Calm Before Next Week's Storm - MIDDAY MACRO - 12/9/2022
Color on Markets, Economy, Policy, and Geopolitics
Midday Macro – 12/9/2022
Overnight and Morning Recap / Market Wrap:
Price Action and Headlines:
Equities are lower, but little changed as hotter than expected PPI data was somewhat negated by lower inflation expectations as Tech/Growth slightly outperforms, but there is no clear cyclical/defensive or duration tilt today
Treasuries are lower, with the curve steepening post-PPI, moving the ten-year above 3.5% as traders brace for next week’s CPI print and FOMC meeting results
WTI is lower, around $70, with markets unsure what to do with Russia’s output cut threats while gasoline prices at the pump are back to where they started the year
Narrative Analysis:
Equities are little changed on the session, bouncing around in a tighter range after a notable pullback earlier in the week based on worries about future growth. However, this week’s data continued to show a resilient economy. Today’s hotter-than-expected PPI data was not as bad as headline gains would indicate, while consumer confidence notably increased, helped by higher-income respondents and giving the Fed some relief due to falling inflation expectations. The Treasury curve is steepening today, with long-end yields significantly higher today, helping retrace most of this week’s drop. Oil is again under pressure, with positioning being reduced due to increasing growth worries too, and despite China continuing to indicate risk-friendly changes to their zero-Covid policy. Traders are also trying to figure out the many issues surrounding Russia’s production and supply story, with price caps and stuck ships muddying the water there. Industrial metals are mixed, with copper lower on the session but higher on the week. The agg complex is lower with the weather in both the northern and southern hemispheres improving. Finally, the dollar is little changed, with the $DXY flat on the day at 104.8.
The Nasdaq is outperforming the S&P and Russell with Growth, Value, and Low Volatility, factors, and Communication, Real Estate, and Technology sectors all outperforming on the day.
@KoyfinCharts
S&P optionality strike levels have the Zero-Gamma Level at 3977 while the Call Wall is 4100. The 4000-4010 is large overhead resistance, with 4050 above that. Support is at 3960. The 4000 level will continue to have gravity likely until next week's CPI report.
@spotgamma
S&P technical levels have support at 3960-55, then 3945, with resistance at 3990, then 4015. Next week is one of the most catalyst-rich weeks of the year, with CPI, FOMC, and Quad Witching all in the same week. The 3955-60 level remains support of the ascending triangle, and bulls are in control above it. For the next big leg down/short to trigger, we need to fall below 3915-10.
@AdamMancini4
Treasuries are lower, with the 10yr yield at 3.55%, higher by 6.8 bps on the session, while the 5s30s curve is stepper by 8bps, moving to -20 bps.
Deeper Dive:
After a close to -5% pullback on the S&P earlier in the week, markets have become more neutral today as all eyes turn to next week’s CPI and FOMC meeting in what is looking like a calm before the storm. Expectations are for a slight increase in the monthly headline and core CPI readings while the Fed will reduce the size of their rate hike but increase the ultimate Fed funds level they believe will be reached. This week's economic data showed continued resilience in the economy, both on the hard and soft side. Unfortunately, inflation readings were more mixed, with PPI and the ISM Service PMI’s Price sub-index staying elevated. In contrast, consumer inflation expectations fell, as seen in the Univ. of Michigan survey. When coupled with decreases in energy and agricultural commodity prices, the inflation picture was little changed on the week but still generally trending lower. This falling trend continues to have us believe in a more optimistic outcome for risk assets next year as the ultimate level of Fed tightening and duration needed to stay there also falls. At the same time, the economy continues to show resilience, reducing the discount risk assets are currently reflecting. As a result, we are adding risk to our mock portfolio in several ways. The overarching theme is better-than-expected domestic and international growth in Q1 while inflation increasingly trends lower, helping financial conditions loosen further due to reduced Fed tightening expectations.
Although we have high conviction on where the trend in inflation is going (lower), today’s hotter-than-expected PPI shows the danger of predicting monthly changes right now. As a result, it's unclear what next week’s CPI print will bring. However, despite what the official data brings, the signs inflation has peaked continue to grow. Supply chain problems continue to ease, with shipping and warehousing costs falling. House prices and rents are increasingly trending lower. Discounts on goods during the holiday season are prevalent, with the consumer being much more price sensitive. Larger ticket items are also falling, as seen in used cars. This is on top of declining energy and food commodities prices, although the latter has yet to hit the consumer while diesel prices remain stubbornly high. On the labor front, surveys are indicating less demand for workers, slowing turnover moving forward and, as a result, reducing current wage pressures. Internationally, prices are also generally falling, especially in China, which has a direct effect on the U.S. There is much more to say regarding the changing nature of inflation currently, but in aggregate, the trend is now your friend. It also means the Fed can finish its current tightening cycle faster than expected.
*Although the service side is slower to change due to shelter and continued strong demand, inflation for goods will increasingly roll over in the coming months
*Its only fitting that gas, the main driver of inflation expectations and headlines, has done a full circle back to where it started the year, indicating that the trend elsewhere is also likely lower
*Difficulties finding needed labor may limit the level of layoffs, but falling demand seen in reduced levels of backlogs of work, will decrease hours worked, overall hiring, and hence turnover, the main driver of wage growth
The Fed is expected to slow its level of rate hikes to 50bp next week, bringing the Fed funds range to 4.25-4.5% while still trying to sound hawkish by telegraphing through the presser and SEPs that more hikes are coming. As indicated by Powell, it is likely the forecasted peak median Fed funds rate has risen to 5.25%. However, the dispersion may have widened given increased calls for caution/patience being called for by more dovish members of the committee, as well as recent research by the SF Fed showing when combined with QT, the real Fed funds rate is much higher already. In the end, Powell will keep his options open but attempt to strike a more hawkish tone than he did during his Brooking Conference Q&A.
*Current expectations for the Fed’s rate path have the terminal rate now above 5% but cuts coming around the beginning of 2024
*The speed at which the Fed has tightened policy, especially when including QT, is unparalleled in history, indicating to us that the committee will increasingly show caution now as inflation cools and the economy slows
Inflation is falling everywhere, even if the official data is slower to pick it up. This means the Fed will ultimately not need to move too much further into restrictive territory even if the economy remains resilient. In our opinion, the majority of the inflation was supply-side driven and transitory (just on a longer timeframe than initially thought). We do not see any signs of a wage-spiral scenario developing and instead expect falling inflation and a cooling labor market to move real disposable income back into a more historically positive area, reducing the need for further wage increases (something already occurring). The remaining demand-pull pressures driving inflation on the service side are likely to cool in the first quarter of next year as consumers return to a more regular work-life balance, allowing the supply-demand imbalance currently occurring in many “going-out” sectors to normalize, something we have been seeing on the goods side for months now. All in all, the Fed won’t have to obliterate the economy as the things needed to correct the supply and demand imbalance caused by the current inflationary pulse are underway, reducing the length of time the Fed needs to keep the economy at “below-trend” growth.
*The market continues to expect one rate cut in the second half of next year
*The level of curve inversion is reflecting a significant amount of rate cuts coming further out
The scenario we have been describing for some time has recently been named the “Dirty Goldilocks” by BofA’s Hartnett, a normally bearish strategist. This is where the labor market remains resilient, keeping domestic consumption healthy as consumer and business confidence improves due to falling inflation and improving real income. Further, the international picture improves, driven by better-than-expected growth in Europe and China. As a result, earnings don’t fall as much as feared, and risk assets can remain upward trending as multiple expansion occurs while earnings stabilize. Why would multiples expand? Falling inflation, even without falling demand and weaker labor markets, means the Fed can stop tightening and even ease policy sooner than expected. This means real rates and financial conditions can stabilize and fall and loosen, respectively. We continue to subscribe to this outlook cautiously as the data supports it. Of course, the ultimate question of what is a fair valuation for stocks is highly debatable, but we have a target of a little above 4200 on our current S&P long position.
*There has been some stabilization in next year's earnings outlook in recent weeks after a notable dive lower
*Despite all the chaos this year, earnings forecasts and actual results have been very close
*The market has historically only stopped falling after the Fed stops tightening, with an average return of 14% in the following year
As a result of our more rosy outlook, we are making a number of additions to the mock portfolio, taking advantage of the slight pullback this week while mainly positioning ourselves for expected Q1 gains. We are adding a 20% long position in EM, split between $EEM (10%), $EEMA (5%), and $EMB (5%). This overweights Asia and gives us fixed-income exposure. We are a little late here, given the gains already experienced since the late October lows. However, we believe a longer-term trend is underway as growth and policy developments provide better support to EM risk assets, enticing currently under-allocated investors to reengage. It also supports our belief the dollar will continue to trend lower. We are entering a 5% Nasdaq long through the $QQQ ETF based on a belief that allocation will increase into mega-cap tech and communication sectors while future earnings fears are overdone. We are entering a 5% long nickel position through the $JJN ETF. This is a play on global growth improving, increasing structural shortages of the crucial mineral, and our electrification theme, more generally, complementary to our existing long copper position. Finally, we are entering a 10% long oil position through the $USO ETF. Oil is too low. The demand and supply equation indicates a higher price is likely despite current growth worries. There is a lot to unpack in each of these new positions, and we plan to address them individually in the future, but we saw this week as the best opportunity to position for next quarter.
*Market sentiment, as measured by GS, continues to indicate a very light level of positioning, something we believe will change in Q1
*The portfolio is now 95% invested, the highest level in a while, with a 2.7% return since inception
Econ Data:
The Producer Price Index rose 0.3% in November, the same as an upwardly revised 0.3% increase in October and above market forecasts of 0.2%. The core PPI rate rose by 0.4% MoM, after increasing by 0.1% last month, and above market expectations of a 0.2% rise. The cost of services increased by 0.4% MoM, the biggest gain in three months. Trade-orientated services rose 0.7%, led by financial services, which jumped 11.3%, while transportation and warehousing costs fell by -0.9%. The cost of goods edged up 0.1%. Foods increased by 3.3% MoM while Energy fell by -3.3% MoM. Gasoline prices dropped by -6% on the month. On an annual basis, the headline PPI rate is higher by 7.4%, the smallest increase since May last year, while the core PPI is now higher by 6.2% YoY.
Why it Matters: The stronger PPI reading is not as “bad” as the headline readings would suggest. Around 1/3 of the increase in final demand services was due to higher brokerage costs, something that does not seem sustainable or even relevant to Main Street, while the majority of the increase in final demand for goods was due to increases in the food category, which has become increasingly volatile/bifurcated. Large monthly declines in transportation and warehousing costs are more relevant to where future consumer inflation goes for goods, with this category down four out of the last five months. Further, declines in the intermediate demand prices for processed and unprocessed goods fell by -0.9%, the fifth month of negative monthly gains, indicating that pipeline pressures continue to ease for goods. Directly impacting the consumer, the transportation of private passengers (which flows through to core PCE) dropped from +2.9% last month to -5.6% this month. Finally, despite the stronger-than-expected monthly increase in headline and core, the overall annual rate decreased due to increasingly hard-to-beat prior-year monthly gains. Optics matter, and it will be difficult now for annual inflation readings to rise again for a few months due to the ramp-up in the monthly prints seen this time last year.
*Final demand increased by 0.3% for a third consecutive month, with goods decelerating to 0.15 MoM (vs. 0.6% in Oct) and services rising 0.4% (vs. 0.1% MoM in Oct)
*Increases in services and food were the main drivers for the better-than-expected monthly headline and core increases
The ISM Services PMI unexpectedly jumped to 56.5 in November, rebounding from a more than 2-year low of 54.4 in October and beating market forecasts of 53.3. New Orders (56 vs. 56.5 in Oct) and Backlogs of Orders (51.8 vs. 52.2) decreased slightly, showing some moderation in demand. New Export Orders (38.4 vs. 47.7) fell sharply, while Imports (59.5 vs. 50.4) expanded notably, showing a growing divergence in activity between the two. Business Activity (64.7 vs. 55.7) increased significantly, while Employment (51.5 vs. 49.1) moved back into expansionary territory. Prices (70 vs. 70.7) were little changed, as were Inventories (47.9 vs. 47.2). Finally, Supplier Deliveries (53.8 vs. 56.2) continued to fall back to more neutral levels.
Why it Matters: November's report was better than expected, mainly on a significant jump in business activity/production and, to a lesser extent, employment. Interestingly, a notable drop in exports was offset by an equally sized increase in imports, potentially showing that the stronger dollar and weaker economic picture outside the U.S. further affected the trade balance (specific to service trade). Continued drops in delivery times show increased capacity and shorter lead times, accounting for an improvement in supply chain and logistics performance. However, selected respondent comments continued to highlight supply chain problems, and prices were little changed, remaining at a historically elevated level even as ISM Manufacturing PMI prices (and regional Fed surveys) have dropped notably. In the end, inflation will remain stickier in the service sector as it is doing relatively well, allowing greater pricing power both on the paid and received side. Finally, comments and the employment sub-index showed a better ability to find qualified workers. The survey results, especially in the comment section, show a slowing but still growing but quickly bifurcating service industry, with specific sub-sectors doing better than others.
*All four major sub-indexes remained in expansionary territory, with the overall PMI reading coming in much higher than expected, showing the difficulties in predicting survey-based reports.
*Increases in business activity/production and employment were attributed to a new fiscal period and the holiday season
*Despite improved supply chain readings, prices were little changed, with the list of commodities up in price or short in supply continuing to contain labor (as well as a few other major items)
*A more mixed level of positives and negatives (despite the higher top-line reading) was seen at the sub-index and comment level, with some contradictions between the two
*The S&P Global Service PMI was not nearly as upbeat, with their chief economist Chris Williamson saying their survey results are equivalent to a -1% Q4 ’22 growth
New orders for manufactured goods rose by 1% in October, following a 0.3% increase in the prior month and above market expectations of a 0.7% gain. Orders for durable goods rose by 0.4% (vs. 0.3% in Sept), mainly due to increased orders for transportation equipment (0.4% vs. 1.2%), machinery (1.4% vs. 0.3%), and computers and electronic products (0.4% vs. 0.6%). Also, demand for non-durable goods increased by 1% (vs. 0.3% in Sept). Excluding transportation, factory orders went up 0.8% (vs. 0.1%). Shipments increased by 0.7% (vs. 0.3%), while unfilled orders rose by 0.6% (vs. 0.5%). The unfilled orders-to-shipments ratio was 6.03, unchanged from September. Inventories increased by 0.5% (vs. 0.1%), keeping the inventories-to-shipments ratio at 1.45, unchanged from September.
Why it Matters: A better-than-expected report, with new orders for most sub-categories bouncing back after weaker September readings. Increases in machinery, computers, and transportation equipment show that American firms are still investing and demand is not yet materially falling. There was a notable increase in construction equipment (8.6%) during the month. Putting it all together and adjusting for inflation, November’s report showed that despite weaker survey-based readings, actual manufacturing data remains resilient, especially at the core level (excluding more volatile components), and is not yet foreshadowing a recession is imminent.
* Factory orders were stronger than expected in October, rising by 1% MoM due to broad increases in demand
The University of Michigan Consumer Sentiment Index rose to 59.1 in December from 56.8 in November, beating market forecasts of 56.9, preliminary estimates showed. The Current Economic Conditions rose to 60.2 from 58.8 in November, and the Consumer Expectations Index also improved to 58.4 from 55.6, the highest since April. Meanwhile, inflation expectations for the year ahead eased to 4.6% (vs. 4,9% in Nov), the lowest reading since September of 2021, while the five-year outlook was steady at 3%.
Why it Matters: All components of the index increased. Gains in the sentiment index were seen across multiple demographic groups, but there was a particularly large increase in higher-income families due to the wealth effect of rising stock prices recently. Outlook for one-year business conditions rose sharply, while longer-term business conditions outlook also increased, but by less. Concerns regarding high prices moderated slightly but remained historically high. Declines in short-run inflation expectations were visible across the distribution of age, income, education, as well as political party identification. At 3.0%, long-run inflation expectations have stayed within the narrow (albeit elevated) 2.9-3.1% range for 16 of the last 17 months. Sentiment for Democrats and Independents rose 12% and 7%, respectively, while for Republicans, it fell 6%. This was the opposite of what we expected going into the midterm election but due to the poor GOP results makes sense.
*After ticking back up in November, recent declines in gas, as well as goods more generally, are starting to pull inflation expectations back down
Total consumer credit rose $27.1 billion in October, following an upwardly revised $25.8 billion rise in the prior month, but below market forecasts of $28.3 billion. That translates into a 6.9% seasonally adjusted annual increase, compared to 6.6% in September. Revolving credit, typically credit cards, increased at an annual rate of 10.4% (vs. 8.2% in Sept), while nonrevolving credit, typically auto and student loans, increased by 5.8% (vs. 6.1%).
Why it Matters: The increasingly closely watched consumer credit report rose again after falling in September due to increased use of revolving credit as consumers increased their credit card balances. With the holiday season upon us and inflation still historically high, it is not surprising that falling savings levels (and general net wealth), especially among lower and medium-income households, translate into growing credit card balances. At this point, the absolute amount of consumer debt is back on its longer-term trend line after dipping notably during the pandemic. Despite the increased alarmism from various market pundits, we do not see this as particularly problematic yet. When coupled with growing HELOC use, it is certainly not a positive sign for future consumption. However, given the strong labor market and our belief that inflation will meaningfully fall, it is likely that the consumer will not need to continue to weaken their balance sheet to maintain purchasing power. Also, this America, there is a reason why the overall level of consumer debt has been rising on a linear trajectory for so long; everyone has debt. It’s the ability to service it that matters, and with delinquencies still historically low, it will be some time before household balance sheets become a clear drag on growth.
*Overall consumer credit is higher by 6.9% YoY, with revolving credit higher by 10.4% YoY
Technicals and Charts:
Four Key Macro House Charts:
Growth/Value Ratio: Growth is higher on the day but lower on the week, and Large-Cap Growth is the best-performing size/factor on the day.
Chinese Iron Ore Future Price: Iron Ore futures are higher on the day and on the week.
5yr-30yr Treasury Spread: The curve is steeper on the day but flatter on the week.
EUR/JPY FX Cross: The Euro is stronger on the day and the week.
Other Charts:
“With the Atlanta Fed GDPNow pointing to real GDP growth of 4.3% in Q4, the US economic surprise index has hooked up. History suggests that this could lead to upward revisions to forward earnings estimates.” - @BerezinPeter
Everyone buying PUTS the same way the institutions bought into Sam Bankman Freid...; what could go wrong? - @SethCL
Correlating well to the overall performance of the S&P, weaker retail flows continue to slow, limiting how high the index can go.
Oil has gone from a steep backwardation as little as a month ago to an emerging contango, a sign that inventories aren’t as tight as they were. This suggests the global economy isn’t as strong as it was, threatening the narrative of a soft landing.
Wholesale gasoline prices are now down by 50% since the peak in June - @macro_daily
Lower crack spreads have been contributing to falling gasoline prices.
European natural gas prices continue to rebound.
The dispersion in estimates for the coming year is the highest in more than a decade. This chart shows the spread between the highest and lowest estimates back to 2008 by percentage, the widest since 2009.
“In contrast to the latest Atlanta Fed Wage Growth tracker, which ticked higher in November, the growth in posted wages on Indeed continues to trend lower.” - @BerezinPeter
JPMORGAN: “.. While some point to the Challenger job cuts data as a sign that the labor market is deteriorating, it is a very volatile indicator that has previously given a number of false signals about increases in jobless claims.” - @carlquintanilla
Article by Macro Themes:
Medium-term Themes:
Real Supply-Side Situation:
Easing Further: November 2022 Logistics Manager’s Index Report - LMI
The Logistics Managers’ Index moved to 53.6 in November, down by -3.9 from October. It is the second lowest overall reading in the history of the index, only surpassing the reading of 51.3 from April 2020 at the height of COVID-19 lockdowns. However, as the rating is over 50.0, it still indicates a very moderate rate of growth. Inventory levels have decreased significantly, likely indicative of goods being positioned downstream for the holiday season. Warehousing capacity remains tight, which in turn ensures continued expansion in prices there. On the flip side, the transportation market continues to fall from the dizzying heights that had become the norm during 2021. This is epitomized by Transportation Prices, which read in at 37.4, the most severe rate of contraction we have measured in the over six years of the Logistics Managers’ Index.
Why it Matters:
The slowdown in the overall index was largely due to the wind-down in inventories. Our Inventory Levels metric was down notably in November, indicating two things: the movement of goods downstream toward retailers and the sale of those goods as holiday spending picks up. Spending growth remained strong to kick off the holiday season. Online consumers spent just over $35 billion from Thanksgiving to Cyber Monday. This shows a significant level of growth from 2021. The growth was not limited to e-commerce, as an estimated 196.7 million shoppers headed back to stores in-person during the holiday shopping weekend. The National Retail Federation expects overall holiday sales to be up 6-8% from 2021, although some of that increase will certainly be fueled by inflation. The drop in the overall index was also helped by a further retreat in transportation prices, which posted the most severe rate of contraction in at least six years.
Dropping Fast: Chinese Exports Fall at Steepest Pace in More Than Two Years – WSJ
Outbound shipments from China plunged by -8.7% YoY last month, the biggest dip since February 2020, when a nationwide lockdown ground economic activities to a halt. Economists polled by The Wall Street Journal had forecast a 2% drop. Exports to the U.S. fell deeper by 25% from the prior year, the fourth straight month, accelerating from a 13% decline the previous month, while sales of goods to the European Union dropped 11%, versus a 9% decline in October. Shipments of nearly all types of goods, including furniture, toys, and electronics, retreated sharply, further evidence that consumers in the West are cutting back on goods spending as inflation remains elevated in many countries.
Why it Matters:
Economists say that China’s November’s trade data may also portend badly for the global economy, as a sustained slide in Chinese exports signals that a boom in trade that powered global growth in 2021 is fading fast, adding to the risk of a global recession. The International Monetary Fund expects the global economic growth rate to slow to 2.7% in 2023, down from 3.2% projected for this year and 6% in 2021. Specific to China and unlike in early 2020, when the country’s export engine helped pull China’s economy out of the doldrums, this year and next will offer no such silver lining.
China Macroprudential and Political Situation:
Another Step: China’s Zero-COVID Muddle – Project Syndicate
China has lately experienced its largest and most politically charged protests since the pro-democracy movement in 1989 ended in a massacre by government forces on Tiananmen Square. The recent social eruption should not be surprising; frustrations over the Chinese government’s rigid zero-COVID policy have been brewing for a long time. Yet the ruling Communist Party of China (CPC) apparently did not see the protests coming, despite operating an all-pervasive and deeply intrusive surveillance apparatus. Now, the central government has announced that it will accelerate the shift away from zero-COVID with a broad easing of restrictions. After publishing a set of 20 guidelines for officials to follow last month, it has now cut the list down to ten.
Why it Matters:
The new guidelines may be looser than what came before, but they do not necessarily represent an end to zero-COVID. “Perhaps the clearest and most worrying evidence of the politicization of public-health decisions is the Chinese authorities’ refusal to approve the more effective mRNA vaccines produced by Western companies. Though these vaccines would help to make the departure from zero-COVID safer, especially for the currently under-vaccinated elderly, China’s leaders apparently view the use of Western vaccines as a blow to national pride and an admission of past mistakes. Looking ahead, China’s leaders can probably count on the security forces to snuff out new protests, thereby allowing the CCP to reassert control and downplay people’s frustrations. But the reluctance to devise a comprehensive and systematic exit strategy and to take responsibility for its outcomes could result in China experiencing the worst of both worlds,” writes Minxin Pei for Project-Syndicate.
Longer-term Themes:
Electrification and Digitalization Policy:
End-to-End: Apple Plans New Encryption System to Ward Off Hackers and Protect iCloud Data – WSJ
Apple is planning to expand its data-encryption practices significantly, a step that is likely to create tensions with law enforcement and governments around the world as the company continues to build new privacy protections for millions of iPhone users. The expanded end-to-end encryption system, an optional feature called Advanced Data Protection, would keep most data secure that is stored in iCloud, an Apple service used by many of its users to store photos, back up their iPhones, or save specific device data such as Notes and Messages. The data would be protected in the event that Apple is hacked, and it also wouldn’t be accessible to law enforcement, even with a warrant.
Why it Matters:
Former Western law enforcement and intelligence officials said they were surprised by Apple’s decision in part because the company had refrained in the past from rolling out such encryption settings for iCloud. The FBI said it was “deeply concerned with the threat end-to-end and user-only-access encryption pose,” according to a statement provided by an agency spokeswoman. “This hinders our ability to protect the American people from criminal acts ranging from cyberattacks and violence against children to drug trafficking, organized crime, and terrorism,” the statement said. The FBI and law enforcement agencies need “lawful access by design,” it said. Privacy groups have long called on Apple to strengthen encryption on its cloud servers. But because the Advanced Protection encryption keys will be controlled by users, the system will restrict Apple’s ability to restore lost data.
Increased Capabilities: Evaluating the International Support to Ukrainian Cyber Defense - Carnegie Endowment for International Peace
Russia’s much-feared cyberwar has failed to materialize the way that many experts anticipated it would. The international effort to bolster Ukraine’s cyber defenses has featured prominently among the wide range of theories put forward to explain the relatively limited impact of cyber operations in the war. But experts are divided on the significance of almost every aspect of the cyber campaign, including the claim that international assistance has been instrumental in enabling a relatively small country to fend off one of the world’s leading cyber powers. This article investigates what has been done to assist the defense of Ukrainian cyberspace and to identify the broader implications for the value and feasibility of collective international defense in cyberspace.
Why it Matters:
It would be premature to draw definitive conclusions based on eight months of the war, but nonetheless, the activity in cyberspace has developed to the point where important lessons are emerging. Delivering cyber defense at scale was only achieved by the private sector entities that owned, operated, and understood the most widely-used digital services. Early decisions by the leadership of some of the world’s major technology and cybersecurity companies to take proactive roles in defending Ukraine were pivotal. Politics and geopolitics count in cyberspace just as everywhere else, and shared values are as important as shared interests. When these things are correctly aligned, governments can be a catalyst and sponsors of large-scale cyber defense involving commercial entities.
Commodity Super Cycle Green.0:
Exponential: The global energy crisis ‘turbocharged’ renewable energy growth – The Verge
Renewables will make up 90% of electricity capacity expansion in the next five-year span, according to a new report by the International Energy Agency (IEA). By 2025, renewable energy is expected to topple coal to become the world’s biggest electricity source. All in all, over five years, global renewable power capacity is forecast to grow by 2,400 gigawatts, a huge amount roughly equivalent to the power capacity of China. That figure is about 30 percent higher than what the IEA forecasted just a year ago.
Why it Matters:
Solar and wind power make up the vast majority of that expansion. Solar capacity is set to nearly triple, while wind capacity almost doubles by 2027, thanks in part to falling prices. New large-scale solar and onshore wind farms are now the cheapest ways to generate electricity in the majority of the world. “Renewables were already expanding quickly, but the global energy crisis has kicked them into an extraordinary new phase of even faster growth,” IEA executive director Fatih Birol said in a statement.
ESG Monetary and Fiscal Policy Expansion:
ESG No More: Asset Managers Seen Axing Almost All Sales of Top ESG Funds - Bloomberg
Investors will struggle to find top-ranked ESG funds after Christmas as asset managers shy away from Europe’s strictest sustainability tag in response to tougher regulations. BlackRock, PIMCO, and Amundi are among firms that have already said they’re removing the EU’s highest environmental, social, and governance fund designation, known as Article 9, from large chunks of their business. A Bloomberg tally indicates that funds worth at least $100 billion have been downgraded, though the actual figure may be significantly higher.
Why it Matters:
Europe’s regulatory landscape is likely to get more difficult to navigate next year. Beginning in January, the industry will have to provide more information than previously required on ESG products offered, including what proportion is in sustainable investments and what adverse impacts these are likely to have. Europe implemented its groundbreaking ESG rulebook, the Sustainable Finance Disclosure Regulation, in March 2021. Intended as a global gold standard, SFDR has transformed the asset management industry by setting the world’s most ambitious green goals. But it’s also faced an increasing drumbeat of criticism from investors and regulators alike for being fiendishly complex and not always consistent. More changes are likely to come.
Appendix:
Current Macro Theme Summaries:
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