After Hours Summary: WMT -10% falls on lowered profit outlook, takes other retailers with it TGT -5.2%; FFIV +5.7%, WIRE +5.6%, TBI +4.9% higher on earningsAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: LBRT +8.9%, FFIV +5.7% (also increases share repurchase program by $1 bln), WIRE +5.6%, AIN +5.2%, TBI +4.9%, CALX +4.7%, CDNS +3.6%, CLS +2.9%, KREF +2.5%, CR +1.6%, SSD +1.3%, ARE +1.2%, NTB +1.2%, PCH +1.2%, WHR +1.2%, HSTM +0.4%, RRC +0.3%, SUI +0.3%, LOGI +0.2%, MEDP +0.2%, BRO +0.1%, NPTN +0.1%
Companies trading higher in after hours in reaction to news: SHLX +9.8% (Shell USA to acquire all units in SHLX held by public at $15.85/unit, total value $1.96 bln), IRTC +3.1% (names new CFO), HYLN +1.8% (Ruan orders 10 units of Hypertruck ERX), JNPR +1% (in sympathy with strong FFIV earnings), PEAR +0.7% (to restructure ops, announces planned workforce reductions)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: AAN -22.5%, ALGT -18.5% (guides Q2 revs below consensus), WMT -10% (lowers profit outlook for Q2 and FY23), PETS -8.2%, HXL -6.4%, UHS -4.6%, BDN -3.2%, KALU -3.2%, AGNC -2.7%, NXPI -2.1%, CADE -0.3%, PKG -0.2%
Companies trading lower in after hours in reaction to news: LEGN -6.9% (stock offering), WAB -5.3% (discloses cyber security incident), TGT -5.2% (In sympathy with WMT lowering guidance), CONN -5% (In sympathy with WMT lowering guidance), DLTR -4% (In sympathy with WMT lowering guidance), M -4% (In sympathy with WMT lowering guidance), DG -3.7% (In sympathy with WMT lowering guidance), AMZN -3.6% (In sympathy with WMT lowering guidance), KSS -3.5% (In sympathy with WMT lowering guidance), ROST -3.5% (In sympathy with WMT lowering guidance), JWN -3.4% (In sympathy with WMT lowering guidance), TJX -3.1% (In sympathy with WMT lowering guidance), DKL -1.9% (increases dividend), NKTX -1.8% (announces key senior leadership appointments), VERV -1.3% (closes upsized 9.58 mln offering), BURL -0.8% (In sympathy with WMT lowering guidance), CSCO -0.1% (in sympathy with strong FFIV earnings)
Closing Stock Market SummaryThe market opened on a soft note today as market participants were playing a waiting game for the busy week ahead. The three main indices saw choppy action, albeit within a narrow range, in the first half of the session until finding downside momentum and declining through most of the afternoon. The market was able to rally in the last half hour of trading to close well above session lows.sdaq -0,43%
There are several market-moving catalysts on the docket this week. 175 S&P 500 companies, which make up nearly 50% of the index's market cap, are set to report earnings this week. Key economic data includes the advanced Q2 GDP reading on Thursday, and the June Personal Income and Spending report on Friday. The Personal Spending and Income report will include the Fed's preferred inflation gauge, the PCE and core-PCE price indexes. Also, the FOMC decision will be announced Wednesday.
Market breadth showed a lack of conviction on either side of the tape today. At the close, advancers led decliners by a 3-to-2 margin at the NYSE while advancers were roughly in line with decliners at the Nasdaq.
With mixed buying interest today, it was the mega caps that drove the market lower. The Vanguard Mega Cap Growth ETF (MGK) closed down 0.6% versus a 0.1% gain in the S&P 500 and a 0.3% gain in the Invesco S&P 500 Equal Weight ETF (RSP).
This relative weakness in the mega caps showed up in the S&P 500 sector performance. Amazon.com (AMZN 121.14, -1.28, -1.1%), Meta Platforms (META 166.65, -2.62, -1.6%), and Apple (AAPL 152.95, -1.14, -0.7%) all contributed to the underperformance of their respective sectors, consumer discretionary (-0.9%), information technology (-0.6%), and communication services (-0.3%). These were the lone sectors to close in negative territory.
The best performing sector on the day, energy (+3.7%), was boosted by rising energy prices and the natural gas news from Europe. The Wall Street Journal reported that Gazprom is going to cut natural gas flows to Germany through the Nord Stream 1 pipeline to 20% capacity from 40% due to what it calls problems with a turbine.
The energy complex futures made noticeable upside moves today. WTI crude oil futures rose 2.2% to settle at $96.80/bbl. Natural gas futures rose 5.2% to $8.63/mmbtu. Unleaded gasoline futures rose 3.1% to $3.11/gal.
Treasury yields were on the rise today. The 2-yr note yield rose five basis points to 3.04% while the 10-yr note yield rose four basis points to 2.82%.
Ahead of tomorrow's open, earnings reports will be headlined by 3M (MMM), Albertsons (ACI), Coca-Cola (KO), Corning (GLW), General Electric (GE), General Motors (GM), Kimberly-Clark (KMB), McDonald's (MCD), Moody's (MCO), Polaris Industries (PII), PulteGroup (PHM), Raytheon Technologies (RTX), and UPS (UPS).
There was no U.S. economic data of note today.
Tuesday's agenda includes the following economic data:
- 9:00 ET: May FHFA Housing Price Index (prior 1.6%) and May S&P Case-Shiller Home Price Index (consensus 20.8%; prior 21.2%)
- 10:00 ET: July Consumer Confidence (consensus 96.4; prior 98.7) and June New Home Sales (consensus 670,000; prior 696,000)
- Dow Jones Industrial Average: -11.9% YTD
- S&P 400: -15.1% YTD
- S&P 500: -16.8% YTD
- Russell 2000: -19.0% YTD
- Nasdaq Composite: -24.7% YTD
DAX:
- Siemens Healthineers (SHL TH) -1.6%
- HelloFresh (HFG TH) -2.1%
MDAX:
- Grand City Properties (GYC TH) +0.6%
- Delivery Hero (DHER TH) -1.1%
- Bechtle (BC8 TH) -1.2%
- Thyssenkrupp (TKA TH) -1.2%
- Uniper (UN01 TH) -10%
- Uniper Cut to Underweight at JPMorgan; PT 5.50 euros
- Uniper Germany Has Halted Withdrawals From Storage: Regulator
SDAX:
- Adler Group (ADJ TH) +2%
- Adler Unit Seeks Shareholder Go-Ahead to Sell Bulk of Portfolio
- Wacker Neuson (WAC TH) +1.3%
- VERBIO Vereinigte (VBK TH) +1%
- Hensoldt (HAG TH) -1%
- Bilfinger (GBF TH) -1%
- Hamborner REIT (HABA TH) -1.9%
Richemont and Farfetch edge towards YNAP all-share deal
By Astrid Wendlandt
24/07/22
Cartier owner Richemont and Farfetch are getting closer to a deal on the future of online fashion retailer YOOX-Net-A-Porter (YNAP), sources close to the two companies have said. A deal with Farfetch would involve giving Richemont a small minority stake in the luxury online platform in return for absorbing YNAP.
The emergence last week of activist fund Bluebell Capital Partners challenging Richemont’s governance could speed up talks, the sources said. Bluebell has been putting pressure on Richemont to sell some of its lossmaking businesses such as YNAP. On July 20, the fund attacked the authority and control of Johann Rupert, chairman of Richemont, requesting changes to the group’s by-laws. It also wants Richemont to elect Francesco Trapani, former LVMH executive and Bulgari CEO, to its board.
“I don’t see why Rupert would do this,” a senior source at Richemont said, adding that Rupert disliked being cornered and forced to do anything. Rupert is more focused on reaching a deal with Farfetch. “Discussions are going really well,” the senior source told Miss Tweed on condition of anonymity. “The probability (of reaching a deal) is very high,” he said. “At Farfetch, they are convinced and at Richemont there is great motivation.” Rupert’s son Anton is leading the talks with Farfetch together with Richemont CEO Jérôme Lambert.
The deal presents considerable execution risk, sources to the talks have said. It involves integrating several business models and companies. Many important strategic decisions need to be made first for it to work.
EQUITY DEAL
On the table is the following proposal: Farfetch would acquire loss-making YNAP and pay Richemont in shares. Farfetch believes Richemont should receive a stake in single digits, or a maximum of 10 percent, while Richemont argues it should be at least 12-13 percent.
The source close to Richemont said: “It is better to have 12-13 percent of something that works than 100 percent of something that does not work,” implying that it was better to have a minority stake in Farfetch than own YNAP, which was still losing more than €200 million a year.
For its part, Farfetch is keen to limit the dilution of the company’s equity. “The biggest stake Richemont could get is 10 percent,” a source close to Farfetch said. The reason for preferring equity over cash is that the former aligns the interests of Richemont and Farfetch and gives the two companies the same exposure to the potential upside that would be created by the turnaround of YNAP.
However, the volatility of Farfetch’s share price in the past year has placed another layer of complexity in the way of an agreement. Farfetch’s share price has collapsed in the past year because of slowing growth and macro-economic concerns that have affected other tech stocks and online retailers.
A year ago, Farfetch’s share price stood at $50 after reaching a high of more than $73 in February 2021. On Friday, the shares closed at $8.36, valuing the company at $3.19 billion. If Richemont accepted a stake of 10 percent in return for YNAP, it would value the online fashion retailer at $319 million today. “This would represent quite a bargain for a company of that size,” a London-based online retail industry executive said. Richemont does not publish YNAP’s revenue separately. It combines it with that of online watch retailer Watchfinder.
For the year to March 31, Richemont’s online distributors generated a combined loss of €210 million on revenue of €2.78 billion. However, most of the sales and losses come from YNAP, analysts estimate. Farfetch would more than double in size if it took on YNAP, enabling it better to compete against online giants Amazon and Alibaba. The two companies are several times bigger than Farfetch because their businesses cover countless product categories while the European player is focused mainly on fashion and luxury goods.
WRITE-DOWN
It might be some weeks, if not months, before a deal is announced but it could be before Christmas, sources close to the talks have said. “I would bet a lot on a deal happening,” the source close to Richemont said. “It will take time as it is very complex, but it could be announced before Christmas.” Richemont and Farfetch declined to comment.
Whatever deal Rupert agrees, Richemont will have to take a massive write-down on the carrying value of YNAP. “They are going to have to take a hit -- that is certain. So that they are no more losses in the future,” the source close to Richemont said.
Richemont, which bought control of YNAP in 2018, is estimated to have spent more than €4.5 billion since its first investment in the online retailer in 2003, when Net-A-Porter was still run by its founder Natalie Massenet. YOOX acquired Net-A-Porter in 2015 and in return gave Richemont a stake in the combined entity. Richemont’s ambition was to become a dominant force in digital luxury and give its watch, jewelry and fashion brands a state-of-the art “omni-channel” platform that would help them conquer the buoyant e-commerce luxury market.
Four years on, Richemont was forced to give up on YNAP’s ability to deliver on such promises and on its Next Era IT platform, which never met expectations. Miss Tweed was first to report on YNAP’s technological fiasco in the fall of 2020. Richemont’s priority now is to remove YNAP from its books.
Another point that needs to be discussed with Farfetch is the value of the business Richemont would bring Farfetch by allowing it to “re-platform” YNAP and the group’s brands. It would entail Farfetch providing the technology to run all of Richemont’s websites and power its brands’ e-commerce stores and YNAP.
Cartier has long been keen to work with Farfetch, as Miss Tweed reported in October when the Paris-based media was first to report tie-up talks were taking place between the two companies. Taking a commission on the sales of major jewelers such as Cartier and on Van Cleef & Arpels would represent significant recurring income for Farfetch. That future revenue, together with YNAP’s customer list and brand partnerships, needs to be put in the equation when negotiating the value of YNAP.
Another question is how Farfetch will manage the transition of Net-A-Porter’s business model from wholesale to concession. In the latter, NAP takes a commission on every sale whereas in the wholesale model, it buys stock and sells only part of it at full price. YOOX’s business model is mainly about selling past collections at a discount.
Another decision is who would lead YNAP’s turnaround. There has been an exodus of staff from YNAP in the past two to three years. Most of the executives behind the original successes of Net-A-Porter and its sister fashion e-commerce websites Mr Porter and The Outnet have long since left. YNAP has shed more than 40 percent of its staff in the past two to three years, sources close to YNAP and Richemont have said.
The company has been led by Richemont’s former technology chief Geoffroy Lefebvre since November 2020 following the departure of YOOX founder Federico Marchetti. Lefebvre is a capable hands-on manager but not a charismatic leader, staff at YNAP said. Working for Farfetch CEO José Neves, once closely associated with Massenet, founder of Net-A-Porter and former co-chairman of Farfetch, would inspire and motivate the troops at NAP. One of the reasons that Richemont was unable to make YNAP a success was that it lacked the necessary IT talents and management. Farfetch, on the other hand has a strong talent pool and could help solve that problem by appointing some its best managers to turn around YNAP.
MUCH ADO ABOUT NOTHING
Bluebell would be happy to see Richemont get rid of YNAP, which has been a headache for more than three years. However, people close to Richemont believe the fund has little leverage over Richemont. The fact that Richemont shares barely reacted to the announcement made by Bluebell on July 20th means that investors do not believe the London-based fund will get very far with its demands.
Rupert is unlikely to appoint Trapani to Richemont’s board as requested by Bluebell. About 10 to 15 years ago, the veteran luxury executive was his arch-rival when Bulgari was competing head on with Cartier, industry insiders say. Also, why would Rupert allow an activist fund to weaken his control over his group? As things stand, Rupert controls Richemont through his family holding Compagnie Financière Rupert which owns 10 percent of the group’s equity and 51 percent of voting rights through “B” shares. “B” shares differ from ordinary “A” shares in that they are entitled to one-tenth of dividend payments but have 10 times more voting rights than “A” shares.
Bluebell has asked for its requests to be added to the agenda of the group’s upcoming annual general meeting on Sept. 7. Richemont said the board was “considering the proposals and will communicate its recommendations on this subject in due course”.
Trapani resigned the chairmanship of Bluebell at the end of 2021 for health reasons. “I can confirm that Francesco Trapani has relinquished his role at Bluebell at the end of last year,” Marco Taricco, partner at Bluebell told Miss Tweed. “However, we have remained good friends and cooperate from time to time on individual situations. Like in this instance, where we believe he can add enormous value, because of the breadth of his experience.” Taricco said Bluebell wanted Richemont to focus on jewelry and watches, and exit from fashion and online retail, which he described as “distractions”. He underlined the fact that fashion was reported in Richemont's results as "other".
Taricco suggested Richemont should consider renaming itself Cartier Group, by far the largest contributor to the group’s bottom line, to signal its re-focus on hard jewelry. “We are asking to improve the governance and make it more balanced between “A” shareholders and holders of “B” shares. We also think that there could be some balance sheet optimization in light of the large net cash the company currently has.” At the end of March, Richemont had €5.2 billion net cash.
Rupert hates to be bullied, being a bit of a bully himself. The 72-year-old South African billionaire rules over Richemont and has been doing so for years. Bluebell is unlikely to succeed in twisting his arm no matter what publicity the media give its demands. Everybody knows Richemont is stronger in watches and jewelry than in fashion and the weakness of its fashion and online distribution businesses explains in part why Richemont is trading at a discount to industry peers such as LVMH.
Rupert is not ready to sell Chloé, Alaïa and leather goods brand Delvaux which it acquired last year for a total cash consideration of €178 million. The luxury magnate is also preparing the ground to pass the executive reins on to his son, Anton. Negotiating the complex deal with Farfetch is a baptism of fire for the 35-year-old. If he proves his mettle and succeeds, his legitimacy as Johann’s heir will be strengthened. Investors will accept Anton more readily than before as Richemont’s future boss. All the more reason for Richemont and Farfetch to find a compromise and strike a deal.
- Holmen (HL9C TH) +1.1%
- Shares fell 5.8% on Friday
- Norsk Hydro (NOH1 TH) +1%
- Orange (FTE TH) +0.7%
- Orange, MasMovil to Merge Spanish Operations in $19 Billion Deal
- TUI (TUI1 TH) +0.5%
- Ryanair a Beat, Pricing Outlook Promising, Analysts Say (1)
- Ryanair Reports $174 Million Profit as Europe Heads to Beach (1)
- Siemens Healthineers (SHL TH) -1.3%
- Kone (KC4 TH) -1.3%
- Wacker Chemie (WCH TH) -1.4%
- UCB (UNC TH) -1.4%
- Jefferies Shifts Biotech Ratings; Merck KGaA Buy, Galapagos Cut
- Delivery Hero (DHER TH) -1.5%
- HelloFresh (HFG TH) -1.5%
- Haleon (H6D0 TH) -1.6%
- Ferrari (2FE TH) -1.7%
- Philips (PHI1 TH) -6.7%
- Philips Earnings Miss on Inflation, China’s Covid Lockdowns (1)
- Uniper (UN01 TH) -7.5%
- Uniper Germany Has Halted Withdrawals From Storage: Regulator
Stocks and US equity futures slipped Monday, sapped by a dimming economic outlook that’s also cooling expectations for peak interest rates and bolstering sovereign bonds. Asian equities fell amid declines in Japan as well as in Chinese technology shares. S&P 500, Nasdaq 100 and European contracts were in the red. China’s property shares bucked the prevailing trend, pushing higher amid a report that officials plan a fund to support struggling developers. The nation’s real-estate crisis is among the major fault-lines for the world economy. Australian debt jumped in the slipstream of a Treasuries rally Friday. The US 10-year yield was at about 2.77%, paring a sliver of last week’s drop. Investors have shifted to betting that ebbing economic expansion, and possibly even a recession, will moderate high inflation and soften the current cycle of monetary tightening that’s roiled global markets in 2022. A dollar gauge fluctuated, oil slid to around $94 a barrel and Bitcoinweakened below $22,000, reflecting the cautious mood across assets. The Federal Reserve policy decision this week, along with earnings from the likes of Google’s Alphabet Inc. and technology titan Apple Inc., will help to clarify the outlook for a one-month-old rebound in stocks from 2022’s selloff. Retreating business activity and mixed earnings performance from major firms left US shares in the red on Friday. Treasury Secretary Janet Yellen said she doesn’t see any sign that the US is in a broad recession. Former Treasury Secretary Lawrence Summers said a soft landing is highly unlikely. wheat climbed as commodity markets digested a Russian missile strike on Odesa’s sea port that threatened to test a fledgling agreement to unblock Ukrainian grain exports from the Black Sea.
Nikkei -0.75% Hang Seng -0.75% CSI -0.82% Shanghai -0.71% Shenzen -0.97%
Eur$ 1.0205 CNH 6.7590 CNY 6.7557 JPY 136.20 GBP 1.1983 CHF 0.9631 RUB 58.1790 TRY 17.7747 WTI$ 94.03 -0.71% Gold 1,726.60 -0.06% BTC 21,800 -4% ETH 1,512.17 -6%
S&P -0.10% Nasdaq -0.09% EuroStoxx -0.64% FTSE -0.50%
Macro :
- Pre-Fed Jitters Send Bitcoin Back Into Sub-$22,000 Trading Range
- Goldman Strategists Say European Earnings Are Below Expectations
- Biggest Oil Stock ETF Sees Short Sellers Unwind Bets After Rout
- French Lawmakers Reject Windfall Tax Profit in Close Vote
- WHO Chief Overrules Panel to Call Monkeypox Global Emergency
- China May Use Tiered-Data Strategy to Prevent US Delistings: FT
Keep an eye on :
- AIR FP : Boeing Defense Workers Reject Contract, Plan to Strike Aug. 1
- AOF GY : Atoss Software Maintains FY Sales Forecast, Meets Estimates
- BAS GY : Austria to Tap Gas Storage Tank Key to German Supply, SZ Says
- BAVA DC : Bavarian’s Vaccine Gets Monkeypox Label Approved in Europe
- BELLE SS : Vinted Offers to Buy Rebelle for SEK14.10 in Cash Per Share
- BOBNN SW : Bobst Group Public Tender Offer by Largest Holder JBF Finance
- DE US : Gates Transfers 3.02m Deere Shares to Foundation From Cascade
- DTE GY : T-Mobile US in $500m Pact to Settle Suit Over Cyberattack
- ENX FP : Euronext Says Saturn Will Be Unavailable for Remainder of Day
- EOA FP : Forvia Confirms FY Guidance, Says Hella Integration on Track
- FILA IM : Fila Says Group’s Debt Is in Renegotiation Process
- GALP PL : Galp, TAP Set Up Partnership for Sustainable Aviation Fuel
- GALP PL : Galp 2Q Adjusted Net Beats Estimates
- GET FP : France Blocks Efforts to Increase Eurostar Services: Telegraph
- ICAD FP : ICADE 1H Group Net Current Cash Flow per Share Beats Estimates
- BAER SW : Julius Baer 1H Operating Income Misses Estimates
- ORA FP : Orange, Masmovil Sign Binding Deal to Combine Spain Operations
- ETL FP : UK Satellite Operator OneWeb Said to Near Merger With Eutelsat
- KNIN SW : Kuehne + Nagel 1H Ebit CHF2.20B
- MC FP : Luxury Goods Balance-Sheet Strength Offers Spending-Spree Scope
- PHIA NA : Philips Cuts FY Comparable Sales Forecast
- POM FP : Plastic Omnium 1H Ebitda EU414M Vs. EU461M Y/y
- RYA ID : Ryanair 1Q Profit After Tax Beats Estimates
- SHA GY : Schaeffler to Buy Ewellix for About EU582m
- SHEL LN : Shell Is Said to Seek Sale of Controversial UK Oil Field Cambo
- TFI FP : TF1 Acquires Rights to French Team Football Matches Through 2028
- TFI FP : BinDawood Unit to Acquire Majority Stake in TF1 Unit Ykone
- UBI FP : Ubisoft Pushes Back Next Assassin’s Creed Title in Another Delay
- UCG IM : Banco BPM to UniCredit's 2Q Pits Sovereign Risks vs. NII Upside
- VOW GY : VW’s Diess to Leave in Sudden Exit; Porsche’s Blume Steps In
- VOW GY : VW’s Billionaire Clan Plotted CEO Ouster While He Was on US Trip
- VOW GY : VW Taps Porsche’s Team-Playing Modernizer to Amp Up Tesla Chase
>>> Up
>>> Down
* ADP Cut to Underperform at RBC; PT 115 euros
* Biogaia Cut to Hold at Handelsbanken
* DWS Cut to Hold at Jefferies; PT 25 euros
* Electrolux Professional Cut to Hold at SEB Equities
* *GALAPAGOS DOWNGRADED TO UNDERPERFORM AT JEFFERIES, PT EU48
* Nordic Nanovector Cut to Sell at ABG; PT 1.50 kroner
* Philips Cut to Hold at SocGen; PT 23.80 euros
* Snap Cut to Peerperform at Wolfe
* Telenet Cut to Hold at Jefferies; PT 15 euros
* TietoEVRY Cut to Hold at Nordea
* *UCB CUT TO HOLD VS BUY AT JEFFERIES, PT EU85
>>> Initiation
* GB Group Rated New Buy at Citi; PT 607 pence
* Grifols Rated New Hold at Jefferies; PT 17.60 euros
* Haleon Rated New Hold at Jefferies; PT 330 pence
* Intl Petroleum Rated New Sector Outperform at Peters & Co
* Merck KGaA Reinstated Buy at Jefferies; PT 205 euros
>>> Call
* GB Group New Buy at Citi, Offers Value Following De-Rating
* European Asset Manager PTs Cut at Jefferies, DWS Down to Hold
Race Towards Net Zero Will Break Energy Market, Drive Up Energy Price: Analyst
An analyst has warned that the push for net zero with existing renewables technologies by 2050 will break the energy market and lead to a stark increase in Australia’s energy price within a decade.
It comes as Australia, and the world, continues to struggle with an energy crisis amid supply issues plaguing much of the country’s east coast in June, causing the national operator to suspend the electricity market for more than a week.
Institute of Public Affairs research fellow Kevin You on July 17 said the recent incidents of market failures “are not accidents” but are “all designed features of net zero by 2050,” which he said is “casting a dark cloud” over the fossil fuel industry.
He noted that investors are “intimidated” by “the iron fist of the government,” which is likely to place regulatory burdens on coal fired power generators, gas, and oil projects, and on downstream electricity businesses that deal with traditional energy generators.
“You know what happens when the government sticks its nose where it doesn’t belong—whether it be in the transport industry, the aviation industry, in energy generation, in energy distribution—it breaks the market,” he told the audience at Australia’s largest annual liberty conference, the Friedman conference.“Investors have been scared witless by the spectre of net zero hanging over the energy market, the same way the spectre of communism hung over Europe in 1848.”
You described the net zero target as an attempt by “big government, controlled by an elite circle of faceless men, the renewables lobby, and rent seekers” to “take over and take down the energy market.”
Billions in Subsidies
In the pursuit of net zero, the government is directing investment into so-called renewables, offering the sector annual subsidies of up to $8 billion (US$5.5 billion) a year until 2030.
Meanwhile, the Labor government, elected in May, has committed to cutting greenhouse gas emissions by 43 percent by 2030, and investing in renewables while promising “cheaper electricity prices for homes and businesses.”
“There is a race for renewable energy jobs and investment around the world, and Australia should be leading that race,” Energy Minister Chris Bowen said.
However, a similar pledge was made in the 2007 election, when the then-Rudd government promised that renewables would generate at least 20 percent of Australia’s electricity supply by 2020.
The promise remained unfulfilled, with renewables making up 7 percent of Australian energy consumption in 2019-20, according to the Department of Climate Change, Energy, the Environment and Water.
Cost of ‘Unreliable’ Renewables
But despite its popular appeal, renewable energy is “unreliable,” You said, arguing that “if it can sustain itself in the free market, then it wouldn’t need taxpayer money to line up the pockets of big renewable industries.”
“If renewables can compete in the energy market, then let them compete in a free and fair market against called against gas against nuclear power.”
The analyst, whose research focuses on the political economy and industrial relations, predicted that for every gigawatt removed from the grid, wholesale energy prices will jump by $22 (US$15.25) per megawatt hour. This means that the average quarterly market price per megawatt hour will jump from A$89 to A$111.
You also estimated that in the next eight years, 11 gigawatts of capacity offered by coal fired power generators will be taken offline. This, he said, will translate to a quadrupling in wholesale electricity prices, with the flow on effect being a doubling in retail electricity prices.
“So far, the literal doubling of electricity prices is only felt by several thousand households who are customers of small electricity retailers.“But it will only get worse from here,” You warned.
Frank Calabria, managing director of Origin Energy, which operates Australia’s largest coal-fired power station, estimated that reaching net zero by 2050 would require $120 trillion (US$86.25 trillion) to be invested in the energy sector between now and 2050.
If this cost is split among the population of the developed world (1.3 billion people), the cost would be equivalent to A$369,000 for a household of four—that’s an annual cost of $13,200 per household for the next 28 years.
“Balancing tighter supply and demand in the market is an increasingly complex challenge, with the back-up, or firming, of variable renewable supply met by a combination of technology,” he told the Australian Energy conference on June 7.
IPA research fellow You also noted that Australia’s emissions are nowhere near that of China.
“Australia emits just over 1 percent of the world’s greenhouse gases,” he said.
“China emits more carbon in 16 days than Australia does in a year. That’s two weeks of emissions from China amounts to as much as a year’s worth of emissions from Australia. Right now, China’s got 57 coal fired power stations for every single one in Australia.”
Most Chinese Property Junk Bonds Are Trading Below 35 Cents
By Ye Xie, Bloomberg Markets Live commentator and reporter
1. China’s mortgage-boycott problem is still growing. More homebuyers halted payments on unfinished apartments, affecting at least 319 projects, up from 235 a week ago, according to Capital Economics. By all accounts, the situation is still manageable. Most economists estimate that the affected loans make up about 1%-2% of China’s $5.8 trillion in mortgages.
But the problem is that Beijing has yet to break the vicious circle in the housing market. The boycotts undermine confidence of new homebuyers, which reduces the cash flow of troubled developers and causes more of the type of construction delays that motivated the boycotts in the first place.
Already, the top 100 private developers, which account for more than a third of the projects under construction, are experiencing liquidity risks, according to Goldman Sachs. Reflecting this risk, about 73% of China’s high-yield property bonds are trading below 35 cents on the dollar, a level deemed as distressed by Goldman’s analysts. Left unsolved, it could quickly create problems in the banking system.
Source: Goldman Sachs
What’s the solution? Policy makers are considering remedies, including allowing a grace period for mortgage payments of affected homeowners. Bank of America’s economists led by Helen Qiao expect local governments and state-owned enterprises to step in to complete the unfinished projects. But they also warn that it may take time to resolve the issue, and governments of lower-tier cities may not have sufficient funds to come to the rescue.
Source: Bank of America
2. The housing troubles and sporadic Covid outbreaks took momentum out of the economic rebound. The consensus 2022 GDP forecast in a Bloomberg survey has declined to 4%, and a number of economists, including at Bloomberg Economics, only see a growth rate of 3%. The outperformance of Chinese stocks since last month also has faded.
In response to the latest housing drama, the PBOC kept liquidity abundant, with interbank borrowing costs dropping below 1.5% for the first time since December 2020. Meanwhile, traders took advantage of the cheap funding to build leverage in the bond market, sending the overnight repo trading volume to records almost on a daily basis.
3. Recession risks keep rising as central banks tighten monetary policy. A survey of purchasing managers by S&P Global on Friday showed activities in both the euro zone and US contracted. The ECB ended eight years of negative interest rates with a 50bp hike last week. The Fed is expected to raise rates by 75 bps this week for a second consecutive meeting. But traders are betting that the Fed will slow down the rate increases afterward and wrap the tightening campaign by December.
Elon Musk’s Friendship With Sergey Brin Ruptured by Alleged Affair
Tesla chief’s liaison with Google co-founder’s wife led to couple’s divorce filing
Elon Musk engaged in a brief affair last fall with the wife of Sergey Brin, prompting the Google co-founder to file for divorce earlier this year and ending the tech billionaires’ long friendship, according to people familiar with the matter.
Their falling out is one of a string of personal issues Mr. Musk has faced even as he juggles business challenges, including manufacturing disruptions at Tesla Inc. TSLA 0.20% and a court fight over his desire to withdraw his $44 billion bid for Twitter Inc.
Mr. Musk is the richest person in the world, with an estimated fortune of $240 billion, and Mr. Brin ranks eighth world-wide, with $95 billion, according to the Bloomberg Billionaires Index.
Messrs. Brin and Musk, among the nation’s most famous entrepreneurs, were longtime friends. Mr. Musk has said that for years he regularly crashed at Mr. Brin’s house in Silicon Valley.
Mr. Brin provided Mr. Musk with about $500,000 for Tesla during the 2008 financial crisis, when the company was struggling to increase production. In 2015, Mr. Musk gave Mr. Brin one of Tesla’s first all-electric sport-utility vehicles.
In recent months, there has been growing tension between the two men and their teams, according to the people familiar with the matter. Mr. Brin has ordered his financial advisers to sell his personal investments in Mr. Musk’s companies, some of those people said. It couldn’t be learned how large those investments are, or whether there have been any sales.
Mr. Brin filed for divorce from Nicole Shanahan in January of this year, citing “irreconcilable differences,” according to records filed in Santa Clara County Superior Court. The divorce filing was made several weeks after Mr. Brin learned of the brief affair, those people said.
At the time of the alleged liaison in early December, Mr. Brin and his wife were separated but still living together, according to a person close to Ms. Shanahan. In the divorce filing, Mr. Brin cited Dec. 15, 2021, as the date of the couple’s separation.
A lawyer for Mr. Brin declined to comment. Mr. Musk didn’t respond to a request for comment. A spokeswoman for Ms. Shanahan, who runs a foundation focused on reproductive justice, also didn’t respond to requests for comment.
About 11 hours after this article published online, Mr. Musk tweeted: “This is total bs. Sergey and I are friends and were at a party together last night!” He added that he’d only seen Ms. Shanahan twice in three years with other people around and that it wasn’t romantic.
In an interview early this month with the news website Puck, Ms. Shanahan said of the divorce filing: “I hope for Sergey and I to move forward with dignity, honesty and harmony for the sake of our child. And we are both working towards that.”
Over the past two months, Mr. Musk’s personal life has drawn considerable attention. He has been accused of exposing himself to a flight attendant at his aerospace company, SpaceX, which he has denied; the publication Business Insider reported he had two children late last year with a female executive at another company he co-founded, Neuralink; and one of his 10 children has publicly disavowed him.
Mr. Brin and Ms. Shanahan are now involved in divorce mediation, with Ms. Shanahan seeking more than $1 billion, according to people familiar with the negotiations.
The two sides have yet to come to an agreement, with Mr. Brin’s side claiming that Ms. Shanahan is asking for much more than her prenuptial agreement entitles her to, the people said. Ms. Shanahan’s side is arguing that her request is only a fraction of Mr. Brin’s $95 billion fortune, and that she signed the prenuptial agreement under duress, while pregnant, the people said.
Mr. Brin co-founded Google, now a unit of Alphabet Inc., GOOG -5.81% along with Larry Page in 1998, and helped build it into one of the world’s most valuable companies. He and Mr. Page stepped down from management of Alphabet in 2019, but both remain on the board.
Since then, he has been heavily involved in fitness pursuits, at one point trying to learn many different Olympic sports, according to people who know him. He runs a $4.4 billion family foundation that has supported such causes as education and Parkinson’s research, and he is affiliated with an airship startup called LTA Research and Exploration. He is currently writing a physics textbook.