Midday Macro - Bi-weekly Color – 5/10/2022
Overnight and Morning Market Recap:
Price Action and Headlines:
Equities are higher, with the overnight rally reversing post-NY-open but then reversing again with Tech and Growth outperforming as traders are overwhelmed by Fed speakers and await tomorrow’s inflation data
Treasuries are higher, with the curve slightly steeper as the belly outperforms again, keeping a two-day rally intact as traders prepare for coming supply in the long-end
WTI is lower, as there is still uncertainty over the EU’s ability to phase out Russian oil while growth concerns worsen due to Chinese Covid lockdowns; however, distillate inventories are still near record lows and crack spreads continue to widen, driving up prices at the pump
Narrative Analysis:
Equities bounced around this morning but are now higher, with the Nasdaq giving up 3% gains at the open and falling to flat to now up +2%, showing that high levels of volatility remain prevalent. There continues to be a general deleveraging by risk-takers at the institutional level due to the elevated volatility and poor liquidity, while the general macro backdrop continues to be negative, with inflation expectations remaining high due to the continuation of the War in Ukraine and China’s Covid lockdowns. Tomorrow's CPI data will be a crucial indicator of whether inflation has peaked, as many sell-side researchers and the Fed officials have predicted, or if markets are in for a tighter policy path than currently expected. Today’s NFIB small business optimism index stayed steady but still indicated a very pessimistic outlook. Treasuries continue to receive a bid, with the 10yr now 20 bps below its recent high of 3.2% seen two days ago. Oil, as well as commodities more generally, have reset lower, with demand destruction from higher prices and weaker growth expectations for China weighing on the complex. The agg side has also seen some relief in crop yield expectations despite historically weak planting conditions remaining, driving prices lower there. Finally, the dollar remains near its recent highs, with traders now positioning for parity with the Euro, while other crosses are also under pressure due to weaker global growth expectations.
The Nasdaq is outperforming the S&P and Russell with Growth, Momentum, and Low Volatility factors, and Technology, Communications, and Healthcare sectors all outperforming.
S&P optionality strike levels have the Zero-Gamma Level at 4319 while the Call Wall is 4700. There has been a lack of vol response to the negative index moves, indicating large traders are already hedged and have not reloaded. Instead, the persistent equity weakness is from deleveraging/degrossing (i.e., long stock sales) and not from shorting/put buying. However, there is a falling level of call positions under 4000, which is increasing the risk of a deeper drop if the S&P falls under 4000.
@spotgamma
S&P technical levels have support at 3945, then 3850, and resistance at 4020, then 4055-65. It remains a sell the bounce market. Incredibly, since March 28th, the S&P has not had more than three consecutive green days in a row, and even that was only once after last week's FOMC meeting. The conditions are here for a relief bounce, and RSI is now deeply oversold. However, the trend is still negative with the breaking of the longer-term triangle formation.
@AdamMancini4
Treasuries are higher, with the 10yr yield at 2.96%, lower by around 8 bps on the session, while the 5s30s curve is steeper by 2 bps to 19bps.
Deeper Dive:
As evident in today's price action, markets continue to gravitate toward the prevalent negative narrative, but high volatility and low liquidity are exacerbating moves in either direction. We increasingly believe the sell-off is becoming overdone, but admittedly there has been no meaningful improvement in the three major macro headwinds (Ukraine War, China lockdowns, and Fed hawkishness due to persistently high inflation). Equities in the U.S. continue to remain “expensive” given that higher real rates and tighter financial conditions will continue to weigh on valuations. However, tomorrow’s CPI data should show a continued slowing in the rate of increases for core inflation and potentially allow for a tactical relief bounce in risk assets, which are now well into oversold conditions. As a result, we are adding small tactical long positions in longer-dated Treasuries and the Nasdaq to our mock portfolio.
Despite solid Q1 earnings reports and a continuation of hard economic data showing demand is not meaningfully dropping yet, investors continue to gravitate toward a hard landing narrative based on fears the Fed will have to restrictively tighten policy, creating meaningful demand destruction to reign in inflation. This, coupled with consumer and business survey-based forecasts continuing to trend lower, which usually leads to “real” economic activity falling, has investor sentiment at extreme bearish levels. Simply put, continued solid economic activity and increased earnings estimates are not offsetting fears about downside risks to valuations if inflation remains persistent and the Fed has to aggressively tighten policy, sending the economy into a recession and contracting profit margins and overall earnings.
*It is relatively simple at this point, inflation needs to fall for risk assets to stop selling off, and with expectations that a moderation in inflation is coming, it is still possible for the Fed to not have to overtighten, but the window is closing
According to recent research from Goldman, valuation compression has driven the 13% decline in the S&P year to date. The consensus forward P/E multiple has declined from 21x at the beginning of the year to 17x. This contraction in multiples/valuations is primarily attributed to rises in rates, with the real ten-year Treasury yield rising from -1% to 0.25% in two months. At the same time, the S&P earnings yield has increased by 90 bps (2.8% to 5.7%), mostly matching the rise in real rates. GS highlights this because moving forward, if the current inflationary backdrop weakens, as expected, then the effects of higher real rates on equities should be reduced, given reduced Fed tightening expectations, allowing for P/E multiples to expand.
*The S&P’s forward P/E level is now approaching more historically normal levels, although still on the high side
However, Goldman goes on to say tighter financial conditions and poor market liquidity would make it hard for a repeat of the 11% rally seen in March. “But healthy earning reports, a low sentiment indicator, and a weak economic growth outlook already priced by cyclical stocks suggest equities will require an extremely large negative shock to drive share prices substantially lower in the near term.” We agree with this view and, coupled with our belief that core CPI and PPI later this week will be in line with expectations (confirming we have seen peak inflation for now), believe a relief rally is coming. As a result, we are initiating a 5% long position in $TLT (iShares 20+ Year Treasury Bond ETF) and a 5% long position in $QQQ (Nasdaq 100 Index).
*The drawdown in the Nasdaq has been incredible, and despite valuation concerns remaining likely overdone given the strength many of the core companies still have
Yes, every rally is being quickly sold, and yes, institutional selling/deleveraging is clearly in the driver's seat. We, however, are willing to take a chance there will be a relief rally due to a growing slowing inflation narrative slowly taking root, with tomorrow’s CPI and Thursday’s PPI being the catalysts. A reduction in inflationary expectations and hence reduced Fed tightening fears is what is currently needed to stop the downward spiral currently occurring in markets.
*As seen, the stops for our two new longs are extremely tight. We also moved the stop down for our $FXI long, for the last time, as we continue to believe in Chinese equities despite renewed crackdown measures. We have been stopped out of our Real Estate ETF long, given the large drop that sustained over the last week
Econ Data:
The NFIB Small Business Optimism Index was unchanged at 93.2 in April, the same as in March. Small business owners expecting better business conditions over the next six months decreased one point to a net negative 50%. Forty-seven percent of owners reported job openings that could not be filled, unchanged from March. The net percent of owners raising average selling prices decreased two points to a net 70%, two points below last month’s highest reading. The net percent of owners who expect real sales to be higher increased six points from March to a net negative 12%. The net percent of owners reporting inventory increases went up four points to a net 4%.
Why it Matters: There was not much improvement in small business optimism, with business condition expectations over the next six months at the lowest level in the 48-year-old survey’s history. Although stable from last month, the known supply-side impairments remained evident, with inflation and quality of labor remaining the top issues affecting businesses. On a more positive note, capital expenditure plans rose slightly, showing some confidence in future demand. Actual sales change over the last three months was also only marginally lower. When coupled with inventory building intentions, the current situation is still somewhat stable despite continued supply-side headwinds and falling future outlook.
*Inflation continues to be the largest problem for small businesses, with 32% of small business owners reporting it’s their single most important problem in operating their business, the highest reading since the fourth quarter of 1980
*Outlook for the next three months stabilized, with expectations to raise prices falling, hiring plans remaining stable, and sales expectations increasing
Wholesale inventories increased by 2.3% to $840.3 billion in March, matching initial estimates. This follows an upwardly revised 2.8% rise in February. Inventories of durable goods went up 2.2%, namely for furniture (4.5%), electrical (4.2%), and hardware (3.7%) equipment. Meanwhile, wholesale stocks of nondurables increased 2.6%, with apparel (4.4%), farm products (3.8%), and groceries (3.6%) recording the biggest gains.
Why it Matters: Although it varies by category/”kind of business,” there has been an improvement in the inventory to sales ratio showing firms have generally improved their overall inventory “situations.” When coupled with our belief that demand will continue to fall to a more normal level into year-end (and potentially contract beyond that), we believe that increasing deflationary pressures will come from a potential “overstocking” of goods in Q2 and Q3. We are not there yet, but it is something we continue to watch closely.
*Monthly increases in inventory builds continue while the inventories to sale ratio continue to normalize
The U.S. economy added 428K nonfarm jobs in April, the same as a downwardly revised 428K in March and above forecasts of 391K. Employment increased across all sectors, with the largest gains occurring in leisure and hospitality (78K), namely food services and drinking places (44K) and accommodation (22K); manufacturing (55K), mainly durable goods (31K); and transportation and warehousing (52K). The unemployment rate remained at 3.6%, and the number of unemployed persons was essentially unchanged at 5.9 million. Among the major worker groups, the unemployment rates for adult men (3.5%), adult women (3.2%), teenagers (10.2%), Whites (3.2%), Blacks (5.9%), Asians (3.1%), and Hispanics (4.1%) showed little or no change over the month. The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.5 million, accounting for 25.2%, a level 362K higher than in February 2020. Both the labor force participation rate, at 62.2%, and the employment-population ratio, at 60%, were slightly lower (-0.2%) than the previous month. Average hourly earnings increased 0.3% MoM, after an upwardly revised 0.5% rise in March and below market expectations for a 0.4% increase. The average workweek was unchanged at 34.6 hours.
Why it Matters: April’s job report was generally positive and showed a continuation of the +400K monthly job creation rate, which has now occurred for 12 months. There was also no change in the unemployment rate despite a drop in the participation rate. The decline in the participation rate was driven by a notable drop in the 55+ years cohort, questioning whether there would be a reemergence of “retired” workers. As of March, 80% of prime working-age individuals were employed in the U.S., just below the pre-pandemic peak of 80.5% and above the 77.5% average for the ten years before the pandemic. It is also worth noting that monthly wage gains missed expectations, bringing some relief to inflationary worries after previous gains and the rise in the Q1 employment cost index, which rose the most on record. Finally, in April, 7.7% of employed persons teleworked because of the coronavirus pandemic, down from 10% in the prior month, showing a further return to more normal times.
*The service sector continues to drive the majority of gains but is still below its pre-pandemic level, supporting the idea that wages need to rise given the level/persistence of openings there to entice further new entries
*Reducing concerns that the tight labor market would lead to a more pronounced wage-spiral inflation, hourly earnings monthly increases fell slightly in April
*U-6, similar to U-3, was little changed in April, back at its lowest post-pandemic levels
*Friday’s report saw a decline in the labor force, the first since September, as 363,000 people left the workforce
Consumer credit increased at a seasonally adjusted annual rate of 9.7% during the first quarter. Revolving credit increased at an annual rate of 21%, while nonrevolving credit increased at an annual rate of 6.1%. In March, consumer credit increased at an annual rate of 14%.
Why it Matters: As expected, the consumer is increasingly turning to their credit cards to keep up with price increases. On an annualized rate, revolving credit was up a staggering 35.3% in March. At the same time, nonrevolving decreased to 7.4%, from 8.3% in February, showing a slowing demand for new mortgages and car loans. These two developments do not bode well for the sustainability of aggregate consumer demand.
*The total outstanding level of revolving credit, primarily credit card debt, is now back at pre-pandemic levels
Nonfarm labor productivity fell at an annualized -7.5% rate in the first quarter, much more than market expectations of a -5.4% drop and following a downwardly revised 6.3% expansion in the previous period. Output slid -2.4% (vs. 9.0% in Q4 2021) and hours worked jumped 5.5% (vs. 2.5%). Unit labor costs surged by 11.6% in the first quarter, above market forecasts of a 9.9% increase and following an upwardly revised 1% gain in the previous quarter. It reflects a 3.2% increase in hourly compensation and a -7.5% decrease in productivity. Unit labor costs increased 7.2% over the last four quarters, the largest gain since the third quarter of 1982, as hourly compensation increased 6.5% while productivity dropped 0.6%.
Why it Matters: It was the largest drop in productivity since 1947 as output fell for the first time since the second quarter of 2020, pushing unit labor costs sharply higher. While productivity growth rates can be extremely volatile in normal business cycles, the pandemic and subsequent recovery over the past two years have made the figures more prone to fluctuations. It’s likely to take several more years to gauge whether underlying productivity trends have shifted in the wake of Covid-19. In the meantime, we question the slide in output here as other data doesn’t support this theme. We also see the 3.2% increase in hourly compensation on the lower side compared to wage growth and ECI data.
*Productivity and implied Unit Labor Costs are volatile data series, giving us pause to get too worried about the drop in productivity given what we mosaically see elsewhere
Policy Talk:
Last week, Atlanta Fed President Raphael Bostic gave an interview with Bloomberg, pushing back on the idea that the Fed needs to raise rates by 75 bps in coming meetings. “For me, 50 basis points is already a pretty aggressive move,” Bostic said. “I don’t think we need to be moving even more aggressively.” He does, however, want Fed Funds to move into the neutral range relatively quickly, which he suggested is in the range of 2% to 2.5%. “From my view, we’re going to move a couple of times — maybe two, maybe three times — see what happens,” Bostic said. “See how the economy responds, see if inflation continues to move closer to our 2% target. And then we can take a pause and see how things are going.”
Last week, Governor Christopher Waller gave a speech at the Hoover Institution on why the Fed fell behind “the curve” by so much, highlighting how the labor market mandate kept them from moving faster. He notes that the large FOMC Committee setup also played a role, given the need to reconcile a wide variety of views. He went on to describe how he was early in recognizing that both mandates would be met, highlighting his SEP projections in early 2021 after the surprise increase in inflation in March. However, he noted many of his colleagues did not have rate hikes “penciled in” until 2023. He recapped the adoption by fellow Fed colleagues that “substantial progress” was made over the summer regarding inflation but not the labor market. He noted that the inflation picture only became more evident in the fall of 2021, after some slowing in late summer, while there was also (finally for some committee members) enough labor market strength/data to meet “substantial progress” by September’s meeting, despite weaker jobs reports around that time. He concludes his prepared remarks by noting that forecasting is hard, especially during the pandemic-driven environment. The open-ended nature of the employment mandate caused the Fed to delay tightening policy, leading them to “fall behind the curve,” as some committee members saw greater progress than others at various points in 2021. Finally, he noted the use of forward guidance also “changed the game” in regards to the sequence of policy tightening. The Fed officially started talking up rate hiking expectations in September 2021, indicating tapering would begin soon. This, in effect, already began the rate-raising cycle and tightened financial conditions, but Waller clearly feels it was still too late.
NY Fed President John Williams gave prepared remarks at an international economic symposium in Germany regarding the current policy path of the Fed. He attributed three “major imbalances” as driving the current high level of inflation. First, pandemic-driven demand increases for durables and housing, and supply is adversely affected for these things at the same time. Second, the supply of labor was impaired, causing a tight labor market resulting in high levels of openings/quits and rising wage pressures. Finally, “global imbalances in supply and demand have also contributed to supply-chain problems that have affected the availability and costs of shipping, as well as a variety of inputs into production—including semiconductor chips used in making cars,” he said. He goes on to say the primary goals of the Fed are to now “turn down the heat” and restore price stability. Williams says the Fed must “move expeditiously” to normalize policy. Something he believes they will do while also orchestrating a soft landing and keeping a healthy job market while inflation eases. He expects the core inflation rate to fall to 4% by the end of this year and hit 2.5% in 2023. In summary, he acknowledged that monetary policy would need to “cool the demand side of the equation,” but the supply-side factors that are primarily driving inflation will improve, eventually capping the ultimate level of tightening needed to rebalance the economy.
The Board of Governors recently released their biannual Financial Stability Report, which highlights “conditions” affecting the stability of the U.S. financial system “by analyzing vulnerabilities” related to valuations, household/business debt and financial leverage, and funding risks. It also highlights near-term macro risks which could interact with these vulnerabilities. The recent report highlights that uncertainty about the economic outlook has increased due to the War in Ukraine and more persistent inflation than expected. Against this backdrop, the report’s most worrying area of focus reported financial markets experienced high volatility and some strains on market liquidity. “According to some measures, market liquidity has declined since late 2021 in the markets for recently-issued U.S. cash Treasury securities and equity index futures,” the report said. It further warned that "adverse surprises in inflation and interest rates, particularly if accompanied by a decline in economic activity, could negatively affect the financial system."
Looking further at the four major risk area categories;
Asset Valuations: Prices of risky financial assets generally remained high compared with corresponding expected cash flows. Since November, house prices rose at a rapid rate and continued to outstrip increases in rents. Asset prices remain vulnerable to declines in response to negative shocks.
Borrowing by Businesses and Households: Key indicators such as debt-to-GDP ratios, gross leverage, and interest coverage ratios continue to improve.
Leverage in the Financial Sector: Banks maintained risk-based capital ratios well above regulatory minimums. Leverage at broker-dealers stayed low, while leverage at life insurance companies and hedge funds remained high by historical standards.
Funding Risks: Funding risks at domestic banks remained low. However, some types of money market funds and stablecoins remain prone to runs, and many bond and bank loan mutual funds continue to be vulnerable to redemption risks. Elevated market volatility has led to increased margin calls, which in turn increased the demand for liquidity from a range of market participants.
The April 2022 Senior Loan Officer Opinion Survey on Bank Lending Practices highlighted little change in lending standards in Q1 compared to last quarter after banks eased standards over the last year. However, banks reportedly continued to ease some of their terms for C&I loans. Easing was most widely reported for the maximum size of credit lines while also reducing the cost of accessing credit lines. Banks that reported having eased standards or terms cited more aggressive competition as the reason for doing so. Regarding the demand for C&I loans over the first quarter, banks reported stronger demand for loans and greater inquiries for new lines or expanding existing lines. The most cited reasons for increased demand were the need to finance inventory and accounts receivable, as well as higher customer investment in plants or equipment. Turning to real estate lending, a modest share of banks reportedly an easing in standards for multifamily property loans, while standards were basically unchanged for construction and land development loans and nonfarm nonresidential loans. There was stronger demand for multifamily loans, while little change for the others.
Technicals and Charts:
Four Key Macro House Charts:
Growth/Value Ratio: Growth is higher on the day and on the week. 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 and the week as new lockdown measures increase growth fears
5yr-30yr Treasury Spread: The curve is steeper on the day and on the week, with the belly continuing to outperform due to growth concerns and flight to safety flows that are duration sensitive
EUR/JPY FX Cross: The Yen is higher on the day and the week as a more risk-off environment is helping while EZ growth outlook continues to weaken
Other Charts:
In comparison to the GFC and original Covid sell-off, the VIX and implied Correlations have yet to reach levels that signal capitulation
“The volatility surface of $SPX is visibly skewed toward put premium, especially on later expirations. This suggests that there are ample hedging/negative directional bets in place at an institutional level. We're also deep in negative gamma (chase) territory: dips sold/rips bought.” – @Mayhem4Markets
reinforcing the call/put skew seen above, retail traders have cut their bullish options positioning to pandemic-era lows.
Goldman breaks down their Financial Condition Index change over the year by components, showing rising rates and lower/more-volatile equities are the main contributors to the tightening seen year to date.
Consumer health measures weakened in March due to drops in retail sales activity and personal income growth.
Challenger Gray job cuts went positive for the first time since January 2021, +6% y/y vs. -30.1% in the prior month. Andrew Challenger said, “job cut plans appear to be on the rise, particularly as companies assess market conditions, inflationary risks, and capital spending.”
“It appears that in-person spending has been picking up a bit while spending across non-store retailers (online) has been slowing. Over the last four weeks, the former has been running up about 11%, while the latter has slowed to 7.5%. More broadly, consumption looks fine.” - @RenMacLLC
U.S. auto sales surprised to the upside in April, rising to 14.29 million annualized verse an expected 14.15 million and 13.33 million in the prior month, which is still a long way from pre-pandemic levels, but the bounce off the recent low has been relatively strong
Article by Macro Themes:
Medium-term Themes:
Real Supply-Side Situation:
No Trucks: Truckers Want More Trucks Than Industry Can Build - WSJ
Production of heavy-duty trucks that haul trailers is bogged down by parts shortages that can’t keep up with a long backlog of orders, industry executives said, keeping fleets from replacing and adding trucks at the same time demand for shipping consumer goods and industrial materials is elevated. Dwindling availability of new trucks, along with a drivers shortage and surging fuel prices, are deepening logistics problems that have been dragging on the U.S. economy, pushing up delivery times and increasing transportation costs.
Why it Matters:
Market forecasters had expected a rebound this year for the production of heavy-duty trucks, the workhorses of the interstate trucking industry. Covid-19-related factory shutdowns clipped production in 2020, and parts shortages limited last year’s production to 264,470 vehicles, according to ACT Research. Annual production in North America has exceeded 300,000 during strong markets, and as recently as 2019 the industry produced 344,560 trucks. ACT is forecasting production of heavy-duty trucks to increase to 296,000 this year, down from an estimate of 300,000 at the start of the year. “Demand continues to outstrip the industry’s ability to build trucks,” said Kenny Vieth, ACT’s president.
China Macroprudential and Political Loosening:
Last Straw: China Premier Warns of ‘Grave’ Jobs Situation Amid Lockdowns – Bloomberg
Chinese Premier Li Keqiang warned of a “complicated and grave” employment situation as Beijing and Shanghai tightened curbs on residents in a bid to contain Covid outbreaks in the country’s most important cities. Li instructed all government departments and regions to prioritize measures aimed at helping businesses retain jobs and weather the current difficulties, according to a late Saturday statement, which cited the premier’s comments in a nationwide teleconference on employment.
Why it Matters:
The premier’s warning on employment came after the nation’s surveyed jobless rate climbed to 5.8% in March, the highest since May 2020, according to data released by the National Bureau of Statistics. High-frequency indicators tracking jobs suggest further deterioration in the labor market in April. In the end, the current relationship between the CCP and the people of China relies heavily on the illusion of prosperity and upward mobility. A strong job market plays heavily into this. If the current zero Covid policy begins to increase unemployment, the current policy stance in Beijing may finally soften as losses in the financial markets are clearly not a concern to Xi.
Longer-term Themes:
National Security Assets in a Multipolar World:
Food Security: Beijing doubles down on domestic soybean push amid self-sufficiency drive - SCMP
China must use “multiple measures to increase soybean production,” according to Vice-Premier Hu Chunhua, in the latest food security push by the central government amid a heightened focus on self-sufficiency. During a two-day tour of China’s Heilongjiang province last week, Hu said that the northeast provinces, which account for 60% of the national soybean production, “play a crucial role” in realizing this year’s target to increase the planting of the crop. Hu also placed emphasis on strengthening the breeding of high-quality soybeans and the application of planting techniques to boost efficiency.
Why it Matters:
Beijing has long placed emphasis on national security, including food and seeds, with the global price turbulence and looming food crisis stemming from the Ukraine war another reminder for China to reduce its reliance on foreign markets for key crops and commodities. China has listed soybean expansion as “a major political task to be accomplished” in 2022, with domestic soybean output expected to rise by 26 percent to 20.6 million tonnes this year. We continue to believe that China’s reliance on commodity imports is limiting their “Wolf Warrior” ambitions, so any developments towards self-sufficiency should be watched closely.
Electrification and Digitalization Policy:
Popular Vote: NSA, Cyber Command tap new election security leaders – The Record
U.S. Cyber Command and the National Security Agency have named the newest leaders of a joint election security task force that will play a central role in keeping the 2022 midterm elections free of foreign interference. The task force, originally dubbed the Russia Small Group, was established in 2018 to protect the 2018 midterms from meddling by Moscow. It was rechristened the Election Security Group (ESG) ahead of the 2020 presidential election, and its mandate was tweaked to include threats from countries including China, North Korea, and Iran, as well as non-state actors.
Why it Matters:
The group’s “ultimate goal is to detect, defend against, deter, and disrupt foreign interference and malign foreign influence to ensure safe and secure” the upcoming election, the spokesperson added. Officials have already noticed that the Internet Research Agency, an entity notorious for trying to sow discord among Americans that Cyber Command knocked offline in the days around the 2018 midterms, is “active in different places right now.” Moscow aims to “create doubt in our democratic process. Ultimately, that’s what I think the Russians will be focused on,” Maj. Gen. William Hartman, who took over the CNMF after Haugh and served as Cyber Command’s co-lead in 2020, told reporters.
Commodity Super Cycle Green.0:
Importing Green: Singapore Gets 20 Proposals for Low-Carbon Power From Its Neighbors - Bloomberg
The Singapore Energy Market Authority got bids for supply from Indonesia, Malaysia, Thailand, and Laos in response to a tender that sought 1.2 gigawatts of lower-carbon electricity imports starting in 2027. The types of power include solar, wind, geothermal and hydro. The plan got off to a rocky start last year when neighboring Malaysia banned exports of renewable electricity, prioritizing its own efforts to decarbonize. Talks are also underway on building an undersea cable to bring in solar power from the north of Australia, and the city-state is keeping its options open on nuclear energy.
Why it Matters:
Singapore, which currently generates 95% of its electricity from natural gas, wants to decarbonize its power mix, but its tiny land area means it has few domestic options. It’s being forced to look offshore instead and is aiming to bring in around 30% of its electricity by 2035. It will be interesting to watch the regionalization of “green” energy grids as countries either have few domestic options or want to complement existing portfolios of renewables with complementary sources available from neighbors.
ESG Monetary and Fiscal Policy Expansion:
Community: Fed, Biden Administration Float New Lending Rules for Lower-Income Areas – WSJ
Top U.S. banking regulators are poised to overhaul how banks lend hundreds of billions of dollars annually to lower-income communities. The latest proposal to modernize rules for the 1977 Community Reinvestment Act aims to ensure lending to lower-income individuals and small businesses is distributed more evenly where banks do business. The Federal Reserve and two other banking regulators aim to make rules more transparent and objective, potentially making it easier for banks to understand their regulatory requirements, though the firms could face heightened reporting mandates.
Why it Matters:
The Community Reinvestment Act is designed to end “redlining”—banks’ historical practice of avoiding lending in certain areas, often lower-income communities, frequently leading to stark economic disparities along racial lines. The law is one of the major tools the government uses to encourage banks to lend more to low- and moderate-income communities. Consumer advocates said they hoped the new proposal would boost banks’ obligations under the law. “The impact will be pretty clear and raise the bar in terms of what’s expected from banks,” said Jesse Van Tol, president, and chief executive of the National Community Reinvestment Coalition, a fair-lending advocacy group.
Free Access: White House touts "free" internet service plans - Axios
The White House said Monday that 20 internet service providers have agreed to offer $30 high-speed internet plans to low-income families, effectively giving free service to households that qualify for a federal subsidy. As many as 48 million households qualify for the program, a senior administration official said. So far, just over 11.5 million have signed up.
Why it Matters:
The Affordable Connectivity Program (ACP) provides a $30 monthly discount on internet service from participating providers for low-income households, such as those that receive federal assistance through SNAP or Medicaid. Cost is a key factor in the digital divide between those who have internet service and those who do not. "This is a great example of what we can achieve when the federal government and the private sector work together to solve serious problems," President Biden added at the event.
Current Macro Theme Summaries:
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