Higher Real Rates Stall Rally - MIDDAY MACRO - 10/20/2022
Color on Markets, Economy, Policy, and Geopolitics
Midday Macro – 10/20/2022
Overnight and Morning Recap / Market Wrap:
Price Action and Headlines:
Equities are lower, giving up morning gains that were driven by tech/growth after positive earnings/developments improved sentiment until rising yields again shifted the focus
Treasuries are lower, with the curve steeper as the long-end came under increasing pressure throughout the session following better-than-expected claims and Philly Fed employment data
WTI is higher, although well off its morning highs, as inventory levels (mainly the SPR) continue to be in focus while officials are increasingly questioning whether capping Russian oil prices will work
Narrative Analysis:
Equities are down after a more positive morning, but the S&P has basically been range bound since breaking above 3700 on Monday. Tech and growth are outperforming despite Tesla being down due to inline/better earnings elsewhere and despite higher yields. Speaking of higher yields, stronger data seen in today’s jobless claims and Philly Fed Manufacturing survey was again seen as “good is bad,” increasing labor market tightness fears and how long the Fed would leave rates at an ever-rising terminal level (once reached), which increasingly looks like December if we listen to Bullard. As a result, Treasuries, especially in the long-end, are again under pressure, with this afternoon 5yr TIPS auction coming in at a 1.73% when-issued yield, showing real rates are continuing to rise across the curve. Oil has given up its morning gains, with WTI just under $85, as traders weigh additional SPR releases and reduced demand out of China due to more lockdowns. Natural gas prices continue to fall, with front-month contracts now at their lowest levels since July. Copper is seeing a relief bounce after reaching near lows for the year, driven by China’s deteriorating demand picture over the last weeks. The agg complex is mostly in the green, with dry conditions in North and South America continuing to drive price action. The dollar is flat on the day, as overnight weakness has reversed, moving the $DXY to just under 113 mainly due to reversals in Pound and Euro strength.
The Nasdaq is outperforming the Russell and S&P with Growth, Value, and Momentum factors, and the Communications, Technology, and Materials sectors are all outperforming on the day. Sectors and factors are more aligned (Communication and Technology vs. Growth) over the last week, but Value and Energy have also had a positive performance.
@KoyfinCharts
S&P optionality strike levels have the Zero-Gamma Level at 3855 while the Call Wall is 3900. The 3750 Vol Trigger level is a strong resistance line while support is still at the 3600 Put Wall. Tomorrow's monthly OPEX is roughly 20% of total options positions across S&P and Nasdaq. Put-decay from tomorrow's OPEX is providing a tailwind for equities, but there isn’t a whole lot left. Risk Reversal and other metrics continue to suggest that there is not a lot of demand for downside put protection.
@spotgamma
S&P technical levels have support at 3700, then 3675, with resistance at 3730, then 3660. The S&P rallied over 270 points over the last week, and markets are doing what they typically do after a big one-directional move - building a base and cooling off. Of course, this base will result in another large, clean trend leg, but the window for bulls to push it up and continue the October rally for another leg is closing quickly.
@AdamMancini4
Treasuries are lower, with the 10yr yield at 4.17%, higher by 3 bps on the session, while the 5s30s curve is stepper by 3 bps, moving to -20 bps.
Econ Data:
Industrial production increased by 0.4% in September to a 5.3% year-on-year increase, the most since April, accelerating from an upwardly revised 3.9% YoY increase in the previous month. Manufacturing output growth also rose by 0.4% MoM, moving the annual increase to 4.7%, largely due to a jump in durables driven by motor vehicles and parts, fabricated metal products, machinery, and aerospace and misc transportation equipment. Consumer Goods (0.6%) and Business Equipment (0.5%) both contributed to a 0.6% MoM increase in Final Products. Construction also saw a nice bounce higher with a 1.1% on the month. Finally, Mining increased 0.6% MoM, moving the annual increase to 11.1%, while Utilities saw a -0.3% decline as an increase in natural gas production was offset by a decline in electricity output. Capacity utilization moved up 0.2 percentage points in September to 80.3%, a rate that is 0.7 percentage points above its long-run (1972–2021) average.
Why it Matters: September’s report was stronger than expected, showing that the economy's manufacturing sector continues to expand despite increasingly more neutral/negative regional and national manufacturing PMI surveys. Most major market groups increased in September, with construction supplies recording the largest gain, while business supplies recorded the only decline. If a slowdown is coming, it has yet to hit the manufacturing sector meaningfully.
*Durables drove the majority of the gains in September, with only utilities coming in negative due to reduced electricity output
*Capacity utilization increased back to post-pandemic highs, indicating firms are managing remaining supply-side impairments and meeting demand
The NAHB housing market index fell for the 10th straight month to 38 in October, half the level it was just six months ago and below market forecasts of 43. All three HMI components posted declines in October. Current sales conditions fell 9 points to 45, sales expectations in the next six months declined 11 points to 35, and traffic of prospective buyers fell 6 points to 25. The three-month moving averages for regional HMI scores, the Northeast fell three points to 48, the Midwest dropped three points to 41, the South fell seven points to 49, and the West posted a seven-point decline to 34.
Why it Matters: This was the lowest reading since August 2012, except for the onset of the pandemic in the spring of 2020. The same old worries continue to drive sentiment lower, with rising interest rates, building material bottlenecks, and elevated home prices all weighing on expected demand. “High mortgage rates approaching 7% have significantly weakened demand, particularly for first-time and first-generation prospective home buyers,” said NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Ga.
*Sentiment continues to fall like a rock as all signs point to a significant slowdown, while supply-side impairments have only marginally improved
*Evercore’s homebuilder survey also confirms a significant drop in sentiment last month, with no bottom in sight yet
Housing starts fell by -8.1% to an annualized rate of 1.439 million in September, and well below market consensus of 1.475 million. Single-family housing starts dropped by -4.7% to a rate of 892K, the lowest level since May 2020, while multi-units decreased by -13.1% to 530K. Starts were down in the South (-13.7%), the Northeast (-12.5%), and the Midwest (-2.7%) but were up in the West (4.5%). Building permits increased by 1.4% to an annualized 1.564 million in September, beating market expectations of 1.53 million. Approvals for multi-units were up by 8.2% to 644 thousand, while single-family authorizations dropped by -3.1% to 872 thousand units. Permits rose in the Midwest (4%), the South (3.1%), and the West (0.3%) but fell in the Northeast (-9.4%).
Why it Matters: It was a tale of two cities in September’s housing starts and permits data, with single-family housing increasingly feeling the pressure from poor affordability due to higher prices and mortgage rates while multi-family starts and permits are above average levels due to low inventory and continued demand from renters. It feels like we are starting to enter the middle innings of the housing correction, with homebuilder sentiment already having dropped hard while activity is generally in line with average levels, as even single-family starts and permits are near-decade average levels for this time of year. Expectations are for an actual activity to now fall, following sentiment. However, with inventory levels low and rental demand remaining resilient, a further bifurcation will likely occur between single-family and multi for at least a few quarters more. Interestingly as cost inputs come down and labor availability improves, pricing points may make lower-tiered single-family homes more profitable to build again and improve the much-needed supply there.
*Both starts and permits are trending lower into a more normal historic range…
However, multi-unit housing starts and permits are still elevated, staying even higher than last year’s levels despite growing uncertainty and continued supply-side pressures…
Expectations are for starts/permits to continue to fall due to what has already occurred in homebuilder sentiment
Existing home sales fell by -1.5% to a seasonally adjusted annual rate of 4.71 million in September, the lowest since May 2020 and in line with expectations. On a regional basis, sales fell in the Northeast (-1.6%), Midwest (-1.7%), and South (-1.9%) and were unchanged in the West. The median existing-home sales price increased to $384,800, up 8.4% from one year ago. The inventory of unsold existing homes declined for the second straight month to 1.25 million by the end of September or the equivalent of 3.2 months' supply at the current monthly sales pace. Properties typically remained on the market for 19 days in September, up from 16 days in August and 17 days in September 2021. Seventy percent of homes sold in September were on the market for less than a month.
Why it Matters: It marks the seventh consecutive month of falls in existing home sales due to the continuous rise in interest rates on top of higher prices already keeping an increasing number of buyers unable to afford available supply. "The housing sector continues to undergo an adjustment due to the continuous rise in interest rates, which eclipsed 6% for 30-year fixed mortgages in September and are now approaching 7%," said NAR Chief Economist Lawrence Yun. "Expensive regions of the country are especially feeling the pinch and seeing larger declines in sales." However, Yun went on to say that "despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory." Yun highlighted that “the current lack of supply underscores the stark contrast with the previous major market downturn from 2008 to 2010 when inventory levels were four times higher than they are today." The bottom line is it is all about inventory, and as highlighted in the starts/permits section, with rental demand increasing, multi-family will increasingly outperform single-unit.
*The level of inventory continues to move back into a more historic range, reducing pricing pressures
The NY Empire State Manufacturing Index dropped by 7.6 points to -9.1 in October, compared with market expectations of -4. New Orders (3.7) were unchanged, while the bulk of the negative force on the headline index came from Shipments (-0.3 vs. 19.6 in September). The Unfilled Orders (-3.7 vs. -7.5) index improved but still indicated a decline in the level of unfilled orders, indicating reduced capacity pressures. Delivery Times (-0.9 vs. 1.9) held steady, and Inventories (4.6 vs. 8.4) expanded at a reduced rate. Labor market indicators pointed to a reduced level of expansion, with the Number of Employees (7.7 vs. 9.7) and the Average Workweek (3.3 vs. -0.1) being positive. Inflationary pressure picked up, with Prices Paid (48.6 vs. 39.6) rising notably, while Prices Received (22.9 vs. 23.6) were flat. The Forward-Looking Indicators fell with General Business Conditions (-1.8% vs. 8.2) moving into negative territory, although future expected New Orders and Shipments remained positive. Firms did not indicate any major change in the inflation outlook, and Capital Expenditures and Technology Spending expectations all remain firmly positive.
Why it Matters: The weak headline reading was primarily due to an outsized drop in Shipments, which has been volatile over this year. Otherwise, most of the sub-indexes were little changed, hovering around zero. The increase in Prices Paid combined with a decrease in Prices Received does not bode well for profit margins and continues to indicate reduced pricing power by firms, something increasingly being heard/seen elsewhere. Both current and future employment readings indicated expansion as firms look to find skilled labor still, even as the level of Unfilled Orders and Delivery Times indicate reduced capacity constraints and urgency. Finally, future investment intention remains in line with pre-pandemic levels and does not indicate a heightened fear/belief that a hard recession is imminent.
*Both the current and forward-looking headline General Business Conditions indexes are now again negative after briefly recovering last month to a positive/flat
*Future expectations for Capex spending were little changed from the prior month, indicating firms continue to believe business will be strong enough moving forward to justify expansion
The Philadelphia Fed Manufacturing Index rose by 1 point but remained negative at -8.7 in October, below market expectations of -5. New Orders (-15.9 vs. -17.6 in September) were little changed and remained negative. Shipments (8.6 vs. 8.8) index was little changed, as well, staying a low but positive reading. Both Unfilled Orders (-22.5 vs. -28.5) and Delivery Times (-12.6 vs. -18.2) improved but remained firmly in contractionary territory, while Inventories (-1.7 vs. -4.8) came in closer to “no change.” The employment picture significantly improved with the Number of Employees (28.5 vs. 12) and Average Workweek (10.4 vs. -3.8) both now firmly in expansionary territory. Prices Paid (36.3 vs. 29.8) and Prices Received (30.8 vs. 29.6) both increased. The survey’s future general activity indexes and sub-indexes were all significantly more negative, with a broad decrease in expectations across sub-indexes.
Why it Matters: The current situation’s sub-indexes mirrored what was seen in the Empire survey, with inflationary and labor readings rising. However, shipments held steady, and there were improvements in demand measures (New Orders and Unfilled Orders), although they remained firmly in negative territory. The real story was in the future outlook readings, which saw broad and significant declines. Even the labor and inflation readings contracted. However, Capex intentions remained stable. This was echoed by the month’s special question on expected Capex over 2023. 37% of respondents expected to increase investment spending, while 39% would keep it the same next year. The most significant increase areas were Noncomputer equipment, Software, and Structure.
*Slight increase in the headline current activity index while expected future activity decreased by over -10
*As seen in the Empire Survey, increases in prices paid far outpaced rises in prices received, indicating reduced pricing power and increased profit margin pressures
*The future outlook took a notable turn lower, with all sub-indexes but future delivery times weakening
Policy Talk:
The Federal Reserve’s Beige Book showed national economic activity expanded modestly on net since the previous report, with conditions varied across industries and Districts. Four Districts noted flat activity, and two cited outright declines. Outlooks grew more pessimistic amidst growing concerns about weakening demand.
Employment continued to rise at a moderate pace in most Districts. Several Districts reported a cooling in labor demand, with some noting increased concerns of an economic downturn driving the cooling.
Price growth remained elevated, though some easing was noted across several Districts. Significant input price increases were reported in a variety of industries, though some declines in commodity, fuel, and freight costs were noted. Growth in selling prices was more mixed, with some contacts noting solid pricing power over the past six weeks, while others said cost passthrough was becoming more difficult as customers pushed back.
Retail spending was relatively flat, reflecting lower discretionary spending, and auto dealers noted sustained sluggishness in sales. At the same time, travel and tourist activity rose strongly, boosted by continued strength in leisure activity and a pickup in business travel.
Manufacturing activity held steady or expanded in most Districts in part due to easing in supply chain disruptions, though there were a few reports of output declines. As a result, activity in transportation services was mixed, as port activity increased strongly, whereas reports of trucking and freight demand were mixed.
Rising mortgage rates and elevated house prices further weakened single-family starts and sales but helped buoy apartment leasing and rents, which generally remained high. Commercial real estate slowed in both construction and sales amid supply shortages and elevated construction and borrowing costs, and there were scattered reports of declining property prices. Industrial leasing remained robust, while office demand was tepid.
Bankers in most reporting Districts cited declines in loan volumes, partly a result of shrinking residential real estate lending.
*“In the Beige Book, words matter. By our count, the words "weak" or "slow" or some iteration thereof showed up 117 times, an increase from 103 times in the last Beige Book, and the worst since October 2016. As our nearby figure shows, not a good sign for the October ISM Manufacturing PMI” - @RenMacLLC
St. Louis Fed President James Bullard continues to call for a front-loaded approach to the current rate hike cycle. In interviews with Bloomberg yesterday and Reuters last Friday, Bullard noted that a 75 bp hike was priced in for November, and it may make sense to do one more 75 bp hike in December and then potentially wait. This would bring the Fed funds rate range from 4.50% to 4.75%. Bullard has been among the most hawkish Fed officials this year and dissented at the March meeting in favor of a larger rate hike. He was the first to publicly suggest hikes of 75 basis points, which have become routine this year as part of the inflation fight. As a result, he looks to be leading the discussion on where the terminal rate is and how fast to get there. If so, it's possible the Fed could finish hiking in December based on his recent comments, assuming some improvement in the inflation picture and labor market tightness.
“Rents are important… we are aware of the lags in the calculation (in the way rents contribute to core inflation), and so we will take that on board and take a look at that.”
“In 2023, I think we’ll be closer to the point where we can run what I would call ordinary monetary policy… Now you’re at the right level of the policy rate, you’re putting downward pressure on inflation, but you can adjust as the data come in in 2023.”
"If it were today, I'd go ahead with a hike of the same magnitude in December,” though he added it was "too early to prejudge" what to do at that final meeting of the year.
Minneapolis Fed President Neel Kashkari participates in a public Q&A session as part of a weekly series hosted by Travelers. He gave an hour-long interview covering numerous things ranging from the history of the Federal reserve system to his views on the economy and policy.
“Core services inflation, which is the stickiest of all, keeps climbing, and we keep getting surprised on the upside… If we don’t see progress in underlying inflation or core inflation, I don’t see why I would advocate stopping at 4.5%, or 4.75%.”
“This inflation didn’t come from the labor market. This inflation came from supply chains and energy and commodities… Do we actually have a tight labor market? One way I would define a tight labor market is: Labor is in a relatively strong position, and their share of the pie is growing. Their share of the pie is shrinking. So, I don’t know.”
“One area we are very focused on is housing inflation and how it's calculated. Home prices have rocketed over the past few years. New rents have gone up quite a bit but not as far as home prices which suggests they may have some room to catch up, and then existing rents are even slower to adjust… so we know, for example, that there’s a lot of embedded inflation in the housing market that is yet to work its way through the pipeline… we’re focused on is disentangling those different components to understand how much inflation in housing should we just expect to see that’s already done even though it's not yet showing up (in theofficial data).”
Technicals and Charts:
Four Key Macro House Charts:
Growth/Value Ratio: Growth is higher on the day and the week, and Large-Cap Growth is the best-performing size/factor on the day.
Chinese Iron Ore Future Price: Iron Ore futures are lower on the day but generally flat on the week. China's securities regulator CSRC will allow companies with small amounts of real estate-related business to raise funds in the A-share market while maintaining a ban on builder's domestic IPO.
5yr-30yr Treasury Spread: The curve is stepper on the day and on the week, as initial claims were weaker than expected, while the Philly Fed manufacturing survey showed hiring intentions among respondents remained strong.
EUR/JPY FX Cross: The Euro is stronger on the day and the week with the BoJ coming into the market to defend YCC and traders looking for the 150 level as the next area where intervention may occur.
Other Charts:
Oxford economics sees the Materials, Tech, and Energy sectors as most exposed to the stronger dollar.
S&P Global sees the Consumer Discretionary, Healthcare, and Energy sectors as the most shorted.
While earnings remain inflated, the great disconnect between equity prices and earnings has come off a long way. - @steve_donze
Corporate profit margins remain historically elevated across advanced economies and EM outside of China.
U.S. small caps have traded at an average valuation premium of around 35% to the S&P 500 (since 2006), but that premium has completely disappeared, and small caps are now historically cheap relative to large-cap stocks." - @saxobank
The BofA Global Fund Manager Survey continues to show most categories of risk worsening, with monetary risk now the largest contributor and none negative.
The Measure of the CEO Confidence Index fell in Q4 2022 to lows not seen since the Great Recession. An overwhelming majority—98%—of surveyed CEOs said they were preparing for a US #recession. Moreover, 99% of CEOs said they were preparing for an EU recession.
Supply chain stress essentially back to pre-pandemic level (black line is average) as commodities and used car prices have helped lead the way down - @LizAnnSonders
The average FICO score on consumer credit cards is 770; the average FICO score on auto loans is 789. the average FICO score on new mortgages is 768. the average FICO score on home equity lines is 792. All historically high levels.
Financial conditions have tightened the most in Russia, but YoY changes are notable almost everywhere, with the U.S. seeing the second-highest level of tightening.
An article by Michael Pettis in the FT piggybacks on a recent blog post by Blackrock on why China’s longer-term growth prospects are only getting worse.
Article by Macro Themes:
Medium-term Themes:
Real Supply-Side Situation:
The Pulse: Tradeshift's Index of Global Trade Health Q3 2022 - Tradeshift
World trade data from Tradeshift’s Q3 Index of Global Trade Health shows activity across supply chains dropped for the third quarter in a row, with transaction volume growth dropping as trade activity across retail, manufacturing, and transport & logistics fell sharply. Tradeshift’s analysis places Europe at the epicenter of the latest slowdown. Supply chain activity across the Eurozone fell due to the energy crisis, which hurt consumer spending and placed significant cost pressures on supply chains. A different picture is, however, emerging in the U.S. Momentum is slowing but at a much gentler rate than elsewhere in the world. In China, local supply chain activity also grew at a relatively healthy rate in Q3, just 1 point below the expected range. However, activity levels across China’s supply chains have been very erratic since the beginning of the year, and this is unlikely to change as long as the lockdown policy remains in force.
Why it Matters:
Global buying activity fell again in Q3, seen in the decline in ordering volumes. Earlier falls can be attributed to settling demand after previous spikes. But the latest data points to a more general slowdown across global supply chains. Supply chain bottlenecks no longer appear to be the biggest issue for supply chain operators. Certainly, the delta between order volumes and invoice traffic - a leading indicator of problems matching supply with demand - has largely closed. The signs may not be good, but there are still a number of factors in play that could tip the balance either way. The situation in China is one of them, but the story of the past year has been of lockdown-fuelled unpredictability. The war in Ukraine also weighs heavily on global trade. Beyond the human cost, the war will continue accelerating a new phase of globalization built around trust, security, and sustainability.
China Macroprudential and Political Situation:
Security > Economy: Xi Jinping’s Ideological Ambition Darkens China’s Economic Prospects – WSJ
On Monday, China abruptly delayed the release of third-quarter data on its gross domestic product without giving any reason. The report would have likely shown a further deceleration in growth and shed a negative light on Xi as he is set to get a third term. A longer-term economic concern is that Mr. Xi has prioritized state-owned businesses, squeezing private companies, a significant reversal from China’s trajectory since former leader Deng Xiaoping ushered in a period of “reform and opening” in 1978. Instead, Xi has harnessed the powers of the state to neutralize powerful private-sector actors. Amid rising tensions with the U.S., he has stepped up an effort to reduce China’s reliance on foreign technology and steered more capital into industries that Beijing sees as strategically important, such as semiconductors and artificial intelligence. However, many of his policies and hostilities towards the West are at odds with growth targets.
Why it Matters:
Since he rose to power in 2012, Xi has put ideological rectitude, national security, and Communist Party control at the center of policy. And he has insisted on greater state control over the economy, an approach that many economists say has come at the expense of the dynamic private sector that propelled China’s extraordinary growth. A new study by the Atlantic Council’s GeoEconomics Center, a Washington think tank, and Rhodium Group, a New York-based economic research partnership, predicts that China will struggle to maintain growth of over 3% annually by the middle of this decade unless the government makes adjustments to overcome a shrinking population and weak productivity.
Longer-term Themes:
National Security Assets in a Multipolar World:
Workers > Soldiers: Putin’s War Escalation Is Hastening Demographic Crash for Russia
President Vladimir Putin spent years racing against Russia’s demographic clock, only to order an invasion of Ukraine that’s consigning his country’s population to a historic decline. However, casualties in the thousands on the battlefield, the enlistment of 300,000 reservists to join the fight, and an even bigger flight of men abroad are derailing Putin’s goals of starting to stabilize the population this year. Should military operations continue in the coming months, as expected, Russia may see less than 1.2 million births next year, the lowest in modern history, according to Igor Efremov, a researcher and specialist in demographics at the Gaidar Institute in Moscow.
Why it Matters:
Crippling disruptions from the war are converging with a population crisis rooted in the 1990s, a period of economic hardship after the Soviet breakup that sent fertility rates plunging. Independent demographer Alexei Raksha calls it “a perfect storm.” As a result, the demographic reckoning has arrived for Russia; its economy is starved of young employees and is now at risk of stagnation or worse long after the war is over. Bloomberg Economics now estimates Russia’s potential growth rate at 0.5%, down two percentage points from before the war, with demographics accounting for about a quarter of the downgrade. Without workers/soldiers, it's hard to have national security.
Electrification and Digitalization Policy:
OBEY: China’s surveillance ecosystem and the global spread of its tools – Atlantic Council
For the Chinese government, investment in surveillance technologies advances both its ambitions of becoming a global technology leader as well as its means of domestic social control. These developments foster further collaboration between state security actors and private tech firms. Accordingly, the tech firms that support state cyber capabilities range from small cyber research start-ups to leading global tech enterprises. The state promotes surveillance technology and practices abroad through diplomatic exchanges, law enforcement cooperation, and training programs. These efforts encourage the dissemination of surveillance devices and support the government’s goals concerning international norm-making in multilateral and regional institutions.
Why it Matters:
The proliferation of Chinese surveillance technology and cyber tools and the associated linkages between state and private Chinese entities with those in other states, especially in the Global South, is a valuable component of Chinese state efforts to expand and strengthen their political and economic influence worldwide. Although individual governments purchasing Chinese digital tools have their local ambitions in mind, Beijing’s export and promotion of domestic surveillance technologies shape the adoption of these tools in the Global South. As such, investigating how Chinese actors leverage demand factors for their own aims does not undercut the ability of other countries to detect and determine outcomes. Rather it demonstrates an interplay between Chinese state strategy and local political environments.
Reduced Demand: Global smartphone market fell 9% as consumers trim spending – Canalys
In Q3 2022, the global smartphone market recorded its third consecutive decline this year, dropping 9% year-on-year, marking the worst Q3 since 2014. Samsung retained its leading position with a 22% market share driven by heavy promotions to reduce channel inventory. Apple was the only vendor in the top five to record positive growth, improving its market position further with an 18% share during the market downturn thanks to relatively resilient demand for iPhones. While Xiaomi, OPPO, and Vivo continued to take a cautious approach to overseas expansion given domestic market uncertainty, retaining 14%, 10%, and 9% global market shares, respectively.
Why it Matters:
The gloomy economic outlook has led consumers to delay purchasing electronic hardware and prioritize other essential spending. This will likely continue to dampen the smartphone market for the next six to nine months. “The smartphone market is highly reactive to consumer demand, and vendors are adjusting quickly to the harsh business conditions,” said Canalys Analyst Amber Liu. “For most vendors, the priority is to reduce the risk of inventory building up given deteriorating demand. Vendors had significant stockpiles going into July, but sell-through gradually improved from September owing to aggressive discounting and promotions. The pricing strategy of new products is cautiously crafted, even for Apple, to avoid significant pushback from consumers who now tend to be very sensitive to any price hike,” added Liu.
Commodity Super Cycle Green.0:
Diversifying: Canada and Germany plan to begin hydrogen shipments in 2025 – Global News
Canada and Germany say a new hydrogen pact will kick-start a transatlantic hydrogen supply chain, with the first deliveries expected in just three years. Natural Resources Minister Jonathan Wilkinson and German Vice-Chancellor Robert Habeck signed the deal on Tuesday in the port town of Stephenville, N.L., where they attended a hydrogen trade show along with Prime Minister Justin Trudeau and Chancellor Olaf Scholz. The five-page agreement is a “declaration of intent” to create a hydrogen alliance between the two countries. Canada is largely responsible for ramping up the production of hydrogen, and Germany will mainly focus on a shipping corridor to transport it across the Atlantic.
Why it Matters:
While Russia is not named in the agreement, the pact is as much about energy as it is about sending a message to President Vladimir Putin that his country’s era as a global energy superpower is at risk. Germany is seeking long-term energy replacements for fossil fuels both to meet its climate commitments and to end its energy dependency on Russia. “In the long run, the real potential lies in green hydrogen from the wind-rich, thinly populated Atlantic provinces,” Scholz said. Projects that use onshore wind power have a shorter time frame to set up, but initial production will be small. “I think it’s reasonable to say we can get there within three years, but if we don’t make 2025 and it’s 2026, by setting 2025, it’s still a pretty ambitious goal,” Resources Minister Jonathan Wilkinson said.
Solar and wind energy saved Texans nearly $1 billion a month this year in electricity costs, according to a recent clean energy study from energy system analysis group IdeaSmiths LLC. In the first eight months of 2022, renewables wholesale electricity market costs on the grid operated by the Electric Reliability Council of Texas by about $7.4 billion, the report shows, or about $925 million per month. Renewables are on track to save Texans $11 billion total this year (please see the logic in the report as some parts make assumptions).
Why it Matters:
This report quantifies the impacts of renewables in ERCOT on wholesale clearing prices and avoided fuel costs, water use, and emissions by comparing how the market would have performed with and without wind and solar from 2010 to August 2022. This analysis found that the build-out of renewables from 2010 and beyond has yielded significant benefits and savings to Texans in the ERCOT service area. Despite its active anti-ESG stance, we highlight this report and the savings customers are experiencing because Texas is fast becoming a major driver of the renewable energy movement due to profitability and higher demand and may serve as a template for other places.
Appendix:
Current Macro Theme Summaries:
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