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Australia's Pensions Suffer Worst Year Since Financial Crisis

This article from Bloomberg may be of interest to subscribers. Here is a section:

Australia’s pensions posted their worst annual performance since the global financial crisis as markets were roiled by central banks’ aggressive rate hikes and the war in Ukraine.

Guardians of the world’s fifth largest pension pot shed A$92.8 billion ($64 billion) on investments in the fiscal year through June 30, the biggest loss for the period since 2009, according to Australian Prudential Regulation Authority data released Tuesday. That saw the pool of savings fall to A$3.3 trillion, wiping out a year’s growth. 

The performance was largely due to a A$140 billion loss in the June quarter as equity markets were roiled by fears of a slowing global economy. The funds had boosted their stocks allocations toward the end of last year, before global equity markets slumped following Russia’s war in Ukraine and central banks’ efforts to stamp out rampant inflation. 

Australia’s pensions are bracing for more volatility in anticipation that the global economy could be heading into recession. They’ve lifted their holdings of fixed income and cash, while their stock allocations are now at the lowest level since December 2020.
 



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Saudi Arabia Makes a Push for $100 Oil

This article for Bloomberg may be of interest to subscribers. Here is a section:

For long, Saudi Arabia pretended it didn’t target oil prices. The job of OPEC+ was all about matching supply with demand. Focus on fundamentals, and leave prices to the market, it used to say.

On Monday, in an unusual intervention, Saudi Energy Minister Prince Abdulaziz bin Salman indicated he didn’t like the yo-yo pricing he saw in the oil market. The problem, he said in a written interview with Bloomberg News, is that the physical and financial markets have “become increasingly more disconnected.”

Left unsaid, but clearly implied, is the real concern: oil prices were getting too low – and in the view of Riyadh, for no good reason.

With Brent falling toward a six-month low of $90 a barrel last week, Prince Abdulaziz said “cutting production at any time” was an option for OPEC+. The Saudi royal is a veteran policymaker, who knows very well the impact of those words. If there was any doubt, when the state-run Saudi Press Agency published its own version of the interview, it elevated the “cutting production” remark into the headline.



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UK Inflation Hits Double Digits for the First Time in 40 Years

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“UK CPI inflation surged in July amid rising food prices that helped lift the rate above market expectations. The peak is still likely come in October, when energy prices are due to be increased again -- we see annual CPI moving to a little below 13% at that point. With inflation now more than five-times the Bank of England’s target, the question isn’t whether the central bank will tighten, it’s by how much? Today’s reading makes it more likely than not that the BOE lift rates by 50 basis points in September -- our baseline ahead of the data release was for a 25-bp move.”

Economists are growing increasingly pessimistic about the UK, with the risk of a recession now seen as far more likely than not due to rising cost pressures. The BOE expects a recession to start in the fourth quarter, lasting into the early part of 2024.

The central bank expects inflation to surpass 13% later this year when regulators allow energy bills to rise again. That would mark the worst reading since September 1980, when Margaret Thatcher’s government struggled to bring a wage-price spiral under control.

 



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Zinc Surges as Trafigura-Owned Smelter to Halt Production

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The decline in European zinc production has seen local LME stockpiles fall close to zero this year, while global inventories remain near the lowest in more than two years. 

“There will be a bit of capacity juggling going on,” said Tom Price, an analyst at Liberum Capital. “If the EU needs their metal, they will probably have to import more semi-refined material or the metal itself.”

Supply concerns are still being balanced by the impact of the energy crisis on demand, which has caused many economists to predict a recession in Europe. Economic data on Monday from China, the world’s top metals consumer, added to those fears as the nation struggles to mitigate the impact of Covid-19 curbs, the property slump and the recent heat waves.

China is also facing an energy crunch which could hit metals output. Soaring temperatures are stretching power supplies and drying up water for hydro-electricity, forcing key aluminum-hub Sichuan to vow it will prioritize electricity production for residential use.
 



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Carbon Capture Could Get $100 Billion in Credit from US Climate Bill

This report from Bloomberg New Energy may be of interest to subscribers. Here is a section:

The new legislation raises the credits for captured CO2 that is used and stored to $60/tCO2 and $85/tCO2 respectively. However, project owners must meet prevailing wage and apprenticeship requirements in order to qualify. If they do not, they will be paid a lower credit than the existing 45Q payment. Projects must be under construction by the end of 2032 to receive the credit

A new, much higher credit is available to direct air capture (DAC) projects. DAC currently costs around $600/tCO2. The credit pays $130/tCO2 for gas that is used, say, for enhanced oil recovery or to make synthetic fuels, and $180/tCO2 for CO2 that is stored permanently.

 



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Germany Slaps Levy on Households to Spread Pain of Gas Surge

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“The levy is a consequence of Putin’s illegal war of aggression against Ukraine and the artificial energy shortage caused by Russia,” Economy Minister Robert Habeck told reporters in Berlin. The government is working on a compensation package for consumers, because the levy presents a “challenge“ to them, Chancellor Olaf Scholz said in Oslo after a meeting with Nordic counterparts. 

The levy comes as Europe shifts its focus to curbing consumption in the face of a worsening energy crisis. German power prices climbed to a record amid mounting concerns the region may struggle to generate enough electricity this winter. That has pushed up inflation rates and threatened the industry.

Habeck said the levy -- which runs through April 1, 2024 -- would cost an average single household about 97 euros a year, a couple would pay about 194 euros more and a 4-person household would bear extra costs of about 290 euros.



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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

Thanks to a subscriber for this report from Moody’s. Here is a section:

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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