Newsletter - March 9, 2022
Oil / Commodities
- Nickel futures are not trading anywhere in the world on Wednesday (Asia) after prices in Shanghai hit their daily upward limit in the wake of unprecedented moves and a trading suspension on the LME. Overnight trading of the metal on the Shanghai Futures Exchange – China’s top commodities bourse – saw prices surge 17% to the daily limit of 267,700 yuan. That means there will not be any more trades during the current sessions, which ends at 3pm local time, unless transactions are concluded below that price. Nickel prices rocketed as much as 250% in the last two days on the LME. The unprecedented rally has prompted the 145-year-old exchange to suspend nickel trading on Tuesday as well, with a resumption unlikely before Friday. Nickel’s dramatic surge was powered by a squeeze that forced giant producer Tsingshan Holding Group and its brokers to liquidate some short positions built up over the course of months. The LME said nickel’s moves would be capped at 10% after it restarts. The metal surged as much as 110% on Tuesday, the most ever, though the LME later announced it would cancel all trades that took place in the hours before the halt.
o https://www.bloomberg.com/news/articles/2022-03-09/nickel-miner-with-tsingshan-ties-sinks-23-before-trading-paused?srnd=premium-asia
Tech
- Private digital coins like Bitcoin will continue to grow as a meaningful store of value, in a similar vein to gold, according to DBS. However, it is unlikely that cryptocurrencies will take over the role of state-backed money. Regulators and politicians will be loath to give up control of monetary policy and economic management tools, and will therefore be very circumspect about letting private money grow according to a report published by the Singapore-based bank.
- Apple introduced 5G versions of its low-end iPhone SE and iPad Air tablet, as well as a redesigned Mac desktop computer and faster processor, kicking off what is likely the most prolific year yet for new product releases during Tuesday’s “Peek Performance” launch event. Apple is looking to keep up its momentum following a record-setting holiday quarter that exceeded expectations. Apple also announced plans to bring MLB games to Apple TV+ in an attempt to boost the service’s subscribers. The Peek Performance presentation also included a new Apple processor named M1 Ultra that the company called the most powerful PC chip ever. The product is part of Apple’s yearslong shift away from using Intel processors in favour of its own components. The new Mac desktop computer, called the Mac Studio, will feature the newest M1 Ultra chip and is aimed at app developers, photo editors and video creators. The company also unveiled a separate 27” monitor that is far cheaper than the current model, coming in at $1,599. Apple’s shares have fallen about 10% this year, in line with a broader stock slump. Apple is also readying additional Macs and iPads, as well as the iPhone 14 and new Apple Watch launches later this year. The company may also preview its first mixed AR/VR headset later this year. As for the newest 5G-enabled iPhone SE, Apple is expected to capture greater switchers from the Android market and bolster its global market share for smartphones. The old iPhone SE has generated three quarters of sales outside the U.S., and since it has been two years since the affordable iPhone model’s initial launch, Apple is looking at a strong upgrade and switch cycle ahead. The newest iPhone SE also features a faster A15 processor and other feature upgrades, but does not offer Face ID used by higher-end models, sticking to the traditional home button with Touch ID. The old iPhone SE accounted for 12% of iPhone sales since it launched in 2020 according to external data compiled. As consumers seek 5G devices, the new model could make headway in Europe, SEA and South Korea. The new iPhone SE and $599 iPad Air, which sports an M1 chip, will be available for ordering on March 11th before reaching stores a week later. Apple began taking orders for the Mac Studio and monitor on Tuesday, ahead of its release on March 18th. The version with the M1 Ultra chip starts at $3,999, while a lower-end version is $1,999.
- Apple’s newest iPhone SE saw a price increase of $30 to $429 in exchange for 5G, a faster A15 chip, more durable back glass, and improved cameras. Apple is also adding green for the iPhone 13 and Alpine green for the iPhone 13 Pro. The iPad Air got a nice spec-bump, adding the M1 chip from last year’s iPad Pro and the Center Stage camera from last year’s iPads as well, including 5G support. Apple has also unveiled a brand-new Mac – the Mac Studio – a cross-over between the Mac Mini and the Mac Pro, giving desktop users a new M1 Ultra chip with 20 CPU cores, 64 GPU cores and up to 128 GB of RAM. Apple also teased a new Mac Pro with Apple Silicon coming later. As expected, Apple also unveiled a new $1,599, lower-cost 27” Apple Monitor with a 5K panel, 600 nits of brightness, four I/O ports, and fairly impressive speaker, microphone and camera systems. The monitor also has an A13 iPhone chip to power some under-the-hood features.
- Apple has reached a deal with MLB to air Friday night games on Apple TV+, marking the iPhone maker’s first major foray into sports broadcasting. Apple TV+ will broadcast two games on Friday nights to fans in eight countries once the regular season begins. It will also be broadcasting a live show with highlights every weeknight during the regular season, and fans across North America will have access to a 24-hour livestream with replays, news and analysis.
- Despite the widely anticipated 5G capability in Apple’s upgraded iPhone SE, there are concerns that it will be a let-down for Apple customers who have been waiting for a better affordable iPhone. Despite 5G capability and a faster A15 processors, the upgraded iPhone SE’s exterior is still based on a 5-year-old configuration, making it feel stale. It also draws question of what users of the iPhone SE might need 5G for, considering 4G already works pretty well for everyday apps from TikTok to YouTube. It shows that Apple is not prioritizing customers at the lower end of the market, which some see as disappointing for a company with an annual R&D budget of $22 billion. With Apple opting for less new configurations on the new SE may imply that it is expecting its sticky ecosystem of software and services, including iMessage, enhanced security and reliable customer service to do the trick of keeping users within the Apple fold. Apple might also worry that a dramatically improved iPhone SE would eat into demand for the more expensive iPhone 13 family. Wall Street analysts estimate that the SE will account for only around 30 million out of the annual 245 million iPhones expected to ship this year.
o https://www.bloomberg.com/opinion/articles/2022-03-08/apple-s-newest-iphone-is-more-ho-hum-than-must-have?srnd=technology-vp
- Meta Platforms has been accused in a proposed class-action lawsuit of falsely reassuring investors that the impacts of privacy tweaks to Apple’s iOS software for iPhones were manageable before it said in February it expects to lose $10 billion in ad revenue this year as a result. The suit comes as Meta Platforms is reeling from changes made last year by Apple, which require app makers to ask users if they consent to being tracked. The privacy changes has severely hit Meta Platform’s Facebook business, which relies heavily on user data to sell targeted ads.
- Bumble gave a full-year revenue forecast that beat Wall Street estimates, giving investors relief after the omicron surge and the war in Ukraine weighed on the company’s prospects. Bumble shares gained as much as 25% in extended trading. Bumble also said it is discontinuing operations in Russia and is removing the company’s apps from the Apple App Store and Google Play Store in Russia and Belarus. The full year forecast also includes a $20 million loss in revenues from Russia, Ukraine and Belarus, which will mostly impact Bumble’s Badoo app. Combined sales from the three countries made up about 2.8% of Bumble’s annual revenue of $765.7 million. Almost all the revenue generated in the region came from the Badoo app. Bumble’s share performance had initially plummeted since the onset of the Russia-Ukraine war, given Badoo accounts for 30% of Bumble’s total revenues, with 12% of its monthly users from Russia.
- Verizon expects revenue growth of about 4% annually in 2024 and beyond, driven by gains from its new 5G mobile phone services. Service and other revenue is expected to grow about 3% in 2022 and 2023, and 4% in 2023. Analysts had expected gains of about 2% a year through 2024. The target highlights near-term challenges Verizon faces as mobile subscriber growth cools off from record 2021 levels. The company and its peers AT&T and T-Mobile are under pressure to show that more than $100 billion spent on 5G technology will start to show a payback soon. Executives pointed to growth initiatives, like selling mobile subscribers higher-priced 5G unlimited data plans, offering wireless home broadband and securing partnerships with big tech companies, as a key foundation to reaching its target. Verizon also announced a collaboration with Meta Platforms to explore a range of metaverse opportunities from the future of hybrid work/collaboration to metaverse-related consumer experiences.
- Cloudflare said Monday it will not stop providing services to Russian organizations, rebuffing calls from Ukrainian officials and activists who say the company is getting in the way of cyberattacks meant to protect Russia’s invasion. Cloudflare sells software that stops distributed denial-of-service, or DDoS, attacks, a basic form of malicious cyber activity that attackers use to overwhelm websites with traffic. U.S. officials said last month that Russian-sponsored attackers used DDoS attacks to render Ukrainian government and bank websites inaccessible, complicating Ukrainians’ ability to access basic civic and financial information. A Bloomberg News analysis determined that a range of Russian websites rely on Cloudflare services in various capacities. The pro-Kremlin news website Pravda.ru, which on February 28th published an editorial questioning the legitimacy of Ukraine’s borders, uses a Cloudflare proxy service that aims to mitigate attacks. Meanwhile, sites that spread disinformation about Russia’s invasion of Ukraine also use Cloudflare’s content delivery network to quickly load internet pages, as well as Cloudflare DNS, which is marketed as a service that provides advanced security with built-in DDoS mitigation techniques.
- Google agreed to purchase cybersecurity company Mandiant for $5.4 billion, adding internet security products that will bolster the technology giant’s cloud-computing business as it takes on larger rivals AWS and Microsoft’s Azure. The acquisition marks Google’s second-biggest ever, signalling the Alphabet company has stepped off the side-lines of large dealmaking despite intense regulatory scrutiny. As it seeks to expand its third-place cloud infrastructure unit, which sells computing power and storage via the internet, buying Mandiant will give Google a fuller range of software tools to protect clients by responding quickly to online threats. Building up the cloud business is one of Google’s ways of working to diversify from digital ads, which compromises the bulk of its revenues and profits. Mandiant will help Google sell a more holistic set of security programs that seek to prevent cyber intrusions and help cloud-computing customers detect and fight any attacks that do get through. Google will pay $23 a share for Mandiant in the all-cash deal. The transaction is expected to close later this year, with consolidation of Mandiant into Google’s cloud unit. Google held 10% of the cloud infrastructure provider market during Q4 2021, while AWS commanded 33% and Azure captured 21%. The latest deal shows Google’s commitment to becoming a viable, competitive security vendor, as Mandiant helps strength up the security research capabilities of Google and it brings a detection and response platform to Google that Chronical alone did not have.
o https://www.bloomberg.com/news/articles/2022-03-08/google-buys-cybersecurity-firm-mandiant-to-boost-cloud-unit?srnd=technology-vp
Electric Vehicles
- China’s passenger vehicle sales rose 4.7% in February from a year earlier to 1.27 million units, helped by particularly strong growth from new energy vehicles. deliveries of NEVs soared about 180% to 272,000 units, led by BYD, which shipped 87,473 hybrid and pure-electric vehicles in February. Tesla delivered 56,515 cars from its Shanghai factory last month – 23,200 were for the domestic market and 33,315 for export. NEVs present a major growth opportunity. Global tension may only have a limited impact on the supply chain longer term but could affect automakers’ profitability in the meantime. Nickel prices are expected to stabilize by mid-year, with the China Passenger Car Association citing that Russia is not the only source of the metal used in EV batteries. As prices of every key raw material rise, the situation may also boost the battery recycling industry. On a sequential basis, China’s auto sales actually posted a decline, sliding 39% from January. Output and consumption also waned around the Lunar New Year holiday at the start of the month and because of COVID-related disruptions. EV start-ups Li Auto, Xpeng and NIO all dropped in February from the previous month to a combined 20,770 units. Xpeng attributed part of the decline to a production-line upgrade.
o https://www.bloomberg.com/news/articles/2022-03-08/china-s-february-auto-sales-get-boost-from-new-energy-vehicles?srnd=premium-asia
Consumer / Retail
- Aircraft owners are coming to grips with the loss of hundreds of Airbus and Boeing jets that Russian carriers have effectively shielded from seizure behind a new incarnation of the Iron Curtain. Foreign leasing firms have succeeded in repossessing only about two dozen of the more than 500 aircraft rented to Russian carriers. The planes in limbo have a market value of about $10.3 billion. Lessors have until March 28th to retrieve the planes under EU sanctions. But state-owned Aeroflot and other Russian airlines have already gathered the vast bulk of them back inside the country, out of reach of their owners. The government aided the effort by instructing carriers to stop flying internationally ad return the jets to Russia by Tuesday.
- Adidas forecast strong sales growth for the year as demand remains robust for sneakers and sports apparel in Europe and Americas with the pandemic easing. Sales will grow by 11% to 13% on a currency-neutral basis. That comes even as sales in Russia and former Soviet countries are expected to be cut in half due to the war in Ukraine. Adidas’ forecast includes a risk of up to 250 million euros in the company’s Russia/CIS business, or about half of its revenue from the region. That reflects the suspension of retail and e-commerce operations in Russia and represents about 1 percentage point of growth in total sales. In China, Adidas expects sales to increase in the mid-single digits. North America and Latin America are projected to be the biggest growth engines, with sales rising in the mid- to high-teens rate. EMEA and APAC should also see growth in the mid-teens.
o https://www.bloomberg.com/news/articles/2022-03-09/adidas-sees-strong-growth-as-europe-americas-emerge-from-covid?srnd=premium-asia
China Market
- Oil’s relentless surge above $125 a barrel threatens to worsen inflation globally, especially Asia which is a net importer of energy. Asia is vulnerable to the oil price spike triggered by Russia’s invasion of Ukraine. Representing the source of more than 40% of global exports, any sustained price increases will ripple throughout the world. China, the world’s largest oil importer, faces a squeeze on companies’ profits and consumer spending power, as well as slower demand for its products, complicating Beijing’s effort to stabilize a slowing economy. Working in China’s favour right now is its large domestic energy supplies, close ties with Russia and low consumer inflation. China experienced high producer price inflation last year due to soaring costs for metals and coal, meaning base effects should keep a lid on PPI growth this year. China imported more than $257 billion worth of oil last year.
- Investing in China changed with President Xi’s crackdown on the nation’s tech giants last year, prompting the MSCI China index to lag its global equivalent, the Nasdaq Golden Dragon China Index, by the most since 1998. Internet bellwether Tencent, which returned more than 109,800% for investors from its 2004 IPO, has lost about $478 billion of its value since hitting a record high. To China’s leaders, this is a success – Premier Li Keqiang hailed the prevention of unregulated expansion of capital as one of last year’s top achievements during last weekend’s annual session of the National People’s Congress. Beijing is becoming more deliberate about which sectors to promote as resources shrink and it seeks to cut dependence on the U.S. due to rising geopolitical tensions, a calculation exacerbated by Russia’s war with Ukraine. At the same time, China’s population is aging while labour productivity remains weak, with old debt-dependent growth drivers like the property market needing replacement for China to avoid a financial crisis. Still, there is money to be made for investors who carefully read the messages out of Beijing. Authorities in recent months have rolled out cash subsidies for high-end manufacturing, affordable housing and sustainable energy in a bid to accomplish President Xi’s gaols of technological self-sufficiency, income equality and sustainable growth. A gauge of Hong Kong-listed Chinese companies with significant state control climbed 20% in the past six months. Some equity funds investing in Chinese renewable energy stocks after President Xi pledged in late 2020 that China would hit carbon neutrality within 40 years has driven returns of more than 40%. Battery maker CATL has also rallied 2,650% over the past three years as China and the world’s EV push becomes more prominent. China is also transforming housing to clamp down on speculation. The government plans to build 6.5 million low-cost rental apartments by 2025, making up an estimated 26% of new home supply at as much as 30% below the market rate. The country’s top financial regulators in early February also moved to exempt low-cost rental housing projects from curbs on property lending, with brokerages calling it the next investment opportunity for real estate firms.
- China’s ambitious for a 5.5% economic growth target this year is being questioned by economists just days after it was announced, as the country faces a spike in oil prices, the highest COVID spread in years, and continuing financial woes for property developers. Economists at Goldman Sachs are forecasting China’s economy to grow at only 4.5% this year, a full percentage point below the GDP target of 5.5% set by Beijing last week. Beijing will need to accelerate policy easing to keep growth from sliding further, estimating the spike in oil prices alone could cut the GDP growth rate by half a percentage point. The sudden rise in prices for oil, gas and other commodities will push up still-high PPI, putting renewed pressure on manufacturers by squeezing profits and reducing funds for investment. On top of that, COVID cases in China are climbing towards unprecedently high levels, a further threat to consumption. China’s PPI rose 8.8% from a year earlier according to official data released Wednesday, reflecting elevated cost pressures on factories even before the most recent surge in crude costs was fully factored in. China will be hoping its ability to keep buying Russian energy will low consumer price growth, which was unchanged at 0.9%, and help insulate its consumers and companies from geopolitical tensions.
o https://www.bloomberg.com/news/articles/2022-03-09/goldman-says-china-to-miss-growth-target-on-oil-shock-and-covid?srnd=premium-asia
Russia-Ukraine Development
- Starbucks and Coca-Cola are the latest to join a steady stream of corporate exits from Russia, as Fitch Ratings said a bond default is imminent because of the country’s financial isolation after its invasion of Ukraine. Russia forces have intensified their bombardment of Ukraine’s capital, Kyiv. President Putin has signed an order restricting trade in unspecified goods and raw materials. Russia’s ruble was quoted lower versus the Dollar in the offshore market before foreign exchange trading resumes in Moscow after an extended break.
- As deputy prime minister in Moscow threatened on Monday to stop flows of natural gas through Nord Stream 1, which supplied 38% of gas imported into the EU last year, policymakers in Brussels were putting finishing touches on a new plan to slash Russian gas by more than two-thirds over the next nine months. In Washington ad London, meanwhile, bans on Russian oil were announced Tuesday, without waiting for European allies to move. The posture of the EU’s biggest economy has changed rapidly during the crisis, with Germany committing 200 billion euros to bring forward its goal of 100% renewable energy by more than a decade. The war in Ukraine continues to underscore how modern financial systems can be weaponized in ways never seen before. Now the same might be true of the energy transition. Europe is going to test what can be achieved on war footing, in a rush almost unprecedented in living memory now that the WWII generation is nearly gone.
- The U.S. and the U.K. have both announced Tuesday that they will be banning imports of Russian fossil fuels, including oil, representing a major escalation of Western efforts to hobble Russia’s economy that will further strain global crude markets. The Biden administration’s ban applies immediately to new purchases. The U.S. will allow a 45-day period to wind down deliveries of existing orders. President Biden has also banned U.S. investment in Russia’s energy sector. Washington’s latest moves mark a significant step in sanctions against Russia after its invasion of Ukraine. While the so-called self-sanctioning by the oil industry has limited some purchases of Russian barrels, an outright U.S. ban would further weigh on the market and increase volatility. The Canadian government also announced last month it intended to ban all crude oil imports from Russia, but the move was largely symbolic as the country has not imported any since 2019. In response to the latest sanctions, Russia has issued an order that would restrict trade in some goods and raw materials to an unspecified list of countries. Russia is a major exporter of oil, gas, grain and metals. Wheat and palladium prices have already spiked in recent days following speculation of further tightening of sanctions on Russia.
o https://www.bloomberg.com/news/articles/2022-03-04/how-shunning-of-russian-oil-leaves-a-hole-in-market-quicktake?srnd=premium-asia
- A planned House vote on legislation banning imports of Russian oil into the U.S. has been delayed even as President Biden moved ahead Tuesday with executive action amid growing political pressure to do so. There has been a groundswell of public support for the move, as President Putin ratchets up his assault on Ukraine. Democrats now expect to hold the vote Wednesday, bringing it to the floor alongside a $1.5 trillion omnibus spending bill. But it is unclear whether House Speaker Nancy Pelosi has the support of her whole caucus and Republicans to move the legislation quickly. Pelosi said the bill would take steps to review Russia’s access to the WTO and reauthorize and strengthen the 2012 Magnitsky Act, which sanctioned human rights abusers in Russia while also normalizing trade relations, so the U.S. can impose further sanctions. It also was not clear Tuesday whether the legislation would make it through the Senate.
o https://www.bloomberg.com/news/articles/2022-03-09/pelosi-delays-vote-on-banning-russian-crude-oil-imports?srnd=premium-asia
Market Update
- U.S. and European equity futures rose Wednesday as traders took stock of risks from a surge in commodity prices following Russia’s invasion of Ukraine
- Crude climbed after the U.S. moved to ban imports of Russian fossil fuel to punish the nation for the war; the U.K. will prohibit Russian barrels but spare natural gas and coal
- A commodity turmoil continues as sanctions against Russia continue to tighten, cutting the supply of key staples to the world economy and fuelling an inflationary shock that could stifle global growth; rising commodity costs underline the inflation challenge for the Federal Reserve, which is expected to raise interest rates next week
- The Fed is widely expected to hike rates by 25 bps; the breakeven rate on 30-year inflation-linked Treasuries – indication of what the market sees the annual pace of consumer price gains averaging over the next three decades – climbed to its highest level since 2013, making it more difficult for the Fed to plant its next policy move
- S&P 500 futures rose 0.4%, while the S&P 500 fell 0.7% to 4,170.70
- Nasdaq 100 futures increased 0.4%, while the Nasdaq 100 fell 0.4% to 13,267.60
- 10-year Treasury yield was at 1.85%
- WTI crude rose 2.1% to $126.31 a barrel
- Gold was at $2,049.80 an ounce, down 0.1%
Summary
- U.S. equities remained volatile with key benchmark indexes S&P 500 and the tech-heavy Nasdaq 100 posting slight declines on Tuesday’s session. Washington has proceeded with imposing a ban on Russian fossil fuel imports, while the U.K. followed suite but spared natural gas and coal as part of widening sanctions against Russia’s latest invasion of Ukraine. Commodity prices remain elevated as tensions in Ukraine continue to escalate. Oil prices remain above $125 a barrel, and is expected to further rise as supplies tighten with the U.S. and U.K.’s newest round of sanctions which included the ban of Russian oil imports. The evolving Russia-Ukraine situation continues to overshadow the upcoming Fed decision on March’s rate lift-off in terms of market reaction. Traders are largely expecting the Fed to proceed with a 25-point increase next week, down from earlier pressures for a half-point increase to tame the hottest inflation in four decades. Meanwhile, inflation is expected to persist in the near-term considering the Russia-Ukraine war and ensuing sanctions continue to worsen commodity supply crunches that have yet to recover from pandemic-related disruptions from before the war.