Weekend Papers Summary
FINANCIAL TIMES
-Hamas has delayed the release of hostages in Gaza due to insufficient aid delivery. The group freed 24 captives in a deal with Israel, which included paused offensive, release of Palestinians in Israeli prisons, and increased aid. Hamas' military wing has reportedly complained to Qatar and Egypt about the insufficient aid delivery.
-Palestinians have returned to their shattered neighborhoods after 48 days of Israeli bombardment, seeking food and fuel. The truce agreement includes provisions for increased humanitarian supplies.
-Russia launched its largest drone attack on Kiev, wounding five people and leaving nearly 200 buildings without power. The attack, which began at 2:30am local time and lasted over six hours, involved Shahed kamikaze drones that changed course to confuse and evade Ukrainian air forces, according to Ukraine's air force.
-Chris Christie is avoiding pressure to withdraw from the 2024 White House race and narrow the field of candidates challenging Donald Trump for the Republican presidential nomination. Despite struggling in national polling, Christie is aiming to participate in the Alabama debate in December. His supporters believe he offers a clear contrast to Trump, performs well in New Hampshire, and is strong on foreign policy during international turmoil.
-Nigeria's Aliko Dangote, the richest person in Africa, is set to launch a $20B oil refinery outside Lagos, potentially transforming Africa's largest economy. The facility, which could start producing diesel, kerosene, and jet fuel, could be operational by next month, provided sufficient crude oil is secured and the plant works as planned. Dangote believes the refinery could reach 650,000 barrels a day by 2024.
-The Israeli shekel has become the world's top performing currency this month, driven by billions of dollars of central bank purchases since the Hamas war. The currency has risen by around 8% in November to 3.74 shekels per dollar, reversing a fall of nearly 6% in the first 20 days of the conflict. The rebound indicates confidence in the war's containment, the Israeli government's strong balance sheet, and foreign financial inflows.
-Israel has escalated a diplomatic dispute with Spain and Belgium after accusing the EU countries of supporting terrorism in response to their prime ministers' criticism of its Gaza bombardment. The Israeli and Spanish foreign ministers exchanged harsh words and summoned each other's ambassadors for reprimands. Spain's Prime Minister Pedro Sánchez and Belgian counterpart Alexander De Croo continued a visit to the Middle East, while Israel's Foreign Minister Eli Cohen condemned the false claims of Spain and Belgium, which support terrorism.
-Ireland's Taoiseach (ie: head of government, prime minister), Leo Varadkar, has pledged to introduce tougher legislation to combat far-right groups responsible for inciting riots in Dublin following a knife attack. Around 500 people and riot police clashed on Thursday night, with rumours that the attacker was an immigrant. Varadkar described the rioting as "shameful" and promised to accelerate hate crime legislation already before the Dáil parliament to modernize incitement to hatred legislation for the social media age. He also promised to toughen legislation to use CCTV footage to apprehend the perpetrators.
-Geert Wilders's attempt to form a government in the Netherlands has been halted by the liberal VVD party's leader, Dilan Yesilgöz, who stated she would not form a coalition with Wilders. However, the outgoing justice minister could support a centre-right cabinet from outside, without clarifying whether Wilders' anti-Islam Freedom party could be considered centre-right. Wilders' Freedom party came first in the parliamentary elections, but needs the support of at least two other parties to form a majority in the lower house.
-US online shopping reached record highs on Thanksgiving Day, with shoppers spending over $5.5B online, an all-time high. Black Friday sales are expected to reach $9.6B, a 6% increase from last year. The festive shopping mood is also evident on the ground, with stores reporting heavy foot traffic.
-Prime Minister Narendra Modi's Bharatiya Janata party is preparing for national polls next year by battling a revived opposition in five state elections in November. The polls will be held in Rajasthan, Madhya Pradesh, Chhattisgarh, Telangana, and Mizoram, with results due on December 3. The elections aim to strengthen the BJP's political dominance and counter the Indian National Congress.
-The European Commission approved Italy's spending plans and reforms for its €194B share of the EU post-pandemic recovery fund, boosting Prime Minister Giorgia Meloni's government. This agreement allows Brussels to approve Italy's next €16.5B tranche, which officials hope to receive by the end of the year. Italy is the largest beneficiary of the €800B recovery fund.
-India's rapid development of a digital payments system and online banking has led to financial inclusion. However, law enforcement agencies struggle to keep up, and regulators are working to improve financial literacy. In 2021, over 60% of cybercrime cases were frauds, with nearly half of frauds involving Rs100,000 or more classified as "card/internet" by the Reserve Bank of India.
NEW YORK TIMES
-Hamas said it has delayed 2nd hostage release, citing problems with aid delivery. The group’s armed wing claimed Israel was not adhering to the terms of an agreement for releasing hostages.
-Israelis welcome some hostages home. The return of 13 Israeli hostages out of more than 200 provided a glimmer of hope for a nation still traumatized by the Hamas assault of October 7.
-Gaza civilians, under Israeli barrage, are being killed at historic pace. In less than two months, more than twice as many women and children have been reported killed in Gaza than in Ukraine after two years of war.
-Derek Chauvin is said to have been stabbed in federal prison. Mr. Chauvin, a former Minneapolis police officer who was convicted of murdering George Floyd during a 2020 arrest, was serving a sentence of more than 20 years.
-Who would Donald Trump choose as his running mate? While voting has yet to begin for the GOP primary, the former president has casually weighed the pros and cons of some contenders.
-Gov. Ron DeSantis faces critical decision on cruise ships in Key West. A campaign donor to DeSantis wants to expand cruise ship operations in Key West, where voters have tried to restrict them.
-Despite bans, disabled women are still being sterilized in Europe. Governments have declared the practice a human rights violation. But they have made exceptions that are divisive among parents, doctors and social workers.
-Behind Mike Johnson’s rise is a GOP "consumed by the Far Right." After their party was decimated in 2008, mainstream Republicans believed they could harness rising far-right forces. Instead, they were overrun by them.
-Hollywood is being forced to make some difficult decisions on guns. Real guns or replicas? Blank fire or special effects? The killing of a cinematographer on a film set has some in the industry rethinking their approach to firearms.
-Donors give over €300,000 for immigrant who intervened in Dublin stabbing. A Brazilian man stopped a stabbing that prompted one of the worst anti-immigrant riots in recent history.
NY POST
-US Joint Chiefs of Staff Chairman Gen. Charles Q. Brown has expressed concerns about Israel's war in Gaza, stating that it would be a large order to eliminate the terrorist organization. This has caused controversy among elected officials, who argue that it is inappropriate for the general to discuss such divisions in public. Rep. Mike Gallagher suggests that if General Brown is concerned about the time it may take for Israel to complete the mission, he should advise the president to drop his push for a ceasefire and focus on ensuring Israel has the necessary lethal aid.
-Black Friday shoppers spent a record $9.8B online, up from $9.12B the day after Thanksgiving 2022, according to Adobe Analytics. The top items were electronics like smart watches, televisions, and Bluetooth headphones, as well as Barbie Fashionistas dolls, Mini Brands toys, cordless and robot vacuums, cookware, skincare, and coffee makers. However, inflation fears and higher prices remain a concern. 72% more shoppers used "buy now, pay later" flexible payment options like Klarna and Afterpay than the previous week.
Laurent Chekroun Equity Sales
Makor Securities London Ltd. | Makor Group
E: LCHEKROUN@makor-cm.com
M: +41 79 350 71 09
O: +33 1 42 33 02 05
W: www.makor-group.com
This message has been sent by Makor Securities, London, part of Makor Group, which is authorised and regulated by the FCA (625054). This message is for professional clients and eligible counterparties only, not intended for "retail clients". The information contained in this message is confidential and is for the exclusive use of the intended recipient. If you receive this message in error please inform us and delete all copies of it. The information is not intended as an offer or solicitation to buy or sell any financial instrument. All comments and statements are to be considered the opinions of the author not the Company and are not intended to be relied upon. We cannot guarantee that this message or any attachments are virus free and accept no liability for any viruses or the consequences thereof. v20230124
Barron’s Weekend Summary: The political and financial orders, which have been underpinned by markets for decades, are under serious threat
Cover:
-The political and financial orders, which have been underpinned by markets for decades, are under serious threat due to the escalating wars in Europe and the Middle East, and the deteriorating fiscal health of the US and China. This presents an opportunity for investors to capitalize on the seismic changes that could occur after years of relative peace and prosperity. Barron's sought advice from four market watchers who took a virtual global tour of investment hot spots, including the bull market and economic liberalization in Latin America and the Middle East. The experts also noted the presence of well-positioned companies with irresistibly priced shares. The roundtable discussion took place on Zoom and in follow-up conversations. Some of the panelists’ most notable picks – especially in view of the considerable discussion of geopolitical risk as one of the main factors that investor should consider in 2024 - include BYD, Adani Enterprises, Glencore, Petrobras, TotalEnergies, Exxon Mobil, Fomento Economico Mexicano, Richemont, and Wheaton Precious Metals.
Interview:
-No interview this week
Tech Trader:
-The Nasdaq Composite has seen a 36% increase this year, but is still 12% off its record peak. The technology sector is expected to gain further ground in the short run and into 2024, with the rally likely to extend beyond the stock market's largest names. The strengthening dynamic for tech dates back to 2022, when the index fell 33% due to tightened monetary policy and Covid-19-related disruptions. In 2023, the Federal Reserve's decision to end rate increases and ease component shortages led to OpenAI's launch of ChatGPT, triggering investment by tech companies to leverage AI for consumer and enterprise applications. The Magnificent Seven of Apple, Microsoft, Google, Amazon, Nvidia, Meta Platforms, and Tesla have all rallied 107% this year, while the S&P 500 has only gained 3%.
The Trader:
-The November stock market rally has led to the S&P 500 index potentially hitting a record high by the end of the year. The S&P 500 gained 2.2% this week, while the Dow Jones Industrial Average and Nasdaq Composite rose 1.9% and 2.4% respectively. The lift came on Tuesday when October's consumer price index came in lower than expected, solidifying the Federal Reserve's belief in stopping raising interest rates. The CME FedWatch Tool shows a 28% chance of a cut in March.
-Baidu, China's AI-focused company, has gained attention as Alibaba Group Holdings faces challenges. The company's AI business includes cloud computing, driverless taxis, and a ChatGPT competitor called Ernie. Baidu launched a paid tier of Ernie and launched a chatbot for cloud enterprises to develop smart apps. Morningstar analyst Kai Wang has tapped Baidu as one of two key Chinese beneficiaries of this year's tech trend. Baidu reported earnings of 20.40 Chinese yuan ($2.86) a share on revenue of 34.5 billion yuan ($4.8 billion), beating analysts' expectations. Year-over-year, per-share profit and revenue grew 21% and 6%, respectively.
Features:
-Mattel, a toy maker, has been preparing for the upcoming holiday season by focusing on traditional shopping patterns. The company sells Barbies, Hot Wheels, and American Girl dolls in the fourth quarter, which is dominated by gift buying, making up about a third of its annual revenue. The company has been preparing for months to stock inventories, coordinate with retailers, and ensure its end-of-year strategy is executed smoothly. However, the 2022 holiday season was an aberration for the economy as a whole, not just for the toy industry. Mattel CEO Ynon Kreiz sees the return to the traditional shopping pattern as a positive change. According to retail CEOs, industry analysts, and insiders, the 2023 holiday is expected to look similar to the pre-Covid years, with retail sales expected to increase between 3% and 5% compared to last year.
-Black Friday has resumed its traditional pulse this holiday season, with shoppers in Philadelphia suburbs eagerly searching for bargains. The Philadelphia Premium Outlet in Pottstown, Pennsylvania, was filled with cars waiting to be waved in by attendants. Meanwhile, web traffic to retailers in the U.S. rose 6% year over year on Thanksgiving Thursday, and Adobe estimated that consumers spent a record $5.6 billion online on Thanksgiving Day, up 5.5% year over year and nearly double the amount spent online in 2017. Hot purchases included toys and electronics, robot vacuums, tablets, workout gear, and holiday decor. Melissa Minkow, director of retail strategy at CI&T, expects this five-day period to be the peak and highlight of the season.
Europe:
-ASML, a key player in the global chip supply chain, has warned that a far-right party's electoral victory in the Netherlands could pose a risk to the company's staffing and hiring of key skilled workers. The Dutch far-right leader, Geert Wilders, has championed policies against immigration, which could impact the hiring of key skilled workers at Europe's most valuable technology firm. ASML, which is partly reliant on foreign workers, is concerned about the potential disruption if Wilders becomes the next prime minister of the Netherlands.
Emerging Markets:
-Argentina's markets have split on Javier Milei's election as the country's next president, with the country's benchmark bonds rising from 26.5 cents to 28 cents and the peso dropping from 850 to the dollar. Milei's victory speech aimed to "end decadence in Argentina" but faced challenges in his quest to achieve this. The country's desperate state, with inflation at nearly 150% annually and nearly half the population in poverty, has led to a heavily qualified endorsement. Milei's only available remedies will accelerate inflation in the short term, as he will have to cut off subsidies for fuel, electricity, and transportation, impacting consumers further.
Commodities:
-OPEC has been holding oil prices steady for the past two years. However, disunity before its next meeting has caused prices to fall, potentially weakening its influence into 2024. OPEC and its allies, OPEC+, delayed a meeting by four days due to disagreements about future production cuts. Brent crude fell 4.3% to $78.92 per barrel, while West Texas Intermediate fell 4.5% to $74.30 per barrel. OPEC+ has reduced production by about 2 million barrels a day to maintain high prices, with some members reducing production by an additional 1.7 million barrels. Saudi Arabia and Russia have cut 1.3 million barrels combined, resulting in a significant portion of the 101 million barrels consumed worldwide.
Streetwise:
-Jack Hough has noticed that agricultural stocks are down – and unjustifiably so. He uses one particular example to drive his point: CNH Industrial. CNH Industrial Chief Executive Scott Wine believes that the stock's artificially low price is creating a great opportunity for the company. CNH is currently trading at 5.9 times this year's projected earnings, making it second in the market behind Deere and AGCO. Farm-equipment makers are well-positioned for the long-term rise of precision agriculture, which uses sensors, telematics, artificial intelligence, and autonomy to make crop production more accurate and controlled. However, the agricultural economy is currently on the downswing, with the US Dept of Agriculture predicting a 23% drop in farmer incomes this year due to declining crop prices and high costs. Brazil, which overtook the US as the No. 1 corn exporter, is particularly soft on equipment purchases.
Laurent Chekroun Equity Sales
Makor Securities London Ltd. | Makor Group
E: LCHEKROUN@makor-cm.com
M: +41 79 350 71 09
O: +33 1 42 33 02 05
W: www.makor-group.com
This message has been sent by Makor Securities, London, part of Makor Group, which is authorised and regulated by the FCA (625054). This message is for professional clients and eligible counterparties only, not intended for "retail clients". The information contained in this message is confidential and is for the exclusive use of the intended recipient. If you receive this message in error please inform us and delete all copies of it. The information is not intended as an offer or solicitation to buy or sell any financial instrument. All comments and statements are to be considered the opinions of the author not the Company and are not intended to be relied upon. We cannot guarantee that this message or any attachments are virus free and accept no liability for any viruses or the consequences thereof. v20230124
FT : China property: running out of options as fallout spreads to shadow banking (23/11/2023)
China’s repeated attempts to tackle its worsening property crisis resemble firework displays — full of light and sound, quickly extinguished.
Property stock prices have burst upwards with each new set of government measures to boost the market, only to collapse shortly thereafter. This week’s rally should not differ.
Shenzhen, one of the most expensive cities in China, offered new edicts to lower downpayment ratios and relax other regulations from Thursday, according to state-run media. Beijing is also expected to provide more financial support for struggling developers in coming weeks.
Bargain hunters have sought out shares of local developers. Country Garden, China’s largest private developer, rose by a quarter on Thursday, bringing gains for the past month to 50 per cent. Peer Sino-Ocean Group’s share price is up 45 per cent.
Countless policy changes over the past two years have done little to encourage a sustained return of buyers, necessary to stabilise property prices. Home sales at China’s 100 top developers fell by 28 per cent in October as property investment dropped the most in eight years.
Beijing must then encourage more lending, ensuring that developers have access to liquidity. But even that effort may soon hit its limit. Net interest margins at the largest state-owned lenders fell to a record low at the end of the first half. At 1.74 per cent, that has now fallen below the reference level required by the People’s Bank of China for commercial banks.
In particular, the four biggest local banks, Bank of China, Agricultural Bank of China, China Construction Bank and Industrial and Commercial Bank of China must shoulder the burden of added lending. As a result loan yields are falling. ICBC, the largest state-owned lender, now trades below 0.4 times its tangible book value, a fraction of its regional peers.
For the lending to developers, analysts expect cumulative non-performing loans to go as high as 15 per cent.
The fallout has spread to China’s shadow banking sector — non-bank financial institutions that lend to higher-risk industries. Zhongzhi, one of the biggest, may have a shortfall of $36bn. It has warned that it is “severely insolvent”. Systemic financial risks are mounting. Risk-averse investors should not chase these property companies.
China launches probe into struggling shadow bank Zhongzhi
Financial conglomerate had disclosed $36.4bn shortfall to investors last week after missing payments
Chinese authorities have opened a probe against Zhongzhi, one of the biggest conglomerates in the country’s sprawling shadow financing market, days after the group declared that it was “severely insolvent”.
Beijing police said that Zhongzhi was suspected of committing “illegal crimes”, and that “mandatory criminal measures” have been placed on a number of suspects, including one surnamed Xie. The statement did not specify the suspects’ alleged crimes or details of the measures being taken.
Zhongzhi had disclosed in a letter to investors last week seen by the Financial Times that it was facing a shortfall of about $36.4bn, renewing concerns over China’s $2.9tn opaque shadow financing sector and its exposure to the troubled property sector and wider economic slowdown.
The company wrote that it had total assets of just Rmb200bn ($28bn) against liabilities of up to Rmb460bn. It added that “internal management ran wild” following the departure of “multiple senior executives and key personnel” in the wake of the death in 2021 of founder Xie Zhikun, who it said had “played a pivotal role in decision-making”.
Zhongzhi and its affiliate investment group Zhongrong missed payments on several products earlier this year, prompting concerns of a spillover from the country’s property sector crisis, which has been rocked by a series of developer defaults, into shadow financing, which often supports real estate development.
Chinese policymakers have rolled out a range of piecemeal support measures in an effort to reverse the slowdown in the property sector, which previously accounted for more than a third of economic growth. This month, regulators instructed state banks to increase credit to cash-strapped private developers to a “reasonable” degree.
Zhongzhi did not immediately respond to a request for comment.
Beijing police said in a statement late on Saturday on social media platform WeChat that authorities were attempting to recover assets and encouraged Zhongzhi investors to report relevant cases and leads to assist in the investigation.
In September, Chinese authorities used the same language in regard to Evergrande chair Hui Ka Yan, saying he had been placed under “mandatory measures” on suspicion of involvement in “illegal crimes” as the world’s most indebted developer was struggling to restructure its offshore debts.
The designation could refer to law enforcement actions ranging from summons to residential surveillance or arrest and detention.
Zhongzhi was founded in 1995 by rags-to-riches magnate Xie Zhikun, and expanded to become one of the country’s biggest non-bank financiers, with business interests spanning financial services and wealth management, mining and new energy vehicles.
Xie was replaced following his death by Liu Yang, his nephew and chair of Zhongrong.
In August, police were called to Zhongzhi’s Beijing headquarters to resolve issues with retail investors as outcry grew over failed payments from three of the group’s four wealth management businesses in June. The fourth wealth management company later also stopped making payments, investors said.
Support from Bank of Israel drives sharp rebound in shekel
Recovery after falls suffered in wake of October 7 attacks make currency top performer this month
The Israeli shekel is the world’s top performing currency this month, driven by billions of dollars of purchases by the central bank since the outbreak of the war with Hamas.
The currency has risen by around 8 per cent in November to 3.74 shekels per dollar on Friday, more than reversing a fall of nearly 6 per cent in the first 20 days of the conflict when investors took fright at the potential for a war to escalate across the Middle East.
The rebound is a sign that investors believe the war will remain contained while also reflecting confidence in the Israeli government’s strong balance sheet and the bank’s willingness to defend the currency. The currency has also been supported by billions of dollars of financial inflows from abroad.
“The rally reflects the easing of geopolitical tensions, especially perceptions that the risks of spillovers from the conflict in Israel into the wider region have eased,” said Oliver Harvey, a senior FX strategist at Deutsche Bank. He added that the shekel “typically performs well with higher US equities and we have seen a big rally over the last month”.
The recent rally has also been fuelled by an unwinding of “extreme” short positioning — bets on lower prices — and the Bank of Israel’s willingness to use reserves to offset excessive currency weakness.
Earlier this month it disclosed its reserves had dropped by $7.3bn in October as it sought to defend the shekel against further declines.
“The BoI did a pretty good job defending levels beyond 4.00 per US dollar and the disclosure of central bank FX [currency] intervention firepower managed to suppress speculative short shekel flows,” said Luis Costa, head of emerging market sovereign credit at Citibank.
Attention will now turn to the central bank’s monetary policy decision on Monday, with a stronger currency giving it more room to cut interest rates as economic growth is hit by the war against Hamas.
The BoI — which targets an inflation rate of between 1 and 3 per cent — has kept interest rates at 4.75 per cent since May, over which time Israel’s annual headline inflation rate has cooled from 4.6 per cent to 3.8 per cent.
Markets are currently pricing in only a small probability of a rate cut at the meeting on Monday, but anticipate that a reduction is likely within the next three months.
S&P Global Ratings this week forecast a 5 per cent contraction for Israel’s economy in the last three months of this year. The BoI has already lowered its growth forecasts for the year to 2.3 per cent.
Last week JPMorgan said it expected Israel to run a budget deficit of 4.5 per cent next year, up from a previous forecast of 2.9 per cent.
Costa said there was a “good likelihood” the BoI would start cutting interest rates in the first quarter of next year. This “may spark a new mini-cycle of shekel weakness”, which would be amplified by any weakness in the global technology services sector, an important sector for Israeli exports.
But Kamakshya Trivedi, head of global FX at Goldman Sachs, said that at current levels the shekel was “still undervalued” owing to declines earlier in the year, when investors were focused on uncertainty around judicial reforms.
“Valuations, per se, are not an obstacle for further appreciation if geopolitical risks de-escalate and global tech stocks continue to trade well,” he said.
Nasdaq bets on boom in ‘zero day’ options with new contracts
US exchange lists new options tracking gold, oil and Treasury ETFs
Trading in a controversial type of derivative known as “zero-day” options is spreading to Treasury and commodity markets, as Nasdaq and other exchange groups try to replicate a boom that has transformed trading in US stock indices.
Nasdaq this week listed a series of new options contracts tracking some of the most popular exchange traded funds investing in gold, silver, natural gas, oil and long-term Treasuries.
Options contracts give investors the right to buy or sell an asset at a fixed price by a given date. Trading a contract on the day it expires is known as zero-day trading and can be used to bet on or hedge against extremely short-term market moves.
Zero-day trading in options tied to the S&P 500 index boomed in popularity during the coronavirus pandemic. Initially viewed as a temporary phenomenon driven by speculative retail traders, the surge sparked concern among some analysts and regulators that it could create systemic risk by exacerbating market moves.
However, Nasdaq’s move is the latest sign that exchange groups are betting that zero-day trading will become a longer-term trend across different assets.
Several industry executives said they expect more US exchanges to follow suit with additional options on ETFs that do not track a specific index now that Nasdaq’s has been approved by regulators.
Greg Ferrari, Nasdaq’s head of exchange business management, said investors were looking for ways to take positions around risky events such as Federal Reserve meetings.
The new listings will make it easier to zero-day trade by adding contracts that expire on Wednesdays, in addition to the existing Friday expirations. Options tend to become cheaper the closer they are to expiry, so adding more days of the week on which contracts expire reduces costs for investors.
Ferrari said Nasdaq hopes to add more contracts expiring on different days of the week over time if the options prove to be popular.
“When investors are trying to precisely manage their exposure, having a defined product that expires on same day as the event itself is exactly what they are clamouring for,” he said.
In August of this year, zero-day options accounted for more than 50 per cent of overall S&P 500 options volume, according to exchange group Cboe, compared with 5 per cent in 2016.
Exchanges and market makers have pushed back against claims that zero-day trading could cause volatility and have disputed the popular image of it as a market dominated by retail gambling.
“We see this phenomenon servicing all types of investors,” said Ferrari. “There are lots of different use cases for short-dated options . . . all the evidence says the risk profile of the trade is contained because of the deep liquid ecosystem. That’s why we’ve taken this measured step forward.”
The new expiries were approved by the Securities and Exchange Commission.
Recent moves by Nasdaq’s rival Eurex, which is owned by Deutsche Börse, suggest the zero-day trend is starting to gather momentum in Europe too. Eurex launched daily expiries for options on the Euro Stoxx 50 index in August. Last week, it added similar options tied to Germany’s benchmark Dax index.
Liam Smith, head of US corporate strategy at trading firm Optiver, said “having more granular ability to express an opinion [through new expiries] makes sense.”
He said Optiver was supportive of a further expansion to enable zero-day trading in options tied to single stocks, but said such a move would be more complicated and is unlikely to come before the end of next year.
EU states call on Brussels to rethink shipping emissions charge
Southern European shipping nations say measures risk diverting business away from European ports
Major European shipping nations are resisting the EU’s plans to charge vessels entering their waters for emissions, saying the policy could divert maritime trade away from the bloc.
In a letter to the European Commission, seen by the Financial Times, ministers from seven EU countries including Spain and Italy have called for the option to pause plans to include shipping in the EU’s emissions trading scheme (ETS) from January. The letter said the move risks driving business away from European ports, while offering limited environmental benefit.
“The ETS regime that will enter into force in 2024 may induce emissions to other parts of the world and even increase the volume of [greenhouse gas] emissions through longer routes to avoid calls at EU ports,” said the ministers.
It could also have “serious impacts on our import and export sectors” and investments in ports, they said.
Under plans to tax shipping emissions within its limited jurisdiction, Brussels will soon require shipowners to buy credits for every tonne of CO₂ emissions they produce on journeys between two EU ports, as well as half of their emissions on shipments between an EU port and a non-EU port.
The rules will be introduced incrementally with all emissions covered by 2026.
Europe’s current price is about €80 a tonne. Lloyd’s List, the shipping news and analysis company, has estimated that if the EU carbon price remains between €80 to €90 per tonne of CO₂, total tax revenues from the coverage of shipping by the ETS could amount to more than €11bn annually.
The ship most likely to face the highest ETS bill was the cruise liner MSC Grandiosa, it said. It could face an €11mn annual bill in 2026.
Despite saying that they supported the overall aim of the policy, the ministers, who also included those of Greece, Portugal, Cyprus, Croatia and Malta, said that shipowners were likely to find “loopholes” and divert trade through non-EU ports along the Mediterranean coast such as Morocco’s Tanger Med or Egypt’s Port Said to avoid the additional cost.
Rules have been adopted by Brussels to prevent evasion through these two Mediterranean ports because they are less than 300 nautical miles from EU shores, but the ministers said this was “not sufficient”.
The ministers called on the commission to issue a public statement with a “commitment to address with concrete measures” risks to the EU’s ports associated with the introduction of the levy.
Environmental and trade experts have pushed back against ministers’ claims about the loss of trade.
Philip Damas, head of Drewry’s supply chain advisory, said there was a “possibility” that vessels could use non-EU ports to avoid taxes on their emissions, but the risk was “low” and would depend on the size of the overall economic gain, after the costs of any additional port stops were taken into account.
Tristan Smith, a shipping and energy researcher at University College London, said “carbon leakage” to countries outside the EU “can be real”. But he criticised calls for more non-EU ports to be included in the scheme besides Tanger Med and Port Said, pointing out that this would simply shift the risk further to different ports.
The commission said that there were measures within the legislation to avoid risk of evasion and that Brussels would “monitor closely the effects of this and if there is a need for adjustments we are ready to look at that”.
Germany faces threat of creeping deindustrialisation, warns steel boss
Salzgitter CEO says steel and chemicals producers must commit to country, despite high energy costs
The chief executive of steelmaker Salzgitter has warned that Germany’s big energy users must commit to the country as a base to stave off the creeping deindustrialisation of Europe’s largest economy.
Gunnar Groebler, who joined Germany’s second-largest steelmaker two years ago, told the Financial Times that if manufacturers of materials needed by industry, such as steel or chemicals, were to leave the region due to high energy costs “you run the risk of losing the whole value chain” of production.
His comments come as 32 per cent of surveyed industrial companies in August told the German Chamber of Commerce and Industry (DIHK) that they favoured investment abroad over domestic expansion — double the 16 per cent identified in the previous year’s survey — amid concern over a future without cheap Russian gas.
“If I were to follow that lead, then we are going to deindustrialise this country,” Groebler said, adding that “from a societal perspective, I think we as an industry also have a responsibility”.
The remarks come in a difficult month for German industry as several large climate-related projects, such as long-awaited rail infrastructure investments, have been thrown into doubt after the government froze payments from a climate and transformation fund.
The freeze followed a decision by Germany’s top court that €60bn allocated to the fund, designed to help decarbonise industry, was illegal.
Groebler confirmed that €1bn of subsidies promised by local authorities to help Salzgitter build plants that can run on both gas and cleaner hydrogen were secured, despite the problems surrounding the climate fund.
The company is planning to have the first of these plants running by 2026.
The German steel industry is making a big bet on future demand in Europe for so-called green steel, as it pours billions of euros into a transition that will eventually see it replace gas furnaces with technologies reliant on clean hydrogen and electricity.
Salzgitter, which is based on the outskirts of the eponymous city where it employs 5,500 people, has been bullish on the future of carbon-reduced steel and promised not to use any more coal in its production by 2033, when it expects to have cut its carbon footprint by 95 per cent.
There remains, however, a question mark over how demand for green steel would be affected if large-scale industrial environment-friendly projects were to be scrapped.
“[The funding gap] puts a lot of pressure and responsibility on the German government to actually come up with a tentative solution, and relatively quickly too,” said Groebler.
“I would really urge them to not stop the train [of decarbonisation] because if you stop, you will need much more energy to get rolling again.”
Sunak’s private funding plan for HS2 tunnel set to fail, warns adviser
Chair of National Infrastructure Commission says government will have to pay for tunnel under London
The National Infrastructure Commission chair has poured cold water on Rishi Sunak’s plan to get private developers to fund an expensive tunnel under London connecting the HS2 rail line to Euston in the heart of the capital.
Last month Sunak cancelled the northern leg of the high-speed railway line, but confirmed that HS2 would run from Euston station in the centre of London to Birmingham in the Midlands.
The UK prime minister claimed that taxpayers would save £6.5bn on the Euston development because developers would pay for the tunnels, tracks and station in exchange for profits from developing houses, offices and shops.
But Sir John Armitt, chair of the National Infrastructure Commission, told the Financial Times that developers would not fund the tunnel needed to connect Euston to the next HS2 terminus in west London.
“You’ve still got to dig 4.5 miles of tunnel and that won’t be paid for by the private sector,” he said in an interview. The commission, set up in 2017 as a Treasury agency, is the government’s official adviser on infrastructure.
Armitt added: “At the end of the day the government will need to be ready to fund the core civil engineering for the final miles of the project.”
His comments cast doubt on the savings the government has claimed from Sunak’s dramatic changes to HS2 that the prime minister announced at the Conservative party conference in Manchester.
The £57bn rail line is Europe’s largest infrastructure project and has been beset by cutbacks, cost hikes and time delays since work started nearly a decade ago.
According to an October government estimate, HS2 now could return “possibly as little as 80 pence for every £1 invested by the taxpayer”.
Under current plans the line is set to run between Euston and Birmingham, including a new large station in west London at Old Oak Common.
The stretch between Old Oak Common and Birmingham is not expected to open for at least another six years while Euston, where work has been paused and there is no agreed plan, will open much later.
Last week, the top civil servant at the Department for Transport, Dame Bernadette Kelly, told MPs that the private sector at Euston would “ideally fund the station approaches and we are also looking for private funding to cover the whole cost of running from Old Oak Common to Euston”.
At another committee hearing last week, transport secretary Mark Harper said the “most obvious comparison” for the public-private model the government planned at Euston was the regeneration of Battersea Power Station, on the south bank of London’s river Thames.
Harper said that at Battersea Power Station the government had “levered in £9bn of private capital”, extended the Northern tube line and “delivered a new underground station by the private sector”.
“That’s a good indication of what’s possible [at Euston],” he told MPs.
Armitt dismissed the comparison, however, saying that the bulk of that private investment at Battersea “was for real estate investment, rather than for the new Northern Line connection”.
He said that if HS2 did not run all the way to Euston, it would require changes to plans at Old Oak Common and would put pressure on the Elizabeth Line, which has an interchange at the west London changes.
“Ultimately HS2 needs to get all the way into Euston to ensure the scheme is attractive to passengers and doesn’t place huge burdens on the Elizabeth Line,” said Armitt.
The Department for Transport said the line would finish at Euston, “as has always been the case”.
Pointing to the development of Battersea and that at King’s Cross, a DfT spokesperson said “The new plan for Euston represents a world-class regeneration opportunity that offers greater value for money for taxpayers. Our approach has been successfully carried out recently . . . and there has already been significant interest from the private sector to invest.”
Bayer chief blames thin drug pipeline on ‘years of under-investment’
Bill Anderson says group is generating a series of promising new drugs after R&D strategy change
Bayer’s chief executive has blamed an “old chemistry mindset” and a chronic lack of investment in research by his predecessors for a thin drug pipeline that has dragged down the group’s share price.
“We had several years of under-investment up until about 2018. Bayer was not sourcing novel, cutting-edge molecules [and was not] going for really important targets,” Bill Anderson told the Financial Times in an interview after the German group shocked shareholders by abandoning a late-stage trial of one of its most promising new drugs.
As a consequence, “the late-stage pipeline is thin relative to the patent losses we have in the next years”, he said. “I can’t fix what didn’t happen eight or 10 years ago.”
Bayer last week abandoned a trial of blood-thinner asundexian after it did not work as hoped to treat heart disease. The setback over a drug that was supposed to generate up to €5bn in annual sales at its peak caused Bayer’s already struggling stock to fall 18 per cent in a day. Patents for its two best-selling drugs are also expiring over the next three years.
Bayer is left with three prospective blockbusters that it hopes will generate more than €1bn in annual sales each: a treatment for prostate cancer, for chronic kidney disease and to treat menopause symptoms.
“I like the late-stage assets that we have,” Anderson said but added that the lack of new market-ready drugs was caused by an “old chemistry mindset” that was prevalent at Bayer until five years ago when the company made radical changes to its R&D strategy. But until then, he said, Bayer’s thinking was: “If we had enough chemists and labs, then eventually they’d come up with something. That’s not a strategy.”
The thin pipeline of drugs is reflected in the company’s share price performance. The stock recently fell to its lowest level in more than a decade. “Investors tend to look at what’s going to launch in the next three years,” said Anderson.
However, he stressed that the R&D strategy adopted five years ago will overcome these issues over time. The group’s head of pharma, Stefan Oelrich, who moved to the job from rival Sanofi in 2018, axed 40 per cent of the old R&D programme, focusing on cell and gene therapy and spending billions of euros to acquire companies that specialise in the field.
“I feel really good about our R&D team, our R&D strategy and the quality of the early stage pipeline,” said Anderson, adding that Bayer was now operating “a machine” that is generating a series of promising new drugs. In 2023 alone, he added, Bayer filed applications for eight investigational drugs, including treatments for cancer and cardiovascular disease.
“This is a business with 10- to 15-year product life cycles,” he said. “We did a major turnaround in our pharma R&D pipeline beginning five years ago. That is going to pay off in year seven, 10 or 12 years from when it started.”
The new chief executive, who has been in the job since the summer and previously ran Roche’s pharma division, disagreed that Bayer’s pharma unit was too small to keep up with larger rivals. He argued that the size of an R&D budget was not an automatic guarantee of success.
“Two of the companies that had the lowest R&D spending a decade ago were Eli Lilly and Novo Nordisk. They’re two of the most valuable pharma companies in the world today,” he said, adding that the companies developed “an extreme focus, discipline and scientific rigour”.