 500 industry groups rose, led by cyclicals such as semiconductors (+3.12%), transportation (+2.51%) and materials (+2.43%). A positive start to the Q3 earnings season buoyed sentiment, as a number of US banks (+1.45%) reported yesterday, all of whom beat analyst estimates. In fact, of the nine S&P 500 firms to report yesterday, eight outperformed analyst expectations. Weighing in on recent macro themes, Bank of America Chief, Brian Moynihan, noted that the current bout of inflation is “clearly not temporary”, but also that he expects consumer demand to remain robust and that supply chains will have to adjust. I’m sure we’ll hear more from executives as earnings season continues today. Alongside those earnings releases, yesterday saw much better than expected data on the US labour market, which makes a change from last week’s underwhelming jobs report that showed the slowest growth in nonfarm payrolls so far this year. In terms of the details, the weekly initial jobless claims for the week through October 9, which is one of the most timely indicators we get, fell to a post-pandemic low of 293k (vs. 320k expected). That also saw the 4-week moving average hit a post-pandemic low of 334.25k, just as the continuing claims number for the week through October 2 hit a post-pandemic low of 2.593m (vs. 2.670m expected). We should get some more data on the state of the US recovery today, including September retail sales, alongside the University of Michigan’s consumer sentiment index for October. That optimism has fed through into Asian markets overnight, with the Nikkei (+1.43%), the Hang Seng (+0.86%), the Shanghai Comp (+0.29%) and the KOSPI (+0.93%) all moving higher. That came as Bloomberg reported that China would loosen restrictions on home loans amidst the concerns about Evergrande. And we also got formal confirmation that President Biden had signed the debt-limit increase that the House had passed on Tuesday, which extends the ceiling until around December 3. Equity futures are pointing to further advances in the US and Europe later on, with those on the S&P 500 (+0.30%) and the STOXX 50 (+0.35%) both moving higher. Even with the brighter news, inflation concerns are still very much with us however, and yesterday in fact saw Bloomberg’s Commodity Spot Index (+1.16%) advance to yet another record high, exceeding the previous peak from early last week. That was partly down to the continued rise in oil prices, with WTI (+1.08%) closing at $81.31/bbl, its highest level since 2014, just as Brent Crude (+0.99%) hit a post-2018 high of $84.00/bbl. Both have posted further gains this morning of +0.58% and +0.61% respectively. Those moves went alongside further rises in natural gas prices, which rose for a 3rd consecutive session, albeit they’re still beneath their peak from earlier in the month, as futures in Europe (+9.14%), the US (+1.74%) and the UK (+9.26%) all moved higher. And that rise in Chinese coal futures we’ve been mentioning also continued, with their rise today currently standing at +13.86%, which brings their gains over the week as a whole to +39.02% so far. As well as energy, industrial metals were another segment where the recent rally showed no sign of abating yesterday. On the London metal exchange, a number of multi-year milestones were achieved, with aluminum prices (+1.60%) up to their highest levels since 2008, just as zinc prices (+3.73%) closed at their highest level since 2018. Separately, copper prices (+2.56%) hit a 4-month high, and other winners yesterday included iron ore futures in Singapore (+1.16%), as well as nickel (+1.99%) and lead (+2.43%) prices in London. With all this momentum behind commodities, inflation expectations posted further advances yesterday. Indeed, the 10yr US Breakeven closed +1.0bps higher at 2.536%, which is just 3bps shy of its closing peak back in May that marked its highest level since 2013. And those moves came in spite of US producer price data that came in weaker than expected, with the monthly increase in September at +0.5% (vs. +0.6% expected). That was the smallest rise so far this year, though that still sent the year-on-year number up to +8.6% (vs. +8.7% expected). That rise in inflation expectations was echoed in Europe too, with the 10yr UK breakeven (+5.6bps) closing at its highest level since 2008, whilst its German counterpart also posted a modest +0.7bps rise. In spite of the rise in inflation expectations, sovereign bonds posted gains across the board as the moves were outweighed by the impact of lower real rates. By the end of yesterday’s session, yields on 10yr Treasuries were down -2.6bps to 1.527%, which came as the 10yr real yield moved back beneath -1% for the first time in almost a month. Likewise in Europe, yields pushed lower throughout the session, with those on 10yr bunds (-6.3bps), OATs (-6.2bps) and BTPs (-7.1bps) all moving aggressively lower. To the day ahead now, and US data releases include September retail sales, the University of Michigan’s preliminary consumer sentiment index for October, and the Empire State manufacturing survey for October. Central bank speakers include the Fed’s Bullard and Williams, and earnings releases include Charles Schwab and Goldman Sachs. Tyler Durden Fri, 10/15/2021 - 07:50.....»»

Category: personnelSource: nytOct 15th, 2021

India"s Energy Crunch Intensifies As Power Supply Deficit Worst Since March 2016

India's Energy Crunch Intensifies As Power Supply Deficit Worst Since March 2016 It's now a fact that India is teetering on the edge of a power crisis as coal shortages have left power grids with the worst deficit in years.  This month, 80% of India's 135 coal-fired plants had less than eight days of supplies — more than 50% of plants had two days of fuel left. For some context, the four-year average of coal inventory has been a little more than two weeks.   We noted India's "persistent electricity shortages" have become more widespread since the start of October as coal-fired power plants can't keep up with demand.  Reuters, citing data from grid operator Power System Operation Corporation (POSOCO), showed power supply dropped 750 million units short of demand throughout the first 12 days of October, primarily due to a coal shortage. The power deficit was the worst since March 2016, coming in at 1.6%.  Northern states such as Punjab, Rajasthan, Haryana, and Uttar Pradesh, and the eastern states of Jharkhand and Bihar had some of the worst power supply deficits between 2.3% to 14.7%.  A combination of supply factors and crashing coal imports led to this month's power crunch that may worsen as coal supplies tighten and prices surge ahead of the Northern Hemisphere winter.  Coal-powered energy accounted for nearly 70% of power in early October, an increasing percentage as power generation from renewables declines.  If China is any guide, India might take steps to ration power to energy-intensive industries to maintain grid stability.  For those who don't follow the coal sector closely, Coal India calls itself the world's largest coal miner, and digs 80% of all coal in India. Beyond supplying coal-fired power plants, it serves **non-power** customers like steel, cement and other big industrial operations — Javier Blas (@JavierBlas) October 14, 2021 The energy crisis is worldwide, first in Europe and China and now spreading to India. There's reason to believe electricity shortages and blackouts could be unleashed in the US this winter.  Tyler Durden Thu, 10/14/2021 - 23:00.....»»

Category: dealsSource: nytOct 14th, 2021

Is Decarbonization Threatening Europe"s Energy Security?

Is Decarbonization Threatening Europe's Energy Security? Authored by Haley Zaremba via OilPrice.com, The energy crisis that is unfolding across the globe could set the world back in terms of carbon emissions as coal and gas demand skyrockets. China will burn and import more coal this year than it did last year, seriously imperiling the nation’s own emissions pledges as well as the world’s chances of avoiding the worst impacts of climate change. Achieving net-zero is going to require an extremely delicate balancing act as the world struggles to move away from fossil fuels while keeping the economy running smoothly. Later this month about 25,000 people are headed to Glasgow for the 26th annual United Nations Framework Convention on Climate Change (UNFCCC), known as COP26. The UK, this year’s host of the Conference of the Parties, has asked participants to submit more ambitious targets for emissions reductions by 2030 in order to enable the possibility of achieving global net-zero emissions by mid-century. Conference leaders have also asked for increased monetary contribution to climate adaptation and mitigation funds, and have the stated goal of finalizing the regulatory framework for implementing and enforcing the pledges made in the 2015 Paris agreement. At the same time that the world ramps up for the latest and most robust global climate meeting, an energy crisis is unfolding in Europe and Asia which could set the world back in terms of carbon emissions, and which showcases just how difficult the road to decarbonization will be. As global economies have surged back to life in the post-pandemic era, demand for consumer goods and services has skyrocketed. While consumers have largely bounced back to business as usual, however, supply chains have not been able to keep up.  In the energy sector, supply has simply been unable to keep up with demand, causing an energy crunch and severe price spikes in the European Union, China, and India, leading to massive disruptions of supply chains and industries around the globe. In Europe, the EU is trying to walk a tightrope act between getting enough natural gas from Moscow to stay afloat without seriously compromising their energy security and giving the Kremlin too much geopolitical power. India is seriously at risk of running out of coal, which accounts for 70% of the national energy mix. In China, many energy companies have simply stopped producing, as coal prices have skyrocketed but national price caps prevent energy companies from raising electricity prices accordingly, forcing them to either run at a deficit or shut down entirely. The energy crunch and resulting energy insecurity in these regions has highlighted the extent to which all of these governing bodies, which have made considerable climate pledges, are still reliant on fossil fuels. Indeed, China has now lightened its restrictions on coal mining for the last three months of the year in order to keep the lights on and keep supply chains in motion, meaning that China will burn and import more coal this year than it did last year, seriously imperling the nation’s own emissions pledges as well as the world’s chances of avoiding the worst impacts of climate change.  What’s more, China’s energy crunch stands to hurt consumers across the globe as energy shortages have forced Chinese production to slow down at a time that demand for Chinese-made goods is surging as consumers start spending again post-Covid. And the energy crunch is just the latest in a long series of pandemic-related unfortunate events for global supply chains, including worker shortages, microchip shortages, and shipping shortages. This means that we can expect rising prices on all kinds of goods while inflation is already on the rise in many countries.  Achieving net-zero is going to require an extremely delicate balancing act as the world struggles to move away from fossil fuels while keeping the economy running smoothly. This current crunch is likely just one of many similar hiccups to come. However, if these bumps in the road continue to send energy-strapped countries back to coal, as this current snap has done, that spells out major trouble for the climate. The green transition likely won’t be easy or smooth, and will almost certainly continue to hurt consumers in the process, but the alternative is far worse. Tyler Durden Thu, 10/14/2021 - 05:00.....»»

Category: blogSource: zerohedgeOct 14th, 2021

Why Coal Shortages in Asia Might Be Good News for Clean Energy

Power crises in China and India that have caused blackouts and factory shutdowns are highlighting the region’s reliance on the world’s dirtiest fossil fuel: coal. But some experts say the energy supply problems facing two of the world’s largest economies might lead to more support for renewable energy and help to accelerate the sector’s growth.… Power crises in China and India that have caused blackouts and factory shutdowns are highlighting the region’s reliance on the world’s dirtiest fossil fuel: coal. But some experts say the energy supply problems facing two of the world’s largest economies might lead to more support for renewable energy and help to accelerate the sector’s growth. China is facing its worst energy crisis in a decade, with coal shortages driving power outages and rationing. India is teetering on the edge of a power crisis, with stocks of coal at unprecedentedly low levels and states warning of impending blackouts. Some states, like Rajasthan have scheduled power cuts and several thermal power stations across the country have shut due to shortages. [time-brightcove not-tgx=”true”] The issues have been caused by myriad factors, including soaring global coal prices, increasing economic activity, flood and monsoon-related supply disruptions and geopolitical tensions. (China has imposed an unofficial ban on coal from Australia, one of the world’s largest coal exporters.) Experts say that the instability of the coal supply chain is likely to be a boon for clean energy, prompting more investment in the sector. “The investment response I’m expecting will be a doubling or trebling of Indian and Chinese renewable energy installs because the best way to solve a crisis is to remove your energy security problem,” says Tim Buckley, the director of energy finance studies for Australia and South Asia at the Institute for Energy Economics and Financial Analysis (IEEFA). Despite global concern about greenhouse gas emissions and urgent calls for action to avoid the worst impacts of climate change, much of the Asia-Pacific remains reliant on coal, which is widely considered the most polluting fossil fuel. China and India are the world’s biggest consumers of coal. The fossil fuel accounts for around 70% of India’s electricity generation, while 56% of China’s electricity is generated by burning coal. That has harmful consequences; China is the world’s biggest polluter, and India comes in third, after the U.S. More than half of all coal consumed globally in 2020 was used in China, making Asia is the largest consumer of coal by region, according to British Petroleum’s (BP) Statistical Review of World Energy 2021. After China and India, Indonesia and Japan were the largest coal consumers in Asia. Added together, the latter two countries consumed more coal than all of Africa in 2020. Read More: Why China’s Promise to Stop Funding Coal Plants Around the World Is a Really Big Deal The region also produces more than 75% of the world’s coal, with China, Indonesia, Australia, and India leading the way, according to the BP report. China and four other countries—India, Indonesia, Japan and Vietnam—account for more than 80% of the coal power stations planned across the world, according to a June report by the think-tank Carbon Tracker. Environmentalists have raised concerns that the current energy shortages might be used to justify increasing domestic coal production in India and China. India announced in 2019 plans to boost domestic production of coal to a billion tons by 2024. In the first half of 2021, China announced plans to build 43 new coal-fired power plants. Qilai Shen—Bloomberg/Getty Images Coal is unloaded from barges at a dock servicing the Wangting Power Plant in Wangting, Jiangsu province, China, on Sept. 30, 2021. China’s central government officials ordered the country’s top state-owned energy companies — from coal to electricity and oil — to secure supplies for this winter at all costs, according to people familiar with the matter. Dimitri de Boer, China head for the environmental law charity ClientEarth, says that the Chinese government’s response to the crisis has been to ramp up coal production, and to relax production quotas on certain mines. “The instruction right now is to quickly produce enough coal to meet demand to get through the winter,” he says. More potential for renewable energy But the argument for cleaner energy is becoming increasingly convincing. The skyrocketing cost of coal and other fossil fuels, one of the drivers of the energy crises, means that renewables are becoming more cost competitive. “Economics have already won this race,” says Buckley, of IEEFA. The current coal supply problems might prompt Indian Prime Minister Narendra Modi to refocus efforts on his goal to transform India into an “energy independent” nation by 2047, with less reliance on fossil fuels—a target he announced in August. “Countries like China and India can’t face extreme unprecedented price volatility and not respond by protecting their people,” says Buckley. “What will Modi do? Double down on his renewable energy pledge,” He says that would mean the country is no longer at the mercy of global fossil fuel markets. “It’s 100% predictable, it’s got no volatility and it’s domestic.” Unlike many other countries around the world, India has not made a pledge to reduce its carbon dioxide emissions to net-zero, and it has argued that it shouldn’t have to make deep cuts like developed countries because it needs to prioritize growth. But it has set a target to reach 450 gigawatts (GW) of renewable capacity by 2030, and solar power is set for explosive growth in the country, according to the International Energy Agency. That’s already starting to playing out. Last month, a state-owned coal miner that accounts for more than 80% of the country’s coal production put out a tender for partners for a proposed 4 GW solar manufacturing facility in India. Meanwhile, India’s biggest company, Reliance Industries, has announced several clean energy deals in recent days, including the acquisition of a large European solar manufacturing company. Read More: Will China’s Energy Crisis Make It More Reluctant to Fight Climate Change? China has pledged to be carbon neutral by 2060 and to start tapering off its coal use from 2026. ClientEarth’s de Boer says the government won’t let go of those targets, despite the shortages. He says that, even as coal production is increased, controls on high energy-consuming projects are being strengthened. China is already a renewable energy leader, accounting for about 50% of the world’s growth in renewable energy capacity in 2020. De Boer says the current shortages will provide incentive to ramp up clean energy even faster. “It’s giving a very strong impetus and a boost to do everything to ramp up the supply of renewable energy,” he says......»»

Category: topSource: timeOct 13th, 2021

Volatile energy markets are here to stay if investment in sustainable power fails to keep up with energy demand, IEA warns

"We are not investing enough to meet future energy needs, and the uncertainties are setting the stage for a volatile period ahead," the IEA said. Solar panels. anatoliy_gleb/Getty Images Recent volatility in energy prices could become the norm if investments in renewable sources aren't enough to meet demand, the IEA warned."We are not investing enough to meet future energy needs, and the uncertainties are setting the stage for a volatile period ahead," the agency said.More investments in renewable energy are necessary to reduce carbon emissions and to prevent an economic shock from a surge in oil prices, the IEA said.Sign up here for our daily newsletter, 10 Things Before the Opening Bell.A surge in energy prices in Europe and Asia due to an ongoing supply crunch could become the norm if investments in renewable sources aren't accelerated, the International Energy Agency warned in its annual outlook report.The watchdog group said that while demand for energy continues to surge as global population growth continues and millions of people are lifted out of poverty every year, it will be essential for supply to play catch-up to avoid an ongoing surge in oil, coal, and natural gas prices."We are not investing enough to meet future energy needs, and the uncertainties are setting the stage for a volatile period ahead," the IEA said.A lack of investment in renewable energy sources like solar and wind could be a lose-lose situation for the global population, as it would lead to a continued rise in carbon emissions and could also contribute to an economic shock if energy prices stay elevated. To achieve the goal of transitioning to net-zero emissions by 2050, the energy grid needs to play a delicate balancing act in matching supply with demand when transitioning away from fossil fuels and toward less carbon-heavy alternatives."If the supply side moves away from oil or gas before the world's consumers do, then the world could face periods of market tightness and volatility. Alternatively, if companies misread the speed of change and over-invest, then these assets risk under-performing or becoming stranded," the IEA report said. The world is grappling with that imbalance after coming out of the pandemic, as demand was underestimated and energy suppliers are struggling to catch up. Oil prices are up 60% year-to-date, and US natural gas prices have more than doubled.To meet the expected surge in energy demand and at the same time reach a net-zero emission goal by 2050, the IEA forecasts that $4 trillion in annual spending on renewable energy will be needed by 2030. Much of that funding must come from the private sector, but leadership is required."Clear signals and direction from policy makers are essential. If the road ahead is paved only with good intentions, then it will be a bumpy ride indeed," the IEA report said. Read the original article on Business Insider.....»»

Category: smallbizSource: nytOct 13th, 2021

Futures Slide As Soaring Oil Nears $85

Futures Slide As Soaring Oil Nears $85 While cash bonds may be closed today for Columbus Day, which may or may not be a holiday - it's difficult to know anymore with SJW snowflakes opinions changing by the day - US equity futures are open and they are sliding as soaring oil prices add to worries over growing stagflation (Goldman and Morgan Stanley both slashed their GDP estimates over the weekend even as they both see rising inflation), fueling concern that a spreading energy crisis could hamper economic recovery (as a reminder, yesterday we had one, two, three posts on stagflation, showing just how freaked out Wall Street suddenly is). Rising raw material costs, labor shortages and other supply chain bottlenecks have raised concerns of elevated prices hammering corporate profits while rising rates are suggesting that a tidal wave of inflation is coming. And while cash bonds may be closed, one can easily extrapolate where they would be trading based on TSY futures which are currently trading at a 1.65% equivalent. But while cash bonds may be closed, the big mover on Monday was oil, with WTI surging nearly 3% and touched a seven-year high as an energy crisis gripping the major economies showed no sign of easing. Meanwhile, Brent rose just shy of $85, rising to the highest since late 2018 when the Fed abruptly reversed tightening course. Over in China, coal futures reached a record as flooding shuttered mines. The surge in oil lifted shares of Chevron Corp, Exxon Mobil Corp and APA Corp between 1.2% and 3% in premarket trading. At the same time, rising rates hit FAAMGs, with Apple, Microsoft and Amazon all falling between 0.6% and 0.8%. The surge above 1.6% for 10-year Treasury yields is intensifying debate among strategists over how to position investor portfolios amid anxiety over whether transitory inflation is transitioning into stagflation. Lucid Group rose 2.2% and Occidental Petroleum climbed 3.1%, leading gains in the U.S. premarket session. Here are some of the biggest movers and stocks to watch today: U.S.-listed Chinese tech stocks soar 2% to 5% in premarket trading, extending their recent rebound. Rally supported by Beijing slapping a smaller-than-expected fine on food delivery giant Meituan and last week’s news that U.S. President Joe Biden was planning to meet with Xi Jinping before the end of the year. Alibaba (BABA US +5%) leads gains, while JD.com (JD US) and Baidu (BIDU US) rise 2% apiece Watch U.S. energy stocks as oil surges past $80 a barrel as the global power crunch rattled a market in which OPEC+ has only been restoring output at a modest pace. Exxon Mobil (XOM US +1.1%), Chevron (CVX US +1%) and Occidental (OXY US +3.1%) among top risers in premarket trading. Robinhood (HOOD US) dropped 2%; the company was under pressure in U.S. premarket trading as a looming share sale by early investors and a toughening regulatory environment for cryptocurrencies are adding to the headwinds in the stock market for the darling of the U.S. retail trading mania. ChemoCentryx (CCXI US) up 2% in U.S. premarket trading, adding to Friday’s massive gains after the drug developer won U.S. approval for Tavneos as a treatment for a rare autoimmune disorder Cloudflare (NET US) slides 1.8% in U.S. premarket trading after Piper Sandler downgraded stock to neutral Akerna Corp. (KERN US) gained in Friday postmarket trading after Matthew Ryan Kane, a board member, bought $346,032 of shares, according to a filing with the U.S. Securities & Exchange Commission. “We see rising risks to global growth and evidence of more persistent inflation, which makes us more cautious on the outlook for global markets overall,” Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, wrote in a note to clients. In Europe, the Stoxx 600 Index fell 0.2%, led by declines in travel and property firms. Miners and energy stocks were the two strongest-performing sectors in Europe on Monday on rising prices for iron ore and oil. The Stoxx 600 Basic Resources Index climbed as much as 2.4%, while the Energy Index gains as much as 1.5% to the highest since Feb. 24, 2020. European banking stocks also advanced on Monday, following four weeks of gains, and traded about 1.3% below pre-pandemic high. The sector has gained 36% ytd, is the best performer among 20 European sectors in 2021. Up 0.7% today, outperforming a slightly weaker broader Stoxx 600 Index and as investors tilt toward cyclical sectors. Earlier in the session, Asian stocks jumped, buoyed by Hong Kong-listed technology shares including Meituan, which was consigned a lower-than-expected regulatory fine. The MSCI Asia Pacific Index climbed as much as 0.9%, driven by the consumer-discretionary and communication sectors. Alibaba and Meituan were the top contributors to the gauge, each surging about 8% in the first trading in Hong Kong after the food-delivery giant was handed a $533 million fine for violating anti-monopolistic practices.  The result of the investigation into Meituan is “a relief and likely to provide closure to the share price overhang,” Citigroup analysts wrote in a note Friday, when the penalty was announced.  Hong Kong’s stock gauge was among the top performing in the region. Japan’s benchmarks also climbed as the yen weakened to an almost three-year low against the dollar and new Prime Minister Fumio Kishida said he’s not considering changes to the country’s capital-gains tax at present. Improved sentiment in China is providing much-needed support to Asian equities, which declined for four straight weeks amid uncertainty circling global markets. Power shortages in China and India, supply-chain woes, inflation risks and rising bond yields are all on the radar as the earnings season kicks off. “We are still in a market that is very, very concerned about the growth outlook,” said Kyle Rodda, market analyst at IG Markets. These sort of rallies that appear almost inexplicable are “symptomatic of the market still trying to piece together all pieces of the puzzle,” he added. Australia The S&P/ASX 200 index fell 0.3% to close at 7,299.80, with most subgauges taking a hit. Miners advanced, posting gains for a third session, offsetting losses in healthcare and consumer discretionary stocks.  Star Entertainment was the worst performer after a report saying the company had enabled suspected money laundering, organized crime and fraud at its Australian casinos for years. Fortescue surged after the company said it plans to build a green energy factory to rival China.  In New Zealand, the S&P/NZX 50 index dropped 0.5% to 13,019.37. In FX, the pound crept higher to touch an almost 2-week high versus the dollar and the Gilt curve shifted higher, led by the front-end, after the Bank of England’s Michael Saunders, one of the most hawkish members of the Monetary Policy Committee, suggested in remarks published Saturday that investors were right to bring forward bets on rate hikes. Hours earlier, Governor Andrew Bailey warned of a potentially “very damaging” period of inflation unless policy makers take action. Australia’s dollar led gains among G-10 currencies on the back of increases in oil, natural gas and iron ore prices and as Sydney emerges from a 15- week lockdown on Monday. Iron ore futures extended gains as improved rebar margins at Chinese steel mills buoyed demand prospects. The yen dropped against the dollar, with analysts forecasting more weakness ahead as the nation’s yield differentials widen. As noted above, treasury futures slumped in U.S. trading Monday, with the cash market closed for Columbus Day; they implied a yield of 1.65% on the 10Y. 10-year note futures price is down 8+/32, a price change equivalent to a yield increase of about 3bp. Benchmark 10-year yield ended Friday at 1.615%, its highest closing level since June, as investors focused on the inflationary aspects in mixed September employment data. China's10-year government bond futures declined to a three-month low while the yuan advanced as the central bank’s latest liquidity draining weakened expectations of fresh monetary policy easing. Futures contracts on 10-year notes fall 0.4% to 99.14, the lowest level since July 12. It dropped 0.4% on Friday. 10-year sovereign bond yields rose 5bps, the biggest gains in two months, to 2.96%. Looking ahead, upcoming reports on third-quarter company profits which start this week are seen as the next potential pressure point in a market already under siege from slowing global growth, sticky inflation and tighter monetary policies. Global earnings revisions are sliding - an omen for U.S. stocks that have taken their cue from rising earnings estimates all year. “The coming earnings’ season in the U.S. will be heavily scrutinized for pricing power, margins and clues on the shortage situation, as well as wage pressures,” according to Geraldine Sundstrom, a portfolio manager at  Pacific Investment Management Co. in London. “Already a number of large multinationals have issued warnings about production cuts and downgraded their Q3 outlook due to supply chain and labor shortages.” Market Snapshot S&P 500 futures down 0.3% to 4,371.25 STOXX Europe 600 down 0.2% to 456.41 German 10Y yield up 1.5 bps to -0.135% Euro little changed at $1.1568 MXAP up 0.8% to 196.45 MXAPJ up 0.7% to 642.13 Nikkei up 1.6% to 28,498.20 Topix up 1.8% to 1,996.58 Hang Seng Index up 2.0% to 25,325.09 Shanghai Composite little changed at 3,591.71 Sensex up 0.5% to 60,358.30 Australia S&P/ASX 200 down 0.3% to 7,299.79 Kospi down 0.1% to 2,956.30 Brent Futures up 1.9% to $83.98/bbl Gold spot down 0.1% to $1,755.02 U.S. Dollar Index up 0.11% to 94.17 Top Overnight News from Bloomberg The U.S. labor market will see “ups and downs” as the pandemic lingers, but it’s premature to judge that the recovery is in peril, said San Francisco Federal Reserve President Mary Daly Treasury Secretary Janet Yellen said she expects Congress to take action soon to bring the U.S. into line with a global minimum tax agreed on last week by 136 countries Chinese builders are looking to payment extensions or debt exchanges to avoid default on imminent bond obligations as liquidity conditions tighten for the real estate sector Austria will get a new chancellor, though the career diplomat stepping into Sebastian Kurz’s shoes is a close ally of the departing conservative leader who resigned over a corruption scandal Just because pandemic inflation is transitory doesn’t mean it’s going away anytime soon. That’s the awkward conclusion that policy makers and investors are arriving at, as prices accelerate all over the world. European natural gas has climbed 25% in two weeks, and oil topped $80 for the first time since 2014. Fertilizers hit a record on Friday, which means food prices -- already at a 10- year peak -- will likely rise even higher A more detailed summary of overnight news from Newsquawk Asia-Pac stocks traded mostly positive but ended the day somewhat mixed after having shrugged off the early weakness stemming from last Friday’s lacklustre performance stateside and disappointing NFP jobs data. Note, markets in Taiwan and South Korea were closed. ASX 200 (-0.3%) was the laggard with underperformance in tech, consumer stocks and defensives overshadowing the gains in commodities and with Star Entertainment the worst hit with losses of more than 20% after media outlets alleged that it enabled suspected money laundering, organised crime, fraud and foreign interference which the Co. said were misleading reports. However, downside for the index was limited as New South Wales businesses reopened from the lockdown that lasted for over three months. Nikkei 225 (+1.6%) reversed opening losses as exporters cheered a weaker currency and with the government mulling over JPY 100bln financial support for chip factory construction. Hang Seng (+2.0%) and Shanghai Comp. (Unch) were both positive following talks between China's Vice Premier Liu He and USTR Tai on Saturday in which China was said to be negotiating for a cancellation of tariffs and sanctions. The advances in Hong Kong were led by tech stocks including Meituan despite the Co. being fined CNY 3.4bln by China’s market regulator for monopolistic behaviour, as the amount was seen to be a slap on the wrist, while the gains in the mainland were only mild as participants also reflected on the substantial liquidity drains by the PBoC totalling a net CNY 510bln since Saturday. Finally, 10yr JGBs were pressured amid the gains in Japanese stocks and lack of BoJ purchases in the market, while price action was also not helped by the continued weakness in T-note futures amid the semi-holiday conditions in US for Columbus Day in which the NYSE and the Nasdaq will open but bonds trading will remain shut. Top Asian News Australian IPOs Heading for Biggest Haul Since 2014: ECM Watch Syngenta’s Shanghai IPO Proposal Suspended For Earnings Update China Junk-Rated Dollar Bond Rout Deepens Amid Builder Worries China’s 10-Year Bond Yield Jumps By The Most Since August Bourses in Europe are mostly but modestly lower (Euro Stoxx 50 -0.1%, Stoxx 600 -0.2%) whilst the FTSE 100 (+0.2%) bucks the trend, owing to firm performances in its heavyweight sectors. US equity futures meanwhile trade within tight ranges with broad-based losses of some 0.3-0.4%. Fresh fundamental catalysts have remained light, although inflation and stagflation remain on traders' minds heading into this week's US and Chinese inflation metrics and against the backdrop of rising energy prices. Thus, the sector configuration sees Basic Resources, Oil & Gas and Banks at the top of the bunch, whilst the downside sees Travel & Leisure, Real Estate and Retail, with no overarching theme to be derived. Basic Resources is the marked outperformer as base metals are bolstered in what seems to be a function of the coal shortage in Asia, with iron ore contracts also surging overnight and copper following suit, in turn boosting the likes of Rio Tino (+3.2%), Antofagasta (+3.1%), Glencore (+3.1%), BHP (+2.8%). The top of the Stoxx 600 is dominated by metal names. In terms of individual movers, Carrefour (-2.2%) is softer after sources stated that exploratory talks over a Carrefour-Auchan tie-up ended due to the complexity of the deal. Evotec (+0.7%) holds onto gains as it seeks a Nasdaq listing. Roche (+0.6%) and Morphosys (+3.7%) underpin the health sector after the Cos received Breakthrough Therapy Designation from the US FDA for gantenerumab for the treatment of Alzheimer's disease. Top European News BOE Officials Double Down on Signals of Imminent Rate Hike Brexit Clash on Northern Ireland Means Headaches for Johnson Asos CEO Beighton Steps Down as Sales Growth Slows Adler Shares Flounder After Asset Disposal Plan, Past M&A Report In FX, the Aussie has secured a considerably firmer grip of the 0.7300 handle vs its US rival as COVID-19 restrictions are relaxed in NSW and base metals tread water after a mostly positive APAC equity session overnight. However, Aud/Usd is also firmer on the back of ongoing Greenback weakness and long liquidation from what some are calling ‘stretched’ levels of IMM positioning going in to Friday’s NFP release, while the Aud/Nzd cross has rebounded further above 1.0550 in wake of a rise in NZ virus cases that has prompted the PM to keep Auckland on level 3 alert for another week pending review. Hence, Nzd/Usd is capped around 0.6950 and continues to lag on the unwinding of Kiwi longs built up in advance of last week’s universally anticipated 25 bp RBNZ hike. Back to the Buck, but looking at the index in relation to where it was before and after the latest BLS report, 94.000 is providing some underlying support on Columbus Day that is not a full US market holiday, but will see cash Treasuries remain closed. Moreover, the DXY is gleaning momentum within a narrow 94.028-214 range via marked Yen underperformance amidst the latest rout in bonds and more pronounced technical impulses as Usd/Jpy extends beyond 112.50 and sets yet another 2021 peak around 112.95. GBP - Sterling is taking up post-payrolls Dollar slack as well, but firmer in its own right too as comments from BoE Governor Bailey and MPC member Saunders add to the growing expectation that rate hikes may be delivered sooner than had been expected before the former revealed that policy-setters were evenly divided at 4-4 in August on the subject of minimum criteria being achieved for tightening. Cable is hovering under 1.3650 and Eur/Gbp is sub-0.8500 in response, with the latter not really fazed by the UK-EU rift on NI protocol. CAD/NOK - The Loonie remains firm against its US peer after the stellar Canadian jobs data and Usd/Cad continues to probe support/bids at 1.2450 against the backdrop of strength in oil prices that is also keeping the Norwegian Krona afloat and Eur/Nok eyeing deeper sub-10.0000 lows irrespective of marginally mixed vs consensus inflation metrics. CHF/EUR/SEK - All rather rangy, aimless and looking for inspiration or clearer direction as the Franc straddles 0.9275 vs the Greenback, but remains firmer against the Euro above 1.0750 following only a faint rise in Swiss domestic bank sight deposits. Meanwhile, the Euro is pivoting 1.1575 vs the Buck and looks hemmed in by decent option expiry interest just outside the range given.1 bn rolling off between 1.1540-50 and 1.6 bn from 1.1590-1.1600 at the NY cut. Elsewhere, the Swedish Crown is slipping on risk-off grounds towards 10.1250 having tested resistance circa 10.1000. In commodities, WTI and Brent front-month futures continue the upward trajectory seen during the APAC session, with the complex underpinned heading into the winter period and against the backdrop of higher gas prices. The gains have been more pronounced in the US counterpart vs the global benchmark with no clear catalysts behind the outperformance, although this may be a continuation of the unwind seen after reports suggested a release of the US SPR (Strategic Petroleum Reserve) is unlikely. For context, reports of such a release last week took the WTI-Brent arb to almost USD 4.2/bbl vs USD 2.7/bbl at the time of writing. Furthermore, there have also been reports of lower US production under President Biden's "build back better" initiative, which puts more weight on renewable energy, with some energy analysts also suggesting that OPEC+ sees less of a threat from a "shale boom" as a result. Back to price action, WTI has been in the limelight after topping the USD 80/bbl overnight and extending gains to levels north of USD 81.50/bbl (vs low 79.55/bbl), whilst the Brent Dec contract topped USD 84.00/bbl (vs low USD 82.50/bbl). In terms of other news flow, sources suggested the fire at Lebanon's Zahrani fuel tank has been put out after the energy minister suggested the fire was contained – the cause of the fire is not yet known. Gas prices also remain elevated with UK nat gas futures relatively flat on the day but still north of GBP 2/Thm vs GBP 1/Thm mid-August and vs GBP 4/Thm last week, whilst the Qatari Energy Minister said he is unhappy about gas prices being high amid negative follow-through to customers. Over to metals, spot gold and silver are somewhat lacklustre, but with magnitudes of price action contained, with the former meandering just north of USD 1,750/oz and the latter above USD 22.50/oz heading into this week's key risk events. Overnight, iron ore futures were bolstered some 10% in Dalian and Singapore Exchanges amid fears of coking coal supply shortages - coking coal is an essential input to produce iron and steel. Traders should also be cognizant of the Chinese metrics released this week as another elevated PPI metric could see the release of more state reserves, as had been the case over the recent months. Using the Caixin PMIs as a proxy for the release, the PMI suggested sharp increases in both input costs and output prices – largely owed to supply chain delays, with the "rate of inflation was the quickest seen for four months, amid reports of greater energy and raw material costs. This, in turn, led to a solid increase in prices charged". The measure for output prices its highest in three months, whilst "the pressure of rising costs was partly transmitted downstream to consumers, as the demand was not weak." US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap A reminder that it’s Columbus Day today where US bond markets are closed. Equity markets are open but expect it to be quiet. Ahead of this, this morning we have published our latest monthly survey results covering over 600 global market participants. See here for more. For the first time since June, the biggest perceived risk to markets is now higher yields and inflation, whilst direct Covid-19 risks are out of the top 3 for the first time. A further equity correction before YE remains the consensus now. 71% expect at least another 5% off equities at some point before YE (68% correctly suggested that last month). A very overwhelming 84% thought the next 25bps move in 10yr US Treasury yields would be up. Of some additional interest is that the definition of stagflation is varied but that the majority think it’s a high or very high risk for the next 12 months. The extreme of this view surprised me. While I’ve long thought the market has underestimated the inflation risks I would still say there is enough of a growth cushion for 2022. However it’s clear the risks have built. Anyway, lots more in the survey. Thanks for filling it in and see the results for details. The week ahead will centre around the US CPI release on Wednesday but it might be a touch backward looking given that energy has spiked more recently and that used car prices are again on the march after a late summer fall that will likely be captured in this week’s release. Elsewhere, we’ve got a potentially more challenging US earnings season than that seen over the last year will commence with the big financials from Wednesday. In addition minutes from the last FOMC will give clues to the latest taper thinking on Wednesday as well. The IMF/World Bank meetings will generate plenty of headlines this week with their latest world outlook update tomorrow the highlight. The best of the rest data wise consists of JOLTS (Tuesday),which we think is a better labour market indicator than payrolls albeit a month behind, US PPI (Thursday) which will give a scale of building pipeline price pressures, US retail sales and UoM consumer sentiment (Friday), and China’s CPI and PPI (Thursday). With all that to look forward to, markets have started the week on a strong note, with equity indices including the Hang Seng (+2.02%), Nikkei (+1.57%), CSI (+0.32%) and Shanghai Composite (+0.32%) all moving higher, whilst the Kospi (-0.11%) has seen a slight decline. Japanese stocks have been buoyed by comments from new PM Kishida over the weekend that he isn’t currently considering changes to the country’s capital-gains tax. That comes with just 20 days remaining until the country’s general election. Separately in China, the country’s energy woes continue with 60 of 682 coal mines closed in the Shanxi province due to heavy floods, with Chinese coal futures up +8.00% this morning. And the property market issues are continuing to persist, with a new Chinese developer Modern Land seeking a 3 month extension to a $250 million dollar bond due to mature on October 25. By the end of last week, a Bloomberg index of Chinese junk-rated dollar bonds had seen yields climb to a decade-high above 17%, so clearly one to still look out for. Unlike in Asia, equity futures are pointing lower in the US and Europe this morning, with those on the S&P 500 down -0.21%. In terms of the main highlight it’s clearly US CPI mid-week. Given my views that inflation risks have been massively understated this year I’ve been saying for months that these reports have potentially been the most important monthly data we have seen for years. But since they mostly come and go with a “meh… mostly transitory” and a relative whimper, I’ve clearly been wrong to over hype them. So ignore me when I say that this month’s report might not be that interesting. With energy soaring over the last month and signs of inflation pressures continuing to build elsewhere then I’m not sure we can read too much into this month’s figures. Take used cars. Given the 2-3 month lag between actual prices and their CPI impact, this month will more than likely reflect a softening of prices in the summer. However September saw prices rise +5.4% so this will probably show up towards the end of the year along with the recent rise in energy costs. Our economists expect a +0.41% headline (vs. +0.27% previously) and +0.27% core (vs. +0.10%) mom rate. This is a bit above consensus and would take the yoy rate to 5.4% (up a tenth) and 4.1% (unch) respectively. Speaking of inflationary pressures, this morning has seen energy prices take a further leg higher, with WTI oil (+1.90%) moving back above $80/bbl for the first time since late 2014, whilst Brent crude (+1.42%) has moved above $83/bbl. European natural gas prices will continue to be an important one to follow amidst the astonishing price surge there, but the declines at the end of last week mean prices finished the week down by more than -45% since their intraday peak on Wednesday, before the comments from Russian President Putin that brought down prices. The rest of the day-by-day calendar is at the end as usual but although it’s a second tier release normally, tomorrow’s JOLTS will be interesting in as far as it might confirm that the main labour problems in August were a lack of supply rather than demand. The report’s full value is reduced by it being a number of weeks out of date but there’s a reasonable argument for saying that this is a better gauge of the state of the labour market than the payroll release. We go through Friday’s mixed report at the end when looking back at last week. Outside of data, it’s that time again as earnings season gets going, with a number of US financials kicking things off from mid-week. In terms of the highlights, we’ll hear from JPMorgan Chase, BlackRock and Delta Air Lines on Wednesday. Then on Thursday, we’ll get UnitedHealth, Bank of America, Wells Fargo, Morgan Stanley, Citigroup, US Bancorp and Walgreens Boots Alliance. Finally on Friday, we’ll hear from Charles Schwab and Goldman Sachs. For more info on the upcoming earnings season, you can read DB’s equity strategists Q3 S&P 500 preview here. Back to markets, it was interesting over the weekend that the BoE’s Saunders chose to endorse market expectation of an earlier start to the hiking cycle in the UK rather than push back against it. He is on the more hawkish end of the spectrum but it was an important statement. Earlier, Governor Bailey suggested that there could potentially be a very damaging period of higher inflation ahead if policy makers didn’t react. Interestingly our survey showed that the market thinks the BoE is likely to make a policy error by being too hawkish so a battle seems likely to commence over policy here in the UK over the coming weeks and months. The November meeting appears live. Those comments have helped to support the pound this morning, which is up by +0.16% against the US Dollar. Looking back to last week now, risk sentiment was supported in the first full week of Q4 by easing European energy prices and a cease fire on the debt ceiling that avoided disaster and bought Washington lawmakers 8 weeks to find a more permanent solution. Global equity indices thus gained on the week: the S&P 500 picked up +0.79%, with a slight -0.19% pullback on Friday, and European equities kept pace with the STOXX 600 rallying +0.97% (-0.28% on Friday). Cyclical stocks led the way on both sides of the Atlantic; energy stocks were among the best performers whist financials benefitted from higher yields and a steeper curve. Speaking of which, US 10yr Treasury yields gained a punchy +14.1bps to close the week at 1.603%, their highest levels since early June. The benchmark gradually increased 3.0bps after Friday’s employment data. Inflation compensation continued to drive rate increases, as US 10yr breakevens gained +13.5 bps to finish the week at 2.515%. We need to go back to May to find higher levels. The sovereign yield increases were global in nature, with German bunds gaining +7.3bps and UK gilts +15.6bps higher. German 10yr breakevens gained +3.9bps while UK breakevens were +12.0bps higher. US nonfarm payrolls increased +194k in September, well below consensus expectations of a +500k gain, though private payrolls increased +317k and net two month revisions were up +169k. The unemployment rate ticked down to a post-pandemic low of 4.8% on the back of a declining labour force participation rate. Average hourly earnings were robust, increasing +0.6% mom (+0.4% expected). Taken in concert, the print likely cleared the (admittedly low) bar to enable the FOMC to announce tapering at the November meeting, whilst also feeding the creeping stagflation narrative (see survey results). Elsewhere, building on a preliminary July deal, the OECD said 136 nations have signed up to implement a 15% minimum global tax rate to address adequate taxation of multinational tech firms. As part of the deal, countries agreed not to impose any additional digital services taxes.       Tyler Durden Mon, 10/11/2021 - 08:12.....»»

Category: blogSource: zerohedgeOct 11th, 2021

Energy Crisis May Unleash Winter Blackouts Across US, Insider Warns 

Energy Crisis May Unleash Winter Blackouts Across US, Insider Warns  The energy crisis that is rippling through Asia and Europe could unleash electricity shortages and blackouts in the U.S., according to Bloomberg.  Ernie Thrasher, CEO of Xcoal Energy & Resources LLC., told energy research firm IHS Markit that U.S. utilities quickly turn to more coal because of soaring natural gas prices.  "We've actually had discussions with power utilities who are concerned that they simply will have to implement blackouts this winter," Thrasher warned. He said, "They don't see where the fuel is coming from to meet demand," adding that 23% of utilities are switching away from gas this fall/winter to burn more coal.  With natgas, coal, and oil prices all soaring is a clear signal the green energy transition will take decades, not years. Walking back fossil fuels for unreliable clean energy has been a disaster in Asia and Europe. These power-hungry continents are scrambling for fossil fuel supplies as stockpiles are well below seasonal trends ahead of cooler weather.  A similar story is playing out in the U.S., where increased demand for coal might not be reached by mining companies. We noted Thursday morning that boosting output might be challenging due to years of decommissioning mines to reduce carbon emissions and transition the economy from fossil fuels to green energy. There's also been a steady decline of miners over the last three and a half decades.   "That whole supply chain is stretched beyond its limits," Thrasher said. "It's going to be a challenging winter for us here in the United States." Utility company Duke Energy Corp.'s Piedmont Natural Gas unit, covering North and South Carolina customers, warned power bills this winter are set to rise due to high natgas prices and low production.  A pure-play coal company that is already benefiting from the demand surge and rising prices is Peabody Energy Corporation. As cooler weather fast approaches, the company may see increased demand for its thermal coal that utility companies use to produce electricity. On a technical basis, a so-called bullish "golden cross" was just triggered.  The troubled green energy transition gives the fossil fuel industry new hope, especially "Making Coal Great Again."  Tyler Durden Thu, 10/07/2021 - 19:40.....»»

Category: smallbizSource: nytOct 7th, 2021

The Electricity Crisis Was Not Caused By A "Perfect Storm"

The Electricity Crisis Was Not Caused By A "Perfect Storm" By Leonard Hyman and William Tilles of OilPrice.com From hydropower failures in South America to natural gas shortages in Europe, and coal prices soaring in Asia, the global electricity crisis has clearly gone global While plenty of observers are willing to blame this on a ‘perfect storm’ of events, the truth is electricity providers were simply not prepared when they should have been As a result of this crisis, consumers are likely to disassociate themselves from unreliable and profit-chasing producers as they search for resilience  Recent news from the global electricity sector looks grim. South Americans, heavily dependent on hydroelectricity,  face drought-induced scarcity. Hard to believe in a continent laced by three enormous river systems. The alternatives for South American electricity users are an increased reliance on fossil fuels or turning off the lights (conservation). And unlike relatively inexpensive hydroelectricity, generating electricity with fossil fuels (apart from the ecological consequences) incurs fuel expense, which raises prices. The news emphasizes growing inflationary pressures. And this certainly feeds into that narrative. But there is a more worrisome problem for energy planners here. More droughts mean that hydro can no longer be considered a “firm” long-term resource for the electrical grid. Subtracting a major low-cost resource like hydro from a region’s energy mix and replacing it in any other fashion is an enormous financial undertaking. Just as countries are moving to reduce reliance on fossil fuels, one of the cleanest energy sources becomes scarcer. But there is a distinctly global flavor now to stories of electric utility infrastructure under duress not simply due to extreme weather. Failure of human ingenuity plays a part here. In Puerto Rico, the reorganized and semi-privatized electricity system, PREPA, experiences frequent blackouts. Yet customers seeking to install their own generation (and potentially resell power to the utility at critical times) can’t get the power company to hook them up. India faces an electricity shortage because power companies failed to restock coal inventories. Their executives expected a meaningful decline in coal prices which never materialized so they’re stuck. In the UK the windpower yield was below expectations and that dramatically pushed up power prices. But winter is coming—when the existing natural gas shortage pushes prices even higher. And then there is China. Electricity demand rose, coal usage increased, and coal prices went way up. But the government puts a ceiling on the price of electricity which causes generators to lose money on power sales in periods of rapidly escalating fuel prices like the present. So who wants to lose money on every KWH sold in the hope of making it up in volume? After experiencing blackouts and other usage reduction measures, the electric companies went to purchase more coal. However, world coal markets are now tight. One obvious short-term solution is a rapprochement with regional neighbor Australia despite a recent chilling in relations between the two governments.  In many places, the price of natural gas determines the price of electricity. If global warming were not a pressing concern, natural gas would be the boiler fuel of choice. In its absence, they would burn coal or oil. Natural gas prices have more than doubled this year in the US and quadrupled in European markets. No doubt a combination of higher demand and more cautious development by petroleum companies has tightened the market. But Europe depends to a great extent on Russian supplied gas and there are indications that the Russians did not fill European storage facilities in order to manipulate scarcity to their advantage. The Europeans do have alternatives to Russian gas, such as pipelines from Algeria (which is not the most stable supplier). Morocco wants to sign a deal but it has a problem caused by the sometimes rebellious Polisario Front which claims to represent the western Sahara region. European countries could sign big gas deals with Israel and Cyprus but would face Turkish objections. As they say, it’s complicated.  These and similar problems are not accidents and do not result from one-off difficulties or calamities. Forget about the perfect storm excuse. The problems arose because electric companies chose to defer capital and maintenance expenses, skimped on adequate fuel reserves, and focused on cost efficiencies. Customers would have been better served had they focused on hardening grid infrastructure and preserving continuous service against an increasingly hostile climate. Excessive focus on creating shareholder value can mean cutting corners to achieve savings. But the implied hope (and whether hope is an adequate basis for corporate strategy is another question) is that nothing untoward happens as a result. It’s like building a house of cards outside assuming the wind will never blow. It was in this vein that electric utilities adopted what amounts to a just-in-time supply system mentality with respect to electricity.  And there is another point to be emphasized. A well-functioning just-in-time inventory management system is a thing of beauty, efficiency, and cost minimization. But because of the extreme interdependency, one factory relies on the output of another, often thousands of miles away, any break in this carefully choreographed manufacturing process results in chaos and dysfunction. This corporate mentality has resulted in electricity systems that are now relatively low-cost but increasingly fragile. Puerto Rico, for example, is a simple case of underinvestment. The electric company, PREPA,  would have had to raise prices substantially to improve the network. If the UK had sufficient gas reserves in storage low wind conditions would not have been a big problem for power generation. But new construction and adequate gas reserves cost money. And UK regulators have worked heroically to keep down capital spending. The Europeans signed up voluntarily for Russian gas and nixed other projects. More pipelines serving their market meant paying the overhead on several competing gas transport lines which were not deemed economically efficient. As for Chinese and Indian utilities, having at least a 90-120 day coal inventory may become part of normal operations if one burns coal. But again all that adds substantially to costs.   Roughly four decades ago, neo-liberal economic principles were introduced to the electricity sector. The industry gradually changed from one dedicated to serving the public and encouraging economic development to one focusing instead on maximizing profits. Along the way, the political and regulatory systems seem to have become unusually obliging with respect to corporate interests as big money in US politics exerts its corrupting influence. Where will this lead? Well, sadly we don’t think it will lead to any serious evaluation of the structure of the electricity markets, or natural gas networks, or government policies that control them. Introspection or reflection about better utility arrangements takes time possibly even for trial and error. But our present system lurches from crisis to crisis. So where does that leave us, the electricity consumers? First, power users will try to disassociate themselves from increasingly expensive and unreliable networks. There are two reasons for this, reliability and price. As we wrote recently in reference to Entergy’s four- to six-week power outages following hurricane Ida, repeated outages of this duration are unacceptable in that it makes those regions both commercially disabled or even uninhabitable for protracted periods. We believe for this reason alone those who have the means will increasingly look for alternatives to the local power company. In addition, we’re also now witnessing rapid fuel price increases which are driving escalating electricity prices. Installing individual, non-fuel power generation and storage systems provide the energy user with long-term price stability. Once installed, a solar and battery storage system provides long-term price stability for the life of the system, possibly 20 or 30 years! This is a gigantic inflation hedge— although not looked at that way at present. In inflationary times self-generation permits power users to cap their (self-generated) rates for an extended period—a considerable benefit against a backdrop of volatile energy prices.  Lastly, we should mention the resurrection of nuclear power generation technologies both small-modular and gigawatt-scale. New and existing nuclear is heralded as the perfect low emissions, base load complement to intermittent wind or solar. It is relatively unaffected by the variabilities of nature and does not rely on fossil fuels with volatile prices. Nor need its fuel be imported from unfriendly nations which may suddenly turn off the “spigot” so to speak. As the notion of energy independence once again gains currency, widespread nuclear new-build may actually resume. But there is always something. The resumption of interest in new nukes is occurring against a backdrop of rampant price inflation. We will conclude by saying that the last time those two teamed up in the 1980s it wasn’t pretty.  Tyler Durden Thu, 10/07/2021 - 03:30.....»»

Category: blogSource: zerohedgeOct 7th, 2021

Futures Rebound As Energy Prices Soar

Futures Rebound As Energy Prices Soar US equity futures and European markets rebounded from a tech rout on Monday that was triggered by fears of soaring energy costs, stagflation, tech overvaluation and escalating Chinese property distress even as Asian shares tracked Monday's broad Wall Street sell-off to weaken for a third straight session. The dollar rose and yields rebounded back ato 1.50% as the rise in oil continued, pushing Brent above $82/bbl. At of 7:15am ET, S&P futures were up 16.25 points, or 0.38%, to 4,307; Dow futs were up 116 points and Nasdaq futures rose 47.25 points as technology shares bounced in Europe. Bitcoin jumped above $50,000 for the first time since Sept 7. The “market correction, initially sparked by tapering expectations and China’s property sector worries, is now being driven by record energy prices as well as lingering political uncertainties in the U.S. about the crucial question of the debt ceiling,” said Pierre Veyret, a technical analyst at ActivTrades. “Markets are likely to stay volatile this week and with no clear direction until there is significant progress on the existing concerns.” Additionally, the recent calm in global markets which hit an all time high as recently as a few weeks ago, has been shattered by a growing wall of worry spanning a debt crisis in China, elevated inflation on the back of commodity supply shocks, fading economic recovery and U.S. political bickering. Meanwhile, investors brace for a tapering of stimulus by the Federal Reserve. Nerves eased on Tuesday, however, led by a tech rebound following Monday's Facebook-led rout, and big bank stocks were higher in premarket trading as 10-year Treasury yields climbed to about 1.5% led again by breakevens as oil not only held onto recent impressive gains - along with most other commodities after a gauge of commodities soared to an all-time record - but Brent rose above $82 . As to the insanity in Europe's gas sector, European natural gas contracts soared on Tuesday to an unprecedented 111.70 euros per megawatt-hour, compared with 15.49 euros in February. The continent is bracing for a winter crunch in energy supply, with German front-month power contracts also jumping to record levels. Global shortages of gas and coal are pushing energy prices higher, disrupting markets from the U.K. to China, as economies emerge from the pandemic. Surging costs are threatening to raise inflation and starting to weigh onindustrial production, with some companies in Europe forced to cut output. “The fiercely nervous sentiment on the market continues due to fears of reduced supply during the winter,” trader Energi Danmark wrote in a note Tuesday. “Everything looks set for another week of price climbs.” In U.S. premarket trading, Facebook found dip buyers in premarket trading after a 4.9% plunge on Monday amid an hours-long service disruption. The stock added 1.6% in the early New York session. Lordstown Motors shares declined as much as 4.6% after the electric vehicle automaker was downgraded to underweight by Morgan Stanley, while the PT was also cut to $2 from $8. Uphealth fell after pricing its share offering at a discount. And Facebook was up 1.5% following Monday’s slump after it blamed a global service outage that kept its social media apps offline for much of yesterday on a problem with its network configuration. Here are some other notable premarket movers: Amplify Energy (AMPY US) rises 10% in U.S. premarket trading, paring some of Monday’s 44% plunge tied to an oil spill from a California offshore pipeline operated by the company Comtech Telecom (CMTL US) slid more than 7% Monday postmarket after it reported adjusted earnings below average analyst estimates It is “the period of a multiplicity of shocks percolating through the financial markets leaving them in the fog, with many watching from the sidelines for clarity,” Sebastien Galy, a senior macro strategist at Nordea Invetsment, wrote in a note. The technology subgroup in Europe’s benchmark Stoxx 600 advanced for the first time in eight days. European natural-gas contracts jumped as much as 16% and West Texas Intermediate crude headed for a seven-year high. Earlier in the session, MSCI's broadest index of Asia-Pacific shares outside Japan dropped as much as 1.3%, declining for a third consecutive session. Japan stocks were down 2.5%, South Korea gave up 2% and Australia shed 0.4%. The drop in markets took MSCI's main benchmark to 619.77, the lowest since November 2020 but it pared losses to be down 0.6% in late Asia trade. The index has shed more than 5% this year, with Hong Kong and Japanese markets among the big losers. "Investors are clearly worried about inflation due to supply chain disruptions and the rally in energy prices," said Vasu Menon, executive  director of investment strategy at OCBC Bank.  "We have seen tech stocks outperform value stocks, so if inflation remains a worry, then tech stocks tend to get hit," Menon said. In rates, Treasuries were under pressure with yields near session highs, cheaper by up to 2.5bp across belly of the curve. Yields rose not only on the continued surge in commodities, but about the total chaos over the debt ceiling D-Date which will be hit in two weeks. Gilts lag amid bond auctions, adding to upside pressure on yields, while S&P 500 futures pare about a third of Monday’s 1.3% slide. The RBA kept monetary policy unchanged as expected.  In FX, the dollar rose against most Group-of-10 currencies near a one-year high versus major peers ahead of key U.S. payrolls data due at the end of the week; the pound bucked the trend, advancing for a fourth session. The euro fell 0.25% to $1.1592, while the yen rose 0.29% to $111.18. Leveraged funds sold the kiwi aggressively after a New Zealand business survey showed weak third-quarter economic sentiment.  Sentiment on the euro over the next year reached its most bearish since June 2020 on Friday amid a widening policy divergence between the Federal Reserve and the European Central Bank. In commodities, oil prices reached a three-year high on Monday (and continued higher on Tuesday) after OPEC+ confirmed it would stick to its current output policy as demand for petroleum products rebounds, despite pressure from some countries for a bigger boost to production. Underscoring the rise in commodity prices, the Refinitiv/CoreCommodity CRB index rose to 233.08 on Monday, the highest in more than six years. U.S. oil rose 1.15% to $78.51 a barrel, a day after hitting its highest since 2014. Brent crude stood at $82.2 after rising to a three-year top. Gold prices eased to $1,757 per ounce, after rising on Monday to the highest since Sept. 23. "OPEC+ may inadvertently cause oil prices to surge even higher, adding to an energy crisis that primarily reflects very tight gas and coal markets," said Commonwealth Bank of Australia's commodities analyst Vivek Dhar. "That potentially threatens the global economic recovery, just as global oil demand growth is picking up as economies re‑open on the back of rising vaccination rates," Dhar said in a note. Traders are now turning their attention to Friday’s nonfarm-payrolls data to gauge the timing of the Fed’s taper. In the latest Fed comments, St. Louis President James Bullard said elevated price pressures may be changing the mentality of businesses and consumers by making them more accustomed to higher inflation. Australia’s central bank kept its monetary settings unchanged. Looking at the day ahead now, the main data highlight will be the services and composite PMIs for September from around the world. We’ll also get the Euro Area PPI reading for August, and from the US there’s the August trade balance and the September ISM Services index. Otherwise, central bank speakers include ECB President Lagarde, the ECB’s Holzmann, and the Fed’s Quarles. Market Snapshot S&P 500 futures up 0.2% to 4,301.00 STOXX Europe 600 up 0.4% to 452.37 MXAP down 0.7% to 192.58 MXAPJ down 0.3% to 626.41 Nikkei down 2.2% to 27,822.12 Topix down 1.3% to 1,947.75 Hang Seng Index up 0.3% to 24,104.15 Shanghai Composite up 0.9% to 3,568.17 Sensex up 0.4% to 59,531.35 Australia S&P/ASX 200 down 0.4% to 7,248.36 Kospi down 1.9% to 2,962.17 Brent Futures up 0.7% to $81.86/bbl Gold spot down 0.6% to $1,758.11 U.S. Dollar Index up 0.15% to 93.92 German 10Y yield fell 1.2 bps to -0.225% Euro down 0.2% to $1.1603 Top Overnight News from Bloomberg China’s heavily leveraged property firms saw their stocks and bonds tumble after a failure by developer Fantasia Holdings Group Co. to repay notes deepened investor concerns about the sector’s outlook A steep surge in inflation in the euro area has started to take its toll on the economy, according to a survey by IHS Markit China will strictly prevent bank and insurance funds from being used in speculating commodities in a push to maintain market order and stabilize prices The Federal Reserve said that its internal watchdog plans to open an investigation into trading activity by senior U.S. central bank officials, following revelations about transactions in 2020 Facebook Inc. blamed a global service outage that kept its social media apps offline for much of Monday on a problem with its network configuration, adding that it found no evidence that user data was compromised during the downtime A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were pressured following the tech sell-off in the US and amid several headwinds for global markets including US-China trade frictions, China's record incursion into Taiwanese airspace and with higher oil prices stoking inflationary concerns. ASX 200 (-0.6%) was dragged lower after the losses in tech rolled over into the region and following somewhat mixed Trade and PMI data releases, but with downside stemmed by resilience in gold miners and the energy sector, after gains in the underlying commodity prices including the rally in oil to a seven-year high. Nikkei 225 (-2.2%) slumped below the 28k level and briefly entered into correction territory as it suffered intraday losses of as much as 3% and with index heavyweights Fast Retailing and SoftBank dominating the list of worst performers, while KOSPI (-1.9%) also fell into a correction with the index at least 10% below the record highs registered earlier this year despite efforts by South Korea’s antitrust regulator to dispel fears of a harsh tech crackdown. Hang Seng (+0.3%) was pressured at the open amid tech woes and default fears after reports that Fantasia Holdings missed payments due yesterday for USD 206mln of bonds, although the Hong Kong benchmark then pared its losses with notable strength seen in Chinese oil majors as they benefit from the rising energy prices. Finally, 10yr JGBs were initially kept afloat by the risk aversion but then reversed course amid the uninspired mood in T-notes and Bund futures, as well as weaker metrics from the 10yr JGB auction which attracted a lower bid to cover despite a decline in accepted prices. Top Asian News Gold Drops After Three-Day Gain as Yields and Dollar Push Higher ‘Kishida Shock’ Hits Japan Markets Wary of Redistribution Plan China Orders Banks to Ramp Up Funding to Boost Coal Output S.Korea’s NPS Could Lose $3.5m From Evergrande Stock Investment European equities (Euro Stoxx 50 +0.9%; Stoxx 600 +0.7%) have extended on the marginal gains seen at the open as indices attempt to claw back some of yesterday’s losses. Incremental macro newsflow since the close has not provided much cause for optimism and therefore it remains to be seen how durable any recovery will be. Overnight, the APAC session was mostly downbeat as the region contended with the negative US lead, ongoing US-China trade frictions, China's record incursion into Taiwanese airspace and higher oil prices stoking inflationary concern. Final PMIs for the Eurozone saw the composite revised very modestly higher to 56.02 from 56.1 with IHS Markit noting “the current economic situation in the eurozone is an unwelcome mix of rising price pressures but slower growth”. Stateside, futures are exhibiting gains of a similar magnitude to their European counterparts with the ES +0.2% and no real discernible theme across the US majors as traders await further progress in Washington. Sectors in Europe are mostly higher with clear outperformance in banking names with JP Morgan bullish on the sector; Credit Agricole sits at the top of the CAC after launching a new EUR 500mln share repurchase scheme. To the downside, laggards include Construction & Materials and Autos. Individual movers include Greggs (+8.7%) at the top of the Stoxx 600 after raising its profit outlook for the FY despite concerns over supply chain disruptions and staffing issues. Elsewhere, Infineon (+2.8%) has provided some support for the IT sector after confirming its FY 21 forecasts and being confident about the FY22 outlook. Finally, Melrose (-2.2%) is a notable laggard after the Co. cautioned on the fallout of the global chip shortage which has prompted a surge in client cancellations. Top European News European Banks Have Upside on Capital Returns, Yields, JPM Says Romania Edges Toward First Rate Hike Since 2018: Decision Guide Romania Approves Partial Compensation for Higher Energy Costs Morgan Stanley Expands Diversity-Focused ‘Shark Tank’ to Europe In FX, the broader Dollar and index remain firmer on the session, with the latter on either side of 94.000 from a 93.804 overnight base, but still within yesterday’s 93.675-94.104 range which marks the first immediate points of support/resistance. State-side, US President Biden spoke with 12 progressive members of Congress in which they agreed to follow through on key priorities, while it was also reported that President Biden told House progressives the spending package needs to be between USD 1.9tln-2.2tln. Biden will meet with moderate House Democrats virtually today. It is also worth keeping an eye on the Fed’s review of trading activities which could lead to a shift in the balance between hawks and doves, following the parting of hawks Rosengren (2022 voter) and Kaplan (2023 voter), who were set to be voters during the projected rate hike period. Ahead, the US ISM Services PMI will likely be the focal point from a state-side data standpoint. EUR, GBP - The EUR and GBP continue to diverge. Sterling extends on earlier gains, seemingly a function of the EUR/GBP cross topping out just before its 50 DMA (0.8546) before taking out yesterday’s 0.8529 low on its way towards 0.8500. The Sterling strength has helped Cable regain 1.3600+ status from a 1.3585 low. EUR/USD meanders around 1.1600 in a relatively narrow 1.1591-1.1622 current intraday band – with yesterday’s low at 1.1586 ahead of the 200 WMA at 1.1572. Europe saw the release of final Services and Composite PMIs, which continue to highlight the theme of rising prices and spillover into demand. AUD, NZD, CAD - he non-US Dollars see mild losses but trade off worst levels as the Dollar recedes and as market sentiment holds an upside bias. The AUD/NZD cross meanwhile remains in focus amid this week’s RBA/RBNZ central bank standoff. The RBA overnight provided no surprises and did not contain any significant new observations, with the currency experiencing choppiness upon the release. The RBNZ, meanwhile, is poised for a 25bps OCR hike at its announcement at 02:00BST/21:00EDT tomorrow. The AUD/NZD cross resides around session lows near 1.0455, whilst OpEx sees some AUD 2.1bln at strike 1.0410. The Loonie sees an underlying bid from crude prices, with USD/CAD back under its 50 DMA at 1.2600 ahead of Canadian trade data. JPY, CHF - The traditional havens are at the foot of the G10 bunch in what is seemingly a risk-influenced move. USD/JPY within a tight 110.88-111.25 band vs yesterday’s 110.50-112.07 range. USD/CHF, meanwhile, has popped above its 21 DMA (0.9250) and trades towards the top of its current 0.9238-70 parameter. In commodities, WTI and Brent front month futures are choppy but ultimately hold an upside bias in the aftermath of the OPEC+ meeting yesterday. Nonetheless, the benchmarks remain near yesterday’s highs which saw Brent Dec test USD 82.00/bbl to the upside. Brent resides around USD 81.50/bbl at the time of writing whilst WTI Nov hovers just under USD 78/bbl. With OPEC out of the way and until the next meeting, traders will be eyeing developments (if any) regarding the Iranian nuclear talks, alongside the electricity situation in China. Furthermore, traders must be cognizant of potential intervention by governments in a bid to control rising energy prices. As a reminder, the White House held talks with Saudi counterparts before the recent OPEC+ meeting and expressed concern on prices. Aside from that, news flow for the complex has been light during the European morning. Elsewhere, precious metals are softer on the day but spot gold and silver trade off worst levels with the yellow metal still holding into USD 1,750/oz-status and spot silver back above USD 22.50/oz. Over to base metals, LME copper remains pressured in what seems to be a continuation of the lacklustre trade seen during APAC hours amid a lack of demand as China remains on holiday. US Trade Calendar 8:30am: Aug. Trade Balance, est. -$70.8b, prior -$70.1b 9:45am: Sept. Markit US Composite PMI, prior 54.5 9:45am: Sept. Markit US Services PMI, est. 54.4, prior 54.4 10am: Sept. ISM Services Index, est. 59.8, prior 61.7 DB's Jim Reid concludes the overnight wrap I’m hoping you all survived without WhatsApp, Instagram and Facebook yesterday after the outage. We actually had to resort to a conversation over dinner last night. It was a bit weird without hearing pings go off every few minutes. Once the conversation dried up we went on Twitter and then watched Netflix so it wasn’t a total disaster for US tech in our household. Oh and I’m writing this on my iPad while looking up a few things on Google. Tech led the sell-off last night that stretched to both equities and bonds. One of the noticeable features of the recent weakness in equities is that bonds have struggled to rally. This hints at technicals being nowhere near as strong as they were in the summer and also a realisation that bonds aren’t a great haven if the sell-off is partly inflation related. By the close of trade yesterday, the S&P 500 had shed another -1.30%, making it the 3rd time in the last 5 sessions that the index has lost more than 1%, with the latest move now taking it -5.21% beneath its all-time closing high back in early September. However, unlike some of the other declines of the last month, which have been quite obviously connected to a particular concern like Evergrande or the impact of higher yields, the latest selloff looks to be coming from a more generalised set of concerns, with those worries given a fresh impetus by yet another rise in energy prices yesterday as oil hit multi-year highs. In turn, that spike in energy prices has led to renewed fears about inflation accelerating even further than current forecasts are implying, with knock-on implications for central banks and the amount of monetary stimulus we can expect over the coming months. We’ll start with those moves in energy given the effects they had elsewhere. Yesterday saw Brent Crude oil prices (+2.50%) close above $81/bbl for the first time in nearly 3 years, and this morning it’s up another +0.42%. On top of that, WTI (+2.29%) oil prices hit a 6-year high of its own at $77.62/bbl, which saw its YTD gains rise above +60%. The latest advance for oil has come as the OPEC+ group agreed yesterday that they’d stick to their planned output hike of +400k barrels per day in November, in spite of some speculation that there could be a larger increase in supply. However, it wasn’t just oil moving higher, with European natural gas prices (+2.07%) taking another leg up after their recent surge, which leaves them just shy of their recent peak last Thursday. And what’s also concerning from an inflationary standpoint is that the moves in commodities were broader than simply energy, with metals including copper (+1.17%) seeing sizeable gains as well. Overall, that meant Bloomberg’s Commodity Spot Index (+1.12%) finally exceeded its 2011 high yesterday, and brings the index’s gains since the post-pandemic low in March 2020 to +94.7%. Against this backdrop, equities took another tumble as the major indices on both sides of the Atlantic moved lower, including the S&P 500 (-1.30%) and Europe’s STOXX 600 (-0.47%). Tech stocks saw the brunt of the declines, with the NASDAQ down -2.14% and the FANG+ index down -3.00%, while Europe’s STOXX Technology Index (-2.39%) fell for a 7th consecutive session. Facebook was one of the bigger laggards yesterday as it fell -4.89% - its worst day since November 2020. The company is dealing with whistleblower allegations that their internal research doesn’t match what executives have been saying about the effect the social media company has on its users. The equal weight S&P 500 was only down -0.63% so the big tech stocks definitely led the way. European equities were less affected than their US counterparts however, having missed out on Friday’s late US equity rally following the European close, with the DAX (-0.79%), the CAC 40 (-0.61%) and the FTSE 100 (-0.23%) all seeing declines of less than 1%. A lower tech weighting probably also helped. Those concerns about stagflation represented further bad news for sovereign bonds yesterday, as investors moved to upgrade their expectations of future inflation. In Europe, 10yr German breakevens were up by +2.0bps to an 8-year high of 1.72%, while their Italian counterparts hit their highest level in over a decade, at 1.63%. Meanwhile in the US, 10yr breakevens were also up +1.3bps to 2.39%. Those moves in inflation expectations supported higher yields, with those on 10yr Treasuries up +1.7bps to 1.479% by the close of trade, as yields on bunds (+1.0bps), OATs (+1.3bps) and BTPs (+1.8bps) similarly moved higher. Overnight in Asia, equities have mostly followed the US lower, with the Nikkei (-2.77%), KOSPI (-1.71%), and Australia’s ASX 200 (-0.74%) all losing ground, though the Hang Seng (+0.20%) has recovered slightly thanks to energy stocks, and S&P 500 futures (+0.13%) are also pointing to a modest recovery. Those declines for the Nikkei and the KOSPI leave them just shy of a 10% correction from their recent peaks. In terms of the latest on Evergrande, there are signs that risks are spreading to other property developers, as China’s Fantasia Holdings missed a repayment worth $205.7m on a bond that matured Monday. Unsurprisingly, the developments are continuing to affect China’s HY dollar bond prices, with a Bloomberg index now down by -14.3% since its high back in May. Elsewhere in Asia, we got confirmation shortly after we went to press yesterday from new Japanese PM Fumio Kishida that there’d be a general election on October 31. Interestingly, that will actually be the 3rd general election in a G7 economy in the space of just six weeks, following the votes in Canada and Germany in late September. Back to the US, and Treasury Secretary Yellen’s estimated deadline to raise the debt ceiling – 18 Oct – is now under 2 weeks away, and during a press conference yesterday President Biden called on Republicans to join with Democrats to raise the debt limit, arguing that over a quarter of the US debt was accumulated during the Trump administration and that it should not be tied to “any new spending being considered. It has nothing to do with my plan for infrastructure or building back better, zero.” Senate Majority Leader Schumer plans to hold a vote this week to lift the debt ceiling, though Republicans are set to block the legislation and are forcing Democrats to use the partisan budget reconciliation process that is currently the vehicle of the Biden “Build Back Better” plan. Whilst time was running out to deal with the debt ceiling, President Biden also met with progressive House Democrats yesterday to discuss the budget reconciliation package and about potentially limiting the scope of the bill that makes up much of the President’s economic agenda. Press Secretary Psaki said that there is a “recognition that this package is going to be smaller than originally proposed,” but that the President is looking to get it across the goal line. Initial estimates could see the final package closer to $2 trillion over 10 years versus the current $3.5 trillion plans. Meanwhile on trade, the Biden administration also announced yesterday that they would hold direct talks with Chinese officials in the coming week seeking to enforce prior commitments and start fresh talks to exclude some goods from US tariffs. US Trade Representative Katherine Tai will meet with Chinese Vice Premier Liu He, and is expected to focus on how to add and adjust to the Trump administration’s most recent deal with the Chinese government rather than starting from scratch. There wasn’t much in the way of data yesterday, though US factory orders in August rose by +1.2% (vs. +1.0% expected), and the previous month’s growth was revised up to +0.7% (vs. +0.4% previously). To the day ahead now, and the main data highlight will be the services and composite PMIs for September from around the world. We’ll also get the Euro Area PPI reading for August, and from the US there’s the August trade balance and the September ISM Services index. Otherwise, central bank speakers include ECB President Lagarde, the ECB’s Holzmann, and the Fed’s Quarles. Tyler Durden Tue, 10/05/2021 - 07:45.....»»

Category: blogSource: zerohedgeOct 5th, 2021

Economic Theory & Long-Wave Cycles

Economic Theory & Long-Wave Cycles Authored by Alasdair Macleod via GoldMoney.com, Investors and others are confused by the early stages of accelerating price inflation. One misleading belief is in cycles of industrial production, such as Kondratieff’s waves. The Kondratieff cycle began to emerge in financial commentaries during the inflationary 1970s, along with other wacky theories. We should reject them as an explanation for rising prices today. This article explains why the only cycle that matters is of bank credit, from which all other cyclical observations should be made. But that is not enough, because on their own cycles of bank credit do not destroy currencies - that is the consequence of central bank policies and the expansion of base money. The relationship between base money and changes in a currency’s purchasing power is not mechanical. It merely sets the scene. What matters is widespread public perceptions of how much spending liquidity is personally needed. It is by altering the ratio of currency-to-hand to anticipated needs that purchasing power is radically altered, and in the earliest stages of a hyperinflation of prices it leads to imbalances between supply and demand, resulting in the panic buying for essentials becoming evident today. Panics over energy and other necessities are only the start of it. Unless it is checked by halting the expansion of currency and credit, current dislocations will slide rapidly into a wider flight from currency into real goods - a crack-up boom. Introduction For eighteen months, the world has seen a boom in commodity prices, which has inevitably led to speculation about a new Kondratieff, or K-wave. Google it, and we see it described as a long cycle of economic activity in capitalist economies lasting 40—60 years. It marks periods of evolution and correction driven by technological innovation. Today’s adherents to the theory describe it in terms of the seasons. Spring is recovery, leading into a boom. Summer is an increase in wealth and affluence and a deceleration of growth. Autumn is stagnating economic conditions. And winter is a debilitating depression. But these descriptions did not feature in Kondratieff’s work. Van Duijan construed it differently around life cycles: introduction, growth, maturity, and decline. We must discard the word growth, substituting for it progress. Growth as measured by GDP is no more than an increase in the amount of currency and bank credit in circulation and therefore meaningless. Most people who refer to growth believe they are describing progress, or a general improvement in quality of life. Instead, they are sanctioning inflationism. There is little doubt that economic progress is uneven, but that is down to innovation. Kondratieff’s followers argue that innovation is a cyclical phenomenon, otherwise as a cyclical theory it cannot hold water. An economic historian would argue that the root of innovation is the application of technological discoveries which by their nature must be random, as opposed to cyclical, events. Furthermore, a decision must be made about how to measure the K-wave. Is it of fluctuations in the price level and of what, or of output volumes? Bear in mind that GDP and GNP were not invented until the 1930s, and all prior GDP figures are guesswork. Is it driven by Walt Rostow’s contention that the K-wave is pushed by variations in the relative scarcity of food and raw materials? Or is it a monetary phenomenon, which appeared to cease after the Second World War, when currency expansion was not hampered by a gold standard? It was an argument consistent with that put forward by Edward Bernstein, who was a key adviser to the US delegation at Bretton Woods, when he concluded that the war need not be followed by the deep post-war depression which based on historical precedent was widely expected at the time. Kondratieff’s wave theories were buried by the lack of a post-war slump, until price inflation began to increase in the 1970s and Kondratieff became fashionable again. Kondratieff maintained that his wave theory is a global capitalist phenomenon, applicable to and detected in major economies, such as those of Britain, America, and Germany. But there is no statistical evidence of a long wave in Britain’s industrial production in the first half of the nineteenth century, when Britannia ruled the economic waves. And while there were financial crises from time to time, the downward phase to complete Kondratieff’s cycle never materialised. Today, with K-waves being fundamental to so much analysis of cyclical factors and their extrapolation, the lack of evidence and rigour in Kondratieff theory should be concerning to those who believe in it. That there are variations in the pace of human progress is unarguable, and that there is a discernible cycle of them beyond mundane seasonal influences cannot be denied. But that is a cycle of credit, a factor which was at least partially understood by Bernstein, when he correctly surmised that the way to bury a post-war depression was by expanding the quantity of money. Bank credit cycles and inflation When the inflation of money supply is mostly that of bank credit, it is cyclical in nature. Its consequences for the purchasing power of the currency conforms with the cycle, but with a time lag. Furthermore, the effect is weaker in a population which tends to save than with one which tends to spend more of its income on immediate consumption. No further comment is required on this effect, other than to state that over the whole cycle of bank credit prices are likely to be relatively stable. This was the situation in Britain, which dominated the global economy for most of the period between the introduction of the gold sovereign following the 1816 Coinage Act until the First World War. Figure 1 confirms that despite fluctuating levels of bank credit, from 1822—1914 the general level of prices was broadly unchanged. The price effect of the expansion of coin-backed currency between the two dates and the increase in population offset the reduction of costs in production through a combination of improvements in production methods, technological developments, and increased volumes. What cannot be reflected in the graph is the remarkable progress made in improving the standards of living for everyone over the nineteenth century. The gold standard was abandoned at the start of the First World War, and the general level of prices more than doubled. Having seen prices rise during the war, in December 1919 the Cunliffe Committee recommended a return to the gold standard and the supply of currency was restricted from 1920 with this objective in mind. A gold bullion standard instead of a coin standard was introduced in 1925, tying sterling at the pre-war rate of $4.8665, which remained in place until 1931.[iv] From thereon, the purchasing power of the currency began its long decline as central bank money supply expanded. There is no long-term cyclicality in these changes. Following the abandonment of the gold standard, and in line with other currencies which abandoned gold convertibility in the 1930s sterling simply sank. The key to this devaluation is not fluctuations in bank credit, but the expansion of base currency. And there is no evidence of a Kondratieff, or any other long-term cycle of production. It can only be a monetary effect. The role of money in long waves It is worth bearing in mind that the so-called evidence discovered by Kondratieff was in the mind of a Marxist convinced that capitalism would fail. The downturn of a capitalist winter, or decline in growth — whatever definition is used, was baked in the anti-capitalist cake. The Marxists and other socialists were and still are all too ready to claim supposed failings of capitalism, evidenced in their eyes by periodic recessions, slumps, and depressions. Kondratieff’s economic bias may or may not have coloured his analysis — only by digging deeply into his own soul could he have answered that. But in the absence of firm evidence supporting his wave theory we should discard it. After all, there is a rich history of the religious zeal with which spurious theories in the fields of economics and money arise. The consequences of sunspot cycles and the supposed importance of anniversary dates are typical of this ouija board theme. Non-monetary cycle themes such as that devised by Kondratieff have socialism at their core. It is assumed that capitalists, bourgeois businessmen seeking through the division of labour to manufacture and supply consumer goods for profit, in their greed are reckless about commercial risks from overinvestment. This is nonsense. Fools are quickly discovered in free markets, and they are also quickly dismissed. Successful entrepreneurs and businessmen are very much aware of risk and do not embark on projects in the expectation they will be unprofitable, and it is therefore untrue to suggest that the capitalist system fails for this reason. To the contrary, markets that are truly free have been entirely responsible for the rapid improvement in the human condition, while it is government intervention that leads to periodic crises by interfering in the relationships between producers and consumers and setting in motion a cycle of interest rate suppression and currency expansion. Markets which are truly free deliver economic progress by anticipating consumer demands and deploying capital efficiently to meet them. It is no accident that economies with minimal government intervention deliver far higher standards of living than those micro-managed by governments. Hong Kong under hands-off British administration, with no natural resources and enduring floods of impoverished refugees from Mainland China stood in sharp contrast with China under Mao. Post-war East and West Germany, populated by the same ethnic people, the former communist and the latter capitalist, provides further unarguable proof that capitalism succeeds where socialism fails. Marxist socialism kills cycles by the most brutal method. It cannot entertain the economic calculations necessary to link production with anticipated demand. There is no mechanism for the redistribution of capital for its more efficient use. Consumption is never satisfied, and consumers must wait interminably for inferior products to be supplied. Any pretence at a cycle is simply suppressed out of existence. Almost all long-wave literature assumes that prices change due to supply and demand for commodities and goods alone, and never from variations in the quantity of money and credit. But even under a gold standard, the quantities of money and credit varied all the time. In Britain, and therefore in the rest of the financially developed world which adopted its banking practices, gold was merely partial backing for currency and bank deposits, which since the days of London’s goldsmiths also lubricated the creation of debt outside the banking system. While originally gold was used as coin money, since 1914 when Britain went off the gold coin standard even this role in transactions ceased. Having explained the random nature of free market capitalism, the difference from capitalistic banking must be explained. It owes its origin to London’s goldsmiths, who took in deposits to use for their own benefit, paying six per cent out of the profits they made by dealing in money. This evolved into fractional reserve banking which became the banking model for the British Empire and the rest of the world. As well as renewing the Bank of England’s charter, the Bank Charter Act of 1844 further legitimised fractional reserve banking by giving in to the Banking School’s argument that the amount of credit in circulation is adequately controlled by the ordinary processes of competitive banking. If banks acted independently from one another competing for customers and business, we might reasonably conclude that there would be from time-to-time random bank failures without cyclicality, as the Banking School argued. In capitalistic commerce, it is this process of creative destruction that ensures consumers are best served and an economy progresses to their advantage. But with banks, it is different. Each bank creates deposits which are interchanged between other banks, and imbalances are centrally cleared. Therefore, every bank has financial relations with its competitors and is exposed to its competitors’ counterparty risks, which if acted upon creates losses for themselves and other banks, risking in extremis a system-wide crisis. Banking is therefore a cartel whose members acting in their own interests tend to act in unison. In the nineteenth century his led to systemic crises, the most infamous of which were the Overend Gurney and Baring failures. It was to address this systemic risk that central banking took upon itself the role of lender of last resort, so that in future these failures would be contained. But this mitigation of risk merely strengthened the banking cartel even further, leading to the possibility of a complete banking and currency failure. And since bankers have limited liability and personally risk little more than their salary in the knowledge that a central bank will always backstop them, reckless balance sheet expansion is richly rewarded — until it fails. Fred “the shred” Goodwin, who grew a staid Royal Bank of Scotland to become the largest bank in Europe before it collapsed into government ownership was a recent example of the genre. It is these differences between banking and other commercial activities that drive a cycle of bank credit expansion and contraction while non-financial business activities cannot originate cycles. The state-sponsored structure of the banking system attempts to control it. Governments through their central banks also trigger a boom in business activity by suppressing interest rates as the principal means of encouraging the growth of currency and credit. The distortions created by these interventions and their continuence inevitably lead to a terminating crisis. As Ludwig von Mises put it: “The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." A long period of credit expansion with relatively minor hiccups ending in such a crisis could easily be confused with a Kondratieff 40—60-year cycle. But the error is to mistake its origins. Kondratieff tried to persuade us that the boom and bust was a feature of capitalist business failings when it is a currency and credit problem. The irony is that Stalin refused to admit even to an expansionary phase in capitalism, condemning Kondratieff to the gulags, and then a firing squad in 1938. He lived as a Marxist-Leninist and was executed by the system he venerated. Having identified the source of cycles as being a combination of state action and fluctuations in currency and credit in a state-sponsored banking system and not capitalistic production for profit, we can admit that there are further cyclical consequences. Whether they exist or not is usually a matter of conjecture. Purely financial cycles, such as Elliott Wave Theory, will also owe their motive forces to cycles of credit and not business activity. The effect on commodity and consumer prices Kondratieff wave followers claim that commodity bull and bear markets are the consequence of a K-wave spring and summer followed by autumn, when it tops out, and winter when it collapses before rising into the next K-wave cycle. But we have demonstrated that the K-wave is not supported by the evidence. Instead, changes in the general level of commodity prices are a function of changes in the quantity of money. And as we have seen, there is a base component and a cyclical component of bank credit. We must now refocus our attention from the long-run UK statistics shown in Figure 1 to the contemporary situation for the US dollar, in which commodities have been priced almost exclusively since the early 1970s. The chart from the St Louis Fed below is of an index of industrial materials from 1992. We can see why the Kondratieff myth might be perpetuated, with industrial material prices more than halving between 2011 and 2016. But these swings came substantially from the dollar side of prices, whose trade-weighted index rose strongly between these dates. Between 2016—2018 the dollar weakened, before strengthening into 2020. Clearly, it was the purchasing power of the dollar driving speculative as well as commercial flows in international commodity markets. In March 2020, the Fed reduced its fund rate to the zero bound and announced QE (money-printing) of an unprecedented $120bn every month. Figure 2 below shows the consequences for the general level of commodity prices. Since late-March, the components of this ETF have almost doubled in price, and after a period of consolidation appear to be increasing again. K-wave followers might conclude that it is evidence of a new Kondratieff spring or summer, with the global economy set for a new spurt of economic “growth”. But this ignores the expansion of the Fed’s balance sheet reflected in base money, which is the next FRED chart. The monetary base has approximately doubled since the Fed’s March 2020 stimulus, additional to the post-Lehman crisis expansion. The last expansion undermined the purchasing power of the dollar to a similar extent in terms of the commodity prices shown in Figure 2. Evidential consequences of price inflation Sudden increases in the money quantity have disruptive effects on markets for goods and services and the behaviour of individuals. As well as undermining a currency’s purchasing power, supplies of essential goods become disordered by unexpected shifts in demand. Throughout history there has been evidence of these inflationary consequences, often exacerbated by statist attempts to impose price controls. The Roman emperor Diocletian with his edict on maximum prices caused starvation for citizens, who were forced to leave Rome to forage for food in the surrounding countryside. The edict made the provision of food uneconomic, leading to extreme scarcity. During the reign of Henry I in England there was a monetary crisis in 1124 from the debasement of silver coins, which combined with a poor harvest drove up the prices of staples, causing widespread famine. The French revolution has been attributed to the insensitivity of royalty and the aristocracy to the masses; but it occurred at the time of the assignat inflation, which led to aggravated discontent among the lower orders and the storming of the Bastille. And today, we have widespread disruption of essential supplies, ranging from energy to carbonated foodstuffs. The lesson from history is it has only just started. Why today’s logistics and energy disruptions have only just started The problems arise because individuals’ knowledge of the relationship between money and goods comes from the immediate past. They use that knowledge to decide what to buy for future consumption, and if they are in business, for production. In the latter case, they might change inventory policies from today’s just-in-time practices to ensure an adequate stock of components is available, driving up demand for them and creating shortages of vital factors of production. Consumers faced with shortages will alter the balance between their money liquidity and goods for which they may not have an immediate need but expect to consume at a future date. Bank account balances and credit available on credit cards will be drawn down, for example, to fill their car tanks with fuel, even though no journey is planned. And as we see in the UK today, it rapidly leads to fuel shortages and rationing at the petrol pumps. While the authorities try to calm things down, either by denying there is a supply problem or by imposing price controls, consumers are likely to see these moves as propaganda and justification for reducing money liquidity even further by purchasing yet more goods. The flight out of currency liquidity has a disproportionate effect on prices, particularly for essentials. They will simply drive prices higher until no further price rises are expected. Or put more accurately, the value of the currency continues to fall. It is worth illustrating the problem for its true context. If on the one hand everyone decides they would rather have as much cash in hand money as possible rather than goods, prices will collapse. It is, as a matter of fact, a situation which cannot occur. If alternatively, everyone decides to dispose of all their liquidity by buying everything just to get rid of the currency, then the purchasing power of the currency sinks to zero. Unlike the former case, this can and does happen, when it becomes widely recognised that the currency might become worthless. In other words, a state-issued unbacked currency then collapses. Almost no one, so far, attributes today’s logistical and economic dislocations to monetary inflation, yet as pointed out above, empirical evidence points to a clear connection. Governments and central banks also seem unaware. But they appear to sense that there is an undefinable risk of consumer panic, making fuel and other shortages even worse. So far, the blame lies with logistic failures, which seem to be getting worse. Comments from leading central bankers, currently meeting in Portugal and organised by the ECB, confirm the official position of playing popular tunes while the ship goes down. The heads of the Fed, the ECB, the Bank of England, and the Bank of Japan are quoted in the Daily Telegraph as agreeing that staff shortages, shipping chaos and surging fuel costs are likely to cause further disruption as winter draws near. Andrew Bailey, Governor of the Bank of England, warned “…that the UK’s GDP will not recover to pre-pandemic levels until early next year”. But besides the Bank keeping a close watch on inflation, he commented that monetary policy can’t solve supply side shocks. Jay Powell admitted that at the margin apparently bottleneck and supply chain problems are getting marginally worse. But all the central bankers agreed that price pressures will be temporary. We can see from these comments a desire not to rock the boat and cause further panic among consumers. More worrying is the insistence that inflation remains a temporary problem. Unless there is a move to stop the monetary printing presses, they must believe it. It is confirmation that there is no intention to change monetary policy. But these problems are not restricted to the West. This week we learn that even China, which has followed a policy of restricting monetary growth, faces an energy crisis with coal at power plants critically low, and coal prices up fourfold. Energy is being rationed with production of everything from food and animal feedstuffs to steel and aluminium plants supplying other factories, which in turn face power outages. China is the world’s manufacturing hub. The United States relies on China’s exports. There were some seventy container ships at anchor or at drift areas off San Pedro earlier this week, but after dropping slightly the numbers are expected to rise again. And in China, there are delays at ports of more than three days in Busan, Shanghai, Ningbo and Yantian. Ship charter rates have rocketed from $10,000 a day to as much as $200,000.[ix] There can be no doubt as the northern hemisphere enters its winter that the consuming nations in America and Europe will see yet more product shortages, more price rises, and continuing logistics disruption. Central banks will become increasingly desperate to discourage consumers’ from hoarding items by claiming that shortages and price increases are transitory. What they fail to realise is that the consequences of currency debasement have led to consumption goods being wrongly priced, fuelling the shortages. These shortages can only be addressed by yet higher prices, even in the absence of further monetary debasement — until no further price increases are expected by consumers. But with massive and increasing government deficits to finance, central banks have no mandate to restrict the expansion of currency. An acceleration of monetary debasement as each unit of it buys less is therefore inevitable because consumers and businesses alike will begin to understand there is no limit to prices increasing. Left to its logical conclusion, the purchasing power of a currency falls exponentially until it has no value left. The speed at which it happens depends on the time taken for acting humans to realise what is happening. Unless it is stopped, an economy experiences what in the 1920s was described as a flight into real goods, or a crack-up boom. Economists today seem unable to comprehend the instability caused by monetary inflation. They adopt their models to ignore it. As von Mises put it, “The mathematical economists are at a loss to comprehend the causal relation between the increase in the quantity of money and what they call ‘velocity of circulation’". The confusion in the minds of central bank economists renders it unlikely that they will take the actions necessary to stop their currencies sliding towards worthlessness sooner rather than later. Central to resolving the problem is maintaining confidence that the currency will retain its purchasing power. But with the advent of cryptocurrencies, there is a growing proportion of the public who understand in advance of inflationary consequences that fiat currencies are being debauched at an accelerating rate. This represents a major change from the past, when, as Keynes put it supposedly quoting Lenin, “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction and does it in a manner which not one man in one million is able to diagnose”. The fact that millions now do understand the currency is being debauched is likely to make it more difficult for the state to maintain confidence in the currency in these troubled times. We should know that what is happening to commodity prices is not some long-term Kondratieff wave, or any other wave with origins in production beyond purely seasonal factors. We can say unequivocally that the cause is in changing quantities of currency and bank credit. We can also see that there are yet further effects driving prices higher from the expansion of currency so far. We can expect currency expansion to continue, so prices of commodities and consumer goods will continue to rise. Or put in a way in which it is likely to become more widely understood as the current hiatus continues, the purchasing power of the currencies in which prices are measured will continue to fall. Tyler Durden Mon, 10/04/2021 - 21:40.....»»

Category: blogSource: zerohedgeOct 4th, 2021

In Deep Ship: What"s Really Driving The Supply-Chain Crisis

In Deep Ship: What's Really Driving The Supply-Chain Crisis By Michael Every and Matteo Iagatti of Rabobank Summary It is impossible to ignore the current shipping crisis and its impact on global supply chains  A common view is that this is all the result of Covid-19. Yet while Covid has played a key role, it is only part of a far larger interconnected set of problems This report examines current shipping market dynamics; overlooked “Too Big to Sail” structural issues; a brewing political tsunami as a backlash; possible Cold War icebergs ahead; and the ‘ship of things to come’ if maritime past is a guide to maritime future  The central argument is that while central banks and governments both insist inflation is transitory and will fall once supply-chain bottlenecks are resolved, shipping dynamics suggest they are closer to becoming systemically entrenched Moreover, both historical and current trends towards addressing such problems suggest potential global market disruptions at least equal to the shocks we have already experienced. Many ports will get caught in this storm, if so Ready to ship off? It is impossible to ignore the current shipping crisis and its impact on global supply chains and economies. Businesses face huge headaches as supply dries up. Consumers see bare shelves and rising prices. Governments have no concrete solutions – save the army? Economists have to discuss the physical economy rather than a model. Central banks still assume this will all resolve itself. And shippers make massive profits. The giant Ever Given, which blocked the Suez Canal for six days in March 2021, is emblematic of these problems, but they run far deeper. This report will explore the shipping issue coast-to-coast, and past-to-present in six ‘containers’: “Are you shipping me?”, a deep-dive into market dynamics and supply-demand causes of soaring shipping prices; “To Big to Sail”, a key structural issue driving things; “Tsunami of politics” of the looming backlash to what is happening; “Cold War icebergs” of fat geopolitical tail risks; “Ship of things to come?”, asking if the maritime past is a potential guide to maritime future; and “Wait and sea?”, a strategic overview and conclusion. Are You Shipping Me? Since 2020, global shipping has been frenetic, with equally frenetic shipping rates (figure 2); difficulties for both businesses and consumers; and container-carrier profits. Is Covid-19 driving these developments, or are there other structural and cyclical factors at play? Let’s take stock. One root of the problem… In 2020, COVID-19 become a global pandemic, and lockdowns ensued: factories, restaurants, and shops all closed, bringing global supply chain almost to a halt. In this context, container carriers had no visibility on future demand and did the only reasonable thing: cut capacity. There is no economic sense in moving half-empty ships across the globe; it is costly, especially for a sector operated on tiny margins for a very long time. The consequence was widespread vessel cancellations, which soared in the first months of 2020 (figure 3). Progressively, more trade lines and ports were involved as containment measures were enacted globally. By H2-2020, virus containment measures were over in China, and many other nations eased them too. Shipping cancellations did not stop, however, just continuing at a slower pace. Indeed, capacity cuts have plagued supply-chains in 2021. Excluding the January-February peaks, from March to September 2021, an average of 9.2 vessels per week were cancelled, four vessels per week more than the previous off-peak period of July to December 2020 (figure 3). Cumulative cancellations (figure 4) underline the problems. Transpacific (e.g., China-US) and Asia-Northern Europe lines saw the largest capacity cuts, but Transatlantic and Mediterranean-North America vessels also reached historic levels of cancellations. Transpacific and Asia-Europe lines are the backbone of global trade, each representing 40% of the total container trade. More than 3 million TEUs (Twenty-foot Equivalent Units, a standard cargo measure) are moved on Transpacific and Asia-Europe lines in total per month. Due to cancellations, more than 10% of that capacity was lost in early 2020. In such a context, it was only normal to expect a rise in container rates. Over January-December 2020 the Global Baltic index (the world reference for box prices) increased by 115% from $1,460 to $3,140/TEU. However, as figure 2 shows, things then changed dramatically in 2021 for a variety of reasons. As can be seen (figure 5), cancellations alone cannot explain the price surge seen in the Baltic Dry Index -- the leading international Freight Rate Index, providing market rates for 12 global trade lines-- and on key global shipping routes (figure 6). So what did? We have instead identified five key themes that have pushed up shipping costs, which we will explore in turn: Suez – and what happened there; Sickness – or Covid-19 (again); Structure – of the shipping market; Stimulus – most so in the US; and “Stuck” – as in logistical congestion. Suez On March 23rd 2021, a 20,000TEU giant vessel, the Ever Given, owned by the Taiwanese carrier Evergreen, was forced by strong winds to park sideways in the Suez Canal, ultimately obstructing it. For the following six days, one of the fundamental arteries of trade between Europe, the Gulf, East Africa, the Indian Ocean, and South East Asia was closed for business. While the world realized how fragile globalized supply chains are, carriers and shippers were counting the costs. 370 ships could not pass the Canal, with cargoes worth around $9.5bn. Every conceivable good was on those ships. The result was more unforeseen delays, more congestions and, of course, more upward pressure on container rates. Sickness New COVID-19 Delta variant outbreaks in 20201 forced the closure of major Chinese ports such as Ningbo and Yantian causing delays and congestion that reverberated both in the region and globally. Vietnamese ports also suffered similar incidents. These closures, while not decisive blows, contributed to taking shipping capacity off the global grid, hindering the recovery trend. They were also signals of how thin the ice is that global supply chain are walking on. Indeed, Chinese and South-east Asian ports are still suffering the consequences of those earlier closures, with record queues of ships waiting to unload. Structure When external shocks cause price spikes it is always wise to look at structure of the sector in which disruption caused the price spike. This exercise provides precious hints on what the “descent” from the spike might look like. Crucially, in the shipping sector, consolidation and concentration has achieved levels that few other sectors of the economy reach. In the last five years, carriers controlling 80% of global capacity became more concentrated, with fewer operators of even larger size (figure 7). However, this is just the most obvious piece of the puzzle. In our opinion, the real change started in 2017, when the three main container alliances (2M, THE, and Ocean) were born. This changed horizontal cooperation between market leaders in shipping. The three do not fix prices, but via their networks capacity is shared and planned jointly, fully exploiting economies of scale that are decisive to making a capital-intensive business profitable and efficient. Unit margins can stay low as long as you move huge volume with high precision, and at the lowest cost possible. To be able to move the huge volumes required by a globalized and increasingly e-commerce economy at the levels of efficiency and speed demanded by operators up and down supply chains, there was little other options than to cooperate and keep goods flowing for the lowest cost possible at the highest speed possible. A tight discipline of cost was imposed on carriers, who also had to get bigger. This strategy more than paid off in the Covid crisis, when shippers demonstrated clear minds, efficiency in implementing capacity control, and a key understanding of the elements they could use to their advantage: in other words – how capitalism actually works. Carriers did not decide on the lockdowns or port closures; but they exploited their position in the global market when the pandemic erupted. In a recent report, Peter Sands from BIMCO (the Baltic and International Maritime Council) put it as follows: “Years of low freight rates resulting in rigorous cost-cutting by carriers have left them in a great position to maximise profits now that the market has turned.” Crucially, this market structure is here to stay - for now. It is a component of the global system. Carriers will continue to exert pressure and find ways to make profit but, most importantly, they will make more than sure that, this time, it is not only them that end up paying the costs of rebalancing within the global system. In short, the current market allows carriers to make historic levels of profits. However, in our view this is not the end of the story – as shall be shown later. Stimulus 2020 and 2021 saw unprecedented economic shocks from Covid-19, as well as unprecedented economic stimulus from some governments. In particular, the US government sent out direct stimulus cheques to taxpayers. With few services to spend the money on, it was instead centred on goods. Hence, consumer demand for some items is red-hot (figures 8-10). The consequences of this surge in buying on top of a workforce still partly in rolling lockdowns, and against a backlog of infrastructure decades in the making, was obvious: logistical gridlock. Moreover, with the US importing high volumes, and not exporting to match, and its own internal logistics log-jammed, there has been a build-up of shipping containers inside the US, and a shortage elsewhere. Shippers are, in some cases, even dropping their cargo and returning to Asia empty: the same has been reported in Australia. Against this backdrop, the US is perhaps close to introducing further major fiscal stimulus, with little of this able to address near-term infrastructure/logistical shortfalls. Needless to say, the impact on shipping, if such stimulus is passed, could be enormous. As such, while central banks and governments still insist that inflation is transitory, supply-chain dynamics suggest it is in fact closer to becoming systemically entrenched. Stuck In normal times, a surge in consumer spending would be a bonanza for everyone: raw material producers, manufacturers, carriers, shippers, and retailers alike. In Covid times, this is all a death-blow to global supply chains. Due to misplaced global capacity, high export volumes cannot be moved fast enough, intermediate goods cannot reach processors in time, and everybody is fighting to get a container spot on the ships available. Ports cannot handle the throughput given the backlog of containers that are still waiting to be shipped inland or loaded on a delayed boat. It is not by chance that congestion hit record peaks at the same time in Los Angeles – Long beach (LALB), and in the main ports in China, the two main poles of transpacific trade. Clearly, LALB cannot handle the surge in imports, the arrival queue keeps on growing by the day (figure 11). There are now plans to shift to working 24/7. However, critics note that all this would do is to shift containers from ships to clog other already backlogged areas of the port, potentially reducing efficiency even further. Meanwhile, in Shanghai and Ningbo there were also 154 ships waiting to unload at time of writing. The power-cuts seeing Chinese factories only operating 3-4 day weeks in many locations suggest a slow-down in the pace of goods accumulating at ports, but also imply disruption, shortages, and delays in loading, still making problems worse overall. Imagine large-scale US stimulus on top of a drop in supply! Overall, “endemic congestion” is the perfect definition for the state of the global shipping market. It is the results of many factors: vessels cancellations and capacity control; Covid; bursts of demand in some trade lines; imbalances in container distribution; regular disruption in key arteries and ports; a backlog and increasing volumes cannot be dealt with at the same time, all creating an exponentially amplifying effect. The epicenter is in the Pacific, but the problem is global. At present 10% of global container capacity is waiting to be unloaded on ship at the anchor outside some port. Solutions need to be found quickly – but can they be? The Transpacific situation is particularly delicate, stemming from a high number of cancellations, ongoing disruption, and the highest demand surge in the global economy. However, this perfect recipe for a disaster is also affecting Asia–Europe lines where shipping rates hikes also do not show any signs of slowing down. …and unstuck? The shipping business would logically seem best-placed to get out of this situation by increasing vessel capacity. Indeed, orders of new ships spiked in 2021, and in coming years 2.5m TEUs will come on stream (figure 12). However, this will not arrive for some time, and may not sharply reduce shipping prices when it does. Indeed, the industry --which historically operates on thin margins, and has seen many boom and bust cycles—knows all too well the old Greek phrase: “98 ships, 101 cargoes, profit; 101 ships, 98 cargoes, disaster”. They will want to preserve as much of the current profitability as possible, which a concentrated ‘Big 3’ makes easier. Tellingly, a recent article stressed: “Ship-owners and financiers should avoid sinking money into new container vessels despite a global crunch because record orders have driven up prices, according to industry insiders.” True, CMA CGM just froze shipping spot rates until February 2022, joining Hapag-Lloyd. Yet in both cases the new implied benchmark is of price freezes at what were once unthinkable levels – not price falls. To conclude, shipping prices are arguably very high for structural reasons, and are likely to stay high ahead – if those structures do not change. On which, we even need to look at the structure of ships themselves. Too Big to Sail Shipping, like much else, has become much larger over the years. Small feeder ships of up to 1,000TEU are dwarfed by the largest Ultra-Large Container Vessels (ULCVs), which start from 14,501 TEUS up, and are larger than the US Navy’s aircraft carriers. Of course, there is a reason for this gigantism: economy of scale. It is a sound argument. However, the same was said in other industries where painful experience, after the fact, has shown such commercial logic is not the best template for systemic stability. In banking we are aware of the phenomenon, and danger, of “Too Big to Fail”. In shipping, ULCVs and their associated industry patterns could perhaps be seen as representing “Too Big to Sail”. After all, there are downsides to so much topside beyond the obvious incident with the Ever Given earlier in the year: ULVCs cannot fit through the Panama Canal; Not all ports can handle ULCVs; They are slow at sea; They are slow to load and unload; They require more complex cargo placement / handling; They force carriers to maximize efficiency to cover costs; They force all in-land logistics to adapt to their scale; They force a hub-and-spokes global trade model; and They are vulnerable to accident or disruption, i.e., they were designed for an entirely peaceful shipping environment at a time of rising geopolitical tensions (which we will return to later). In short, current ULCV hub-and-spokes trade models are the antithesis of a nimble, distributed, flexible, resilient system, and actually help create and exacerbate the cascading supply-chain failures we are currently experiencing. However, we do not have a global shipping regulator to order shippers to change their commercial practices! Specifically, building ULVCs takes time, and shipyard capacity is more limited. As shown, the issue is not so much a lack of ULCVs, but limited capacity from ports onwards. That means we need to expand ports, which is a far slower and more difficult process than adding new containers or ships, given the constraints of geography, and the layers of local and international planning and politics involved in such developments. There is also then a need for matching warehousing, roads, trucks, truckers, rail, and retailer warehousing, etc. As we already see today, just finding truckers is already a huge issue in many  economies. Meanwhile, any incident that impacts on a ULCV port --a Covid lockdown, a weather event, power-cuts, or a physical action-- exacerbates feedback loops of supply-chain disruption more than any one, or several, smaller ports servicing smaller feeder ships would do. So why are we not adapting? Economic thinking, partly dictated by the need to survive in a tough industry; massive sunk costs; and equally massive vested interests – which we can collectively call “Too Big to Sail”. Naturally, some parties do not wish to move to a nimbler, less concentrated, more widely-distributed, locally-produced, more resilient supply-chain system --with lower economies of scale-- while some do: and this is ultimately a political stand-off. Crucially, nobody is going to make much-needed new investments in maritime logistics until they know what the future map of global production looks like. Post-Covid, do we still make most things in China, or will it be back in the US, EU, and Japan – or India, etc.? Are we Building Back Better? Where? Resolving that will help resolve our shipping problems: but it will of course create lots of new ones while doing so. Tidal Wave of Politics Against this backdrop, is it any surprise that a tsunami of politics could soon sweep over global shipping? In July, US President Biden introduced Executive Order 14036, “Promoting Competition in the American Economy”. This puts forward initiatives for federal agencies to establish policies to address corporate consolidation and decreased competition - which will include shipping. Ironically, the US encouraged “Too Big to Sail” for decades, but real and political tides both turn. Indeed, in August a bipartisan bill was introduced in Congress --“The Ocean Shipping Reform Act of 2021”-- which proposes radical changes to: Establish reciprocal trade to promote US exports as part of the Federal Maritime Commission’s (FMC) mission; Require ocean carriers to adhere to minimum service standards that meet the public interest, reflecting best practices in the global shipping industry; Require ocean carriers or marine terminal operators to certify that any late fees --known in maritime parlance as “detention and demurrage” charges-- comply with federal regulations or face penalties; Potentially eliminate “demurrage” charges for importers; Prohibit ocean carriers from declining opportunities for US exports unreasonably, as determined by the FMC in new required rulemaking; Require ocean common carriers to report to the FMC each calendar quarter on total import/export tonnage and TEUs (loaded/empty) per vessel that makes port in the US; and Authorizes the FMC to self-initiate investigations of ocean common carrier’s business practices and apply enforcement measures, as appropriate. Promoting reciprocal US trade would either slow global trade flows dramatically and/or force more US goods production. While that would help address the global container imbalance, it would also unbalance our economic and financial architecture. Fining carriers who refuse to pick up US exports would also rock many boats. Moreover, forcing carriers to carry the cost of demurrage would change shipping market dynamics hugely. At the moment, the profits of the shipping snarl sit with carriers and ports, and the rising costs with importers: the US wants to reverse that status quo. While global carriers and US ports obviously say this bill is “doomed to fail”, and will promote a “protectionist race to the bottom”, it is bipartisan, and has been endorsed by a large number of US organisations, agricultural producers and retailers. Even smaller global players are responding similarly. For example, Thailand is considering re-launching a national shipping carrier to help support its economic growth: will others follow suite ahead? Meanwhile, shipping will also be impacted by another political decision - the planned green energy transition. The EU will tax carbon in shipping from 2023, and new vessels will need to be built. For what presumed global trade map, as we just asked? The green transition will also see a huge increase in the demand for resources such as cobalt, lithium, and rare earths. Economies that lack these, e.g., Japan and the EU, will need to import them from locations such as Africa and Australia. That will require new infrastructure, new ports, and new shipping routes – which is also geopolitical. Indeed, the US, China, the EU, UK, and Japan have all made clear that they wish to hold commanding positions in new green value chains - yet not all will be able to do so if resources are limited. Therefore, green shipping threatens to be a zero-sum game akin to the 19th century scramble for resources. As Foreign Affairs noted back in July: “Electricity is the new oil” – meant in terms of ugly power politics, not more beautiful power production. Before the green transition, energy prices are soaring (see our “Gasflation” report). On one hand, this may lift bulk shipping rates; on another, we again see the need for resilient supply chains, in which shipping plays a key role. In short, current zero-sum supply-chains snarls, already seeing a growing backlash, are soon likely to be matched by a zero-sum shift to new green industrial technologies and related raw materials. In both dimensions, shipping will become as (geo)political as it is logistical. Notably, while tides may be turning, we can’t ‘just’ reshape the global shipping system, or get from “just in time” to “just in case”, or to a more localized “just for me” just like that: it will just get messy in the process. Cold War Icebergs The US is now pushing “extreme competition” between “liberal democracy and autocracy”; China counters that US hegemony is over. For both, part of this will run through global shipping. Both giants are happy to decouple supply chains from the other where it benefits them. However, the larger geostrategic implications are even more significant. Piracy and national/imperial exclusion zones used to be maritime problems, but post-WW2, the US Navy has kept the seas safe and open to trade for all carriers equally. This duty is extremely expensive, and will get more so as new ships have to be built to replace an ageing fleet. Meanwhile, China is building its own navy at breath-taking speed, and a maritime Belt and Road (BRI). As a result, a clear shift has occurred in US maritime strategy: 2007’s “A Co-operative Strategy for 21st Century Sea Power”, stressed: “We believe that preventing wars is as important as winning wars.” 2015’s update argued: “Our responsibility to the American people dictates an efficient use of our fiscal resources.” 2020’s title was changed to “Advantage at Sea: Prevailing with Integrated All-Domain Naval Power”, and stressed: “...the rules-based international order is once again under assault. We must prepare as a unified Naval Service to ensure that we are equal to the challenge.” The US is also pressing ahead with the AUKUS defence alliance and the ‘Quad’ of Japan, India, and Australia to maintain naval superiority in the Indo-Pacific. This is generating geopolitical frictions, and fears of further escalation of maritime clashes in the region. The Quad has also agreed to key tech and supply-chain cooperation, with Australia a key part of a new green minerals strategy – a race in which China is still well ahead, and the EU lags. Should any kind of major incident occur, shipping costs would escalate enormously, as can easily be seen in the case of US-UK shipping from 1887-1939: this leaped 1,600% during WW1, and these shipping data stopped entirely in September 1939 due to WW2. Crucially, US naval strategy is rooted in the post-WW2 power structure in which it benefitted from such control commercially. That architecture is crumbling - and there is a matching US consensus to shift towards “America First”, or “Made in America”. The thought progression from here is surely: “Why are we paying to protect shipping from China, or economies that do not support us against China?” In short, the strategic and financial logic is: surrender control of the seas, or ensure commercial gains from it. There are enormous implications for shipping if such a shift in thinking were to occur - and such discussions are already taking place. July 2020’s “Hidden Harbours: China’s State-backed Shipping Industry” from the Center for Strategic and International Studies argued: “The time is long overdue for the US to reinvigorate its maritime industries and challenge the Chinese in the same game by using the very same techniques the Chinese have used to gain dominance in the global maritime industry. The private-sector maritime industry cannot do this alone—the US maritime industry simply cannot compete against the power of the Chinese state. The US and allied governments must bring to bear substantial and sustained political action, policies, and financial support. To do anything less is to cede control of the world’s maritime industry and global supply chains to China, and perhaps to force the US and its allies to enter their own ‘century of shame.’” Meanwhile, stories link ports and shipping to national security (see here and here), underlining logistics are no longer seen as purely commercial areas, but rather fall within the “grey zone” between war and peace – as was the case pre-WW2. This again has major implications for the shipping business. Expect that trend to continue ahead if the maritime past as guide, as we shall now explore. The Ship of Things to Come? US maritime history in particular holds some clear lessons for today’s shipping world if looked at carefully. First, the importance of the sea to what we now think of as a land-based US: the US merchant marine helped it win independence from the powerful naval forces of the British, and the first piece of legislation Congress passed in 1789 was a 10% tariff on British imports, both to build US industry and merchant shipping. Indeed, the underlying message of US maritime history is that the US is a major commercial force at sea – but only when it sees this as a national-security goal. Following independence, US commercial shipping and industry surged in tandem, with an understandable dip only due to war with the British in 1812. The gradual normalisation of maritime trade with the UK after that saw a gradual decline in the share of trade US shipping carried, which accelerated with the end of steamship subsidies --which the British maintained-- and the US Civil War. By the start of the 20th century, W. L. Marvin was arguing: “A nation which is reaching out for the commercial mastery of the world cannot long suffer nine-tenths of its ocean-carrying to be monopolized by its foreign rivals.” Yet 1915 saw the welfare-focused US Seaman’s Act passed and US flags move to Panama, where costs were lower. However, WW1 saw US shipping surge, and the Jones Act in 1920 reaffirmed ‘cabotage’ – only US flagged and crewed vessels can trade cargo between US ports. The 1930s saw global trade and the US maritime marine dwindle again – until 1936, when the Federal Maritime Commission was set up "to promote the commerce of the US, and to aid in the national defense." WW2 then saw US mass production of Liberty Ships account for over a third of global merchant shipping – and then post-1945, this lead slipped away again, and the US merchant marine now stands at around just 0.4% of the world fleet. Indeed, in 2020, US sealift capability was reported short on personnel, hulls, and strategy such that the commercial fleet would be unlikely to meet the Pentagon’s needs for a large-scale troop build-up overseas. As we see, the US has been here several times before. If the past is any guide for the future response, this suggests the following US actions could be seen ahead: Use its market size to force shippers to change pricing – which may already be happening; Raise tariffs again (on green grounds?); Refuse to take goods from some foreign ships or ports; Force vessels to re-flag in the US, at higher cost; Build a rival to China’s marine BRI with allies; Massive ship-building, for the 3rd time in the last century; Charter US private firms to bring in green materials; or The US Navy stops protecting some sea lanes/carriers, or forces the costs of their patrols onto others. It goes without saying that any of these steps would have enormous implications for global shipping and the global economy – and yet most of them are compatible with both the strategic military/commercial logic previously underlined, as well as the lessons of history. Wait and Sea? We summarize what we have shown in the key points below: Markets For markets, there are obvious implications for inflation. How can it stay low if imported prices stay high? How will central banks respond? Rate hikes won’t help. Neither will loose monetary policy – and less it is directed to a directly-related government response on supply chains and logistics. This suggests greater impetus for a shift to more localised production on cost grounds, at least at the lower end of the value chain, if not the more-desirable higher end. Yet once this wave starts to build, it may be hard to stop. Look at EU plans for strategic autonomy in semiconductors, for example, which are echoed in the US, China, and Japan. For FX, the countries that ride that wave best will float; the ones that don’t will sink. Helicopter view of ships Clearly, shipping will continue to boom. There are huge opportunities in capex on ships, ports, logistics, and infrastructure ahead – as well as in new production and supply chains. Yet one first needs to be sure what, or whose, map of production will be used for them! As the industry sits and waits for the wind and tide to change, logically one wants to position oneself best for what may be coming next. That implies global consolidation and/or vertical integration: Large shippers looking at smaller shippers to snuff out alternative routes and capacity; shippers looking at ports; ports looking at shippers; giant retailers/producers looking at shippers; importers banding together for negotiating power in ultra-tight markets. Of course, nationally, governments are looking at shippers, or at starting new carriers. If this is to be a realpolitik power struggle for who rules the waves --“Too Big to Sail”, or a new more national/resilient map of production-- then having greater scale now increases your fire-power. Of course, it also makes you a larger target for others. Let’s presume current trends continue. Could we even end up with a return to older patterns of production, e.g., where oil used to be produced by company X, refined in its facilities, shipped on its vessels, to its de facto ports, and on to its retail distribution network. Might we even see the same for consumer goods? That is the logic of globalisation and geopolitics, as well as the accumulation of capital. However, if history is a guide, and (geo)politics is a tsunami, things will look very different on both the surface and at the deepest depths of the shipping industry and the global economy. Much we take as normal today could become flotsam and jetsam. To conclude, who benefits from the huge profits of the current shipping snarl, and who will pay the costs, is ultimately a (geo)political issue, not a market one. Many ports are likely going to be caught up in that storm. Tyler Durden Sun, 10/03/2021 - 12:15.....»»

Category: blogSource: zerohedgeOct 3rd, 2021

How do we solve climate change? Abolish fossil fuels

Even the ambitious climate plans of politicians fall short of what is needed. We must demand the end of fossil fuel extraction. Fossil fuels such as oil, gas, and coal contribute tremendously to the climate crisis. Marianne Ayala/Insider Our climate change goals are way too small for the severity of the crisis. Calling for the complete end of fossil fuel extraction is the only way forward. Other movements have proven that bold calls for abolition can radically change politics. P.E. Moskowitz is an author, runs Mental Hellth, a newsletter about capitalism and psychology, and is a contributing opinion writer for Insider. This is an opinion column. The thoughts expressed are those of the author. See more stories on Insider's business page. As Joe Biden campaigned for president in 2020, he outlined an environmental agenda that included achieving 100% clean energy in the US by 2050. The goal was ambitious, but details were scant on how to get it done. How, for example, would Biden meet the target while simultaneously promising to not ban fracking, an extractive process that contributes tremendously to the climate crisis? More recently, Biden pledged to reduce greenhouse gas emissions by at least 50% by 2030. But again, details on how to actually achieve this goal were sparse. Hobbling the administration's chances even further is the fact that Democratic Sen. Joe Manchin of West Virginia, a pro-oil politician who directly profits from the industry, will craft a large part of the party's climate change policy.And while the president tours global-warming ravaged communities, his administration has nonetheless opened up 80 million acres in the Gulf of Mexico for oil leasing, leading to lawsuits from environmental groups.Even the ambitious climate goals laid out by politicians in campaign promises fall far short of what's needed to stop the climate crisis.Though Biden and the Democrats can be blamed for their conflicting and inconsistent priorities, the base of the issue lies not with politicians, but with those of us who care about combating global warming. If Biden represents the most ambitious mainstream climate plan to date, that means we have not been ambitious enough in what we demand of our politics. We can no longer ask for abstract goals, or rely on the slow machine of electoralism. We must demand radical action - the complete abolition of the oil and gas industry. We need a big, concrete goalWe already know that the time for action on climate is past-due. Even if we stopped all oil and gas production today, it'd be too late to arrest many of the effects of climate change. The desire to do something about climate change is there - public concern about climate change has grown steadily over the last few years, and the majority of people in most developed countries say they'd be willing to take action to prevent climate change. Yet the demands we make of our politicians are milquetoast. Climate was not a central feature of the 2020 presidential debates, and the broadcast media barely covers climate at all, meaning our politicians are rarely pressured to take the drastic measures necessary to tackle the crisis. And that's because Americans don't have a concrete goal for how to tackle climate change - we get lost in the morass of individual action (reduce, reuse, recycle), or in the technocratic, long-term goals of politicians. Only when the mainstream public has a real target to strive for will we be able to make actual progress on climate change. We need to call for the complete abolition of extractive industries. There is no moderate solution to a global crisis. Fossil fuel combustion accounts for the vast majority of US carbon dioxide emissions. Eliminating these emissions by replacing our power grid with 100% clean energy is feasible and would work to get us to net zero, but right now it's not politically palatable, largely because politicians are bankrolled by the corporations threatened by green energy. We often talk about global warming as if it's an abstract concept that's too complex to solve, when in reality its cause is relatively simple: Oil and gas companies are largely to blame, and stopping them will largely stop the problem. But as long as there's a profit incentive to keep extracting oil and gas, there will be no reason for oil and gas companies to stop. So we must eliminate the ability of oil and gas companies to profit from extraction, whether through laws that make the process illegal, or through massive protests that make the daily functions of oil and gas companies untenable.This might seem like a lofty goal considering the bleak political moment we live in, but by drawing this line in the sand, we can then effectively evaluate whether politicians are moving toward that goal or not, and can develop a clearer sense of what actions need to be taken to meet that goal.As Naomi Klein writes in "This Changes Everything," politicians almost never declare an issue a crisis worth taking drastic action on until people force them to. "Slavery wasn't a crisis for British and American elites until abolitionism turned it into one," Klein writes. "Racial discrimination wasn't a crisis until the civil rights movement turned it into one … if enough of us stop looking away and decide that climate change is a crisis worthy of Marshall Plan levels of response, then it will become one, and the political class will have to respond."Shifting the Overton windowHaving a concrete goal (stopping the worst effects of climate change) with a concrete target (stopping oil and gas extraction) is the only way to move a pro-environment agenda forward.As of now, there is no mainstream coherent objective when it comes to climate beyond "do something about it." Contrast that with other successful political movements: Occupy Wall Street fought not for incremental change, but against the actions of specific banks and for the end of economic inequality. During the uprisings over police killings of people of color in the past year, activists fought not for an abstract idea of reform, but the complete abolition (or at least defunding) of the police. Socialist activists who supported Bernie Sanders in 2020 fought not to "do something" about healthcare, but for an actual policy proposal - Medicare for All. Though all of these movements met setbacks and were repressed by the state, they undoubtedly shifted the Overton window of our politics so that once seemingly impossible ideas are now part of everyday political dialogue. Dramatic restructuring of police departments, vast economic change and free healthcare - ideas that just a few decades ago were barely even part of mainstream discourse - are now discussed as realistic goals. This push creates a positive cycle of change: The discourse shifts, lofty goals then seem feasible, and that allows people to push for more change - more people show up at pipeline protests, more people support movements against police brutality, more people pressure politicians into action - which then further shifts the discourse.We can now see the same thing happening with the climate crisis: Even major publications are platforming what once seemed like radical solutions to stopping oil and gas production and consumption. There are already many groups who have gotten the memo to push for massive, systemic change on climate. Students have forced over 100 colleges and universities to divest from fossil fuel corporations. Indigenous rights movements blocked 1.6 billion tonnes of greenhouse gas emissions from being released through protest campaigns, pipeline blockades and other actions, equivalent to 25% of the emissions of the US and Canada each year.But these movements, as powerful as they are, still remain on the fringe of the fight against climate change. As Klein points out, mainstream environmental organizations push for incremental change, while people thirst for something more radical. We cannot end climate change without ending the extraction of fossil fuels. But if we keep considering that an unrealistic proposition, we're doomed to use up massive amounts of people's energy to push for small reforms, a cycle that creates cynicism and defeatism. It's a tall order to abolish all fossil fuel extraction, but the first step is simply naming it as a goal.Read the original article on Business Insider.....»»

Category: smallbizSource: nytOct 3rd, 2021

German Power Plant Halted After It Runs Out Of Coal

German Power Plant Halted After It Runs Out Of Coal In the history of the world, German electricity prices have never been higher... ... and if what just happened at the Steag Bergkamen-A electric plant is any indication, they are about to get a whole lot higher. According to Bloomberg, the global energy crisis has forced a German electricity producer to halt a power plant after it ran out of coal. Steag GmbH - which operates six large-scale hard coal plants in Germany with an installed capacity of more than 4,000 MW - closed its Bergkamen-A plant in the western part of the country this week due to shortages of hard coal, it said by email. The Bergkamen power station. Source: Google Maps “We are short of hard coal,” said Daniel Muhlenfeld, a Steag spokesman. “There is a strong demand for coal per se and secondly, there is a strong demand for transport by barge. And since Bergkamen has no rail connection, there are no logistical alternatives available here.” Steag is also facing logistical challenges as the recovery of Europe’s biggest economy fuels demand for river transport. Still the utility is optimistic that the plant will come back online “quite soon.” The Bergkamen-A plant was halted four times in September for as many as six days at a time due to external factors, according to filings. Three other German coal plants were halted on Friday for maintenance. “We are dealing with a double bottleneck.” Muhlenfeld said. “This is not a specific problem for Steag but a common problem for nearly all owners of hard coal-based power plants these days.” That explanation won't make it any easier for millions of European residents to pay as much as 10x more than they are used when their next electricity bill comes in. The closure, similar to what we have observed over the past two weeks in China, is the first sign that Europe may need to count on mild and windy weather to keep the lights on as the continent faces shortages of natural gas and coal is unlikely to come to rescue. Alas, as Bloomberg also notes, that is unlikely, at least in the near-term: *GERMAN MONDAY BASELOAD POWER TRADES AT 179 EUR/MWH  TRDEBD3, UP 88.4% FROM FRIDAY DELIVERY AS WIND AND SOLAR SUPPLY EXPECTED TO HALVE As a reminder, amid soaring gas and coal prices across the globe which have resulted in widespread fossil fuel (read nat gas and coal) shortages, China ordered its state-owned companies to secure supplies at all costs and Europe is burning more of its already depleted stocks of the dirtiest of fossil fuel, a move that may complicate climate talks next month. As a result of the failure of "green" renewable sources of energy to fill the demand gap, European utilities have turned to coal due to shortages of natural gas, recently stepping in to the spot market to secure cargoes and even asking Russia for more supplies. China’s move to secure more supplies is likely to make matters worse, with Europe set to scramble to secure fuel this winter. However, the more Europe telgraphs its glaring weakness, the more Moscow tightens the screws, and overnight nat gas flows via the Yamal-Europe pipeline plunged by 77% from Thursday, leading to new record high prices across the continent, where stockpiles of nat gas are at the lowest level in a decade. As Bloomberg adds, coal is already trading at sky-high levels, putting an industry benchmark on track to break on Friday the previous record of $192.50 set in July 2008. Several cargoes of Australian coal changed hands above $200 a metric ton on Tuesday, according to traders who saw the transactions on the globalCOAL platform. As for Germany's alternative energy source, well, here's a little story on where we stand there. As BBC reports, a huge wind turbine collapsed just hours before it was due to be officially inaugurated. The turbine, which reached a height of 239 metres, toppled over late on Wednesday without warning. No one was injured. Remains of the wind turbine remain in the forest in Haltern Remains of the structure are littered in a forest near the western town of Haltern am See in North Rhine-Westphalia. Police were not initially suspecting sabotage, according to the German DPA news agency. Costing around €2 million, the wind turbine was scheduled to be officially launched on Thursday, although it was connected to the power grid six months ago. Germany is trying to ramp up its use of renewable energy such as wind and solar as part of a transition away from fossil fuels and nuclear power. Unfortunately, as incidents such as this one demonstrate, it will take decades before base alternative energy is even remotely a viable alternative to fossil fuels. Until then, Europe faces many long, freezing winters, and while Europe's virtue signalers can always say they are "green" they will also be very cold and perhaps broke too. Tyler Durden Sun, 10/03/2021 - 07:35.....»»

Category: dealsSource: nytOct 3rd, 2021

Futures Slide, Nasdaq Plunges As Yields Surge And Oil Tops $80

Futures Slide, Nasdaq Plunges As Yields Surge And Oil Tops $80 For much of 2021, a vocal contingent of market bulls had claimed that there is no way the broader market could sell off as long as the gigacap tech "general" refused to drop. Well, it looks like that day is finally upon us because this morning US equity futures are sliding again, continuing their Monday drop as yields from the US to Germany again, the 10Y TSY rising as high as 1.55%, driven to an extent by Fed tapering fears but mostly by the surge in oil which has pushed Brent above $80, the highest price since late 2018. The dollar gained amid the deteriorating global supply crunch from oil to semiconductors. The surge in oil sparked a new round of stagflation fears, sending Nasdaq futures down 240 points or 1.3% as the yield on the benchmark 10-year U.S. Treasury climbed sharply. S&P 500 and Dow Jones futures also retreated, with spoos sliding below 4,400 as to a session low of 4,390. Rising bond yields prompted a shift from growth to cyclical stocks in the United States, in a move that analysts expect could become more permanent after a prolonged period of supressed bond yields. The premarket selloff was led by semiconductor stocks which tracked similar falls for European peers, as a rising 10-year Treasury yield puts pressure on the tech sector. Applied Materials Inc. led a slump in chip stocks in New York premarket trading while Nvidia was down 2.6%, AMD -2.1%, Applied Materials -2.9%, Micron -1.6%. Meanwhile retail trader favorite meme stock Naked Brand Group, an underwear and swimwear retailer, rises again after having surged 40% in the past two trading sessions after Chairman Justin Davis-Rice said in a letter to shareholders that he believes the company has found a “disruptive” potential acquisition in the clean technology sector. Frequency Electronics also soared after being awarded a contract by the Office of Naval Research to develop an atomic clock. Chinese stocks listed in the U.S. were mixed and semiconductor stocks declined. Here are some of the other notable U.S. movers today: iPower (IPW US) shares rise as much as 61% in U.S. premarket trading after the online hydroponics equipment retailer posted 4Q and FY21 earnings Alibaba (BABA US) rises 2.5% in U.S. premarket trading after the company’s shares listed in Hong Kong rose, adding to the Hang Seng Tech Index’s gains Frequency Electronics (FEIM US) soars 20% in U.S. premarket trading after being awarded a contract by the Office of Naval Research to develop an atomic clock Concentrix (CNXC) jumped 5.9% in Monday after hours trading after setting its first dividend payment and buyback program since being spun off from from Synnex in December Brookdale Senior Living (BKD US) shares fell in extended trading on Monday after announcing a $200 million convertible bond offering Altimmune (ALT US) rose as much as 4.2% in Monday postmarket trading on plans to announce results for an early stage study of ALT-801 in overweight people on Tuesday Ziopharm Oncology (ZIOP US) fell in extended trading after company said it cut about 60 positions, or a more than 50% reduction in personnel, to extend its cash runway into 1H 2023 Montrose Environmental Group (MEG US) was down 2.8% Monday postmarket after offering shares via JPMorgan, BofA Securities, William Blair The main catalyst for the stock selloff was the continued drop in Treasurys which sent the 10-year Treasury rising as high as 1.55% while shorter-dated rates surged toward pre-pandemic levels. This in turn was driven by the relentless meltup in commodities: overnight Brent roared above $80 a barrel - on its way to Goldman's revised $90 price target - on louder signs that demand is running ahead of supply and depleting inventories as the world finds itself in an unprecedented energy crisis. The international crude benchmark extended a recent run of gains to hit the highest since October 2018, while West Texas Intermediate also climbed. Oil’s latest upswing has come with a flurry of bullish price predictions from banks and traders, forecasts for surging demand this winter, and speculation the industry isn’t investing enough to maintain supplies. The jump to $80 also is adding inflationary pressure to the global economy at a time when prices of energy commodities are soaring. European natural gas, carbon permits and power rose to fresh records Tuesday, with little sign of the rally slowing. As Bloomberg notes, traders have begun reassessing valuations amid multiplying global risks, while Fed officials have communicated increasingly hawkish signals in recent days as supply-chain bottlenecks threaten to keep inflation elevated. China’s growth slowdown which saw Goldman lower its q/q Q3 GDP forecast to a flat 0.0%, and a debt crisis in the nation’s property market.have also fueled the risk-off shift. "Central bankers have set out how they want to normalize monetary policy for some time,” Chris Iggo, chief investment officer for core investments at AXA Investment Managers, said in a note. “That process could start soon. The realization of this has the potential to provoke some volatility in rates and equities." Elsewhere, European stocks also declined with the Stoxx Europe 600 dragged down most by technology shares. Europe’s Stoxx Tech Index drops as much as 2.8% to a five-week low after falling 1.5% on Monday having previously touched its highest level since 2000 earlier in the month. Single-stock downgrades also weighed. Stocks which performed particularly well this year are among the biggest fallers, with chip equipment makers BE Semi -4.6% and ASML -4.4%, and chipmaker Nordic Semi down 4.2%. Among other laggards, Logitech drops as much as 8.5% after being downgraded to underweight at Morgan Stanley. Earlier in the session, Asian stocks fell for the first time in four days as declines in technology names overshadowed a rally in energy shares.  The MSCI Asia Pacific Index dropped as much as 0.7%, with a jump in U.S. Treasury yields weighing on richly-valued tech stocks. That’s even as the region’s oil and gas shares climbed amid signs of a global energy crunch. Chipmakers Taiwan Semiconductor Manufacturing and Samsung Electronics were the biggest drags on the Asian benchmark. “The climb in yields led to the selling of growth stocks that have been strong, with investors rotating into names that are sensitive to business cycles - not unlike what happened in U.S. equities,” said Shutaro Yasuda, an analyst at Tokai Tokyo Research Center.  Asian equities have been recovering after being whipsawed by concerns over any fallout from China Evergrande Group’s debt troubles. As worries over the distressed property developer abate, the pace of rise in Treasury yields and global inflation data are being closely watched for clues on the U.S. Federal Reserve’s policy stance. Australia’s equity benchmark was among the biggest losers in Asia Tuesday, dragged down by losses in mining and healthcare stocks. Still, broad-based gains in oil explorers and refiners helped mitigate the Asian market’s retreat. In South Korea, importers and distributors of liquefied petroleum gas and liquefied natural gas rallied as the price of natural gas jumped. The future of Evergrande is being forensically scrutinized by investors after the company last Friday did not meet a deadline to make an interest payment to offshore bond holders. Evergrande has 30 days to make the payment before it falls into default and Shenzen authorities are now investigating the company's wealth management unit. Without making reference to Evergrande, the People's Bank of China (PBOC) said Monday in a statement posted to its website that it would "safeguard the legitimate rights of housing consumers". Widening power shortages in China, meanwhile, halted production at a number of factories including suppliers to Apple Inc and Tesla Inc and are expected to hit the country's manufacturing sector and associated supply chains. Analysts cautioned the ongoing blackouts could affect the country's listed industrial stocks. "What we see in China with the developers and the blackouts is going to be a negative weight on the Asian markets," Tai Hui, JPMorgan Asset Management's Asian chief market strategist told Reuters. "Most people are trying to work out the potential contagion effect with Evergrande and how far and wide it could go. We keep monitoring the policy response and we have started to see some shift towards supporting homebuyers which is what we have been expecting." In rates, as noted above, the selloff in Treasuries gathered pace in Asia, early Europe session leaving yields cheaper by 3.5bp to 5.5bp across the curve with 20s and 30s extending above 2% and 10-year through 1.50%. Treasury 10-year yields traded around 1.53%, cheaper by 4.5bp on the day after topping at 1.55%, highest since mid-June; in front- and belly, 2- and 5-year yields remain near cheapest levels in at least 18 months; in 10-year sector, gilts lag by 3bp vs. Treasuries while German yields are narrowly richer. Gilts underperformed further, where long-end yields are cheaper by up to 7.5bp on the day. Treasury futures volumes over Asia, early European session were at more than twice usual levels, with most activity seen in 10-year note contract; eurodollar futures volumes were also well above recent average. With recent aggressive move higher in yields, threat of convexity hedging has exacerbated moves as rate hike premium continues to filter into the curve after last week’s FOMC. Auctions conclude Tuesday with 7-year note sale, while busy Fed speaker slate includes Fed Chair Powell. In FX, the Bloomberg dollar index reached the highest level in more than a month as rising energy costs drove up Treasury yields for a fourth session. The dollar gained against all its peers; Japan’s currency slid for a fifth day against the greenback before a speech Tuesday from Fed Chair Jerome Powell who will say inflation is elevated and is likely to remain so in coming months, according to prepared remarks. Treasury two-year yields rose to the highest since March 2020. “Dollar-yen saw the clearest expression of Treasury yield increases and we attributed this divergence to the surge in energy prices,” says Christopher Wong, senior foreign-exchange strategist at Malayan Banking in Singapore. U.S. natural gas futures soared to their highest since February 2014 on concern over tight inventories. Brent oil topped $80 a barrel amid signs demand is outrunning supply. The euro slipped to hit its lowest level since Aug. 20, nearing the year-to-date low of $1.1664. The Treasury yield curve bear steepened; euro curves followed suit, with the yield on U.K. 10-year notes soaring past 1% for the first time since March 2020 on the prospects for Bank of England policy tightening. In commodities, Crude futures extend Asia’s gains. WTI rises as much as 1.6% to highs of $76.67 before stalling. Brent holds above $80. Spot gold trades around last week’s lows near $1,740/oz. Base metals are mixed: LME aluminum outperforming, rising as much as 1.1%; nickel and copper are in the red. Looking at the day ahead, one of the main highlights will be the appearance of Fed Chair Powell, and Treasury Secretary Yellen at the Senate Banking Committee. Otherwise, central bank speakers include ECB President Lagarde, Vice President de Guindos, and the ECB’s Schnabel, Panetta and Kazimir, along with the BoE’s Mann and the Fed’s Evans, Bowman and Bostic. US data highlights include the US Conference Board’s consumer confidence indicator for September and the FHFA house price index for July. Market Snapshot S&P 500 futures down 0.7% to 4,403.50 STOXX Europe 600 down 1.2% to 456.83 MXAP down 0.4% to 200.06 MXAPJ down 0.4% to 641.05 Nikkei down 0.2% to 30,183.96 Topix down 0.3% to 2,081.77 Hang Seng Index up 1.2% to 24,500.39 Shanghai Composite up 0.5% to 3,602.22 Sensex down 1.4% to 59,209.94 Australia S&P/ASX 200 down 1.5% to 7,275.55 Kospi down 1.1% to 3,097.92 Brent Futures up 0.8% to $80.15/bbl Gold spot down 0.4% to $1,742.61 U.S. Dollar Index up 0.20% to 93.57 German 10Y yield rose 2.7 bps to -0.196% Euro down 0.1% to $1.1681 Top Overnight News from Bloomberg Chinese authorities are striving to signal to traders that whatever happens to China Evergrande Group, its debt crisis won’t spiral out of control or derail the economy Brent oil roared above $80 a barrel, the latest milestone in a global energy crisis, on signs that demand is running ahead of supply and depleting inventories As the dust settles on Germany’s election, control over the finances of Europe’s largest economy could fall to a 42-year-old former tech entrepreneur who wants to lower taxes and tighten spending Wells Fargo agreed to pay $37 million in penalties and forfeiture to settle U.S. claims that it overcharged almost 800 commercial customers that used its foreign exchange services, the latest in a series of scandals at the bank A more detailed look at global markets courtesy of Newsquawk Asian equity markets traded mixed following on from a Wall Street lead where value outperformed growth and tech suffered as yields rose. ASX 200 (-1.5%) was the laggard with losses in healthcare, gold miners and tech frontrunning the declines which dragged the index beneath 7300. Nikkei 225 (-0.2%) was lacklustre and briefly approached 30k to the downside but then bounced off worse levels amid a softer currency, while the KOSPI (-1.1%) also declined following a suspected North Korean ballistic missile launch and with a recent South Korean court order to sell seized Mitsubishi Heavy assets as compensation for wartime forced labour, threatening a flare up of tensions between Japan and South Korea. Hang Seng (+1.2%) and Shanghai Comp. (+0.5%) were underpinned after the PBoC continued to inject liquidity ahead of the approaching National Day holidays and with Hong Kong led higher by strength in property names after the PBoC stated it will safeguard legitimate rights and interests of housing consumers which also provided Evergrande-related stocks further reprieve from their recent sell-off. Finally, 10yr JGBs retreated on spillover selling from T-notes after yields rose on the back of further Fed taper rhetoric and with prices not helped by the uninspiring 2yr and 5yr auctions stateside, while weaker results at the 40yr JGB auction also provided a headwind for prices. Top Asian News Top-Performing Global Luxury Stock Seen Cooling After 680% Gain China Power Price Hike Sought Amid Supply Crunch: Energy Update Macau Evacuates Airport Quarantine Hotel After Outbreak Iron Ore Dips Again as China Power Crisis Adds to Steel Curbs Bourses in Europe extended on the losses seen at the cash open and trade lower across the board (Euro Stoxx 50 -1.7%; Stoxx 600 -1.7%) as sentiment retreated from a mixed APAC handover as month-end looms alongside tier 1 data and a slew of central bank speakers. US equity futures have also succumbed to the mood in Europe alongside the surge in global yields – which takes its toll on the NQ (-1.5%) vs the ES (-0.8%), YM (-0.4%) and RTY (-0.3%). From a more technical standpoint, ESZ1 fell under its 50 DMA (4,431) and tested the 4,400 level to the downside, whilst NQZ1 briefly fell under 15k and the YMZ1 inches towards its 100 DMA (34,489). Back to Europe, the FTSE 100 (-0.4%) sees losses to a lesser extent vs its European peers as energy prices and yields keep the index oil giants and banks supported – with some of the top gainers including Shell (+2.8%), BP (+2.1%). Sectors in Europe are predominantly in the red, but Oil & Gas buck the trend. Sectors also portray more of a defensive bias, whilst the downside sees Tech, Real Estate, and Travel & Leisure at the foot of the bunch, with the former hit by the rise in yields, which sees the US 10yr further above 1.50%, the 20yr above 2.00% and the UK 10yr hitting 1.00% for the first time since March 2020. In terms of individual movers, Smiths Group (+3.8%) is at the top of the Stoxx 600 following encouraging earnings. ING (+0.3%) holds onto gains after sources noted SocGen's (-0.6%) interest in ING's retail banking arm. Finally, chip-maker ASM International (-3.5%) has succumbed to the broader tech weakness despite upping its guidance and announcing capacity expansion by early 2023. Top European News U.K. 10-Year Yield Rises Past 1% for First Time Since March 2020 Goldman’s Petershill Unit Valued at $5.5 Billion in U.K. IPO Go-Ahead Sinks as U.K. Takes Over Southeastern Rail Franchise Hedge Funds and Private Equity Are Targeting European Soccer In FX, It took a while for the index to breach resistance ahead of 93.500, but when US Treasuries resumed their bear-steepening run and the intensity of the moves in futures and cash picked up pace the break beyond the half round number was relatively quick and decisive. Indeed, the DXY duly surpassed its post-FOMC peak (93.526) and a prior recent high from August 19 (93.587) on the way to reaching 93.619 amidst almost all round Dollar gains, as 5, 10, 20 and 30 year yields all rallied through or further above psychological levels (such as 1%, 1.5% and 2% in the case of the latter two maturities). However, petro and a few other commodity currencies are displaying varying degrees of resilience in the face of general Greenback strength that is compounded by buy signals for September 30 rebalancing on spot month, quarter and half fy end. Ahead, trade data, consumer confidence, more regional Fed surveys, speakers and the 7 year auction. NZD/CHF/JPY/AUD - The Kiwi was already losing altitude above 0.7000 vs its US counterpart and 1.0400 against the Aussie on Monday, so the deeper retreat is hardly surprising to circa 0.6975 and 1.0415 awaiting some independent impetus that may come via NZ building consents tomorrow. Meanwhile, the Franc has recoiled towards 0.9300 in advance of comments from SNB’s Maechler and the Yen continues to suffer on the aforementioned rampant yield and steeper curve trajectory on top of a more pronounced 1+ sd portfolio hedge selling requirement vs the Buck, with Usd/Jpy meandering midway between 110.94-111.42 parameters irrespective of renewed risk aversion due to same bond rout dynamic. Back down under, Aud/Usd has faded from around 0.7311 to the low 0.7260 area, though holding up a bit better in wake of not quite as weak as forecast final retail sales overnight. CAD/EUR/GBP - All softer against their US rival, but the Loonie putting up a decent fight with ongoing help from WTI crude that has now topped Usd 76.50/brl, and Usd/Cad also has decent option expiry interest to keep an eye on given 1.2 bn rolling off at 1.2615 and an even heftier 3 bn at 1.2675 compared to current extremes spanning 1.2693-1.2652. Elsewhere, the Euro has lost its battle to stay afloat of multiple sub-1.1700 lows even though EGBs are tumbling alongside USTs and the same goes for Sterling in relation to the 1.3700 handle irrespective of the 10 year Gilt touching 1% for the first time since March 2020. SCANDI/EM - Brent’s advances on Usd 80 brl have been offset to an extent by soft Norwegian retail sales data, as the Nok pares more of its post-Norges Bank gains, while the Sek looks somewhat caught between stalls following a recovery in Swedish consumption, but big swing in trade balance from surplus to larger deficit. However, the Try is taking no delight from the costlier price of oil or remarks from Turkey’s Deputy Finance Minister contending that interest rates can move lower by reducing the current account and budget deficits, or conceding that Dollarisation is a problem and steps need to be taken to enhance confidence in the Lira. Conversely, the Cnh and Cny are still holding a firm line following another net injection of 2 week funds from the PBoC and the Governor saying that China will lengthen the period for the implementation of normal monetary policy, adding that it has conditions to keep a normal and upward yield curve, as it sees no need to purchase assets at present. In commodities, WTI and Brent futures have extended on the gains seen during APAC hours, which saw the Brent November contract topping USD 80/bbl, albeit the volume and open interest has migrated to the December contract – which topped out just before the USD 80/bbl mark. WTI November meanwhile advanced past the USD 76/bbl mark to a current peak at USD 76.67/bbl (vs low USD 75.21/bbl). Desks have been attributing the leg higher to tight supply – with the UK fuel situation further deteriorating amid a shortage of drivers coupled with panic buying. It's worth bearing in mind that the demand side of the equation has also seen supportive, with the US announcing the lifting of international travel curbs recently alongside the economic resilience to the Delta variant heading into the winter period. Traders would also be keeping an eye on the electricity situation in China, which in theory would provide tailwinds for diesel demand via generators, although this could be offset by a slowdown in economic activity due to power outages. There has also been growing noise for OPEC+ to hike output beyond the monthly plan of 400k BPD, with some African nations also struggling to ramp up production due to maintenance issues and lack of investments. Ministers recently noted that the plan would be maintained at next week's confab. As a reminder, the OPEC World Oil Outlook is set to be released at 13:30BST/08:30EDT, although the findings may be stale given the recent developments in crude dynamics. Major banks have also provided commentary on Brent following Goldman Sachs' bullish call recently, with Barclays upping its forecast for both benchmarks due to supply deficits, whilst Morgan Stanley maintained its forecast but suggested that the USD 85/bbl Brent scenario clearly exists. MS also noted that oil inventories continue to draw at high rates and suggest that the market is more undersupplied than generally perceived; the analysts see the market undersupplied into 2022 amid its expectation for further OPEC discipline. Nat gas also remains in focus, with prices +11% at one point, whilst Russia's Kremlin said Russia remains the safeguard of natural gas to Europe and Gazprom is ready to discuss new gas supply contracts with increased volumes to meet rising European demand. It's also worth being aware of the increasing likelihood of state intervention at these levels as nations attempt to save or at least cushion consumers and company margins. Elsewhere, precious metals are under pressure as the Buck remains buoyant, with spot gold still under USD 1,750/oz as it inches closer to the 11th August low of USD 1,722/oz. Spot silver remains within recent ranges above USD 22/oz. Overnight Chinese nickel and tin prices extended losses with traders citing subdued demand, whilst coking coal and coke futures leapt on tight supply. US Event Calendar 8:30am: Aug. Advance Goods Trade Balance, est. -$87.3b, prior -$86.4b, revised -$86.8b 8:30am: Aug. Retail Inventories MoM, est. 0.5%, prior 0.4%; Wholesale Inventories MoM, est. 0.8%, prior 0.6% 9am: July S&P CS Composite-20 YoY, est. 20.00%, prior 19.08% 9am: July S&P/CS 20 City MoM SA, est. 1.70%, prior 1.77% 9am: July FHFA House Price Index MoM, est. 1.5%, prior 1.6% 10am: Sept. Conf. Board Consumer Confidence, est. 115.0, prior 113.8 Expectations, prior 91.4 Present Situation, prior 147.3 10am: Sept. Richmond Fed Index, est. 10, prior 9 Central Bank Speakers 9am: Fed’s Evans Makes Welcome Remarks at Payments Conference 10am: Powell and Yellen Appear Before Senate Banking Panel 1:40pm: Fed’s Bowman Speaks at Community Bank Event 3pm: Fed’s Bostic Discusses the Economic Outlook 7pm: Fed’s Bullard Discusses U.S. Economy and Monetary Policy DB's Jim Reid concludes the overnight wrap What a difference a week makes. You hardly hear the word Evergrande now. We asked in a flash poll last week whether we would still be talking about it in a month or whether it would be a distant memory by then. Maybe we should have narrowed the time frame to a week! We’ve quickly moved on to rate hikes and rising bond yields as the topic de jour. A further rise in the Bloomberg Commodity Spot Index (+1.87%) to a fresh high for the decade helped reinforce the move. Indeed, sovereign bond yields moved higher once again yesterday amidst a sharp rise in inflation expectations, with those on 10yr Treasury yields rising +3.6bps to 1.487%, their highest level in over 3 months. Meanwhile the 2yr yield rose +0.8bps to 0.278%, its highest level since the pandemic began, which comes on the back of last week’s Fed meeting that prompted investors to price in an initial rate hike from the Fed by the end of 2022. The moves in Treasury yields were almost entirely driven by higher inflation breakevens, with 10yr breakevens up +3.7bps. That echoed similar moves in Europe, where the German 10yr breakeven (+4.7bps) hit a post-2013 high of 1.653%, and their Italian counterparts (+3.9bps) hit a post-2011 high. The biggest move was in the UK however, where the 10yr breakeven (+13.2bps) reached its highest level since 2008, which comes amidst a continued fuel shortage in the country, alongside another rise in UK natural gas futures, which were up +8.20% yesterday to £190/therm, exceeding the previous closing peak set a week earlier. We were waiting for the wind to blow in this country to get alternatives back on stream and boy did it blow yesterday but with no impact yet on gas prices. Lower real rates dampened the rise in yields across the continent, though yields on 10yr bunds (+0.5bps), OATs (+0.9bps), BTPs (+1.3bps) and gilts (+2.7bps) had all moved higher by the close of trade. Those spikes in commodity prices were evident more broadly yesterday, with energy prices in particular seeing a major increase. Brent crude oil prices were up +1.84% to $79.53/bbl, marking their highest closing level since late-2018, and this morning in trading they have now exceeded the $80/bbl mark with a further +0.94% increase. It was much the same story for WTI (+1.99%), which closed at $75.45/bbl, which was its own highest closing level since 2018 too. And those pressures in UK natural gas prices we mentioned above were seen across Europe more broadly, where futures were up +8.92%. With yields moving higher and inflationary pressures growing stronger, tech stocks struggled significantly yesterday, with the NASDAQ down -0.52%. The megacap tech FANG+ index fell -0.15% on the day, but was initially down as much as -1.7% in early trading. The NASDAQ underperformed the S&P 500, which was only down -0.28%, but that masked significant sectoral divergences, with interest-sensitive growth stocks struggling, just as cyclicals more broadly posted fresh gains. More specifically, energy (+3.43%), bank (+2.29%) and autos (+2.19%) led the S&P, while biotech (-1.65%) and software (-1.39%) shares were among the largest laggards. European equities were also pretty subdued, with the STOXX 600 down -0.19%, though the DAX was up +0.27% following the results of the German election, which removed the tail risk outcome of a more left-wing coalition featuring the SPD, the Greens and Die Linke. Staying on the political scene, we are now less than 72 hours away from a potential US government shutdown as it stands. As was expected, Republicans in the Senate blocked the House-passed measure to fund the government for another 2 months and raise the debt ceiling for 2 years. While Democrats have not put forward their alternative strategy if Republicans refuse to vote to lift the debt ceiling, their only option would be to attach it to the budget reconciliation plan that currently makes up much of the Biden economic agenda. In an effort to keep all party members on board, Speaker Pelosi moved the vote on the $550bn bipartisan infrastructure bill to Thursday in order to give all sides more time to finish the larger budget bill and pass both together. It is a going to be a very busy Thursday, since Congress will have to also pass the funding bill that day. Republicans and Democrats already agree on a funding bill to keep the government open that does not include the debt ceiling increase so it is just a matter of how exactly the debt ceiling provision goes through without a Republican Senate vote. Overnight in Asia, equity indices are seeing a mixed performance. On the one hand, most of the region including the Nikkei (-0.24%) and KOSPI (-0.80%) are trading lower as investors begin to price in tighter monetary policy from the Fed. However, the Hang Seng (+1.50%), Shanghai Composite (+0.53%) and CSI (0.38%) have all advanced after the People’s Bank of China said that they would ensure a “healthy property market”. Looking forward, US equity futures are pointing to little change, with those on the S&P 500 down just -0.05%, and 10yr Treasury yields have risen +1.9bps this morning to trade above 1.50% again. Back to the German election, where the aftermath yesterday saw various party leaders assess the results and stake their claims to participate in a new coalition. As a reminder, the SPD came in first place with 25.7%, but the CDU/CSU weren’t far behind on 24.1%, making it mathematically possible for either to form a government in a coalition with the Greens and the FDP. The SPD’s chancellor candidate, Finance Minister Olaf Scholz, appealed for the Greens and FDP to join him in forming a government, and told the media that he wanted to form a coalition before Christmas. Meanwhile Green co-leader Robert Habeck said that “Of course there is a certain priority for talks with the SPD and the FDP”, but said that this didn’t mean they wouldn’t speak with the CDU/CSU either. As the SPD were calling for an alliance, the tone sounded more negative from the CDU’s leadership, even though Armin Laschet said that he had not given up on the idea of forming a government. Notably, Laschet said that no party was able to draw a clear mandate from the result, including the SPD, and this echoed remarks from the CSU leader Markus Söder, who said that the conservatives had no mandate to form a government, though they could “make an offer out of a sense of responsibility for the country.” Meanwhile, attention will turn to the FDP and the Greens to see which way they’re leaning when it comes to forming a government. FDP leader Lindner said that he would hold preliminary talks with the Greens, after which they would be open to invitations from either the SPD or the CDU/CSU for further discussions. Back on the UK, there was an interesting speech from BoE Governor Bailey yesterday, where he echoed the line from the MPC minutes last week, saying that “all of us believe that there will need to be some modest tightening of policy to be consistent with meeting the inflation target sustainable over the medium-term”. However, he also said that their view was that “the price pressures will be transient”, and that “monetary policy will not increase the supply of semi-conductor chips … nor will it produce more HGV drivers.” He then further added that tighter policy “could make things worse in this situation by putting more downward pressure on a weakening recovery of the economy”. So a bit of a mixed message of backing rate hike expectations but warning about its impact on growth. Over in the US we heard from a host of Fed speakers with Governor Brainard saying that while “employment is still a bit short of the mark” of “substantial further progress”, she expects that the labour market will recover enough to start tapering asset purchases soon. Separately on the inflation debate, Minneapolis Fed President Kashkari argued that this year’s pickup in US inflation has been a byproduct of the supply disruptions associated with Covid and that policy makers should not react to it just yet. He cited the need to get US employment back up as the Fed’s “highest priority”. New York Fed President Williams agreed with his colleague, saying that “this process of adjustment may take another year or so to complete as the pandemic-related swings in supply and demand gradually recede.” And Chicago Fed President Evans is even worried about downside inflation risks, as he is " more uneasy about us not generating enough inflation in 2023 and 2024 than the possibility that we will be living with too much.” Lastly, news came out yesterday that Boston Fed President Rosengren will retire this week due to health concerns. He was due to step down in June regardless as there is a mandatory retirement age of 65. Dallas Fed President Kaplan also announced his retirement yesterday, which will take effect October 8th. Both officials have drawn scrutiny in recent days stemming from their recent disclosure of trading activity over the last year, though the activity did not violate the Fed’s ethics code even as Fed Chair Powell announced an official review of those rules. The Boston Fed President will be a voting member on the FOMC next year, and the Dallas Fed President in 2023. Running through yesterday’s data, the preliminary reading for US durable goods orders in August showed growth of +1.8% (vs. +0.7% expected), and the previous month was also revised up to show growth of +0.5% (vs. -0.1% previously). Meanwhile core capital goods orders grew by +0.5% (vs. +0.4% expected), and the previous month’s growth was revised up two-tenths. Finally, the Dallas Fed’s manufacturing activity index for September came in at 4.6 (vs. 11.0 expected) – its lowest reading since July 2020. To the day ahead now, and one of the main highlights will be the appearance of Fed Chair Powell, and Treasury Secretary Yellen at the Senate Banking Committee. Otherwise, central bank speakers include ECB President Lagarde, Vice President de Guindos, and the ECB’s Schnabel, Panetta and Kazimir, along with the BoE’s Mann and the Fed’s Evans, Bowman and Bostic. US data highlights include the US Conference Board’s consumer confidence indicator for September and the FHFA house price index for July. Tyler Durden Tue, 09/28/2021 - 07:52.....»»

Category: blogSource: zerohedgeSep 28th, 2021

You Might Not Be Getting That New Smartphone for Christmas Because of Power Cuts in China

Global shoppers face possible shortages of smartphones and other goods ahead of the holiday season BEIJING — Global shoppers face possible shortages of smartphones and other goods ahead of Christmas after power cuts to meet official energy use targets forced Chinese factories to shut down and left some households in the dark. In the northeastern city of Liaoyang, 23 people were hospitalized with gas poisoning after ventilation in a metal casting factory was shut off following a power outage, according to state broadcaster CCTV. No deaths were reported. Factories were idled to avoid exceeding limits on energy use imposed by Beijing to promote efficiency. Economists and an environmental group say manufacturers used up this year’s quota faster than planned as export demand rebounded from the coronavirus pandemic. [time-brightcove not-tgx=”true”] A components supplier for Apple Inc.’s iPhones said it suspended production at a factory west of Shanghai under orders from local authorities. The disruption to China’s vast manufacturing industries during one of their busiest seasons reflects the ruling Communist Party’s struggle to balance economic growth with efforts to rein in pollution and emissions of climate-changing gases. “Beijing’s unprecedented resolve in enforcing energy consumption limits could result in long-term benefits, but the short-term economic costs are substantial,” Nomura economists Ting Lu, Lisheng Wang and Jing Wang said in a report Monday. They said the impact might be so severe that they cut their economic growth forecast for China to 4.7% from 5.1% over a year earlier in the current quarter. They cut their outlook for annual growth to 7.7% from 8.2%. Global financial markets already were on edge about the possible collapse of one of China’s biggest real estate developers, Evergrande Group, which is struggling to avoid a default on billions of dollars of debt. Manufacturers already face shortages of processor chips, disruptions in shipping and other lingering effects of the global shutdown of travel and trade to fight the coronavirus pandemic. Residents of China’s northeast, where autumn temperatures are falling, report power cuts and appealed on social media for the government to restore supplies. The crunch comes as global leaders prepare to attend a U.N. environmental conference by video link on Oct. 12-13 in the southwestern city of Kunming. That increases pressure on President Xi Jinping’s government, as the meeting’s host, to show it is sticking to emissions and energy efficiency targets. China is one of the world’s biggest emitters of climate-changing industrial gases and consumes more energy per unit of economic output than developed countries. The ruling party also is preparing for the Winter Olympics in the Chinese capital, Beijing, and the nearby city of Shijiazhuang in February, a period when it will want clear blue skies. Scores of companies have announced power rationing could force them to delay filling orders and might hurt them financially. Apple components supplier Eson Precision Engineering Co. Ltd. said Sunday it would halt production at its factory in Kunshan, west of Shanghai, through Thursday “in line with the local government’s power restriction policy.” Eson said the suspension shouldn’t have a “significant impact” on operations. Apple didn’t immediately respond to a question about the possible impact on iPhone supplies. China’s energy consumption and industrial emissions have surged as manufacturers rush to fill foreign demand at a time when competitors elsewhere still are hampered by anti-coronavirus controls. China’s economy is “more driven by exports than any time in the past decade,” but official energy use targets fail to take that into account, economists Larry Hu and Xinyu Ji of Macquarie Group said in a report. Some provinces used up most of their quotas for energy consumption in the first half of the year and are cutting back to stay under their limits, according to Li Shuo, a climate policy expert at Greenpeace in Beijing. Utility companies, meanwhile, are being squeezed by soaring coal and gas prices. That discourages them from increasing output because the government limits their ability to pass on costs to customers, said Li. Prices have risen “past the range of what China’s electricity industry can bear,” Li said. China has launched repeated campaigns to make its energy-hungry economy more efficient and clean up smog-choked cities. City skies are visibly clearer, but the abrupt way the campaigns are carried out disrupts supplies of power, coal and gas, leaving families shivering in unheated homes and forcing factories to shut down. Shopping malls in the northeastern city of Harbin have announced they will close stores earlier than usual to save power. In Guangdong province in the south, the government told the public to set thermostats on air conditioners higher even as temperatures rose above 34 degrees C (93 degrees F). State Grid Corp., the world’s biggest power distributor, issued a pledge to ensure adequate supplies. Meanwhile, state media say local governments have signed long-term coal contracts to ensure adequate suppliers. ___ Soo reported from Singapore. AP writer Huizhong Wu in Taipei, Taiwan, contributed to this report......»»

Category: topSource: timeSep 27th, 2021