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

    Shell Isn't Looking for Big Deals as Debt Shrinks, Profits Soar

    This article from Bloomberg may be of interest to subscribers. Here it is in full: 

    Shell Plc isn’t planning to use its growing cash pile to pursue big acquisitions, aiming instead to deliver greater value for shareholders. 

    That was the message delivered by new Chief Executive Officer Wael Sawan and Chief Financial Officer Sinead Gorman at a meeting with analysts on Friday morning, following their announcement the day before of record profits of nearly $40 billion in 2022 and the lowest level of indebtedness since 2015.

    The company’s management is trying to boost Shell’s value, which has lagged American peers that stuck more closely to their fossil-fuel core instead of diversifying into cleaner energy.

    Shell’s shrinking debt could give investors “some nervousness around the potential for large-scale M&A,” Biraj Borkhataria, an analyst at RBC Capital Markets, wrote in a note on Friday about the meeting earlier in the day. “Wael clearly stated this was not on the agenda, with focus more on performance of the asset base and driving higher returns.”

    Shell said at the meeting that big acquisitions of around $10 billion are unlikely in low-carbon energy because there aren’t good opportunities, according to analysts at Barclays Plc led by Lydia Rainforth. 

    There could be smaller-scale investments in that area, particularly in hydrogen. Last year Shell spent $2 billion to buy Danish company Nature Energy Biogas A/S and reached final investment decision on Europe’s largest green hydrogen production site.

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    Email of the day on scanning for prospective funds

    I hope you are well, and not too cold. In London.

    I am interested to invest in some US FUNDS. Is there any way of assessing/culling the Funds by 1 year, 5 year Performance. As you know you have large list.

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    Apple Rebounds as Investors Look Past Sluggish Holiday Quarter

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

    Revenue fell 5.5% to $117.2 billion in the December quarter, Apple’s biggest sales period of the year, coming in well short of the average Wall Street estimate of $121.1 billion. It was Apple’s first quarterly decline since 2019 and the first time the company has missed analysts’ holiday sales projections since 2015. 

    The iPhone and Mac were particular weak spots for Apple last quarter, dragged down by a broader slump afflicting mobile devices and computers. The Covid restrictions in China added to Apple’s woes, making it harder to ship enough of the most popular versions of the iPhone. Timing was another issue: The company didn’t launch new Macs and HomePods until recent weeks, missing the end of the holiday quarter.

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    Dollar Soars After Jobs Surprise Reignites Higher Rates Bets

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

    A broad gauge of dollar strength jumped after the jobless rate in the US hit a 53-year low as traders amped up bets on a higher policy rate.

    The Bloomberg Dollar Spot Index extended gains for its biggest two-day climb in four months after data highlighted the resilience of the labor market and another report showed resurgence in consumer demand, suggesting even more tightening may be in store from the Federal Reserve. 

    The greenback gained as much as 1.2%, climbing against all of its peers in the Group of 10, with the Japanese yen, the Australian dollar and New Zealand dollar falling the most. 

    “The headline number for nonfarms was shocking, and the US dollar is clearly reacting to that,” said Bipan Rai, a currency strategist at Canadian Imperial Bank of Commerce. “We still have plenty of data to comb through before the picture is complete.”

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    Is this time different?

    In watching to Jerome Powell’s press conference yesterday I was struck by the number of times he said this is not a normal business cycle. 

    The inflation that we originally got was very much a collision between very strong demand and hard supply constraints, not something that you really have seen in prior, you know, in business cycles.

    And

    I think it's -- because this is not like the other business cycles in so many ways. It may well be that as -- that it will take more slowing than we expect, than I expect to get inflation down to 2 percent.

    And

    this is not a standard business cycle where you can look at the last 10 times there was a global pandemic and we shut the economy down, and Congress did what it did and we did what we did.

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    ECB Hikes by Half-Point and Signals Same Again in March

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

    The European Central Bank lifted interest rates by a half-point, with President Christine Lagarde saying another such move is almost certain next month, despite conceding that the inflation outlook is improving.

    Policymakers, as expected, raised the deposit rate to 2.5%, the highest since 2008. Lagarde warned that the most aggressive bout of monetary tightening in ECB history isn’t done — even as energy prices plunge and the Federal Reserve moderates the pace of its own hikes.

    In a statement, the Governing Council said it “intends” to raise rates by another 50 basis points at its March meeting, then “evaluate the subsequent path of its monetary policy.”

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    Oil's Pipe Dream

    This article for Javier Blas for Bloomberg may be of interest. Here it is full: 

    For years, energy experts modeling the impact of 2050 net zero targets on oil demand had the advantage that the deadline, and the incremental steps to getting there, were a long way off. If time proved their scenarios wrong, they’d be long forgotten anyway. 

    But now, those first intermediate waymarks are around the corner, and they look increasingly farfetched.

    Earlier this week, BP Plc published its annual Energy Outlook, presenting three scenarios — not forecasts — for how oil demand may evolve. The Net Zero path, broadly in line with the goals of the Paris Agreement, is difficult to reconcile with current trends.

    In such a narrative, BP’s model shows global oil consumption collapsing to 21 million barrels a day by midcentury, down from about 98 million today.

    Ignore 2050 and focus instead on the intervening milestones, starting with 2025. In just two years’ time, BP’s Net Zero scenario sees oil demand 4 million barrels a day lower than it is now. That would mean removing the equivalent of Germany’s entire consumption in 2024 and repeating that feat again the following year. 

    Every oil forecast I’ve seen shows demand rising in 2023, and the few 2024 projections already published — including one from the US government — see growth continuing.

    Looking further ahead, BP’s Net Zero readout suggests demand would need to plunge a further 9 million barrels a day from 2026 to 2030, falling to 85 million a day by the end of the decade. That equates to eliminating the consumption of France each year and, on the final year, striking out Italy as well.

    Then the really difficult period starts. The scenario sees the world using just 70 million barrels a day in 2035, requiring the annual removal of 3 million a day. That equals the demand of Japan, currently the world’s fourth-largest consumer.

    Net zero models look increasingly at odds with short-term trends. It’s possible oil demand can sink by 2050, but is it going to plummet in a matter of months and keep falling precipitously every year for the next decade? No.

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