FT Lex : Ukraine/Russian gas: Germany will have to go cold turkey

Ukraine/Russian gas: Germany will have to go cold turkey
Vladimir Putin has the whip hand as Berlin has few other energy choices

Business magazine Wirtschaftswoche encapsulated the problem with a recent cover: Vladimir Putin controls Germany the way a dealer controls a junkie. Natural gas is the drug of choice.

The shrewdness of Putin’s strategy is clear now Russian tanks are rolling. Effective sanctions would ban Russian energy exports, or payments for them via the international banking system. But that severe blow to Russia’s resource-dependent economy would badly hurt Germans. The energy policy errors of their leaders are woefully apparent.

Chancellor Olaf Scholz has only halted a second pipeline, Nord Stream 2, now that Russia is invading eastern Ukraine. This would have doubled the capacity of imports to 110bn cubic metres.

The first Nord Stream pipeline system already supplies two-thirds of Germany’s imported energy. Half Germany’s 40m households keep warm using natural gas, 97 per cent of it from overseas.

Scholz’s predecessors Gerhard Schröder, a friend of Putin who is now a Gazprom board nominee, and Angela Merkel steered Germany towards its addiction. The renewables endorsed by Merkel provided 44 per cent of the country’s energy generation in the first half of 2021, according to official data. But she also ordered the closure of nuclear plants.

Fossil fuels produce the bulk of Russia’s foreign income. Last year, Russia’s natural gas exports brought in $55.5bn — mostly from Europe. That was the highest since 2013. European natural gas prices have quintupled over the last year. Tellingly, the futures curve has now flattened, says consultancy Rystad Energy. Fears of Russian supply disruption have forestalled the typical spring and summer price slide.

Annexing the whole of Ukraine would strengthen Russia’s grip on Western Europe’s energy supply. Ukraine would no longer be a transit country able to cut off exports via its ageing pipeline system.

In the short term Putin has the whip hand. Autocrats can contemplate hardship for their compatriots more cheerfully than democratic politicians. The west is unlikely to impose a full export ban on gas. Germany has few other energy choices. Conventional sources, such as coal and nuclear, are politically unpalatable with the Green Party, a member of Scholz’s coalition government.

Longer-term, Germany must build up alternative gas supplies. It should finally heed US warnings and mothball Nord Stream 2 permanently. It should invest in terminals to import liquefied natural gas. It has none operating and only one under construction.

The easier, cheaper choice would be to open Nord Stream 2 after the renewed Russian invasion has faded into recent history. Politicians would bill this as “the normalisation of relations”. Pretending suppliers are friends is one hallmark of the addict.

FT Lex : Ukraine/Russian gas: Germany will have to go cold turkey

Ukraine/Russian gas: Germany will have to go cold turkey
Vladimir Putin has the whip hand as Berlin has few other energy choices

Business magazine Wirtschaftswoche encapsulated the problem with a recent cover: Vladimir Putin controls Germany the way a dealer controls a junkie. Natural gas is the drug of choice.

The shrewdness of Putin’s strategy is clear now Russian tanks are rolling. Effective sanctions would ban Russian energy exports, or payments for them via the international banking system. But that severe blow to Russia’s resource-dependent economy would badly hurt Germans. The energy policy errors of their leaders are woefully apparent.

Chancellor Olaf Scholz has only halted a second pipeline, Nord Stream 2, now that Russia is invading eastern Ukraine. This would have doubled the capacity of imports to 110bn cubic metres.

The first Nord Stream pipeline system already supplies two-thirds of Germany’s imported energy. Half Germany’s 40m households keep warm using natural gas, 97 per cent of it from overseas.

Scholz’s predecessors Gerhard Schröder, a friend of Putin who is now a Gazprom board nominee, and Angela Merkel steered Germany towards its addiction. The renewables endorsed by Merkel provided 44 per cent of the country’s energy generation in the first half of 2021, according to official data. But she also ordered the closure of nuclear plants.

Fossil fuels produce the bulk of Russia’s foreign income. Last year, Russia’s natural gas exports brought in $55.5bn — mostly from Europe. That was the highest since 2013. European natural gas prices have quintupled over the last year. Tellingly, the futures curve has now flattened, says consultancy Rystad Energy. Fears of Russian supply disruption have forestalled the typical spring and summer price slide.

Annexing the whole of Ukraine would strengthen Russia’s grip on Western Europe’s energy supply. Ukraine would no longer be a transit country able to cut off exports via its ageing pipeline system.

In the short term Putin has the whip hand. Autocrats can contemplate hardship for their compatriots more cheerfully than democratic politicians. The west is unlikely to impose a full export ban on gas. Germany has few other energy choices. Conventional sources, such as coal and nuclear, are politically unpalatable with the Green Party, a member of Scholz’s coalition government.

Longer-term, Germany must build up alternative gas supplies. It should finally heed US warnings and mothball Nord Stream 2 permanently. It should invest in terminals to import liquefied natural gas. It has none operating and only one under construction.

The easier, cheaper choice would be to open Nord Stream 2 after the renewed Russian invasion has faded into recent history. Politicians would bill this as “the normalisation of relations”. Pretending suppliers are friends is one hallmark of the addict.

>>> US Gapping down

Gapping down
In reaction to earnings/guidance:

  • TPX -8.3%, UIS -4.5%, HLX -4%, ETRN -2.4%, CFX -0.9%, HD -0.3%

Other news:

  • FIXX -32.1% (provides update on pheNIX gene therapy trial of HMI-102 in adults with PKU; trial placed on clinical hold)
  • KPTI -24.6% (announces departure of Jatin Shah, M.D., as Chief Medical Officer)
  • RSX -12.8% (tensions escalate in Russia/Ukraine)
  • ADGI -8.1% (announced a Chief Executive Officer succession plan; outlines strategic initiatives for ADG20 program)
  • VWE -3.9% (announces voluntary delisting from TSX, effective at the close on March 7)
  • VIVO -2.2% (appoints Andy Kitzmiller as CFO)
  • RNG -2% (RingCentral and Zoom (ZM) settle litigation)
  • ZM -1.4% (RingCentral and Zoom (ZM) settle litigation)
  • CARR -1.1% (updates its medium term outlook)

Analyst comments:

  • CRNC -5.4% (downgraded to Neutral from Buy at Goldman)
  • DKNG -5.1% (downgraded to Equal Weight from Overweight at Wells Fargo)
  • GT -2.9% (downgraded to Hold from Buy at Williams Trading)
  • CE -1.9% (downgraded to Underweight from Neutral at Piper Sandler)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance:

  • DDS +11.9%, VAL +8.8%, NEX +8.6%, M +6.6%, TRU +5.9%, ICLR +3.6%, SNN +3.3%, ESPR +2.9%, WMB +2.4%, DNUT +1.9%, APA +1.8%, HL +1.6%, CNP +1.5%, LPX +1.3%

Select oil/gas related names showing strength:

  • MRO +4.9%, OIH +3.5%, USO +2.9%, SLB +2.6%, HAL +2.6%, XLE +2%, XOM +1.9%, PSX +1.4%

Other news:

  • DWAC +19.6% (Former President Trump's Truth Social application is now available)
  • OCGN +17.3% (FDA lifts clinical hold on submission of IND application for COVAXIN)
  • HMHC +15% (to be acquired by Veritas Capital for $21.00 per share in cash)
  • TGNA +7.5% (confirms it will be acquired by Standard General for $24/share in cash)
  • LTRY +5% (signed an agreement with T-Mobile to become the exclusive digital lottery brand for in-vehicle advertising)
  • AZN +3.5% (reports ENHERTU (fam-trastuzumab deruxtecan-nxki) significantly improved both progression-free and overall survival in DESTINY-Breast04 Trial in Patients with HER2-Low Metastatic Breast Cancer)
  • PRVB +1.5% (resubmits BLA for Teplizumab to Address Complete Response Letter)
  • TCMD +0.9% (announces dismissal of qui tam lawsuit filed by competitor)

Analyst comments:

  • CHX +2.3% (upgraded to Neutral from Sell at Goldman)
  • PRVA +1% (upgraded to Outperform from Market Perform at Cowen)

FT : Silicon Valley has learnt little from Elizabeth Holmes

Silicon Valley has learnt little from Elizabeth Holmes
Making big claims remains the starting point for new companies

The world would like to remember the conviction of Theranos founder Elizabeth Holmes as a cautionary tale of Silicon Valley hubris. The collapse of her blood-testing company was hailed as both the end of tech’s “fake it till you make it” culture and of the dubious cultural phenomenon of the girlboss. But here in the San Francisco Bay Area there is no interest in learning lessons from the debacle.

While Holmes awaits sentencing and her business partner waits for his own trial, venture capital money continues to flow into wild start-up ideas. No broader reckoning has been linked to her story. In the weeks since her January conviction, I have had more conversations about the trial with people in London than San Francisco. This is despite the fact that Holmes lives nearby and remains one of the most high-profile female founders the US tech sector has ever produced.

Instead of seeing the case as a spur to toughen up due diligence, the tech sector is choosing to dismiss it as an outlier. Just as imploded co-working company WeWork was described by west coast tech workers as a New York company, Theranos’s non-tech investors tend to be invoked when talking about its failure. The implication is that real tech investors would have been able to spot the lies. The truth is more complicated. Silicon Valley was involved, albeit at an early stage. Although late investors included Walgreens and Rupert Murdoch, one of Theranos’s earliest backers was notable VC firm Draper Fisher Jurvetson. (And, of course, Holmes went to Stanford.)

Still, it is true that the rest of the world’s interest in Holmes was never limited to health tech. Her youth and confidence made her an appealing avatar of female ambition. The blonde hair, black polo necks and deep voice were instantly recognisable. Her image is still being analysed. Both the Wall Street Journal and New York Times wrote about the clothes Holmes wore to court, despite her wardrobe being mostly limited to bland dark skirts and jackets. When a few women showed up to the courthouse dressed as Holmes, they were quickly interviewed by outlets grateful for the spectacle.

This is why Theranos and the court case against Holmes has triggered a weird, ironic line of merchandise. Online you can buy T-shirts with Holmes’s face printed on, declaring her “My #girlboss”.

“Girlboss” was coined in 2014 by Sophia Amoruso, founder of the ecommerce company Nasty Gal. The term was once a popular way to describe an entrepreneurial form of feminism that simultaneously paraded as activism. Leigh Stein, who satirised female founder culture in her novel Self Care, described the girlboss as not just a mindset but an aesthetic too. It was the Instagram-pretty side of millennial hustle culture. Holmes did not spend enough time talking about female empowerment to fit the girlboss mould perfectly. But she was white, American and fond of inspirational platitudes. In 2015 she told Glamour magazine, “I am living proof that it’s true that if you can imagine it, you can achieve it.”

Yet her conviction for defrauding investors cannot be held responsible for killing off the idea of the girlboss. Stories of mismanagement at other female-led companies had already put an end to the notion that millennial female founders create more ethically minded companies. It turns out that being young and female does not automatically translate to better workplace cultures.

Amoruso’s company was sued by an employee who claimed they were sacked when they became pregnant. The company then filed for bankruptcy. Audrey Gelman, once held up as a girlboss exemplar and known for both her friendship with actress Lena Dunham and creating female members’ club The Wing, resigned following complaints over the company’s treatment of black workers.

Last year, the New York Times wrote that female founders live in the shadow of Holmes’s failure. But in tech, they were already sidelined. Of the US start-ups that received venture capital funding last year, 6.5 per cent had an all-female founder team, according to data from PitchBook. The number with at least one female founder is about 25 per cent. Funding volumes have jumped overall, but the proportion of companies with women in charge has not.

Nor has there been a noticeable increase in caution. Not only have unprofitable tech companies continued to gain funding, some start-ups with little or no revenue have managed to list on markets. Making big claims remains the starting point for new companies. High-risk tolerance is still needed by early-stage investors. For the sector to power on, it seems Holmes must be regarded as the exception.

WSJ : Chinese Banks in Two Key Cities Cut Mortgage Rates to Boost Housing Sector

Chinese Banks in Two Key Cities Cut Mortgage Rates to Boost Housing Sector
Cuts in Shanghai and Guangzhou, though modest, follow similar steps by dozens of smaller cities as home prices and sales weaken

HONG KONG—Two of China’s largest and most prosperous cities have cut interest rates for prospective home buyers, joining an effort to prop up a housing sector whose weakness could threaten the broader economy.

Six of China’s largest state-owned banks, including Bank of China and Industrial and Commercial Bank of China, cut mortgage rates for home buyers in the southern city of Guangzhou by 0.2 percentage point Monday, according to state-run broadcaster China Central Television.

After the cut, mortgage rates for first-time and second-time home buyers in Guangzhou will be 5.4% and 5.6% respectively. The rates are based on China’s five-year loan prime rate, which remained unchanged at 4.6% in February, following a cut of 0.05 percentage point in January.

In Shanghai, banks have trimmed the rate for first-time home buyers to 4.95% from 5%, Economic Information Daily, a newspaper backed by China’s official Xinhua News Agency, reported Tuesday.

The twin cuts, though modest, underscore Chinese policy makers’ concerns about the real-estate market since a crackdown on property-developer leverage last year pushed many into default and cooled sentiment among potential home buyers, many of whom had come to see rising home prices as a sure thing.

In recent weeks, a number of local governments have rolled out measures to fight the real-estate slowdown. Some offered subsidies to young home buyers while others sought to halt an erosion in home prices by banning steep discounts.

By some measures, real estate and adjacent industries account for about one quarter of China’s overall economic activity.

Last week, banks in Heze, a city in China’s eastern Shandong province with an urban population of about 1.3 million people, lowered the minimum down payment for first-time buyers to 20% of the home price from 30%, according to the state-owned Securities Times newspaper. More than 40 cities in China have announced measures to prop up the housing market so far this year, the report added.

All told, the average mortgage-interest rates in 103 major Chinese cities were 0.09 percentage point lower in February than January, at 5.47% for a first home and 5.75% for a second, according to the consulting firm Beike Real Estate Research Institute. Of the 103 cities, 87 reported that rates in February were down from the month before, compared with 59 in January.

The housing market is showing tentative signs of improvement after several months of weakening.

Average new-home prices in 70 major Chinese cities inched up 0.1% in January from the previous month, compared with December’s 0.2% month-on-month decline, the National Bureau of Statistics reported Monday. The January increase was the first since September.

Government spokespeople in Guangzhou, Shanghai and Heze didn’t immediately respond to requests for comment.

Despite the January price uptick and the increasing efforts by authorities and lenders to prop up the market, some economists say it is too soon to say that the worst is over for China’s housing market.

Prices continued to fall in January in smaller, poorer cities, suggesting “strong downward pressure” there, Goldman Sachs economists told clients in a note published Monday. According to Goldman’s calculations, new-home prices in January were down from a month earlier by 1% in so-called third-tier cities and 3.6% in fourth-tier cities, following drops of 1.6% and 2.7%, respectively, in December.

Property-transaction volume across 30 cities during the week of Feb. 7—the first week after the Lunar New Year holiday—was also weaker than in the comparable period in 2021, Goldman found.

“Given transactions remain sluggish, the overall market sentiment hasn’t reached a turning point yet,” said Zhaopeng Xing, an economist with ANZ.

Weak housing demand has also shown up in loan data. New household medium- and long-term loans, mostly home mortgages, were down more than 20% in January from a year earlier, to 742.4 billion yuan ($117 billion), even as total new loans soared to a new high.

Mr. Xing from ANZ called Monday’s 0.2 percentage-point cut in Guangzhou mortgage lending rates too small to reignite market enthusiasm, though he expects more cities to cut mortgage rates and down-payment requirements.

Beijing has declared stability its top economic priority for the year. In December, the Communist Party’s top decision-making body, the Politburo, said it would support the housing market to better meet “reasonable demand” from home buyers, though it has reaffirmed its mantra targeting speculative market activity.

WSJ ; Germany Halts Nord Stream 2 After Putin Orders Troops to Ukrainian Breakaw

Germany Halts Nord Stream 2 After Putin Orders Troops to Ukrainian Breakaway Regions
Ukraine’s president considers cutting diplomatic relations with Russia

Germany halted the Russian-German Nord Stream 2 gas pipeline after President Vladimir Putin ordered troops into breakaway Ukraine regions, German Chancellor Olaf Scholz said Tuesday.

Meanwhile, Ukrainian President Volodymyr Zelensky said he is considering severing diplomatic relations with Russia in response to Mr. Putin’s decision, as reports grew of Russian troops moving into the area.

“Ukraine must react to this, defending its sovereignty and statehood.” Mr. Zelensky said at a Tuesday press conference with the Estonian president, at which he called on the West to immediately punish Russia with sanctions. He said he would decide on his foreign ministry’s proposal to cut ties with Moscow later Tuesday.

Columns of Russian military vehicles poured into Donetsk overnight, hours after Mr. Putin made a speech questioning Ukraine’s legitimacy and recognizing the two statelets that Russia established in the Donbas in 2014, according to witnesses and footage posted on social media. A senior White House official said the administration had received information that Russian troops had deployed into the Donetsk and Luhansk regions “for so-called peacekeeping functions,” adding that U.S. officials are still assessing the situation.

The local authorities, however, haven’t made any announcements on this alleged deployment. Eduard Basurin, a senior official of the so-called Donetsk people’s republic, was quoted by Moscow’s RIA news agency as saying he wasn’t aware of any arrival of Russian troops.

In an earlier TV address to Ukrainians, Mr. Zelensky said the Russian move simply legalized the eight-year Russian occupation of the area and showed that Moscow wasn’t interested in peace.

Russia has fomented the separatist movement in eastern Ukraine’s Luhansk and Donetsk regions after pro-Russian President Viktor Yanukovych was ousted following street protests in 2014. It has since covertly deployed a sizable military force in Donetsk and Luhansk, with the two enclaves possessing more battle tanks than the U.K. or France. Monday’s recognition allows Russia to openly send units and weapons to the area, where shelling has intensified since last week.

The U.S. has warned that Russia plans an all-out occupation of Ukraine after deploying some 190,000 troops along the country’s borders, and this week evacuated its remaining diplomats from the western city of Lviv. The White House on Monday said President Biden “strongly condemned” Mr. Putin’s decision and planned to issue sanctions. Mr. Biden issued an executive order prohibiting “new investment, trade and financing by U.S. persons’’ in the breakaway areas.

Mr. Zelensky projected calm on Tuesday, and said there was no need to suspend democratic freedoms or proclaim a national state of emergency.

“We believe that there will be no mass war against Ukraine, and no broad escalation by the Russian Federation,” he said. “But if there will be, we will declare martial law.”

Mr. Putin’s spokesman, Dmitry Peskov, said Moscow is recognizing the Donetsk and Luhansk statelets within their self-proclaimed borders, which include the two thirds of the regions that are currently controlled by Kyiv. The Luhansk statelet has already demanded that Kyiv “voluntarily” vacate areas within the republic’s “historical territory.”

Asked about the demand, Mr. Zelensky said he doesn’t recognize these statelets and doesn’t communicate with them.

In these Ukrainian-controlled areas of Donbas, residents were bracing for a renewed offensive.

In the city of Dnipro, 60 or so miles west of the Donetsk line of contact, Interpipe, a manufacturer of steel pipes and wheels for rail lines, has been fielding calls from concerned international customers in Europe and the U.S.

“Clients are asking us what’s happening in Ukraine,” said Denis Morozov, the head of Interpipe’s pipe division. “‘Do you have the ability to fulfill our orders?’”

Mr. Morozov said that production continues in three Interpipe facilities in the Dnipro region, employing 11,000 workers. Interpipe took in $1.1 billion in revenue last year.

“We plan to fulfill orders on time,” Mr. Morozov said. “You have to be stable, keep calm.”

“Yesterday’s developments don’t impact our plans,” said Tomas Fiala, the chief executive of Dragon Capital, Ukraine’s largest investment bank.

Dragon hasn’t evacuated its employees, Mr. Fiala said, including more than 200 at its Kyiv headquarters and others working on commercial real-estate projects at offices in the eastern Ukrainian cities of Kharkiv and Zaporizhya,

“Our plans could be impacted if Russia further invaded Ukraine,” Mr. Fiala said. “The toughest sanctions have to be put in place no matter if it costs a couple percent of GDP.”

Mikhail Karablin, 67 years old, who was born in Russia and moved to the Ukrainian town of Konstyantynivka more than 40 years ago, said he dreads the idea of his adopted town falling under the sway of separatist authorities.

“They’re a plague, they came to this land with guns and turned Donetsk into a wasteland,” he said, waiting for his wife outside one of the town’s few banks.

“Who knows how many people are being tortured in basements there,” he said. “I just pray they all stay on that side of the front line.”

Anna Mikhailova said she remembers 2014 as a nightmare when fighting raged around the city and armed personnel carriers drove through the streets. “I can’t go through it again,” she said. “What will we do? Find some way to survive.”