MARKET REPORT
SHORT READ PART 1
2023 APRIL ISSUE
Written by : Andrew Sia
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From the Desk of the Publisher
This reports covered the latest Omicron variant, XBB.1.5 and also China’s sudden abandon of its zero-Covid policy. Fortunately, the Omicron seemed to have subsided as we haven’t seen any surge, except the situation is still unknown in China. It has not been cooperative with the World Health Organization which is remaining something very regrettable.
We have seen the resume of the World Economy Forum 2023 in Davos for the first time since three years. It is also celebrating its 50th anniversary.
We have seen the extreme climate in 2022 and it has continued into the winter now. This time the weather is very mild and it has avoided Europe to enter into the severe winter of which the heating would take up a lot of oil and gas. But all the ski resorts would suffer from the lack of those winter sports and tourists for the winter holiday.
Let’s keep our fingers cross for things to return to normal in this coming year.
Contents:
China is Accusing the West for Using the Covid-Card as a Political Card
Reinsurance Cost is Soaring
U.S. Nuclear Industry Has a Bright Future
FTX Founder Pleaded Not Guilty
U.K. Supermarkets’ Woes
Weather in Europe During This Time
The Resilience of Germany
Businesses Are Returning to Normal
U.S. Stepped Up Crypto Crackdown
Revival of Chinese Tourism
World Economy Forum 2023 – January 16-20, 2023
Covid Latest Report
Nuclear Plants Are Reviving
Drought Affects Hydropower’s Reliability
Chip Inventory At This Time
Japan’s Import of LNG
China is Accusing the West for Using the Covid-Card as a Political Card
– New York Times, January 4, 2023
The Chinese government denounced Covid testing on January 3 as a requirement imposed by other countries on travelers arriving from China as unscientific and an excessive measure. It threatened to take counter measurements.
After China’s announcement for allowing its nationals to travel overseas, countries like Canada, the United States, France, Spain, Japan and the United Kingdom begin to restrict travelers from China.
Chinese government is reluctant to share coronavirus data with other countries. And now the recipient countries requested a report of negative Covid test report upon arrival, or a mandatory testing at the point of entry. But China has taken these measures as political objectives.
Prior to this abruptly abandon of its zero-Covid policy, China claimed it as a milestone measurement in control the Covid from spreading. It required its people for a regular testing and applied a tracking system for any contacts for people who were detected for Covid.
The country opened for processing passport applications for touristic visits abroad, and the world was caught by awe. Many countries that had long depended on Chinese tourists before the pandemic three years ago are now struggling to get ready for the influx of Chinese tourists with health concerns over the outbreak in China.
There is the lack of reliable data on Covid cases from China about its infection cases, hospital admissions, ICU capacity and occupancy, and number of deaths, these have made the other countries very skeptical about the Chinese travelers.
The health officers have cited the concerns if its reporting of severe cases and mutations into newer and fiercer variants. Official report of only a few thousand cases and the number of deaths at single digit. But many cities have cited half a million and more cases per day and deaths in thousands.
The European Union is advising its 27-member states the nonbinding policy to deal with Chinese travelers. But individual states have started their own policy to screen the travelers arriving at the borders. Already it was found that there were a very high percentage of travelers who were found Covid-positive.
WHO accused China for nondisclosure the true number of deaths. Earlier on, WHO was being criticized for being too lenient on Beijing for not being forthcoming about the danger posed to the world by Covid-19. Lately its director general, Tedros Adhanom Gherbreyesus, stressed for China’s sharing of viral sequencing data to help scientists to track the evolution of Sars-Cov-2 which has been mutating during the whole period.
The variant XBB.1.5 has appeared to have replaced other existing variants rapidly and this variant has been detected in 25 countries, including the U.S., U.K. and China.
Reinsurance Cost is Soaring – FT, January 4, 2023
Both the war in Ukraine and also the extreme weather situations have driven up the cost of reinsurance by as much as 200% when it is the time now for January renewals. This year’s renegotiation of reinsurance policies has been most challenging in years due to the inflation and large losses from natural catastrophes, and also Russia’s invasion in Ukraine.
The property losses from hurricanes and other natural disasters have pushed up the rates between 45% to 100% in the U.S.
U.S. Nuclear Industry Has a Bright Future – FT, January 4, 2023
Nuclear energy has proved to be more reliable than intermittent renewable sources like wind and solar. It can provide carbon-free power regardless of weather. This has become the fact that the American Nuclear Society can present to the federal legislators and it has brought result for funding this sector for $40 billion over the coming decade. It also starts to benefit those private sectors who can design new types of reactors.
The U.S. has the most nuclear reactors, there are 93 of them that are providing about 20% of the nation’s power. This also represents half of its carbon-free energy.
Nuclear power has been competing with high-efficiency turbines, cheap natural gas and renewables supported by subsidies that have driven down the power cost. At one-point, nuclear power was going to be replaced, and in fact 13 reactors have been decommissioned since 2013. But the Bipartisan Infrastructure Law passed in the late 2021 set aside $6 billion to assist the ailing reactors through a civil credit program. We have seen in November the California’s Diablo Canyon plant was awarded with $1.1 billion aid.
We have also seen smaller private investors who are investing in the new types of reactors, those are nimbler, smaller, cheaper and safer than traditional large-scale reactors.
Breakthrough in developing nuclear fusion technology which is unlike the fission process used in the modern reactors, which splits atoms to create power, but fusion melds them together. This in theory can provide limitless power without creating those long-lived radioactive waste. Having said that, both fission and fusion technologies are the bright future for nuclear technology.
FTX Founder Pleaded Not Guilty – WSJ, January 4, 2023
FTX founder Sam Bankman-Fried pleaded not guilty to fraud and other criminal charges in the federal court in Manhattan. He is being detained in his parents’ house in Los Alto, California, and released on a $250 million bond.
Two of his associates, Caroline Ellison and Gary Wang pleaded guilty to related charges last month. His trial is set to begin on October 2 later this year.
U.K. Supermarkets’ Woes – FT, January 5, 2023
During the pandemic, the supermarkets portrayed themselves as socially-conscious food suppliers, knowing that a full-price rise can trigger inflation along the supply chains.
Despite a 14.4% year-on-year grocery inflation in December, Tesco, U.K.’s largest supermarket managed only single digit growth. Their operating profits, together with Sainsbury, fall nearly a tenth in this fiscal year. Together these two chains account for 43% of the U.K. grocery shopping.
Morrison and Asda, the number three and four grocers, have been bought out in the past two years. The interest costs for the billions of pounds of debts raised by both helped them to keep their pricing rational in the tough 2022.
That has left us the two German discounters, Aldi and Lidl, both have increased their market share.
Weather in Europe During This Time – WSJ, January 5, 2023
An unseasonal heatwave has arrived in Europe this time made the January temperature record in multiple countries and warmed up the ski resorts. Earlier on, the energy crisis is no longer the threat. Already parts in Denmark, France, Germany, Poland, Spain, Switzerland and other countries have recorded their warmest January days on record. Temperatures reached their 20s Celsius in January which has never happened before.
In the Alps, the warm temperature melted the snow and kept the people off the slopes. Several ski resorts in France and Switzerland were closed because most of the snow had melted.
Mild weather is driving gas prices down and this has released the European governments from spending billions of dollars to help the consumers and businesses during this time. This will help the inflation from going out of hand.
The Resilience of Germany – FT, January 3, 2023
Germany has once again proven to be more resilient and adaptable to the challenges we have been facing this year. Earlier on the energy rationing and the massive slump in economy have all been mapped out and solved.
Its companies and households have reacted swiftly to the sharp increase of the energy prices. They installed more efficient heating and production facilities, switched to alternative or use intermediate products to reduce gas consumption significantly.
From the start of the war in Ukraine until mid-December, industrial gas consumption was around 20% lower than the average level for the preceding three years. Even if production has to cut back, especially in the energy intensive sectors, industrial output as a whole has only fallen by 1% when compared with the start of 2022.
The government provided €200 billion as the main component of the energy price brake for measures in 2022 to 2024. This is constructed in according to the German economy’s size for the balance and expedient mechanism, taken in view of its heavy reliance on Russian energy import in the past.
But companies and households will continue to save the full market price when they reduce their consumption by a unit of gas or electricity without creating additional demand for gas at the expense of consumers of other European countries.
Businesses Are Returning to Normal – WSJ, January 3, 2022
Covid-19 has been entering into its third year, and we have seen businesses and their disruptions have been receded, although the pandemic is still far from being over. With the new year, we are going to review for how the businesses have been normalized.
Supply-chain – We have seen the congestion has been eased and the goods are moving around the world despite of the production bottlenecks and the Covid outbreak in China. Not only the container port congestion has been gone, but also the ocean shipping rates have been below the level from the pandemic.
Computer chips – A lack of semiconductors caused by a global shortage during two years of swelling demands for computers and electronics. But now retailers are stuck with goods on their shelves and formerly the high demand products were facing a glut.
Restaurants – They are finding that it is easier to hire workers. There is still the lack of pizza-delivery drivers. People are going back to restaurants to eat than to order for food-delivery. There is the trend for people going to restaurants for pick-ups.
On the whole the businesses are normalizing.
U.S. Stepped Up Crypto Crackdown – FT, January 6, 2023
Shares in crypto-focused U.S. bank Silvergate plunged 40% after its chief executive said their asset clients had pulled $8.1 billion in deposit late last year due to the “crisis of confidence”.
Crypto broker, Genesis, announced the cut of 30% of its staff. Meanwhile, its parent company, Digital Currency, is trying to raise capital and pay back its creditors
Already the New York attorney general is going after the founder of bankrupt crypto lender Celsius Network with civil lawsuit for defaulting hundreds of thousands of investors.
The Securities and Exchange Commission filed an objection to Binance US’s proposed $1 billion purchase of assets belonging to Voyager Digital. Voyager went bankrupt last summer.
The crypto industry is facing a crisis of confidence causing many of the institutional players to pull money from these trading platforms. And the collapse of FTX in November and several of the prominent firms have piled pressure on the global regulators to toughen their scrutiny of this sector.
Revival of Chinese Tourism – FT, January 9, 2023
Since early 2020, the world’s largest tourism population has been cut off from the world by China’s zero-Covid restrictions. Now those measures have been lifted and around the world, airlines, hotels and luxury businesses are bracing the return of tens of millions of tourists with their wallets of hundreds of billions of dollars. Although the tourism would suggest that the revival could take months to gather the pace.
In 2019, before the pandemic first took place, 155 million Chinese traveled abroad and spent $255 billion according to analysts at CITI. They continued to say that there would be a solid recovery in the first quarter of 2023, and a mass return of tourism in the second. I would think that this is a bit over optimistic as not to forget that the cases of the Covid is surging in China.
Take Hong Kong for instance, it is the southern gateway to the Western world, and it benefited from tourism accounted for 4.5% of the economy in 2018.
The major global destinations such as Europe and the U.S., limited flights and backlogs of visa applications mean the reopening for the tourists from China would take more time to materialize.
The China Outbound Tourism Research Institute estimates 18 million Chinese tourists will travel abroad in the first half of 2023 and followed by 40 million by the second half of the year.
In Japan, the Chinese tourists were accounted for 30% of the overseas arrivals before Covid. Now with the U.S., U.K., France, Italy, Spain and South Korea imposing border controls and compulsory testing on visitors from China, this would further delay the Chinese travelers. And already China has accused South Korea and Japan for unfairly targeting Chinese travelers. This has resulted Beijing’s suspend of certain types of visas for the travelers from these two countries.
World Economy Forum 2023 – January 16-20, 2023
This year’s Davos slogan is “Cooperation in a Fragmented World” reflects the shattering of our world began with Covid-19 since 2020, and this World Economic Forum 2023—the first to take place in Davos in winter since the pandemic began. Can this be seen as the sign for the return to normalcy is yet to be seen as the world has taken China’s sudden abandonment of its zero-Covid policy with skepticism that it can trigger a fresh round of new waves of variants can emerge.
This global pandemic has exposed the weakness of globalization and its supply-chain has been erupted. Goods and commodities that have been shipping around the globe freely have shown its vulnerabilities.
The dependence on China for the supply has been prompted by the pandemic had added further pressure on the trade tariffs imposed by Trump’s administration in 2018.
Russia’s invasion in Ukraine last year demonstrated something that was never predicted and it had taken place. Europe’s largest war since 1945 has been taken place and since February 16, 2022, it has been continuing. But the risk of escalating remains high and nuclear war is the most threatening potential development. Right now NATO is sending advanced weaponry to Ukraine and Iran is supplying military drones to Russia.
Both Russia and Ukraine are important suppliers of grain to the world market and the war has triggered the increase of the food prices and has pushed millions of people into hunger.
The next geopolitical threat is in the Strait of Taiwan where the island of Taiwan produces 90% of the world’s most advanced semiconductors. Taiwan Semiconductor Manufacturing Company (TSMC), the most important semiconductor manufacturer in Taiwan is under the threat if China staged the war for invasion of Taiwan.
All the challenges as singled out have been classified as the threats for the world and during the forum they would be tabled for discussions.
Covid Latest Report – The Week, January 20, 2023
Three years into the pandemic, the new Omicron subvariant XBB.1.5 is the most transmissible variant yet. It is accounted for more than a fourth of the Covid cases nationwide and over 70% of the cases in the Northwest of America.
After a month of holiday traveling and indoor gathering, hospitalizations due to Covid have increased 80% since Thanksgiving, and with people of age more than 70 and over most likely to get seriously ill. But vaccines and boosters still offer the best protection as the XBB.1.5 doesn’t produce more serious illness.
According to the record, we are barely using the resources we have to protect ourselves. Only about 15% of the eligible people have received the new bivalent boosters, and this included 38% of the adults 68 and up. It is known that people in that age group who received the boosters are 80% less likely to be hospitalized.
Nuclear Plants Are Reviving – WSJ, August 29, 2022
The U.S., France and other nations are beginning to get the support from political partes to keep the decades-old nuclear reactors from shutting. It is becoming a crucial source of low-carbon electricity as many economies are facing an energy crunch.
Countries like Belgium is going to allow two reactors that were set to close in 2025 to extend until 2036 to help Europe to ease the threat from Russia for its shutoff of natural gas. Germany who planned originally to close its reactors by the end of 2022, will now keep its last three reactors open for another year.
Japan is also going to reopen its reactors because of the high-price of natural gas. The country idled most of its reactors in the aftermath of the 2011 meltdowns at the Fukushima Daiichi plant.
It is now more clear for the global countries to reach a consensus that the global economy will need the nuclear energy to meet the climate targets which calls for global greenhouse gas emissions to fall to zero by the middle of the century.
Already France is proposing to build up to 14 new large reactors over the coming decades. The U.K., Czech Republic, Poland and other countries are planning for new reactors as well.
International Energy Agency is saying to keep the reactors running is more favorable than replacing them with the other low-carbon sources of electricity such as wind turbines and solar panels that also can suffer from unpredictable elements. Extending nuclear plant’s lifespan is considered as an indispensable part of a cost-effective path to net-zero in 2050.
The reactors are covered by their initial operating license, which is usually 40 years for the covering of investments and also to ensure their safety.
France, who has the largest numbers nuclear reactors, is spending $50 billion to ensure all 56 of its nuclear reactors can continue operate after 40 years.
Almost all the nuclear plants are located next to the sea or rivers to supply vast quantities of water for generating electricity and cooling the reactor core. But the rising of the sea levels, the drought and storm can cause them potential vulnerabilities.
A new information system will have to set up to share the changes of the environmental conditions and evaluate new information to determine if any safety-related changes are needed at the nuclear power plants to assure safety.
Drought Affects Hydropower’s Reliability – WSJ, September 12, 2022
Drought frequency and duration has increased by nearly a third globally since 2000. This is according to the World Meteorological Organization, which is a United Nations body.
We have already encountered record drought across the globe in 2022 that dried up rivers and reservoirs and sapped the world’s largest source of renewable electricity, which is the hydropower.
We have seen the drop in electricity generated by the flow of water across dams in China, Europe and the United States. It caused factories to shut down.
Hydropower generates 16% of the world’s electricity in 2021, this is more than all the other sources of renewable energy combined according to the International Hydropower Association.
This time China endured the hottest and driest summer in sixty years and its Yangtze River was at its lowest level since records were taken. The water flowing to the nearby hydropower stations halved. It led to the closure of factories in 19 cities to ration power.
In the U.S., two of the nation’s largest reservoirs, Lake Mead and Lake Powell, had fallen to its lowest level in history. A severe heatwave swept much of the Western U.S. forced California to call for electricity conservation to safeguard the power grid.
In Europe, the low rainfall and a record heatwave added to the energy crisis already alleviated by Russia’s cut to natural gas supply. The lack of hydropower also added the strain on the power supply.
Norway is the region’s largest producer of hydroelectricity due to an abundance of rivers and deep valleys. It already warned that the country would have limited supply of electricity export to the U.K., Germany, Sweden, Finland and Denmark. It was also the first time in history.
Part of the appeal of hydropower is that it can be used to store electricity by pumping water into reservoirs for the later use. This gives more intermittent source than solar or wind and it can be used to fill in their gaps.
But because of the natural calamities this time, hydropower has fallen out of favorite for the investors and it has been declining since 2020 as told by International Energy Agency.
Chip Inventory At This Time – WSJ, December 28, 2022
Unlike two years where the chips were in shortage and shelves were empty and producers were unable to get supply for a range of products that were in demand during the pandemic. Now it hit the glut as consumer appetite for electronics has weakened, because of a falling stock market, rising interest rates and uncertainty for the economy ahead.
All of a sudden the chip inventory levels are above the target. This has resulted the chip producers like Micron Technology Inc. are cutting their workforce and they are reporting the missing of their earnings. Micron is saying that the situation can persist through the first half of the year.
At this time, the PC makers, Dell and HP, are saying that they have to move the inventory of consumer-oriented PCs by cutting their prices.
The graphics-chip company Nvidia Corp., would hold back the new generation of superfast videogaming graphic chips and focus on clearing the existing stocks before buying the latest processors.
The sales of smartphones have plummeted and chips from Qualcomm Inc. are going to Samsung and Apple, and both have cut their projections.
Despite the near-term glut, chip producers are preparing for a long-term demand for chips that will require them to build for more factories for production. They are estimating that the sales of the chips will double by 2030 and it will be a $1 trillion business globally.
Micron is preparing a factory in upstate New York that would cost $100 billion and would be funded partially by the U.S. new chip manufacturing incentive.
In the chip industry, there are two streams, the need for the CPUs where the PC companies would need to chase after a market where new and more advances versions are required. But for the households, the chips would not need to be changed so frequently.
Japan’s Import of LNG – WSJ, December 28, 2022
Japan reached the deals with Oman and the U.S. for the supply of liquified natural-gas and it is among the world’s largest importer of LNG along with China. Japan is relying on the LNG for 40% of its electricity production.
Japan is still importing from Russia, which in 2021 was only 8.8%. On the other hand, Russia has shut off its supply of LNG to Europe.
Three of the Japanese trading companies, Itochu Corp., Mitsui & Co. and Jera Co. have signed the contracts for 2.35 million tons of LNG from Oman starting in 2025 for about ten years.
Tokyo based Inpex Corp. which is about 20% owned by the Japanese government, is planning to purchase one million tons of LNG from a new facility in the U.S. Currently it is imported from Australia and in total it is importing 7 million tons.
In the first half of 2022, Japan imported 37.5 million tons of LNG and paid for $27 billion