David Fuller and Eoin Treacy's Comment of the Day
Category - Energy

    Cooler Inflation Takes Fed's Rate-Hike Size "Down to the Wire"

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    “This is a necessary print for the Fed, but it’s not sufficient,” Pond said. “We need to see a lot more. You can think about this print as sort of like the weather -- it’s better today than it has been over the past few days. But it’s still summer. There’s still a lot of humidity out there. It’s not great. So it’s in the right direction. But we’re certainly not there yet.” 

    For Diane Swonk, the chief economist at KPMG LLP, the Fed is now hedging against risk of future supply shocks as well as combating current inflation and will likely favor a 75 basis-point increase.

    “The Fed is no longer willing to rest on their laurels on a one-month move,” she said. “The greater risk for the Fed is to stop too soon than stop too late. It will take a lot more cooling than this for the Fed to shift its decision rule, although in this economy, September seems an eternity away.”

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    Assessing the Macroeconomic Consequences of the Inflation Reduction Act of 2022

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    Lawmakers appear close to passing into law the Inflation Reduction Act of 2022. The legislation is born out of the Build Back Better agenda that President Biden proposed more than a year ago. It raises nearly $750 billion over the next decade through higher taxes on large corporations and wealthy individuals and lower Medicare prescription drug costs, to pay for nearly $450 billion in tax breaks and additional government spending to address climate change and pay for lower health insurance premiums for Americans benefiting from the Affordable Care Act (see Table 1). The remaining more than $300 billion goes to reducing the federal government’s future budget deficits (see Chart 1). Broadly, the legislation will nudge the economy and inflation in the right direction, while meaningfully addressing climate change and reducing the government’s budget deficits.

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    Pelosi's Roundabout Flight to Taiwan Shows China's Long Reach

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    Instead of traveling northeast from Kuala Lumpur directly across the South China Sea -- a journey that might have brought her jet close to Chinese military facilities built on reclaimed land on islets and reefs including in the Spratly Islands -- Pelosi’s plane flew southeast over the Indonesia part of Kalimantan, or Borneo, before turning north and then to the east of the Philippines, according to imagery provided by Flightradar24. 

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    Shale Profits Finally Blossoming After Decade of Steep Losses

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    US shale drillers are expected to post record second-quarter profits in coming days, reversing nearly a decade of debt-fueled losses. 

    The top 28 publicly traded US independent oil producers generated $25.5 billion in free cash flow in the three months to June 30, according to estimates compiled by Bloomberg. In that space of time they’ll have made enough cash to erase one-fourth of what they lost over the previous decade. 

    Fracking revolutionized global energy markets by enabling American drillers to harvest shale resources that had previously been untouchable. In the space of just over 10 years, the US went from a declining crude producer to the world’s dominant oil and gas source, but at an astronomical cost: the 28 companies lost about $115 billion in the decade leading up to the Covid-19 pandemic.

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    New US Climate Deal Could Make EVs, Energy Bills Cheaper

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    “This bill is going to open up a lot of avenues for Americans to contribute to the fight against climate change on an individual level,” said Senator Sheldon Whitehouse, a Democrat from Rhode Island, in an emailed statement. “Through a mix of rebates for electric appliances and efficiency retrofits and tax credits for technologies like heat pumps … it’s going to become a lot more affordable to do your part.” 

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    Email of the day on energy prices

    Fyi, have finally bit the bullet and fixed energy price with EDF for 2 years until July 2024.

    The Nord Stream pipeline 1 issue over the last few days made me make the final decision.

    Would welcome Mr Treacy comment about the recent events with Russia cutting supplies and short and medium-term implications. Will we ever see the energy prices normalize? His comments are always very insightful.

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    Gold Gains as Investors Weigh Growth Concerns; Palladium Jumps

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    “We are finally starting to see some weakness in the US dollar index, as gold bounces off an oversold level, recovering above $1,700 for now,” said John Feeney, business development manager at Sydney-based bullion dealer Guardian Gold Australia. “We now expect this initial flight to the US dollar to start rotating back into gold as investors search for a true and reliable hedge against inflation.”

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    As Farnborough Air Show Sizzles, Airbus Makes Expo a Slow Burner

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    “Boeing has been the biggest beneficiary at Farnborough to date,” said Sheila Kahyaoglu, an aviation analyst at Jefferies LLC.

    Airbus Chief Executive Officer Guillaume Faury acknowledged in an interview Monday that business was “probably a bit less now than it used to be in the past because we are constrained by the supply chain.”

    The Toulouse-based company has had to grapple with so-called gliders -- fully built aircraft sitting on the ground without engines that can’t be completed amid a shortage of components, from engines to computer chips The planemaker now has 26 planes without engines, six more than at the end of May, according to Faury, who said he’s optimistic the issue will be resolved by the end of the year.

    Besides, the company came into the show with some major orders under its belt, including a deal from China for 292 airliners worth more than $37 billion just this month.

    Even if Airbus has to cede the commercial bragging rights to Boeing this year, the European company can take solace in the fact that it has an order backlog stretching out years, giving it little reason to hunt for fresh deals. The company’s best-selling A320 family is sold out until 2027. Faury said his priority now is to serve existing customers and get the supply chain sorted.

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    Summers Says Fed 'Let Us Down Quite Badly' and Still Unrealistic

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    Former Treasury Secretary Lawrence Summers issued one of his harshest criticisms yet of the Federal Reserve’s slowness in moving to raise interest rates, and warned that policy makers are still presenting forecasts that are unrealistic.

    “In 2021, our central bank let us down quite badly,” hurting policy makers’ credibility, Summers said on Bloomberg Television’s “Wall Street Week.” “It made mistakes in the core functioning of a central bank,” including in its failure to lean in against fiscal stimulus last year, he said.

    Among the errors has been a “repeated poor forecasting record -- and I have to say that it’s not something that’s been fully fixed,” Summers said. The June median Fed official predictions showed inflation coming back toward the 2% target but unemployment only reaching a high of 4.1% by 2024 -- a “highly implausible” result, he said.

    “Frankly I think in 2021 our central bank lost its way. It was talking about the environment, talking about social justice in a range of things,” Summers, a Harvard University professor and paid contributor to Bloomberg TV, said. “It was confidently dismissing concerns about inflation as transitory.”

    Turning to Japan, which has seen its currency tumble to the weakest since 1998 as the Bank of Japan declines to join its peers in tightening policy, Summers said it’s likely to be a challenge to exit the current zero-yield targeting regime.

    Dollar’s Impact
    “Sooner or later they’re going to leave the yield curve control strategy and I’m not entirely sure what’s going to happen when they do,” Summers said. “In the meantime, the pressures are likely to build,” with the potential for “an even weaker yen,” he said.

    While some emerging markets are also suffering from a strengthening dollar, Summers said that he didn’t see a “systemic” crisis along the lines of 1998. Still, countries with “particularly unsound policies” including Turkey and Argentina are a concern, he said.

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