FT : Spanish PM urges EU to cut energy costs or be Putin’s ‘hostage’

Spanish PM urges EU to cut energy costs or be Putin’s ‘hostage’
Sánchez tells the FT that bloc faces emergency and must increase independence from Russia

Spain’s prime minister has said EU leaders must act to bring down energy prices to stop Europe becoming the “hostage” of Vladimir Putin and limit the economic damage caused by the war in Ukraine.

In an interview with the Financial Times, Pedro Sánchez said a summit starting on Thursday had to help Spain and other countries struggling to cope with big increases in fuel and electricity prices, as well as those that sought to reduce their dependence on Russian gas.

“If the EU does not give us tools to respond to this energy emergency, it will be difficult for not just Spain but for all member states to bear the enormous economic cost,” Sánchez said, referring to Madrid’s call for electricity and gas prices to be decoupled — which would significantly reduce bills in Spain.

Moscow had sought to keep European energy prices high by keeping gas reserves low last year as part of a prewar strategy, Sánchez argued. “We have to defend our fellow citizens; Europe cannot be an energy hostage of Putin,” he said. “We have to increase our energy independence at the same time that we adapt our price system to a new reality.” 

“If industries are slowing their production, it is not because they have a problem with demand, it is because they have energy costs that are absolutely unbearable,” said Sánchez, highlighting problems in Spain that range from heavy industry — where steelmakers have idled operations — to “fishing fleets that cannot fish”.

The Spanish prime minister will have to overcome significant opposition from northern EU states to his plans for changes to the union’s electricity market.

At present, European Commission proposals due to be released on Wednesday deal almost exclusively with gas storage — which Brussels sees as the lowest common denominator that can command support among the EU’s 27 member states.

Sánchez was speaking on Monday before flying to Paris and Brussels to see French president Emmanuel Macron, Belgium’s prime minister Alexander De Croo, European Commission president Ursula von der Leyen and Charles Michel, president of the European Council, to try to win round EU opinion ahead of the summit.

He faces mounting pressure at home. Tens of thousands of farmers protested against high energy prices in Madrid on Sunday while an unofficial truckers’ strike is in its second week.

Spain is particularly sensitive to electricity price shifts because around a third of all households pay tariffs linked to spot market rates, which means bills have been high for months.

The Ukraine war has vastly complicated Spain’s efforts to recover from the economic damage wrought by the pandemic, even though Sánchez insisted the country would soon feel the benefit of the EU’s recovery fund, with an “unprecedented” total of €24.6bn in projects due to be put out to tender in the first half of this year.

The Socialist leader is betting that a deal on energy at this week’s summit will provide the basis for his government’s own response to the energy crisis next week, in negotiation with business, unions and other political parties.

“Europe cannot allow the summit to end without an agreement; we need measures and we need them now,” he said. “The [economic] impact [of the war] will be greater or smaller depending on Europe’s response to the crisis.”

Spain wants to decouple electricity from gas prices by pausing or scrapping the EU’s marginal pricing scheme, which sets rates based on the last unit auctioned to allow the market to be fully supplied. This means the soaring cost of gas has driven electricity prices since last year.

Some 45 per cent of Spain’s electricity last year came from renewable energy compared with just a third as much from gas, Sánchez said. “It’s not logical at all that it is this 10-15 per cent of gas that sets the electricity price for the whole market.”

At recent meetings of EU ambassadors countries including Germany, the Netherlands and Austria have played down expectations of a deal at the summit. Critics argue that the changes Spain seeks could undermine incentives for investing in renewable energy and damage the drive for energy independence from Russia in the longer term.

Criticising what he called “market fundamentalists”, Sánchez argued the EU should separate the need for short-term relief from longer term reforms.

Spain has already announced €10bn-€12bn of energy subsidies but Sánchez characterised this as neither sufficient nor sustainable without EU action to curb prices.

The prime minister argued that Spain, which accounts for just under a third of the EU’s liquefied natural gas storage capacity, could help the rest of the continent bolster its energy independence if connections to France were improved. He said this was part of Spain’s “great opportunity after the UK’s exit from the EU to position itself as one of the principal actors” in the bloc.

But Spain’s relationship with its biggest gas supplier, Algeria, was strained when he implicitly backed the claims of Algiers’ regional rival, Morocco, to the disputed western Sahara region late last week. Algeria has now withdrawn its ambassador to Madrid.

Sánchez’s move has been criticised not just by Spain’s opposition but by the radical-left Podemos grouping, the junior partner in his government. Podemos politicians have also been at odds with Sánchez over Spain’s decision to arm Ukraine against Russia.

The prime minister acknowledged what he described as a “discrepancy” with Podemos on defence but added that “most Spanish citizens understand . . . that peace has to be defended”.

He added: “Putin has tried throughout all these years to weaken the European project . . . And now, in Spain and in Europe, a new European identity, a new European patriotism, is being built . . . This is what Putin wants to put at risk.”

FT : Archegos quietly built stake in Deutsche Bank

Archegos quietly built stake in Deutsche Bank
Germany’s biggest bank was also among the lenders to the family office whose collapse left rivals with $10bn in losses

Archegos Capital Management quietly amassed a stake in Deutsche Bank after its founder Bill Hwang forged ties with the German lender’s leaders before the family office imploded last year, the Financial Times can reveal.

The collapse of New York-based Archegos 12 months ago left its prime brokers, which included Credit Suisse, Nomura and Morgan Stanley, with a combined $10bn in losses after the investment firm’s highly leveraged bets on US media and technology shares unravelled.

Deutsche was also among Archegos’s lenders but emerged unscathed from the firm’s failure and was even able to hand back some of the collateral it had taken to underpin the loans to the family office.

Archegos began building a stake in Deutsche in 2019 as Hwang, a former hedge fund manager, met several times with the bank’s chief executive, Christian Sewing, and at least once with chair Paul Achleitner, said three people familiar with the matter.

The meetings, which included several at the Manhattan headquarters of Archegos and one at the high-end restaurant Jean-Georges overlooking Central Park, started in late 2018 when Deutsche was under intense pressure to revive a languishing share price and overhaul its strategy.

The interactions between Germany’s biggest bank and Archegos were described as a Deutsche “charm offensive” by one person familiar with the family office.

A person familiar with the bank’s view contests that account, saying Archegos took the lead in developing the relationship.

The stake, which Archegos held via derivatives, was enough to make Hwang’s firm a significant shareholder in the bank. According to one person with direct knowledge of the family office, the holding was close to 2 per cent and held right up until Archegos failed.

People familiar with Deutsche’s view say the stake peaked at just under 1 per cent and had been sold by the end of 2020.

A stake of about 1 per cent today would put an investor among Deutsche’s 15 largest, according to Bloomberg data. Archegos was not required to disclose the stake as it was below the 3 per cent threshold stipulated by German securities law.

Deutsche said in a statement to the Financial Times that “meeting with potential investors and clients is a normal part of business”, and declined to comment further on its interactions with Archegos and Hwang.

The bank’s clean exit from its Archegos loan exposure was unrelated to the relationship Hwang had formed with the bank’s senior executives, people familiar with the matter said.

Instead, Deutsche had in early 2021 grown wary about its exposure and urged Archegos to broaden the collateral it had pledged, pushing for it to include a wider selection of stocks from different markets. In the months before Archegos failed, Deutsche also tightened the terms of its lending, said people familiar with the matter.

When Hwang received a large margin call from Deutsche as Archegos began to buckle last year, he called up a senior manager but the bank did not reconsider, said people familiar with the matter.

“We were able to significantly de-risk our exposure to Archegos without incurring any losses,” Deutsche said in its statement, pointing to the fact that, unlike some other lenders, it increased the quality and amount of collateral it demanded from the firm.

The initial contact between Hwang and Deutsche’s top management was brokered by Hakan Wohlin, the bank’s former head of debt origination who left the lender in 2015.

Wohlin, who remained on friendly terms with Achleitner and Sewing and now runs an advisory firm in New York, was hired by Hwang as a senior adviser in late 2019 after setting up the contact.

He attended the meeting at Jean-Georges, and subsequently sent Sewing a text message, a copy of which was seen by the Financial Times, noting that Archegos “bought some more shares after our lunch. But have not verified amount with Bill.” The restaurant was so popular at the US investment firm it was known internally as the “Archegos cafeteria”.

The meetings show the close ties Hwang forged with Deutsche’s top brass. Besides Sewing and Achleitner, Deutsche’s then head of strategy and now Asia chief Alexander von zur Mühlen, and James Rivett, then head of investor relations, took part in some meetings. However, on one occasion, Sewing was the only Deutsche representative who attended, according to people familiar with the matter.

Lawyers for Hwang and Archegos declined to comment.

Hwang’s dealings with Deutsche stretch back to at least 2008 when he was running his hedge fund Tiger Asia. In 2012, Hwang pleaded guilty on behalf of Tiger Asia to charges of wire fraud brought by the US Department of Justice.

Wohlin was one of several Deutsche executives accused of “dishonesty” in a lawsuit filed in 2016 by Vestia, a Dutch housing association and a profitable client for the bank that was brought to the brink of failure through derivatives trades. The lawsuit related to payments made to a middleman who was convicted of bribery in 2018.

Wohlin, who was a witness not a defendant in the case, denied the allegations, as did Deutsche. The bank reached a €175mn settlement with Vestia in 2019.

Declining to comment on the specific interactions between Archegos and Deutsche, Wohlin said: “I believed then, as I do now, that Deutsche Bank presented an interesting long-term opportunity. Archegos was a well-known long-term value investor — as such a relevant investor to speak with.”

Deutsche’s lending to Archegos raised the possibility of a conflict of interest given the family office was also a sizeable shareholder, but German banking law did not forbid it from doing so.

Under the law, only loans to shareholders with at least 10 per cent of the equity need to satisfy special conditions. The bank’s own rules require extra scrutiny for borrowers that own at least 3 per cent of its shares, people familiar with the matter said, adding Deutsche did not accept its own stock as collateral from Archegos.

WSJ : A Crisis in U.S.-Middle East Relations

A Crisis in U.S.-Middle East Relations
Neither the Saudis nor the Emiratis will take Biden’s calls. The U.S. needs to recommit to the region.

When the leaders of Saudi Arabia and the United Arab Emirates decline phone calls from the president of the United States, rebuff his requests to help lower oil prices, and shy away from condemning Russia’s invasion of Ukraine, and when the U.A.E. hosts Syrian dictator Bashar al-Assad in Abu Dhabi, there is no doubt that a major crisis in U.S.-Arab Gulf relations is under way.

This will be exacerbated in the weeks ahead if the U.S. nears an agreement with Iran over its nuclear program, lifting many sanctions in the process. How Washington handles this unfolding predicament will shape the region’s future, and America’s place in it, for decades.

To some in the West, the behavior of some of America’s Arab Gulf partners typifies the sort of erratic decisions made by strongmen such as Russia’s Vladimir Putin. But does that explain why most of America’s other Middle Eastern allies—Israel, Jordan, Turkey and Egypt—also are expanding ties to Russia and China at America’s expense? Are all these countries led by irrational strongmen?

No, America’s Middle Eastern partners have rationally concluded that they need to diversify their foreign-policy options given Washington’s reluctance to uphold its defense commitments. Dramatic scenes of the disorderly U.S. exit from Afghanistan confirmed that America is in retreat. For Saudi Arabia and the U.A.E. in particular, the lack of a meaningful American response to Iran-sponsored drone attacks on airports and oil facilities in 2019 and 2022 was the straw that broke the camel’s back.

After the last major attack this January, the U.A.E. didn’t hear from U.S. senior administration officials, and when Gen. Frank McKenzie, America’s top commander in charge of the region, paid a visit over three weeks later, Mohamed bin Zayed, the country’s de facto leader, refused to meet with him. Concerns about America’s commitment had morphed into feelings of abandonment and anger. Then when Mr. Biden wanted to call to ask for help lowering oil prices weeks later, his U.A.E. counterpart was unavailable to take the call.

The Biden administration’s behavior toward the Gulf Arab states contradicts its National Security Strategy, which emphasizes revitalizing America’s alliances and partnerships. Team Biden has two mistaken assumptions: that the rise of China and return of Russia as great-power rivals necessitates a recalibration from the Middle East to Southeast Asia and now to Eastern Europe, and that achieving detente with Iran, beginning with a nuclear deal, would make the region more stable.

To U.S. officials, these assumptions are complementary and mutually reinforcing: An American retreat from the Middle East should make Iran less aggressive. In turn, a U.S.-Iran detente would allow Washington more time to focus on emerging threats elsewhere. On the surface this appears to be a win-win arrangement, since Saudi Arabia, the U.A.E. and Israel in theory stand to benefit from an Iranian commitment to de-escalation.

But this strategy is built on faulty foundations. In reality, the Middle East is “the Wild West of great power competition” according to Gen. McKenzie. It sits at the crossroads of three continents and includes three of the world’s most important maritime choke points, vital for global trade and commerce. It also accounts for about half of global oil reserves and more than a third of oil production.

The U.S. can’t engage effectively in a great-power competition while relinquishing its dominant position in such a strategic part of the world. When the void left by the U.S. is being filled by Russian military encroachment in North Africa, the Eastern Mediterranean and the Red Sea corridor, and as China has displaced the U.S. as the lead trading partner for most of the Middle East, allies and partners will need to adjust accordingly.

There is also no guarantee that an American-Iranian detente would lead to a more stable Middle East. Once most Western sanctions are lifted, and American deterrence across the region wanes, Iran’s appetite for expansionism will likely increase. This could feed further conflict, stiffen Saudi determination to match Iran by also becoming a threshold nuclear state, and suck the U.S. into future military entanglements.

Saudi Arabia and the U.A.E. have deepened cooperation with both Russia and China out of necessity, not preference. Should the Biden administration renew its commitment to regional defense by publicly affirming a strategic alliance, Riyadh and Abu Dhabi will revert to more-cooperative ties with Washington, including on oil prices, at the expense of Moscow and Beijing.

It isn’t too late. The U.S. can signal its renewed commitment to the region by designating a special envoy assigned to restore trust and elevate the relationship, particularly since there hasn’t been a U.S. ambassador in Riyadh or Abu Dhabi for years. The U.S. can also expand Arab Gulf air defenses by meeting requests for deploying more anti-missile defense systems, stepping up intelligence cooperation, and providing early warning against incoming attacks.

All these measures are purely defensive, and none are likely to draw the U.S. into new conflicts. To the contrary, they would deter unanticipated escalation and provide billions in revenue to the U.S. economy through new defense sales. More importantly, they would help assure that a strategic part of the world remains within America’s orbit, that policies of key partners remain in sync with U.S. interests, and that phone calls from the president don’t go unanswered.

WSJ : Evergrande Delays Results as Banks Seize $2 Billion From Unit

Evergrande Delays Results as Banks Seize $2 Billion From Unit
Developer says ‘major incident’ at Evergrande Property Services will be investigated

Banks have unexpectedly taken control of more than $2 billion held by one of China Evergrande EGRNF -7.19% Group’s key subsidiaries, as the embattled property developer said neither it nor its main listed units could meet an imminent deadline to publish their annual results.

The move by lenders adds fresh uncertainty to Evergrande’s restructuring. Global bondholders view its two big Hong Kong-listed subsidiaries, which focus on property management and car making, as important sources of potential value for international creditors.

Evergrande Property Services Ltd. 6666 2.68% said lenders had enforced their rights over some 13.4 billion yuan, or $2.1 billion, of bank deposits. It said these had been offered “as security for third party pledge guarantees,” suggesting the cash was backing debts taken on by another borrower.

Evergrande said this was a “major incident” that came to light during a review of the property-services subsidiary’s annual financial report, and would be probed by independent investigation committees at both companies.

Hidden debt has proved a problem for China’s property sector. Investors have been caught out by off-balance-sheet liabilities that weren’t previously disclosed to investors or credit-rating companies, such as guarantees on wealth-management products or private loans.

Evergrande, Evergrande Property Services and China Evergrande New Energy Vehicle Group Ltd. 708 12.82% all said Tuesday that “a large number of additional audit procedures” and the pandemic meant they couldn’t publish annual audited results by March 31, as required in Hong Kong.

All three companies had halted trading in their shares before the market opened on Monday. Exchange rules meant their stock would likely remain suspended until the results were published, the trio said Tuesday.

Evergrande is China’s most-indebted property developer, with the equivalent of more than $300 billion in liabilities as of June 2021. After defaulting on some offshore debt in December, it said in January that it aimed to release a global restructuring plan within six months. The company has convened a bondholder call Tuesday to provide an update on its plan, according to people familiar with the matter.

With the broader property industry in crisis, other developers have also delayed the release of financial information. Ronshine China Holdings Ltd. said Monday the audit work for its annual results wouldn’t be completed on time after its auditor PricewaterhouseCoopers resigned.

Shimao Group Holdings Ltd. said Monday it expects a delay because of disruptions caused by Covid-19 and slowness in obtaining third-party confirmations for its audit.

PricewaterhouseCoopers is also Evergrande’s auditor. In October, Hong Kong’s Financial Reporting Council said it had begun an investigation of PwC’s audit and an inquiry into Evergrande’s recent accounts.

Separately Tuesday, Evergrande said it had hired the law firm King & Wood Mallesons to bolster its advisory team. It is already working with institutions including Houlihan Lokey Inc., Hong Kong-based Admiralty Harbour Capital Ltd., China International Capital Corp. , BOCI Asia Ltd. and Zhong Lun Law Firm LLP.

>>> What to look at today - 22nd of March 2022

A selloff in bonds deepened Tuesday and U.S. equity futures wavered after Federal Reserve Chair Jerome Powell struck a more hawkish tone on the central bank’s campaign against high inflation. Treasuries extended losses and Australian and New Zealand debt slid after short-dated U.S. yields Monday posted one of the biggest daily climbs of the past decade. The gap between five-year and 30-year U.S. yields is around the smallest since 2007, a sign of worry that Fed tightening will sap the economy. U.S. and European futures dipped, while Asian stocks rose partly on a climb in export-reliant Japan amid a weaker yen. Hong Kong pushed higher, bolstered by Alibaba Group Holding Ltd.’s ramped up, $25 billion share buyback program.  Powell said the Fed is prepared to raise interest rates by 50 basis points at the next policy meeting if needed. The central bank hiked by a quarter-point last week and signaled six more such moves this year. The dollar advanced. Oil’s rally continued, with Russia’s war in Ukraine nearing the one-month mark and no conclusion in sight. There are signs the European Union may be edging closer to a ban on Russian crude imports to punish Moscow for its invasion. Derivative traders Monday priced in about 7.5 quarter-point rate hikes at the remaining six Fed meetings this year, effectively making provision for more than one half-point rise. Stocks in Asia on Tuesday and the U.S. a day earlier appeared to shrug off concerns that Fed tightening and rising yields point to a tougher outlook. US After Hours NKE +6% swooshes higher on strong earnings; HRT +16.1% also moving on earnings

Nikkei +1.48% Hang Seng +2.05% CSI -0.24% Shanghai +0.08% Shenzen -0.60%

Eur$ 1.0979 CNH 6.3760 CNY 6.3680 JPY 120.42 GBP 1.3126 CHF 0.9370 RUB 106.6493 TRY 14.8169 WTI$ 114.90 +2.50% Gold 1,935.28 -0.03% BTC 42,200 +2.55% ETH 2985 +2.50%

S&P -0.20% Nasdaq -0.28% EuroStoxx -0.34% FTSE -0.02% Dax -0.29% SMI -0.11%

Macro :
- EU to Propose Tapping 500-Million-Euro Crisis Fund for Farmers
- French PM Says France Could Expand Fuel Rebates for Workers
- Biden Sees Risk of Russian Cyberattack on U.S. as Sanctions Bite

Keep an eye on :
- ADS GY : Watch Adidas, Puma Shares After Nike Sales Beat in All Regions
- AIR FP : Qatar Air Denies Owing Airbus $220 Million for Rejected A350s
- AAPL US : Apple sends new offer to Dutch antitrust authority over dating apps payments, racks up 9th fine https
- ARGX BB : Argenx Phase 3 Data From ADAPT-SC Study Met Primary Endpoint
- ASHM LN : Ashmore to Appoint Adamson as Chairman When Bennett Steps Down
- ATEB BB : Atenor Raises EU55m With 6-Year Green Bond; Offer Closed Early
- BNP FP : BNP Paribas to Stop All New Business in Russia Amid Sanctions
- BUFAB SS : Bufab Acquires Timco for at Least GBP54m
- CA FP : Carrefour Said in Talks to Sell Taiwan Unit to Uni-President
- DMP GY : Dermapharm Prelim FY Adjusted Ebitda EU351M
- DBK GY : Archegos Had Built Stake in Deutsche Bank Before Collapse: FT
- EQT SS : EQT Invests in Pest Control Operator Guardian; No Terms
- GALP PL : Portugal’s ENSE Says Gasoline Consumption Rose 52% in February
- GOOGL US : Google Accused by DOJ of Hiding Documents in U.S. Antitrust Case
- TKWY NA : GrubHub to Add Disclosure at Checkout After DC Suit: TechCrunch
- LDO IM : SES Buying Leonardo Defense Communications Unit for $450 Million
- MITRA BB : Mithra Exercises Request Under Funding Pact With Goldman Sachs
- NEM GY : Nemetschek FY Ebitda Margin 32.6% Vs. 28.9% Y/y
- TYRES FH : Nokian Renkaat Seeks to Avoid Loss of Russia Plant, CEO Tells HS
- ORPHA DC : Orphazyme A/S Filed for Voluntary Delisting of ADSs
- PAL AV : Palfinger Sees 2022 Ebit Significantly Below Y/y on Ukraine War
- PGHN SW : Partners Group FY Ebit Beats Estimates
- PUM GY : Watch Adidas, Puma Shares After Nike Sales Beat in All Regions
- REE SM : Red Electrica’s Hispasat to Buy 100% of Axess Networks
- SHEL LN : Shell Reconsiders Decision to Exit U.K. Oil Field: BBC (Earlier)
- SRG IM : Snam CEO Is Said To Leave Italian Gas Company in April
- SRG IM : Snam CEO Said to Leave Italian Company in April for New Venture
- GLE FP : SocGen, Peers' $100 Billion Russia Risk Stokes 1Q Bad-Debt Fears
- TKO FP : Tikehau Capital Aims to Double AUM to More Than EU65B by 2026

>>> Europe : Brokers Upgrades & Downgrades - 22nd of March 2022

>>> Up
* Altria Raised to Buy at Goldman; PT $57
* Enel Raised to Outperform at Exane; PT 6.90 euros
* Moncler Raised to Neutral at Goldman; PT 62 euros
* Ryanair Raised to Outperform at Bernstein; PT 16.80 euros
* Ryanair ADRs Raised to Outperform at Bernstein; PT $107
* TP ICAP Raised to Buy at Shore Capital

>>> Down
* Diploma Cut to Underweight at JPMorgan; PT 2,500 pence
* Ebro Foods Cut to Reduce at AlphaValue/Baader
* Mayr-Melnhof Cut to Hold at Erste Group; PT 168.50 euros
* Philip Morris Cut to Neutral at Goldman; PT $100
* Schoeller-Bleckmann Cut to Hold at Wiener Privatbank

>>> Initiation
* GFT Rated New Hold at Berenberg; PT 49 euros
* Mister Spex Rated New Buy at Quirin Privatbank AG; PT 17 euros
* Sesa Rated New Buy at Stifel; PT 222 euros
* Stillfront Rated New Sell at SEB Equities; PT 25 kronor
* Vitesco Rated New Buy at Citi; PT 72 euros
* Western Bulk Chartering Rated New Buy at Arctic Securities

>>> Call
* Lancashire’s Valuation a Buying Opportunity, Jefferies Initiates
* Sinch a Global Player Primed For Growth, New Buy at Berenberg

>>> US After Hours Summary: NKE +6% swooshes higher on strong earnings; HRT +16.

After Hours Summary: NKE +6% swooshes higher on strong earnings; HRT +16.1% also moving on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: HRT +16.1%, NKE +6%, MIGI +2.2% (updates its FY22 targets), TME +0.1%

Companies trading higher in after hours in reaction to news: HBP +12% (to merge with Woodgrain Inc. for $10.70/sh), ZETA +3.8% (to acquire ArcaMax), RKLB +3.6% (to launch three demonstration satellites for E-Space), YEXT +3.5% (authorizes new $100 mln share repurchase program), RAIL +3% (names new CFO), CRS +1.4% (to increase base prices by specialty alloy portfolio), PGRE +0.7% (rejects $12/sh acquisition proposal from Monarch Alternative Capital), SPGI +0.6% (to suspend commercial operations in Russia and withdraw all outstanding ratings), LPI +0.6% (files mixed securities shelf offering), LMT +0.4% (awarded $320 mln Air Force contract)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: DAVE -1% (co also announces FTX Ventures makes $100 mln investment)

Companies trading lower in after hours in reaction to news: ORIC -2.7% (to discontinue development of ORIC-101), CIVI -1.3% (stock offering), PLL -1% (stock offering), CUZ -0.7% (increases dividend), LAZR -0.1% (to acquire laser manufacturer Freedom Photonics; also announces 3 mln stock offering by selling shareholders related to deal)

>>> US Close Dow -0,58% S&P -0,04% Nasdaq -0,40% Russell -0,97% VIX 23,53 -1,42%

Closing Market Summary

The stock market began the week on a shaky note, causing the S&P 500 (-0.04%) to snap its four-day streak that lifted the benchmark index to a one-month high last week. The S&P 500 ended ahead of the Nasdaq (-0.4%) and Dow (-0.6%).

The S&P 500 flashed a modest gain in early trade that pushed the index above its 200-day moving average (4472), but that area served as resistance today while the 50-day moving average (4428) offered a measure of support to the benchmark index. The S&P returned into negative territory in the early afternoon after Fed Chairman Powell said that the FOMC could raise rates by more than 25 bps on one or multiple occasions this year.

Six sectors finished the day in negative territory with communication services (-0.7%) and consumer discretionary (-0.8%) showing the biggest losses while commodity-linked energy (+3.8%) and materials (+0.9%) outperformed throughout the day.

The communication services sector was pressured by losses in almost all components with Meta Platforms (FB 211.49, -5.00, -2.3%) pacing the weakness after a Russian court charged the company with extremism and banned access to Facebook and Instagram from Russia.

In the discretionary sector, Home Depot (HD 329.37, -11.37, -3.3%) pulled back after recording five consecutive gains while NIKE (NKE 130.19, -1.05, -0.8%) snapped a four-day streak ahead of tonight's release of quarterly results.

On the upside, the energy sector outperformed throughout the day thanks to strong support from crude oil, which climbed $7.18, or 7.0%, to $110.21/bbl amid continued speculation about an EU ban on Russian oil imports.

Steel names contributed to strength in the materials sector after Australia banned exports of aluminum to Russia. Nucor (NUE 142.75, +6.59, +4.8%) rallied to a fresh record while fertilizer stocks also outperformed notably with CF Industries (CF 101.31, +6.06, +6.4%) reaching a new record high.

In other corporate news, Boeing (BA 185.90, -6.93, -3.6%) fell to levels from Wednesday after a 737-800 jet manufactured by the company crashed in China, killing all 132 occupants.

Treasuries retreated throughout the day, sending the 10-yr yield higher by 17 bps to 2.32%, a level not seen since May 2019. The market will not receive any data tomorrow.

  • Dow Jones Industrial Average -4.9% YTD
  • S&P 500 -6.4% YTD
  • Russell 2000 -8.0% YTD
  • Nasdaq Composite -11.6% YTD

FT : UK nuclear energy: small reactors could power a generational shift

UK nuclear energy: small reactors could power a generational shift
Cutting build time is crucial and SMRs can at least offer economies of volume, if not scale

Given the bad press it has received for decades, the persistence of interest in nuclear energy seems astonishing. Nevertheless, the pressing need for secure, low carbon energy supplies underpins the UK prime minister’s “gung ho” enthusiasm. But nuclear power will only secure a revival if it can overcome its poor record on costs and delays.

Falling renewable costs have made the economics of nuclear power look uglier. Solar can be a fifth cheaper, says Bernstein. But that does not take account of its intermittent availability, which means using storage longer term. Factor that in and nuclear costs about the same as many renewable resources, says the International Energy Agency.

Hefty financing costs can pile up over an extended construction period, making nuclear power expensive. The government should aim both to cut the cost of capital and build plants more quickly.

Pushing the development costs on to investors in return for a guaranteed price of power is politically unpalatable. Intense criticism followed the inflation-linked £92.50 per megawatt hour promised to an EDF-led consortium for building England’s Hinkley Point C project. Long slammed as far too dear, criticism has faded with soaring wholesale electricity prices. They currently sit at £211/MWh.

Instead, the government favours a new model that requires consumers to contribute during the project’s construction phase. But it will be hard to pile more expense on to customers. Chancellor Rishi Sunak is under pressure to review the government’s opposition to the use of state borrowing.

Cutting the power plant’s build time is crucial. A new generation of mini reactors have the potential to more than halve the average construction time of 7.7 years. Called small modular reactors (SMRs), these have parts built in factories, cookie-cutter style and quickly assembled on site.

Rolls-Royce has secured £210mn of UK government backing to pursue its design, which uses existing technology in the form of pressurised water reactors. Other companies pursuing SMRs include France’s EDF and NuScale Power of the US.

Safety, regulatory and planning processes will — justifiably — take time. But SMR technologies could be transformative post-2030, says Jefferies.

Not for the first time has the nuclear industry promised — and later failed to deliver — cheap reactors. But SMRs can at least offer economies of volume, if not of scale. If Boris Johnson wants to place big nuclear energy bets, he had better think small.