TheChek News Flow

British homes would be powered with African energy under an ambitious plan

It is the era of importing power from faraway lands.

A grandiose project to build a nearly 2,500-mile subsea power line would connect vast wind and solar farms in Morocco to the U.K., providing a reliable supply of electricity to meet a projected boom in demand.

The plan’s architect, Simon Morrish, said it is the U.K.’s best option for clean electricity.

“It was like, well, why is no one doing this?” said Morrish, a former management consultant who also runs a landscaping-services company.

Morrish has secured early-stage investment and hired a seasoned team, but his vision faces long odds. He needs to coax subsidies from the U.K. government, raise tens of billions of dollars and secure crucial permits from countries that control the seabed. The plan involves building Scotland’s tallest building—a giant cable factory—and a special ship to lay the lines.

The project nevertheless shows how the electricity map is changing.

Since coal and gas plants can sit near the areas they serve, their transmission lines generally don’t need to travel long distances. But big empty sites with lots of wind and sunshine tend to be far from cities that need electricity.

Already, grids in Northern Europe are being connected by subsea cables to share growing supplies of wind power. A 475-mile power line from the U.K. to Denmark, the world’s longest land-and-subsea grid connection, was switched on in December.

Singapore, which lacks space for wind and solar farms, wants to import 30% of its electricity by 2035. Last year, it granted conditional approvals on plans to import much of that electricity via subsea cables—some more than 600 miles long—from renewable-energy projects in Indonesia, Cambodia and Vietnam.

Connecting Morocco to the U.K. takes the idea to another level.

Scotland’s tallest building

Few places are richer in green-energy potential than western Morocco. The shortest day gets 10 hours of sunshine, and strong winds pick up late in the day. Morrish’s venture, Xlinks, wants to build enough solar farms, wind turbines and batteries in the area to meet 8% of Britain’s electricity needs, or to power roughly seven million homes.

It will take nearly 10,000 miles of cable for four offshore transmission lines—far more than existing suppliers could serve up. So Morrish started a cable-supply company to build a factory, with a tower taller than the Washington Monument, in which colossal cables will be lowered as they are coated in insulation.

The factory’s construction near the Scottish village of Fairlie has been delayed several times. Locals are doubtful it will happen.

“It’s a nice area, a scenic area, and you’re going to build a huge factory running 24/7?” said Rita Holmes, a longtime Fairlie resident.

Transmission projects can take well over a decade to materialize. In the U.S., the Biden administration is pushing to ease permitting for lines that strengthen the country’s grid, boosting hopes for more projects.

A 339-mile high-voltage transmission line that is under construction will bring hydropower to New York City from Quebec. A 550-mile line will bring wind power to California and Arizona from New Mexico.

“What you need is a bit of a catalyst,” said Matthieu Muzumdar, partner and deputy chief executive at infrastructure investor Meridiam. “Some of the federal and state programs we’re seeing could be part of that.”

Overseas, Meridiam is the lead investor in the first connection between the U.K. and Germany, and intends to invest in a planned 750-mile power line connecting Greece to Israel, via Cyprus. The project will lower lengths of cable weighing as much as the Eiffel Tower to depths of around 2 miles in the Mediterranean.

“What we are trying is bigger than what has been done before, both in terms of the size of the project and in terms of the amount of electricity we are trying to transmit,” said Pascal Radue, who leads the generation and transmission unit at Nexans, a cable supplier working on the Greece-to-Cyprus first leg of that project.

Nexans is among a handful of companies that supply high-voltage direct-current cables that can move electricity hundreds of miles with minimal losses.

The company has sold out of the cables for nearly five years. Its rivals have similar backlogs.

The dream of African wind and sunshine

Demand for cable could sputter if the growth of renewables falls short of expectations—or if big projects falter.

Sweden’s government recently rejected a connection under the Baltic Sea to Germany, citing concerns it would increase prices at home.

Projects could be derailed for any number of reasons. An Xlinks-like plan to transmit Australian solar power to Singapore collapsed last year when the two billionaires leading it had a falling-out. The project has been revived by one of them, Mike Cannon-Brookes, the co-founder of software company Atlassian.

The uncertainty limits how much those cable suppliers are willing to expand. It is why Xlinks needs its own supply.

Morrish has persuaded investors including TotalEnergies, Abu Dhabi’s state-controlled utility company and General Electric’s power-and-wind spinoff to buy into his plan. Xlinks closed a £100 million funding round in April, equivalent to $126 million.

But construction costs alone will be between £22 billion and £24 billion, Xlinks says. The company is talking to the U.K. government about a subsidy that Morrish hopes would spur investments, but those discussions have dragged.

Morocco also has to buy into the idea. Xlinks says the country would gain jobs, investment and tax revenue.

The dream of sending North Africa’s wind and sunshine to Europe isn’t new. An earlier effort, which would have moved power over land, fell through over a decade ago amid infighting between its backers and political turmoil in the region.

Morrish said prospects are better now: Renewable-energy costs have fallen, and subsea cables can pass through fewer jurisdictions, making permitting easier.

“I have absolute confidence it will get done,” Morrish said. “It’s just taking a bit longer than I’d hoped.”

Milan probes into Dior suppliers’ illegal labour unsettle luxury sector

Revelations show industry not immune to questionable practices

The Dior leather bag supplier Milan investigators long had their eyes on was located close to the Via del Lavoro in the suburban city of Opera — or labour street. But behind its doors they uncovered employment practices of another age.

They found evidence of illegally hired workers, forced to sleep inside the factory and work long hours, including nights and holidays, in an unsafe environment, according to a statement from the Milan prosecutor’s office.

The Chinese-owned supplier would sell bags to Dior for €53 apiece, investigators said. A few kilometres away on Milan’s ritzy Via Monte Napoleone, the same finished accessories cost more than €2,000 by the French brand, which is owned by LVMH.

As a result, an Italy-based Dior subsidiary — Manufactures Dior — was placed under court administration this month for failing to carry out appropriate due diligence and supervise its suppliers.

The sanction means it will be run by a court-appointed manager for one year in order to fix the shortfalls. Milanese prosecutors also alleged another Chinese-owned Dior supplier, based in the town of Cesano Maderno north of the city, was exploiting illegal workers.

The development has shone a light on practices in the supply chains of the luxury sector, an area hitherto regarded as problematic more for fast fashion than producers of expensive goods.

The Milan prosecutor’s action against the supplier follows two other similar actions against upmarket accessories maker Alviero Martini and a Giorgio Armani subsidiary earlier this year. Such examples could be the tip of the iceberg for the luxury fashion industry, investigation insiders warn.

As investor scrutiny of environmental, social and governance considerations increases, the revelations could not have come at a worse moment.

Jean-Philippe Bertschy, managing director and head of Swiss equity research at Vontobel, said one of the most concerning aspects of the Italian cases was the fact that the brands are “very high end and considered as exemplary in the ESG field”.

Years of unprecedented growth for the luxury sector have put pressure on their supply chains.

Italian supply chains account for at least half of global luxury goods production, according to Bain & Company. While a manufacturing exodus from the late 1980s saw many fashion businesses shift production to low-cost countries such as China, many companies subsequently moved their operations back after the move threatened their ability to brand their goods as “made in Italy” — viewed as a marker of the highest quality and craftsmanship, and earning them prestige in the eyes of customers.

But demand has since exploded thanks to post-pandemic spending and new classes of affluent consumers across the world. In response, companies have stepped up their marketing efforts while simultaneously releasing new collections on a frequent basis. Skilled artisanal workers are in high demand, especially as younger people have moved away from manual and vocational professions.

The increased pace of production has necessitated speed and efficiency, said Claudia D’Arpizio, a partner at Bain.

“To cover the peaks of production or specific manufacturing phases, brands need to rely on external suppliers and these suppliers often rely on other sub-suppliers.” 

“It’s a very complex thing to control with the time to market and the level of newness required. But that’s not an excuse,” she added. 

Others go further, saying changes in the industry are not conducive to human rights. According to people close to the matter, Milanese prosecutors may be looking at several other luxury labels and their suppliers, suggesting such issues may have become an industry-wide problem. 

“When you are buying an item for €50 and selling it for more than €2,500, like in Dior’s handbags case, you may not know your Chinese supplier is exploiting workers, but you are very aware you are making an enormous profit on each piece and evidently that’s the priority so you don’t ask the other questions,” said a fashion industry investor speaking on condition of anonymity.

The Milan prosecutor declined to comment. Dior, which is not under investigation, declined to comment.  

Earlier this year Alviero Martini and a Giorgio Armani-owned company were also placed under court administration for allegedly failing to oversee their suppliers. The parent fashion houses are not under investigation.

Alviero Martini, owned by Rome-based Final Group, said in January its suppliers had illegally hired subcontractors, violating the terms of their supply contracts, which forbid it. Armani said in April it had always sought to “minimise abuses in the supply chain” and it would fully co-operate with the court. 

Beyond Italy, other luxury companies have faced criticism for alleged shortcomings in how they source materials. A BBC investigation in May linked ingredients used by high-end perfumers, including L’Oréal-owned Lancôme and Estée Lauder’s Aerin Beauty, to child labour in Egypt.

At the time, both companies maintained that they had zero tolerance for exploitation and had contacted their suppliers.

Luxury cashmere brand Loro Piana has recently come under fire following a media report alleging that it was not paying indigenous workers in Peru fairly for wool that ended up in sweaters sold for thousands of dollars.

US congressman Robert Garcia, a Democrat from California who was born in Peru, wrote to the company asking about its sourcing. In response the company said it had worked for decades to help preserve the population of the vicuña while also increasing its investments in irrigation, education and infrastructure in the country. 

“We often view the low prices and resultant labour rights abuse as baked into the fast fashion model but those problems are more pervasive than that,” says Natalie Swan, labour rights programme manager at the Business and Human Rights Resource Centre. “There’s the expectation that if you are buying something luxury it is very bespoke and has been created closer to home. Often, that’s not the case.”

She warned that in the face of uncertain consumer and demand and rising raw materials costs, “it might mean a doubling down of the worst elements of the business model, which is to put the price and cost of these changes on to the workers and the upstream supply chain rather than impact profit margins”. 

Vontobel’s Bertschy added: “For many companies it’s still very difficult to track the whole supply chain, especially when they are in foreign countries [and] even when trying to buy from some certified suppliers, there are still loopholes and issues.”

Several luxury groups, including Chanel, Prada, Zegna and Burberry, have been acquiring or investing in their strategic suppliers in order to control more of the supply chain.

Hermès, which remains committed to traditional manufacturing methods, has taken a different approach and shunned mass production in favour of training workers to stitch its leather bags by hand. Last February, the company said it would reward all employees with a €4,000 bonus following a successful year.

When the Financial Times visited the Dior supplier in Opera, it appeared to be business as usual: lights were on and vehicles, including a Porsche and a Tesla, were parked in the driveway. The FT was not granted access when the entry buzzer was pushed.

Bain’s D’Arpizio said increased public scrutiny may serve as a turning point for the industry. “In luxury, [exploitation] should not happen. This is an industry of excellence and craftsmanship is a key component of it. You cannot really compromise on that aspect,” she said.

Bank has ‘transmission protection instrument’ in its armoury to help Eurozone countries in crisis by buying up their debt

The European Central Bank is facing mounting speculation that it could intervene if the French election triggers widespread market panic, as policymakers prepare for their annual conference in Portugal next week.

French bonds have been sold off in recent weeks as investors fear that Marine Le Pen’s far-right Rassemblement National or the leftwing Nouveau Front Populaire (New Popular Front) alliance will win a parliamentary majority in the upcoming elections.

The success of one of the extreme parties leading opinion polls could lead to a deeper sell-off, with the spread on French government borrowing costs relative to Germany’s — a key measure of political risk — already at the highest level since the Eurozone debt crisis more than a decade ago.

Germany’s finance minister Christian Lindner this week urged the ECB to stay on the sidelines, warning that if it stepped in to ease any financial turmoil following the French vote, it would “raise some economic and constitutional questions”.

But market-watchers are checking the fine print of the ECB’s latest bond-buying scheme to see what it could do if the next French government goes on a spending spree that leads to damaging clashes with the EU and financial markets over its rising debt.

In particular, investors fear that a wider sell-off in French debt could spark contagion in other European countries, with national interest rates starting to diverge from each other.

“If the risk of fragmentation in France were to increase to alarming levels, the ECB would intervene as necessary and preserve the integrity of the euro,” said Sabrina Khanniche, senior economist at Pictet Asset Management.

Fabio Panetta, the head of Italy’s central bank, said this week that the ECB should be “prepared to deal with the consequences” of shocks caused by “an increase in political uncertainty within countries”.

The Italian also sits on the ECB governing council and added that the bank should be ready to use its “full range of tools”.

When the ECB announced the “transmission protection instrument” two years ago — giving itself the power to help a country in crisis by buying unlimited amounts of its debt — most policymakers hoped it would keep markets in check without ever needing to be used.

France’s election threatens to provide the first test of the TPI, which had the aim “to counter unwarranted, disorderly market dynamics” that threaten Eurozone monetary policy. 

Economists disagree, however, over whether the design of the ECB’s still untested asset-purchase scheme would prevent it from buying French bonds.

The central bank has set out four criteria for activating the TPI and the first says that a country should be in “compliance with the EU fiscal framework”.

However, the European Commission announced earlier this month it would open an “excessive deficit procedure” against Paris for running a budget deficit of 5.5 per cent of gross domestic product, well above the 3 per cent limit under EU rules.

Some assume this means France is already excluded. “It would be illegal for the ECB to use the TPI in the case of France,” Eric Dor, an economics professor at the IESEG School of Management in Paris, wrote on social media site X.

Yet ECB officials are privately confident they have enough wriggle room to use the new scheme even if a country like France is officially judged to be breaching EU fiscal rules. The central bank has also said the four criteria would only “be an input” into any decision by its governing council.

The key yardstick in deciding whether to activate the TPI is likely to be whether the market reaction is judged to be “disorderly”. 

ECB chief economist Philip Lane hinted at this recently when he downplayed the sell-off in French markets that followed the election’s announcement as investors “reassessing fundamentals”, contrasting it with what he called “a disorderly market dynamic”.

If the policies of France’s next government spook investors and cause a sharp but orderly repricing of French assets, the ECB is unlikely to act, especially as officials hope market discipline will encourage countries to respect the EU’s fiscal rules.

But if it causes a full-blown market panic with investors indiscriminately selling not just French assets but those of other high-debt Eurozone countries like Italy, the central bank seems certain to act.

“I’m sure at the ECB they are already asking themselves the question,” said Ludovic Subran, chief economist at German insurer Allianz. “If France goes into a crisis then it means Italy is also likely to be in a crisis and the ECB will have to act.”

In the past, such shocks have prompted the ECB to intervene. Former chief Mario Draghi made a memorable promise in 2012 to do “whatever it takes” to settle markets after a Greek debt crisis threatened to destroy the euro.

“If Italian spreads were to widen massively, the ECB could activate TPI to prevent a crisis from spreading to innocent bystanders,” said Christian Kopf, head of fixed income at German investor Union Investment Management. “But my sense is that we’re still a long way from such market intervention.”

When ECB executives meet on Monday to start their annual showpiece event at a luxury hotel in Sintra, southern Portugal, the results of the first round of the French parliamentary election will have just been announced. 

ECB president Christine Lagarde, herself a former French minister, seems certain to be quizzed about how it would respond to a potential financial crisis stemming from Paris. 

Such questions can be treacherous. Lagarde slipped up in 2020, when she caused a bond market sell-off by saying at the start of the pandemic “we are not here to close the spreads”.

The ECB president is likely to be much more cautious this time, especially as the outcome of the election will not be known until after the second round next weekend.

London mayor’s office set to adjudicate on All England Lawn Tennis Club’s redevelopment plans

The All England Lawn Tennis Club hopes to overcome local opposition and gain formal approval this summer to add dozens of extra courts and a new 8,000-seat arena for use during the Wimbledon Championships. 

Under the AELTC’s ambitious plan, it wishes to create 39 new grass courts and a 23-acre public park on the site of an old golf course, across the road from the club’s existing grounds. It also intends to de-silt the lake that sits between the golf course and Wimbledon Park, build a new boardwalk around the lake, and carry out various smaller upgrades to the area. 

All of this would allow the AELTC to increase daily attendance during the Championships from 42,000 to 50,000. But, by developing more than 70 acres of land next to the current 42 acre site, the club believes there will be less overcrowding during the two-week tournament. In addition, the expansion would enable qualifying rounds, which currently take place 3 miles away at the Bank of England Sports Centre in Roehampton, and practice sessions to move onsite — lengthening the event, as well as giving more spectators the chance to watch star players warming up.

“We could be having some of the best players in the world practising here,” says Jamie Baker, the AELTC’s tournament director. “For us, it’s a complete game changer.”

Ninety per cent of the profit from the Wimbledon Championships goes to the Lawn Tennis Association to fund tennis activities across the UK. Last year, the LTA received £48.8mn from the AELTC after the tournament achieved record revenues of £380mn.

The AELTC believes that expanding the facilities that deliver the Wimbledon Championships is vital to help the oldest — and most prestigious — Grand Slam maintain its place as the pinnacle of global tennis. 

“We recognise that, whilst we hold this position at the top of the sport, we can’t be complacent about that”, says Sally Bolton, chief executive of the AELTC. “The scheme, from the outset, was always balanced across two things: safeguarding the future of the Championships; and giving back to the community.” 

Aside from the new park, which will include a community centre and children’s play area, a small number of the additional courts would be open to the public, once the Championships have finished. 

Last year’s total attendance of 530,000, was a record for Wimbledon, but remains far below that of other big tennis tournaments, which are able to let in more people over a longer period.

The Australian Open set a new record for a Grand Slam with more than 1.1mn people attending earlier this year. That topped the previous record set by the US Open in 2023, which attracted more than 950,000 spectators.

The AELTC’s plans have been approved by Merton council but were rejected by neighbouring Wandsworth — the two local authorities share responsibility for Wimbledon Park, which adjoins the site and hosts the famous “queue” of tennis fans who line up for on-the-day access to the Championships. 

Now, they are being considered by the Mayor of London’s office. Sadiq Khan, London’s mayor, had previously expressed his support for the redevelopment, so he has opted to delegate the decision to deputy mayor Jules Pipes. A verdict will now come some time this summer, after the deadline for lodging objections passed in mid-June. 

However, there will have been staunch local opposition to the plans. Campaign group Save Wimbledon Park has accused the AELTC of trying to create an “industrial tennis complex” that takes up too much space and delivers too little in return to the local community. More than 19,000 people signed a petition calling for the plans to be blocked. 

“The proposal is inappropriate and gross overdevelopment”, SWP said in a statement in June calling on the Mayor of London to reject the plans. Those opposing the expansion plans had the support of the local MPs prior to the UK election: Conservative Stephen Hammond and Labour’s Fleur Anderson. In a joint opinion piece published in the Evening Standard earlier this year, the pair said the development plan was “simply too large and totally disrespects the protected status of the land in the surrounding area”. They argued it would set a “dangerous precedent” for the rest of London.

The area was originally designed by Lancelot “Capability” Brown, the visionary 18th-century landscaper whose work in hundreds of gardens and parks across the country reflected his love of natural-looking English vistas. In 1764, he was hired to replace the formal gardens in Wimbledon Park with something more organic, and proceeded to dam the river running through the park to form a lake and surrounding marshland. 

The AELTC has owned the land in question since 1993. In 2018, it bought out the golf club lease for £65mn, handing each club member an £85,000 windfall. If approved, the full project is likely to take about eight years to be completed, with the show court being the final part of the plans. 

The AELTC claims the plans are sympathetic to Brown’s original vision for the area, with the new park on the southern end of the site emphasising a traditional English landscape. Andy Wayro, the AELTC’s senior landscape design manager, describes the plan as a “purist restoration” with “more of a Capability Brown feel”.

But critics complain that the building work would remove hundreds of mature trees and increase pollution, while the new 28m-high show court would dominate views across the lake. They point out that the new park would be owned by the club, making public access “permissive” rather than guaranteed. In response, the AELTC points out that the land is currently closed off to the public entirely — and has been for more than 100 years. 

The AELTC has not given any financial projections for how much the expansion will cost, but funding will come from its recent sale of debenture seats. Applications for the 2026-30 debentures closed in April, with the aim of raising almost £238mn. 

A combination of operational improvements, M&A, and a relatively cheap valuation has the industrial company’s shares looking more attractive than they have in years.

After years of underperformance, Honeywell International stock may be ready to resume its winning ways.

Honeywell was once known for its consistent business—and a consistently outperforming stock. With leading franchises, a strong balance sheet, and solid prospects, it was seen as a high-quality industrial company, worth a premium valuation. The pandemic, however, hit Honeywell hard. From 2018 to 2023, the company’s earnings per share grew at an average annual rate of about 3%, below the S&P 500’s 8%. Over the past five years, its stock gained just 24%, underperforming the benchmark index by some 60 percentage points.

Honeywell now looks set to get back on track. Under CEO Vimal Kapur, who took over in June 2023, the company is targeting 10% annual earnings growth, using acquisitions and operational improvement—with an assist from postpandemic normalization—to get there. The stock also looks reasonably priced in a way it hasn’t in years. Combine that with the possibility that the pieces could be worth more than the whole, and Honeywell shares, at a recent $213, look like a bet whose time has come.

“[Honeywell] stock has underperformed quite a bit the last couple of years, and the valuation is attractive. So if we can get some work done on the portfolio, all while end-markets are recovering, that should bring interest back to the name,” says Melius Research analyst Scott Davis.

Honeywell operates four business segments. The Aerospace division, which sells everything from engines and flight controls to auxiliary power units that keep aircraft systems on when the main engines aren’t running, is doing great after a miserable run during Covid; it reported first-quarter sales of $3.7 billion in April, up 18% year over year. Energy and Sustainability Solutions, which serves the refining, chemicals, and power-generation industries, has returned to growth, too, with first-quarter sales of $1.5 billion, up 5% year over year.

Honeywell’s Industrial Automation business, which sells masks, conveyor belts, and hand-held computers for automated warehouses, continues to struggle. First-quarter sales came in at $2.5 billion, down 13% year over year, after growing by 6% in 2020. Selling masks isn’t the big business it once was, and a slowing industrial economy has hurt automation sales. The Building Automation business, which manages the systems in office buildings, still hasn’t returned to normal after the Covid lockdowns. First-quarter sales, at $1.4 billion, were down 3% year over year.

Operational improvements will help boost those businesses—and the company as a whole. Kapur is targeting 25% operating profit margins, up from 22.2% in the first quarter of this year. Wall Street isn’t optimistic, which gives Honeywell a chance to surprise the Street. Another part of the improvement comes from things returning to normal. Sales in 2023 amounted to $36.7 billion, virtually the same as 2019. Analysts project annual sales growth of about 5% a year from 2023 to 2026

“The end markets should be lining up pretty good by [year] end,” says Melius’ Davis. “Aerospace is likely to remain strong while we get a recovery in automation.”

Honeywell is also hoping that mergers and acquisitions can provide a boost. On June 3, it closed its $5 billion acquisition of Carrier’s building security business, which fits inside the Building Automation segment, boosting product offerings where the company is already a strong competitor. On June 20, Honeywell announced plans to buy defense communications company CAES for about $2 billion, adding to its aerospace business. Both deals were well received on Wall Street.

More billion-dollar M&A should be coming as Kapur positions the company for better growth—and Honeywell has the balance sheet to make them happen. The company had just $12 billion in debt less cash at the end of the first quarter, or about 1.2 times projected 2024 earnings before interest, taxes, depreciation, and amortization, or Ebitda. Industrial companies in the S&P 500 typically operate with about two times debt to Ebitda.

“For a company the size of Honeywell, [both deals aren’t] a particularly heavy lift, but it does point to an M&A program that has finally begun to put points on the scoreboard,” wrote Gordon Haskett special situations analyst Don Bilson in a recent report.

With improvements happening in real time, Honeywell stock is starting to look attractive. Davis rates the shares Buy and has a $278 price target for the stock, up 30% from recent levels. That values Honeywell stock for about 22 times Davis’ estimated 2026 earnings. Those estimates don’t include benefits from the CAES deal.

Assuming some benefit from M&A and margins, which can help restore Honeywell’s premium valuation, investors could be looking at a $300 stock in a year, up 40% from recent levels.

And if it can’t get there? Don’t expect investors to accept continued underperformance. Mizuho Securities analyst Brett Linzey says he is getting “increased call volume” on Honeywell, a sign that his clients are taking a new look at the stock. One reason is all the activism and breakup activity in the industrial and manufacturing space. General Electric is now three companies; DuPont de Nemours is breaking up again; and activist investor Elliott Investment Management has built a position in Johnson Controls International JCI

Honeywell could make an attractive target, too, based on a “sum of the parts” valuation. Valuing Honeywell’s aerospace business at 20 times Ebitda—a similar multiple to GE Aerospace —would give it a value of some $85 billion, while its building, automation, and energy units could be worth $34 billion, $47 billion, and $25 billion, respectively. Combined, that would give Honeywell a value of $278 a share, according to Mizuho’s Linzey—the same target as Melius’ Davis.

Kapur is a relatively new CEO, and likely won’t want to consider breaking up Honeywell. Chances are he won’t need to.

Lula’s markets honeymoon is over. But the marriage isn’t annulled yet. Investors are still buying marked-down Brazilian assets, cautiously.

Brazil rocked through 2023 as Luiz Inácio Lula da Silva, starting a third term as the Latin American giant’s president, tilted more pragmatic than left-wing. This year not so much.

The iShares MSCI Brazil exchange-traded fund has shed 15% since early May. The yield on 10-year local-currency bonds has jumped almost two percentage points year to date to more than 12%.

Blame, in part, the global economic weather made in Washington. Investors were counting on Brazil cutting interest rates to single digits this year as the Federal Reserve began to loosen. Instead, the Fed is on hold, and Brazil’s central bank is sticking with 10.5%.

Lula, as the 78-year-old leader is known, has undermined confidence too, though. “It’s almost all domestic factors at play,” says Arif Joshi, co-head of emerging market debt at Lazard Asset Management. “The selloff is completely warranted.”

Projections for Brazil’s primary budget deficit (not including interest costs) have crept up from 0.5% to 0.8% of gross domestic product, Joshi says. The government wants to move the target date for a primary surplus from next year to 2026.

Those might seem like small details compared with budget-busting pre-election spending in, say, India or Mexico. But debt service already eats up nearly 30% of Brazil’s state revenue, compared with 15% for Mexico, says Thierry Larose, portfolio manager for emerging markets local debt at Vontobel Asset Management.

Lula is also bullying the central bank, labeling respected governor Roberto Campos Neto a “political and ideological adversary” after the latest refusal to cut rates further. That’s worrying because Campos Neto’s term ends this year, and Lula appointees will control monetary policy going into 2025.

Nonetheless, Joshi and Larose aren’t exactly fleeing Brazil. Lazard has shifted from overweight to “a more neutral position” in Brazilian debt, Joshi says. Vontobel is adding back after selling off earlier this year.

Brazil’s economic present looks pretty robust. Growth is holding steady at around 2% a year. Unemployment is a relatively low 8%. Campos Neto’s central bank holds a hefty $350 billion in currency reserves.

And 10.5% interest over 4%-ish annual inflation still offers a near-world-beating real interest rate. “I’m hard-pressed to see a further selloff, so you’re getting paid nicely to wait,” Joshi says.

The outlook is tougher for stocks as global investors have soured on the Brazil story, and domestic investors stick with rich fixed-income returns, says Daniel Gewehr, head of Latin American equity strategy at Itau BBA.

Still, the drop in prices is throwing up some deep value plays, he says. Brazilian equities are trading at an average 7.5 times earnings, a quarter less than their historical average.

Gewehr’s top picks include utility Equatorial Energia and port operator Santos Brasil Participacoes, infrastructure powers with long-term financing and reliable revenue streams. He also likes shopping mall giant Multiplan Empreendimentos Imobiliarios and Direcional Engenharia, a low-cost home builder poised to benefit from Lula’s programs to house the poor.

Brazil watchers will be on alert in late July, when the government publishes a review of public sector spending. Northern Hemisphere autumn brings new budget talks, municipal elections, and Lula’s nomination of a new central bank boss.

“Lula has a track record of shifting pragmatically before things get out of control,” Larose comments.

If he doesn’t, things could get ugly.

The stock market has been hitting new highs, but most stocks are struggling. Even news that would usually move them isn’t doing the trick, a sign that equities won’t be an exciting place to invest in a while.

The S&P 500 fell 0.1% for the week, while the Dow Jones Industrial Average dipped 0.1% and the Nasdaq Composite advanced 0.2%. Yet the Invesco S&P 500 Equal Weight exchange-traded fund dropped 0.7%. That ETF, unlike the market-value-weighted index, holds the same amount of each stock, so its move reflects that the true performance of the average stock was poor.

The equal-weighted ETF has been trying—and failing—to crack its record high of $169. Even a positive read on the global economy from FedEx couldn’t compel buyers to push the fund up to new highs. On Wednesday, FedEx said revenue will grow in the low- to mid-single-digit percentages for fiscal year 2025, a clear signal that global demand for goods is growing. Yet the equal-weighted S&P 500 dropped 0.4% that day.

“It’s a poor little market that can’t find its way,” writes Frank Gretz, market technician at Wellington Shields. “Healthy markets are about participation, and this market is lacking there.”

Nor did the market respond to a benign inflation report on Friday. The personal consumption expenditures index rose 2.6% year over year in May, down from April’s 2.7% reading. That sent the two-year Treasury yield—a barometer for expectations about the federal-funds rate—down to as low as 4.67% from 4.74% the previous week. That would seem to boost the case for rate cuts. Yet the S&P 500 gained just 0.1% Friday, as the market turns from focusing on interest rates to worrying about economic growth.

“Investors have suddenly shifted their mind-set to looking at the economic data and not just saying this is great that the Fed is going to cut rates, but maybe that we’re going to head into recession,” says Seema Shah, senior global investment strategist at Principal Global Investors.

That could conceivably keep investors in Big Tech, particularly the Magnificent Seven. Those stocks had a good week, with five of the seven rising. Nvidia, down 2.4%, and Microsoft, down 0.6%, were the exceptions. These companies do well in good times, but their stocks can outperform when the economy slows, too, because their growth doesn’t rest on the economy as much as it does on bigger themes such as artificial intelligence. Plus, lower rates make future profits more valuable.

But even there, concerns abound. The most glaring is valuation. The S&P 500 Information Technology Sector trades at 33.5 times 12-month forward earnings after gaining 43% from its October low, likely already reflecting rising earnings and falling rates.

Add it all up, and investors could be set up for a cruel summer.

Bets on market moves have taken off with these options. Stocks like Nvidia and Apple could be next.

Jin Wang has taken some wild rides as a day trader. A software product manager in Houston, he says he turned $26,200 into $73,000 one day in November 2022. On another day, he lost $20,000.

Wang, 35, wasn’t trading meme stocks like GameStop. Rather, he was betting on intraday moves in the S&P 500. And he used a strategy that has soared in popularity: buying an option in the morning and selling in the afternoon, just before it expires.

Betting on the market’s intraday moves is nothing new, but it has taken off with options expiring by the trading day’s end. Known as “zero days to expiration,” or 0DTE, these options account for nearly half of the daily volume of S&P 500 index options, up from 17% in 2020, according to Cboe Global Markets, the exchange where they’re traded. Zero-dated options pegged to the Nasdaq 100 have also surged, along with options tied to exchange-traded funds that track the S&P 500 and Nasdaq indexes.

The appeal is rare, lottery-like payoffs. A highly volatile day with an intraday move of 2% in the S&P 500 or Nasdaq 100 might generate at least a 20% gain. The flipside is that traders who aren’t quick to lock in gains can lose their entire position before the day’s end. And hedging erodes your potential gains, adds more costs, and is tough to pull off efficiently.

“You can go completely broke, but there are occasional Lotto-sized payouts,” says Garrett DeSimone, head of quantitative research at OptionMetrics.

For now, the options are limited to major indexes and related ETFs. But individual stocks could be next. Brokerages and exchanges are in discussions about expanding 0DTE to individual stocks, which would most likely be megacaps such as Apple and Nvidia. “There are continuing industry meetings, with all sectors represented, to find a solution to these issues,” said JJ Kinahan, CEO of IG North America, which owns the brokerage tastytrade, in an email to Barron’s.

Whether 0DTE options will destabilize markets—especially if they proliferate to individual stocks—is a point of controversy.

Proponents argue the options allow traders to avoid overnight risk, bet on an index more cost-effectively, and hedge events like a Federal Reserve meeting that can rock the market. Their rise hasn’t coincided with a spike in volatility. And while volumes have soared—reaching an average $780 billion a day in “notional” value for 0DTE pegged to the S&P 500, up 36% from 2023 levels—the “0-day space remains well-balanced,” according to BofA Securities.

But some experts worry about destabilizing effects. One concern is that market makers could be forced to buy underlying positions en masse to hedge against a buildup of bullish or bearish option bets—resulting in bigger and more rapid swings in the S&P 500 and other indexes. The European Central Bank raised concerns about 0DTE options in May, arguing in a research paper that “in view of the increasingly crowded positions in such trades, their abrupt unwinding…could lead to a disorderly correction.”

BofA is sounding warnings, too. While it doesn’t look like 0DTE will trigger a 2018-style “Volmageddon” —when the market tanked due to a buildup of one-sided bets on volatility—imbalances could develop if investors “weaponize” the options to chase large up or down moves, BofA said in a recent note. “Fickle” and fragile liquidity in options could amplify the moves.

Some analysts see trouble brewing. “0DTE may change the calculus for market volatility significantly,” said Michael Green, portfolio manager and chief strategist at Simplify Asset Management. “If we get a sequence of events where there is a sustained period of uncertainty, you could see options act in a way that could make it more difficult to hedge day-by-day events. The market could correct relatively violently.”

Indeed, 0DTE options haven’t been truly stress-tested. The Cboe Volatility Index, or VIX, known as Wall Street’s “fear gauge,” has been muted for years amid a bull market. “These unusually depressed volatility levels are not reflective of the global macro environment,” said James Smigiel, chief investment officer of SEI Investments, which manages more than $443 billion in assets.

Riding the 0DTE Express

Zero-dated options get their name from their ephemeral life, but in many respects they’re no different than standard call and put options. Calls are contracts that offer the right to buy a stock at a preset “strike” price. Puts are contracts to sell at a preset price. The price of the option is called the premium, and the contract lasts until the expiration date, which may be a day, week, or months in the future. One equity or ETF option contract is multiplied by 100 shares of a stock.

Index options are different. They generally settle in cash, so anyone who trades them is effectively committing themselves to locking in a cash gain or loss.

The zero-dated trend took off in 2022 when exchanges added S&P 500 and Nasdaq 100 index and ETF options expiring on Tuesdays and Thursdays to their Monday, Wednesday, and Friday expiries. That turned three-day-a-week expiries into daily occurrences. Cboe added daily expiries for Russell 2000 index options and ETFs in January 2024. The Eurex exchange in Germany also offers 0DTE daily options on the EURO Stoxx 50 and DAX indexes.

With 0DTE options, investors can bet on market moves every trading day without taking risks on an overnight event. And they can be cost-effective. Buying one option against the S&P 500 costs upward of $500,000. 0DTE options pegged to ETFs are like fractional shares, breaking the index down into Chiclet-size bites, opening the trade to smaller dollar figures and more individual investors.

Traders can buy and sell the options through brokerages like Robinhood Markets, Charles Schwab, and Bank of America’s Merrill Edge, along with smaller outfits like Moomoo Technologie s. For those who don’t want to dabble in options directly, there’s now an ETF: Roundhill S&P 500 0DTE Covered Call Strategy (ticker: XDTE).

The options are inspiring retail traders who moved on from meme stocks during the pandemic, says John Bartleman, CEO of brokerage TradeStation. “A lot of customers are jumping into 0DTE. It’s a popular trading vehicle,” he says.

Despite big gains touted through social media, some academic research indicates the options are a losing trade for most people. Retail investors lost more than $350,000 on 0DTE options on an average trading day between May 2022 and September 2023, according to a study by researchers at the University of Münster in Germany. “0DTE options are on average not a lucrative investment vehicle for retail traders,” the researchers wrote.

The way to limit losses is to hedge or take other protective measures. One technique is to use “stop loss” orders, or string together a slew of options so that if one falls apart, another pays off. Justin Zacks, vice president of strategy at Moomoo, says only about 6% of 0DTE options on the platform are held to expiration and that most investors are mitigating risk by putting limit or stop-loss orders in.

But retail traders face heady challenges. Institutional algorithmic traders and market-makers pounce on split-second moves, leaving retail with the crumbs. Bid/ask spreads in options can be wide: While they are tight in the most actively traded options, they are far apart on less active ones, where it can be tough to unload a position and the wide spreads erode profits on a trade.

Hedging is tough to get right, imposes high costs, and requires near-perfect timing. And investors must be vigilant since the time value of options—a large component of their price—erodes quickly. “It’s like taking a new car off the lot. The price starts to depreciate. 0DTE options are similar,” says DeSimone.

Investors who step away from their screens might miss a sharp intraday move. “This is not something you can put a position on and place your hands in your pocket and run away,” says Joe Mazzola, director of trader education at Schwab.

What’s unknown is how the 0DTE market will handle a black swan event—something unforeseen that takes everyone by surprise. Zero-dated options haven’t been tested in a panic like the Covid-induced selloff or the 2008-09 global financial crisis. Those types of events tend to flush out speculative excesses and cause investors, dealers, and others to act in unpredictable ways.

The Cboe, which profits off index options volume, argues the market is well balanced between buys and sells; what matters aren’t high volumes or underlying “notional” values, but net positioning, it says. Based on its study of market activity, the Cboe found that daily net exposure of market makers typically ranged from $170 million to $670 million—less than 0.2% of the $400 billion traded daily in S&P 500 futures contracts.

Some brokerage executives say they aren’t worried. “I don’t understand the big brouhaha,” says Thomas Peterffy, founder and chairman of Interactive Brokers. “Now that every day is an expiration day, any day can be more volatile.”

But negative feedback loops can come out of nowhere. If a tide of positions turns one-sided, dealers may be forced to rapidly buy underlying stocks to hedge; that could cause liquidity to deteriorate and add to a “volatility spiral,” the ECB said in a report. Retail traders might try to jump on the trade, aiming to exploit the volatility, but may only wind up contributing to it.

The next step for 0DTE options may be individual stocks. The idea would be to add four more days to current weekly option expirations for companies like Nvidia and other megacaps. Traders might then be able to take same-day positions ahead of a major event such as a quarterly earnings report.

Discussions have taken place between regulators and exchanges about allowing 0DTE options for some stocks, possibly as soon as 2025, according to a person familiar with the matter. The individual stressed that all the relevant parties are still in the “analysis phase” and are being “supercautious.”

Brokerage executives interviewed by Barron’s said investors want the product, and some predicted it would be approved. “I think single-stock 0DTE trading is coming within the next two to three years,” says Zacks of Moomoo.

“There is demand for it, and people should be treated as adults with how they invest,” Kinahan said.

But a few things would have to be ironed out. Perhaps the biggest issue is how to deal with events like earnings releases; 0DTE options expire after the regular trading session ends at 4 p.m. Aftermarket trading following an earnings release and conference call may be even more volatile with 0DTE in the game.

Peterffy says that having 0DTE options for companies would make sense, with limitations. He says he isn’t concerned about the impact on megacaps or widely held large-caps. But there could be opportunities for fraud with less actively traded companies, just as there is with meme stocks that can be manipulated by hedge funds or gangs of retail traders.

“Do it only for very liquid stocks,” he says. “Otherwise it would be easier to manipulate the market, and there would be more things for regulators to have to watch.”

The Cboe is now the key player in 0DTE options, but that would likely change if they spread to equities. Other exchanges would come into the market, competing for trading volumes in a product that has already shown enormous appeal to many investors.

“Any new options products must be well thought out by all industry participants to make sure it’s ready,” says Cathy Clay, global head of derivatives at Cboe.

The key gatekeeper is the Options Clearing Corporation, the organization that issues and settles most options and is overseen by regulatory bodies in Washington. The OCC declined to comment, as did the option market’s primary regulator, the Securities and Exchange Commission. Among exchanges, the Nasdaq and the New York Stock Exchange declined to comment.

Wang, who trades on Moomoo, acknowledges he got lucky on his payoffs in 2022. On one of those days, he had bet on the S&P 500 going down the morning of a Fed meeting, and cashed in for $23,000 when stocks turned negative during Chair Jerome Powell’s press conference. An even bigger payout came when the S&P 500 popped more than 5% in one day on a benign inflation report, turning his $26,200 position into $73,000, according to screenshots viewed by Barron’s.

Overall, Wang says, he made about $20,000 since he started 0DTE trading. But he now sets stop-loss orders and is only willing to take a $2,000 loss every month, not every day. “Trading sometimes involves luck,” he says. “Don’t treat it as a videogame. You never know where the market is going.”

Corrections & Amplifications: Zero-dated options tied to the Nasdaq 100 index and related ETFs trade on the Nasdaq exchange. A previous version of this article incorrectly said they trade on the Cboe.