Midday Macro - Bi-weekly Color – 5/20/2022
Overnight and Morning Market Recap:
Price Action and Headlines:
Equities are lower, as the days of climbing the wall of worries have increasingly become falling down a cliff of fears with indexes making new recent lows and the S&P back in bear-market territory
Treasuries are higher, helped by the risk-off tone with a slightly bull flattening showing traders becoming more comfortable with nominal yield levels given a weaker growth outlook
WTI is flat, consolidating in the middle of its weekly range as expectations for prices at the pump rise further due to continual low refining/inventory levels while China looks to be securing more reserves from Russia
Narrative Analysis:
Equities are lower, significantly reversing overnight gains on little new news on a respectably sized OPEX Friday. The song remains the same, with bears squarely in control and any rallies being short lasted as traders continue to look for this magical flush out to make things better, or at least bring valuations lower. Our initial excitement earlier in the week that a longer-lasting rally was forming was crushed by profit margin warnings from Walmart and Target. The overall data this week varied, with harder data like retail sales and industrial production coming in stronger while regional survey-based manufacturing and housing data were weaker. Treasuries are drifting higher due to the reduced risk appetite and beliefs a slowdown is coming quicker, reducing the terminal rate the Fed will need to reach. Commodities have also cooled in the last few days with oil and aggs off recent highs, while industrial metals are mixed given the uncertainty of growth, specifically in China. The dollar is better bid today after a notable pullback from recent highs earlier in the week.
The S&P is outperforming the Nasdaq and Russell with Low Volatility, High Dividend Yield, and Value factors, and Real Estate, Health Care, and Utility sectors are outperforming.
@KoyfinCharts
S&P optionality strike levels have the Zero-Gamma Level at 4220 while the Call Wall is 4700. Today’s option expiration is not particularly large for SPX or QQQ, with 15% of delta & gamma expiring, but sizeable for SPY (37% of gamma, 20% of delta). The expiration of these positions currently reads as less support for next week. A move below 3800 induces buying from dealers, but following today's OPEX, that level moves to 3700. However, "going into Friday, expiring S&P 500 options showed the highest concentration in the 4,000 strike... should the S&P 500 close well below 4,000 Friday... that could set the stage for a bounce Monday according to Brent Kochuba, founder of analytic service SpotGamma."
@spotgamma
S&P technical levels have support at 3805-15, then 3720, and resistance at 3850, then 3925. Very negative developments technically over the last three days, which at current levels would make seven red weeks. Bears are firmly in charge. We are currently at the next spot for a relief/bear market bounce around 3815. If the S&P can't hold this level, the next move is down 100 points to 3720.
@AdamMancini4
Treasuries are higher, with the 10yr yield at 2.78%, higher by around 8bps on the session, while the 5s30s curve is flatter by 2bps to 19bps.
Deeper Dive:
We continue to be surprised that markets are surprised, given the writing has been on the wall for some time now. Consumer spending habits are changing quickly, as the drop in sentiment/confidence by consumers and businesses (we have highlighted for the last six months) due to persistently strong inflation is now materially altering real behavior. Yet somehow, it comes as a shock that discretionary spending has moved from goods to services, and staples are taking an increasing percentage of (reduced) real income. This was clearly seen this week by the drastic move down in retail bellwethers that find themselves overstocked with the wrong goods, employing too many workers, and paying more for logistical needs. Again, as is increasingly becoming our mantra, patience is warranted for any long positions (including energy) given the negative macro backdrop and inability of the market to flush to a lower level that properly reflects (through cheaper valuations) the coming economic weakness and tighter financial conditions.
Don’t fight the Fed is very much in effect as they continue to call for tighter financial conditions and weaker demand to get inflation back towards target. The good news is that the coming “recession,” which is more likely a below-trend growth period, is likely to occur much sooner than initially expected. This is due to higher prices already materially altering consumer behavior negatively, weakening future price pressures, especially for core basket goods. Ultimately, this will increasingly decelerate inflation even if supply-side impairments continue to improve marginally. Hence the Fed tightening cycle is shortening, reducing the ultimate level of overshoot needed and the level of financial tightening that will occur.
*Numerous Fed officials commented recently on the fast pace of tightening in financial conditions but also noted more tightening was needed
*Terminal rate expectations are plateauing as markets increasingly price a slowing of growth to occur quicker, reducing inflationary pressures and the level of tightening needed.
We increasingly believe rises in shelter costs are also likely to moderate in the second half of the year and support the need for a shorter tightening cycle. Housing activity is clearly slowing as affordability weighs on low and mid-level buying activity despite continued inventory shortages. Higher-end and investor cash buying is still strong by historical standards, but even that area is beginning to show some cooling. Rental markets often lag house buying activity and the current catch-up that many landlords have played in the last two quarters (after two years of pandemic frozen rents) is unlikely to continue at the current pace, given the majority of reopening relocations have now occurred. This will be especially true in the face of weakening jobs markets, something we are beginning to see growing signs of. We certainly don’t want to oversimplify what's occurring in the housing market. Still, We do want to highlight that the contribution to core inflation that it has had looks to be stabilizing if not becoming more outright negative into year-end.
*Although, in aggregate still a very tight market due to low inventory levels, there are growing signs that all types of buyers are becoming more selective or increasingly turning away from the housing market
*Labor market data is the ultimate lagging indicator, and given current tightness may be skewed to hide the coming slowdown, but early indicators are pointing to a cooling in hiring and increased cuts
As a result of the growing expectation for a notable slowing of growth, if not outright recession, real yields continue to drift lower (as measured by 5yr5yr) as the market begins to look past the current inflationary pulse. However, earnings growth needs to be repriced down further still. How much further seems to be the current debate regarding equity pricing with many sectors/stocks now looking cheap (depending on your growth outlook). At the same time, the overall index P/E level on a trailing and forward level varies, with trailing looking more attractive than forward. However, it is still a stretch to say things are really cheap, given all the uncertainties. As a result, many would-be investors continue to wait, not yet seeing levels needed to entice meaningful buying, continuing to run low gross exposure, and heavy in cash.
*Other than the energy sector, many market areas have cheaped notably, with IT, Telecoms, and Consumer Disc. over 20% cheaper.
*Earnings estimates will increasingly fall as sell-side analysts remain defensive over their price targets and slow to acknowledge the more challenging environment already upon us, but how much of that is already priced in?
Finally, and in summary, the current levels in risk assets increasingly reflect a dire negative outlook that may not ultimately come to pass. This is due to our belief that supply improvements mirrored by demand destruction are likely to occur sooner than expected, reducing inflationary pressures and ultimately the level of financial tightening needed to be orchestrated by the Fed. As stated before, we still believe a soft landing can be orchestrated. The longer-term structural trends that have allowed for a (somewhat) stable growth and inflationary environment over the last decade are still lurking under the current supply-shocked current macro surface. Of course, this is built on an optimistic outlook on globalization and capitalism reacting to the current challenges given the incentives higher prices/profits are giving, specifically in the energy and agricultural space. It is also predicated on no further supply-side shocks. We take comfort in the realignment of energy exports out of Russia, despite our animosity to the current regime there. We admittedly are waiting to see improvement in the agriculture commodity markets but also see some reasons for optimism there. However, risk-reward still favors patience and a more defensive posture likely until September as the current plateauing in inflationary pressures either meaningfully begins to fall or moves us into a more dire situation.
*Soft-landings are rare, but the uniqueness of the current pandemic driven supply-side shock-induced inflationary pulse as well as our belief that already tighter financial conditions due to the Fed’s strong forward guidance (since last year) are already laying the grounds for a return to a more normal/organic growth background in 2023-24 after a second-half slowdown this year.
Econ Data:
Housing starts declined 0.2% MoM to an annualized 1.724 million units in April, after a revised -2.8% drop in March and below market forecasts of 1.765 million. Single-family housing starts dropped by -7.3%, while multi-units jumped by 16.8%. Sales fell in the Northeast (-23.2%) and the Midwest (-22%) but rose in the South (10.6%) and the West (3.3%). Building permits dropped by -3.2% in April, the lowest in five months but above market expectations of 1.812 million. Multi-units were down by -0.6%, while those for single-family declined by -4.6%. Permits fell in the Northeast (-11.9%), the Midwest (-3.5%), and the West (-8.4%) but increased in the South (1%).
Why it Matters: Inventory shortage will keep starts and permits well supported for a while still despite falling affordability and subsequently less aggregate/aggressive demand. There was no material change in the supply-side situation, with building material costs remaining elevated and supply constraints persisting. As a result, homebuilder profit margins will be increasingly under pressure (as now being seen everywhere) as they clear a high level of backlog. At the same time, the ability to pass on cost increases will be weaker in growing segments/regions as demand/affordability continues to cool. This leaves the critical question of whether homebuilders will continue to increase supply in a market with a historically low inventory-to-sale ratio despite reduced profitability and growing uncertainty over end demand, or are we looking at a now structurally lower inv/sales ratio?
*Big increases in multi-unit starts offset weakness in single, keeping the overall total little changed
*Building permits are still historically high as home builders continue to struggle with existing backlogs
Existing home sales declined by -2.4% to a SAR of 5.61 million in April, the lowest since June of 2020 and slightly below forecasts of 5.65 million. Sales went down for a third consecutive month, another sign the housing market is cooling, as higher home prices and mortgage rates have reduced buyer activity. Total housing inventory amounted to 1 million units, up 10.8% from March and the median existing-home price for all housing types was $391,200, up 14.8% from April 2021.
Why it Matters: The housing market is increasingly showing signs of cooling with a bifurcation going on with middle-income non-urban buyers increasingly priced out while upper-income cash buyers keep showing up. "It looks like more declines are imminent in the upcoming months, and we'll likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years," said Lawrence Yun, NAR's chief economist.
*The housing market will be caught between slowing buyer activity and the need to return to a more normal inventory level, making new home sales a volatile data series moving forward
The Philadelphia Fed Manufacturing Index dropped sharply to 2.6 in May, the lowest in 2 years and well below forecasts of 16. A slowdown was seen in Inventories (3.2 vs. 11.9), Employment (25.5 vs. 41.4), and the Average Workweek (16.1 vs. 20.8), while New Orders (22.1 vs. 17.8) and Shipments (35.3 vs. 19.1) rose faster. At the same time, price pressures eased slightly but remained elevated for both Prices Paid (78.9 vs. 84.6), and Price Received (51.7 vs. 55).
Why it Matters: Despite a large drop in the headline index, increases in New Orders, Shipments, and Unfilled Orders showed current demand is far from rolling over. Instead, inventory accumulation and hiring activity is cooling. This supports what we are now hearing from individual companies and makes sense given the stage of the cycle we are now entering. Future expectations (Six-months ahead) saw most indexes move further lower, with the majority now below levels recorded for the last two years. However, in line with the current situation, future New Orders and Shipments increased while supply-side impaired metrics fell, showing us this decline in the General Business Activity headline index is not altogether that negative. May’s special question asked about forecasts for prices received and showed that firms expect to receive a 6.5% increase over the next year verse 5% in February. Unfortunately, many firms will be very disappointed when the consumer pushes back on that moving forward.
*Demand focused sub-indexes rose while supply-side affected ones were flat to lower, as lower inventory accumulation and labor hiring intentions weighed on the index
*Similar to the current index, the future outlook was weighed on by lower expectations for Delivery Times and Unfilled Orders, which shows fewer expectations for delays in production and shipping.
The Conference Board Leading Economic Index decreased by 0.3% in April to 119.2, following a 0.1% increase in March. The LEI is now up 0.9% over the six-month period from October 2021 to April 2022.
Why it Matters: The CB’s leading economic indicator index still shows no danger of a recession despite what the talking heads of the fin media and Twitter world are saying. As a reminder, the index is constructed to summarize and reveal common turning points in the economy with a predictive variable that anticipates (or “leads”) turning points in the business cycle by around seven months. “The U.S. LEI declined in April largely due to weak consumer expectations and a drop in residential building permits,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “Overall, the LEI was essentially flat in recent months, which is in line with a moderate growth outlook in the near term. A range of (now well-known) downside risks continues to weigh on the outlook. Nevertheless, we project the U.S. economy should resume expanding in Q2 following Q1’s contraction in real GDP. Despite downgrades to previous forecasts, The Conference Board still projects 2.3% year-over-year U.S. GDP growth in 2022.”
*The recent trajectory of the US LEI slowed, pointing to more moderate growth in the near-term
Policy Talk:
Chairman Powell spoke with Nick Timiraous earlier this week at the WSJ Future of Everything Festival to discuss rising interest rates, the Fed's plan to address high inflation, and the outlook for the U.S. economy and labor market. Powell said he expects the Fed to bring inflation down while preserving the labor market but continued to clearly/overly prioritize restoring price stability. He further highlighted that it was possible that disruptions from the pandemic had changed the labor market in ways that made current levels of unemployment inconsistent with the Fed’s 2% inflation goal, something he’s been talking about for a while now. He believes financial conditions should continue to tighten despite having moved a lot already, and the Fed will have to overshoot their neutral rate to step on inflation meaningfully, and this will lead to a cooling in demand and, subsequently, weaken the labor market. Given the number of job openings, he thinks the strength there will still allow for a soft landing. September is now the next important FOMC meeting, given June and July are done deals at 50bps. The Fed will either move down to 25bps hikes because inflation is cooling or continues at 50bps or potentially more.
"By the standards of central bank practices in recent years, we've moved about as fast as we have in several decades."
"Monetary policy works through expectations," and as a result of forward guidance, “financial conditions overall have tightened significantly. Broadly across financial conditions, you’re seeing that. And that’s what we need.” “How are financial conditions changing? How are they affecting the economy?” will be a key to determining the Fed’s policy decisions, he said.
"As a policymaker, the way I'm thinking about it right now, we are raising rates expeditiously to what we have been seeing is a more normal level, which is something that we will reach maybe in the fourth quarter. But it is not a stopping point. It is not a looking-around point. We don’t know with any confidence where neutral is. We don’t know where tightening is. We just know in this market, higher inflation and very strong growth. What we are going to be looking at, meeting by meeting, data reading by data reading, is what is happening in the financial conditions and what is happening with the economy.
Philadelphia Fed President Harker gave a speech on his economic and policy outlook for the Mid-Size Bank Coalition of America on Wednesday this week. He speaks to the multitude of things leading to supply-side shortages, which have created the stronger inflationary pressures, critiquing everything from sanctions on China, the response to Covid, and even immigration policy causing wage inflation. However, he also notes how strong demand is, something the Fed has more control over. In agreement with Governor Waller, he pointed out that policy began tightening last September through forward guidance. Harker expects two more 50 bps hikes and then increases at a “measured pace” until inflation is clearly falling. He caveated his views by stating that uncertainty in outlook has only grown. He concluded by highlighting the economy is still strong but focused on the weaknesses that still exist in the labor market, highlighting work being done by the Philly Fed to ensure a more inclusive and recovered workforce is coming, given the damages done by the pandemic.
“It should go without saying that, as a central bank, there is little the Federal Reserve can do to affect the supply constraints pushing up inflation. But we can affect demand — and that is what we have begun to do.”
“Overall, despite a contraction in the first quarter, I expect growth of about 3 percent this year. Underlying demand growth remains strong, and the job market should stay tight through 2022.”
New York Fed President John Williams spoke at a Mortgage Bankers Association conference in New York earlier in the week. He focused on how much financial conditions have already tightened and downplayed weaker liquidity conditions, saying the recent volatility was in line with the uncertainty over global events and the changing Fed policy. Williams said the current policy plan makes sense as the Fed moves rates “expeditiously over this year back to more normal levels.”
"I'm not seeing signs of market dysfunction in the Treasury market… Some of that volatility, in say, the Treasury market, is really the markets digesting new information.”
“We do need to move, again, the word is ‘expeditiously,’ to more normal rates this year, and we’re on our way to do that. But we also need to watch, and we need to monitor what’s happening in the economy.”
“We’ve already seen a tightening in U.S. financial conditions that is far greater than what we saw in all of 1994.”
Chicago Fed President Charles Evans said on Tuesday during a Money Marketeers event in New York he supports raising rates by 50bps in June but then moving to a shallower rate-hike path by July or September to allow the Fed time to assess inflation and the job market. His economic overview shrugged off the recent decline in GDP, focusing on strong household consumption and business fixed investment. He sees the labor market as “essential back to low levels we experienced before the Covid crisis,” and by many measures “downright tight,” but acknowledged it has structurally changed with many workers still missing. He went on to share his views on inflation, noting that many of the factors that led to its sharp increase could quickly reverse. However, he notes that monetary policy needs to quickly move to neutral, keeping inflation expectations contained and agreeing with the coming 50bps rate hikes and BS reduction plans, but is clearly on the more dovish side of speed and end level. He concludes by saying the outlook is uncertain, and the path for policy is far from set.
“I favor a front-loaded adjustment in the fed-funds rate toward the neutral range… I think front-loading is important to speed up the necessary tightening of financial conditions, as well as for demonstrating our commitment to restrain inflation, thus helping to keep inflationary expectations in check.”
“I expect we will see meaningful relief from the pressures related to chip shortages, clogged supply chains, the shift to goods consumption, and reopening effects. This relief should provide a substantial deceleration in the overall core price index.”
“It is too early to know what the outcome of that calculus will be. But with the current degree of inflationary pressures, I could see the need to take policy somewhat beyond neutral to achieve our price stability mandate.”
Technicals and Charts:
Four Key Macro House Charts:
Growth/Value Ratio: Value is higher on the day and on the week. Large-Cap Value is the best performing size/factor on the day.
Chinese Iron Ore Future Price: Iron Ore futures are higher on the day, as risk sentiment is more stable in China given continued government fiscal and monetary support, increasingly for home buying
5yr-30yr Treasury Spread: The curve is flatter on the day and the week, with the long-end better bid due to a flight to safety given the more risk-off tone
EUR/JPY FX Cross: The Euro is lower on the day but higher on the week as a more-risk off tone is countering increased ECB tightening expectations while Japanese inflation has finally more meaningfully increased in the data
Other Charts:
The median drawdown for the S&P around recessions is -24%, but the last three have seen much steeper declines
Earning expectations are still well above the long-term trend and are increasingly expected to fall as growth slows and margins compress this year
The Fed often talks about the wealth effect of its policy, and current expectations for a tighter policy certainly have had a negative wealth effect
There is a significant shortage of fuels currently, which will increasingly weigh on consumer and business costs
Although housing activity at the consumer level is slowing, the backlog of houses to be constructed has yet to fall, bringing into question whether homebuilders will begin to scrap projects.
Furthermore, sentiment and activity are becoming increasingly disconnected, likely leading to both correcting their current trend
China’s fiscal response still remains very tame, as they prioritize deleveraging the economy. However, things look to be changing after the recent drag lockdowns caused
Article by Macro Themes:
Medium-term Themes:
Real Supply-Side Situation:
Now the East Coast: Shipping Bottlenecks Hit Port of New York and New Jersey - WSJ
Representatives for New York and New Jersey port operations said the port’s cargo-handling facilities began struggling early this year as shippers took longer to pick up imports from docks and as empty containers piled up waiting to be returned overseas. As a result, the port’s container yards are clogged with 120K empty boxes, more than double the usual number. The port plans to open 10 acres of land to store empty boxes and ease some of the congestion.
Why it Matters:
Port congestion has been a leading cause of product shortages during the pandemic and has helped fuel higher freight rates and supply-chain costs. The increased congestion at the Port of New York and New Jersey coincides with a seasonal lull in shipping made “slower” by the Covid-19 lockdowns in China have cut into manufacturing, slowing imports. But a sharp upturn in imports in a few months is expected as the peak shipping season begins. Officials at the port are working on getting facilities operating as efficiently as possible by then, but only time will tell.
China Macroprudential and Political Loosening:
More Needed: China’s Central Bank Makes Unexpected Rate Cut as Growth Crumbles – WSJ
The People’s Bank of China cut its benchmark rate for loans of five years or more to 4.45% from 4.6%, the biggest single reduction since the rate entered the bank’s policy armory in 2019. It had made a 0.1 percentage-point cut in early 2020. Friday’s cut extends a series of central-bank measures to shore up China’s sagging economy, with initiatives including cheap cash for banks, loan programs for some businesses, and help for would-be homeowners.
Why it Matters:
The cut was unexpected, given that earlier this week, the central bank had left unchanged another key policy rate, charged on loans from a medium-term lending facility that funnels cash to commercial banks. The latest move “is an even stronger signal that instead of opting for a broad-based monetary easing, they want to do more-targeted easing,” said Tommy Wu, lead China economist at Oxford Economics in Hong Kong. “We shouldn’t expect large-scale stimulus of the kind that we saw in 2020,” Julian Evans-Pritchard, senior China economist at Capital Economics in Singapore, said in a note to clients.
Let’s be Friends: China Economy Czar Vows to Back Tech Firms After Crackdown - Bloomberg
The government will support the development of digital economy companies and their public listings, Vice Premier Liu He, who is President Xi Jinping’s most senior economic aide, said after a symposium with the heads of some of the nation’s largest private firms. Liu’s remarks reported by state media were short on details but signal further easing of the regulatory risk for China’s technology firms. This followsLiu “vowing” in March to stabilize battered financial markets, promising to ease the regulatory onslaught which has been part of the broader “common prosperity” initiative.
Why it Matters:
Beijing has made stability its core priority in a year plagued by geopolitical uncertainty and the heavy economic impact of coronavirus outbreaks, particularly as its top officials prepare for a key leadership transition toward the end of 2022 where Xi is expected to ensure a third term as party chief. To achieve this, Beijing is enlisting the technology industry, the biggest growth driver of the past decade, to revitalize an economy struggling with rolling urban lockdowns hitting consumption and causing supply-chain bottlenecks. We continue to see China as likely to lead global growth, starting in the second half of this year as it re-prioritized growth and decoupling.
Longer-term Themes:
National Security Assets in a Multipolar World:
National Security People: China Insists Party Elites Shed Overseas Assets, Eyeing Western Sanctions on Russia – WSJ
China’s Communist Party will block promotions for senior cadres whose spouses or children hold significant assets abroad, people familiar with the matter said, as Beijing seeks to insulate its top officials from the types of sanctions now being directed at Russia. Senior officials and members of their immediate families would also be barred from setting up accounts with overseas financial institutions unless they have legitimate reasons for doing so, such as study or work, the people said. Officials must sign pledges declaring compliance with the new rules, a requirement that would give Mr. Xi more leverage over the political elite ahead of the party’s 20th national congress, which is set to take place late this year.
Why it Matters:
The directive came as Mr. Xi seeks to minimize geopolitical risks for the Communist Party amid concerns that officials with overseas financial exposure could become a liability if the U.S. and other Western powers impose sanctions against Chinese leaders and their relatives as they did against Russia. Since taking power in 2012, Mr. Xi has waged a high-profile campaign to fight corruption and curb displays of extravagance among officials, saying that the party faced an existential battle against moral decay within its ranks. In reality, Xi has used the campaign to consolidate power and weaken opposing political tribes. Finally, it furthers Dual Circulation goals of isolating all parts of China from foreign influence, and as we often point out with many of Xi's policies, emboldens “Wolf Warrior” behavior.
Behind: U.S. rushes to catch up with China in supercomputer race – FT
China has been building a domestic industry around supercomputing for years, first shocking its main rivals in the US and Japan in 2000 when it unveiled what was then the world’s fastest machine. But the dawn of the exascale computing era could be a chance to grab a clearer lead. The build-up in China’s supercomputing program, which dates back more than two decades, has led to a “stunning situation” where the country now leads the world, said Jack Dongarra, a U.S. supercomputing expert. Despite China’s lead in hardware, the breadth of US capabilities is greater, particularly when it comes to software. Half of the $3.2bn costs of the U.S. energy department’s three exascale computers stems from a decade-long effort to write programs to run on the new computing architecture.
Why it Matters:
The most advanced supercomputers are used to improve simulations of highly complex systems, for instance, creating better models of climate change or the effects of nuclear blasts. But their secret use in classified areas, such as defeating encryption, is likely to also make them key tools in national security. China’s decision to not officially confirm its supercomputing breakthrough is a departure from decades of history in the field, where scientists usually talk openly about their achievements and countries have been quick to claim bragging rights to the top machines. The secrecy may have been to prevent further retaliation from the U.S., according to experts. Clearly, supercomputers will be an important national security asset, and we highlight this article as a good summary of where the arms race currently is.
Re-ordering: China in Talks With Russia to Buy Oil for Strategic Reserves - Bloomberg
Beijing is in discussions with Moscow to buy additional oil supplies, seeking to replenish its strategic crude stockpiles with cheap Russian oil, a sign China is strengthening its energy ties with Russia. Talks are being conducted at a government level with little direct involvement from oil companies. Details on volumes or terms of a potential deal haven’t been decided yet, and there’s no guarantee an agreement will be concluded.
Why it Matters:
The U.S. and U.K. have pledged to ban Russian oil imports, and the European Union is discussing similar steps, but crude from the OPEC+ producer is still flowing to willing buyers, including India and China. Since the invasion, refiners in China have already been quietly buying Russian crude, even as a Covid-19 resurgence and subsequent lockdowns had oil demand last month down -6.7% YoY. China doesn’t publicly disclose the size of its crude inventories, but a number of companies use tools such as satellites to estimate supplies to estimate activity/supplies. Some forecast the nation has the capacity to store more than 1 billion barrels of combined commercial and strategic stockpiles.
Electrification and Digitalization Policy:
Busy Elsewhere: U.S. Saw Signs of Decline in Russian Ransomware Strikes at Start of Ukraine War – WSJ
National security officials and private sector analysts haven’t pinned down the causes of the perceived drop in attacks, and they warn the frequency of ransomware attacks may again be rising. Some national security officials have credited the U.S. and European sanctions imposed on Moscow over the invasion of its neighbor for temporarily stemming the ransomware tide. Officials also speculate Russia’s top hackers have trained their sites on Ukraine since the invasion or that some of them may have needed to relocate to escape the combat. Many Russian-speaking criminal hacker groups recruit from Ukraine and other countries in Eastern Europe.
Why it Matters:
Analysts say it is difficult to precisely gauge the frequency of ransomware attacks, in part because so few victims publicly report when they suffer an attack. Much of the world’s cybercrime, including ransomware, originates in Russia or in Eastern Europe, according to security researchers and government officials. Russia has denied U.S. accusations that its state security apparatus is involved with cybercrime or tolerates it. “A lot of these groups were physically located in conflict areas, and have had to pause operations to move to safety,” said Bill Siegel, chief executive of Coveware Inc., a company that specializes in ransomware recovery. We also speculate the war may not be as popular among the cyber warrior ranks who have access to a greater level of “facts” than the average Russian citizen, but that’s just our hope.
Commodity Super Cycle Green.0:
More Please: Metals demand to rise on climate change efforts: Rio - Argus
The mining and processing of copper, aluminum, lithium, and steel are essential for a low-carbon future, Rio Tinto's chief executive officer Jakob Stausholm said in a presentation at the Bank of America Global Metals Mining and Steel Conference, with demand also underpinned by population growth and urbanization. There are often no alternatives to steel, copper, aluminum, and minerals from primary sources, even with the adoption of circular economy initiatives, he added.
Why it Matters:
Demand for all “green” inputs will grow, more than previously expected, and in a faster time frame. Stausholm's presentation cited research showing that global aluminum consumption will increase to around 174mnt in 2050 from 95mnt in 2021, copper demand higher at 57mn t by 2050 from 31mnt in 2021, and lithium demand will rise to 5.8mnt of lithium carbonate equivalent in 2050 from 500,000t in 2021, and steel production will grow to 2.3bn t in 2050 from 1.9bn t in 2021. We know this isn’t new news, but we wanted to highlight it given the forecast Rio Tinto is comfortable putting forth.
Current Macro Theme Summaries:
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