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

    Luxury Stocks Sink as China's Comments on Wealth Cause Jitters

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

    Luxury stocks sink in Europe, dragging the Stoxx 600 Index lower, after Chinese state media said President Xi Jinping offered an outline for “common prosperity” that includes income regulation and redistribution, putting China’s wealthiest citizens on notice. 

    LVMH -4.3%, Burberry -4%, Kering -3.5%, Hermes -3%, Richemont -2.2%

    “This is a rather nervous market reaction to leadership statements in China about the ‘third wealth redistribution,’” Bernstein analyst Luca Solca says in an email

    “I am not sure there is necessarily a lot to fear from that,” he adds. “Time will tell”

    NOTE: Since Xi took office in 2012, the ruling party has made it a priority to end poverty and build a moderately prosperous society, goals that the party sees as central to promoting well-being and strengthening its governance

    Income inequality in the country is wide -- the richest 20% earn more than 10 times poorest 20% -- and hasn’t budged since 2015

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    Chip Crisis Shows Signs of Easing, But There's a Catch

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    Still, it’s probably too soon to declare an end to the shortage. Outbreaks of the delta variant of Covid-19 and the long-term efficacy of vaccines make predictions even harder than usual. Some chip analysts have said that reports of weakness are primarily seasonal and that sales will pick up through next year.

    Shortages also vary by part. So even if you can walk into a store and find plenty of laptops, you’ll still struggle to get a new car or a video game console. In some cases, chip delivery times are longer than 20 weeks, the longest wait in at least four years.

    But as I wrote last month, the pandemic rush to computers and printers won’t repeat itself. Once a worker or student buys a laptop, they don’t need another one for several years. Retailers are offering extensive discounts on nearly every PC-related category, with the exception of graphics cards. (It’s still a good time to be in the games business.)

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    Shipping bottlenecks set to prolong supply chain turmoil

    This article from the Financial Times may be of interest to subscribers. Here is a section:

    The disruptions started in the second half of last year after demand for goods sank when the pandemic struck and carriers cut sailings, but locked-down consumers then ordered products online at an unprecedented rate.

    Shipping companies’ efforts to catch up have been set back by the Suez Canal blockage in March and the Yantian terminal closure, as well as border restrictions and port worker absences.

    An indefinite partial shutdown at Ningbo-Zhoushan is the latest problem that could deepen the strain on global logistics. Shipping lines have already started to omit calling at the Chinese port near Shanghai.

    About 350 containerships capable of carrying almost 2.4m 20ft boxes are waiting off ports globally, according to VesselsValue. The congestion has been getting worse with idle capacity reaching 4.6 per cent of the global fleet, up from 3.5 per cent last month, data from Clarksons Platou Securities shows.

    Lars Mikael Jensen, head of global ocean network at Maersk, the world’s largest container shipping group, agreed that the situation had shown no signs of improvement since the Delta variant of Covid emerged.

    “It’s not getting any better on aggregate,” he said, adding that maritime transport networks are “still super stretched — it only takes a small thing then you’re back to square one or square one minus”.

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    Inflation Tempers Americans' Enthusiasm About Red-Hot Economy

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    By global standards, the U.S. has bounced back fast. But as data on the recovery continue to pour in, there’s plenty to support the suspicion that the glass is still half-empty.

    Consumer sentiment fell in early August to the lowest level in nearly a decade by one measure and U.S. retail sales fell in July by more than forecast.

    The following charts help explain why Americans still aren’t clear how impressed they should be.

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    BHP Bets on Lower-Carbon World With Petroleum Exit, $5.7 Billion Potash Project

    This article from the Wall Street Journal may be of interest to subscribers. Here is a section:

    BHP and Woodside said the business would be one of the world's 10 largest producers of liquefied natural gas. Combining the businesses is expected to generate more than $400 million in annual savings, the companies said in a joint statement. They expect the deal to be completed by July next year.

    Selling the petroleum business will lead to BHP focusing on mined commodities: iron ore, metallurgical coal, copper and nickel. On Tuesday, BHP confirmed that potash is on that list by approving the first stage of its Jansen project in Canada's Saskatchewan province. The operation is expected to start production in 2027, with an annual capacity of 4.35 million metric tons of potash.

    Potash is one of three major fertilizer ingredients, alongside nitrogen and phosphate. BHP believes demand for potash could as much as double by the late 2040s to become a $50 billion market. Mr. Henry said mining at Jansen could last about 100 years.

    "Under our 1.5-degree scenario, potash stands to be a winner, with increased biofuel production and intensified competition for land due to afforestation," Huw McKay, BHP's chief economist, said in June. Potash also doesn't generate some of the negative environmental impacts that other fertilizer nutrients do, especially the release of greenhouse gases during application, he said.

    Potash is seen by farmers as an attractive resource because it tends to boost yields, aid in drought tolerance and improve crop quality.

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    Beijing Tightens Grip on ByteDance With Rare China Board Seat

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

    But the fact that the industry regulator can designate someone to the board of a prominent sector player may unsettle investors worried about the broader ramifications of Beijing’s clampdown. Even before Xi’s administration tightened its grip on the tech sector, ByteDance had grappled with American lawmakers’ accusations that TikTok in particular threatens national security and could aid Beijing in espionage efforts. In May, the month after the Chinese regulator took its stake, founder Zhang Yiming relinquished day-to-day control of his company to its closest lieutenant, a decision regarded as an attempt to distance himself from the growing turbulence at home and abroad.

    “It intensifies worries about the government’s intentions for China’s internet sector and the concessions private firms may have to make,” said Michael Norris at consultancy AgencyChina. “It gives new context to Zhang Yiming’s decision to step down from his position as ByteDance’s CEO.”

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    Cost to Bury Carbon Near Tipping Point as Emissions Price Soars

    This article by Rachel Morison and Samuel Etienne for Bloomberg may be of interest to subscribers. Here is a section:

    “We need to see higher carbon prices to make those projects profitable,” said Anders Opedal, chief executive officer of Equinor ASA, which is developing CCS in the U.K., Norway, Germany and the Netherlands. “It actually needs to be more expensive to pollute than actually capture and store.”

    Britain has the most ambitious climate goals of the G-20 nations, targeting a 78% reduction in emissions by 2035. The nation has committed to helping fund two industrial hubs, where heavy industry and power generation can use carbon capture and storage by 2025, with another two by the end of the decade.

    The aim is to scrub as much as 10 million tons of carbon dioxide from the atmosphere every year. Details on how the funding will be allocated are due before December. At today’s power prices, the U.K.’s largest planned project at Drax Group Plc’s biomass station in north England already would be profitable using carbon-capture technology, according to Credit Suisse.

    “We need to be sure we could get those prices over a long time period, but we’re getting pretty close,” CEO Will Gardiner said in an interview on Bloomberg Radio. Drax’s project will start in 2027, and by 2030 it will capture and store 8 million tons of carbon dioxide a year.

    In 2019, the world emitted about 33 gigatons of carbon. Operational projects are capturing just a fraction of that, about 40 million tons, according to Wood Mackenzie. There are 19 large-scale CCS facilities in operation today and another 32 in development, according to Credit Suisse. If these all come online, they could store 100 million tons – a slightly bigger fraction.

    There’s also a chance the technology might not be as effective as promised. The world’s biggest project, at Chevron Corp.’s $54 billion liquefied natural gas plant in Australia, has fallen short of its target to capture 80% of emissions from the plant, burying just 30% over five years.

    “The tech isn’t there yet for large-scale adoption, but our industry has to start changing how we operate,” said Andrew Gardner, chairman of Ineos Grangemouth Ltd., which is working with Royal Dutch Shell Plc on the Acorn project in Scotland that’s scheduled to start in 2027.

    The system developed by Oslo-based Aker Carbon Capture ASA costs between 60 euros and 120 euros per ton, CEO Valborg Lundegaard said. That means CCS could be nearing a crossover point.

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