China to Remove Gas Price Curbs in Bid to Support Distributors

Economic

Energy

Summary:

Natural gas distributors in Chinese cities are expected to increase prices for households, following the government’s directive to share more of the costs of imported fuel.

Natural gas distributors in Chinese cities are likely to raise prices for households as the government moves to support the companies by insisting they pass on more of the costs of imported fuel.

The National Development and Reform Commission, the country’s top economic planner, opened discussions in recent months with local authorities and major gas distributors to request they remove fixed household price caps by September, according to people with knowledge of the matter.

Removing curbs will probably lead to higher costs for residential gas consumers, said the people, who requested anonymity to discuss private details. The changes will also impact industrial consumers, who’ve previous paid higher rates and will benefit as differing tariffs charged to households and businesses are abandoned in favor of market-based pricing, according to the people.

Distributors have typically had to supply to households at fixed rates in each city and pay market prices for the majority of their fuel, meaning profits were eroded as the cost of imported liquefied natural gas surged following Russia’s invasion of Ukraine.

The NDRC did not immediately respond to a request for comment.

China’s government began easing rules last year, allowing more frequent updates to fixed rates for industrial or residential consumers. That helped to support earnings last year for gas distributors including ENN Energy Holdings Ltd., Kunlun Energy Co. Ltd. and China Resources Gas.

Officials aim to now accelerate those reforms and distributors will need to report to local authorities both the costs paid to acquire gas from domestic suppliers or overseas, and their selling prices, according to the people.

Changes to pricing rules would make it more attractive for the firms to import additional LNG, as the low domestic fixed rates haven’t provided an incentive for companies to stock-up on supplies.

China’s LNG imports lagged behind a 2021 peak last year with the distributors reluctant to buy expensive spot cargoes. In some cases, supply was diverted from industrial gas users to ensure there was sufficient fuel for households during the coldest winter months.

The spread between spot LNG prices and China’s downstream domestic gas rates remains key to determining whether ENN makes additional purchases of prompt supply, Chief Executive Officer Zhang Yuying said at a briefing last month.

Growth in China’s overall gas demand is forecast to slow this year to about 6.1%, according to China National Petroleum Corp., the nation’s largest supplier of the fuel.

Source: Bloomberg

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Kevin Du

Cryptocurrency

The no. 2 cryptocurrency, which commands less than a fifth of the $2.7 trillion crypto market, has not done poorly. But ether is up just around 53% in the first three months of this year, compared with bitcoin's 65%.

Bitcoin scaled new peaks last month. Trading around $3,612 on Monday, ether is at least 26% below its Nov. 2021 all-time high of $4,867.60.

Even a recent technical upgrade of the Ethereum blockchain, which is used to build applications, barely made a splash beyond the circle of crypto enthusiasts, in contrast to the excitement ahead of bitcoin's "halving" next month, a technical change designed to slow the coin's supply.

In a typical case of markets selling the fact, ether dropped 12% after the underlying blockchain's Dencun upgrade on March 13 aimed at lowering transaction fees on its ecosystem.

"Ethereum is persistently dogged by its lack of name recognition among non-endemic investors," said Joseph Edwards, head of research at London crypto firm Enigma Securities.

"There's a lot more economic activity on it compared to 2020... but it reaching all-time highs will likely come fairly late."

Much depends on whether the U.S. Securities and Exchange Commission (SEC) approves spot ether ETFs. For, it was the approval and launch of several U.S. spot bitcoin ETFs that spurred institutional demand and drove it to record highs.

Ether ETFs too are waiting, with VanEck's filing first in line for a decision on May 23.

Standard Chartered Bank expects U.S. ether ETFs to be approved on May 23, propelling it to $8,000 by end-2024 and $14,000 by end-2025.

Commodity or security?

Not everyone is as optimistic about the U.S. regulator greenlighting a spot ether ETF.

Lawyers and industry sources have said ether's legal status is ambiguous and they expect regulators to move cautiously.

The SEC has said bitcoin is a commodity, but has not ruled on ether.

Unlike bitcoin, ether is traded on a so-called 'proof-of-stake' blockchain that allows users to earn yield in exchange for locking up tokens for a period of time.

And because ether is often 'staked', or deposited, it could be deemed a security, which will entail stricter rules around disclosure that fly in the face of cryptocurrency's ethos of bypassing the traditional gatekeepers of finance, such as banks and exchanges.

But that complicates the calculus for ETFs, as the yield on staked ether is often higher than that of just plain passive tokens.

"Getting the SEC on board to allow staked ether ETFs will be a very tough bargain and is, for now, extremely unlikely," said Anders Helset, head of research at digital assets analytics firm K33

Institutional demand for ether has been a fraction of that for rival bitcoin. Digital asset funds tracking ether have seen outflows of $46.4 million in the month to March 23, according to CoinShares data, versus inflows of over $4 billion for products tracking bitcoin.

Some market participants believe in focusing on ethereum technology, which forms the backbone of much of the internet's 'Web3' vision and powers applications involving crypto offshoots such as decentralised finance and blockchain gaming.

BlackRock unveiled its first tokenized fund on the ethereum blockchain last month, sparking conversation around the platform's use in broader tokenisation of real world assets.

So far over $2 billion worth of commodities and government securities, among other traditional assets, have been tokenized on several networks, of which 80% are on the ethereum blockchain, according to Swiss cryptocurrency manager 21Shares.

Source: Reuters

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Samantha Luan

Economic

Stocks

As General Electric completes its $191.9 billion breakup, bullish investors are betting it will defy the lackluster share price performance that has followed many corporate spinoffs over the last few decades.

Shares of GE were up nearly 37% this year as of Monday and stood near a seven-year high.

On Tuesday, the company's energy spinoff - whose businesses include wind turbine production and powering data centers - began trading under the name of GE Vernova. GE Aerospace, which makes engines for commercial and military aircraft, kept the GE ticker symbol. Investors who held GE as of March 19 received one share of GE Vernova for every four shares of GE they owned.

Shares in Vernova were up around 3.8% on Tuesday, while GE's shares were up 1.2%.

While spinoffs are typically designed to unlock value, many have been followed by unremarkable share price performance. A Bain & Co study of more than 350 spinoffs between 2000 and 2020 showed that spinoffs generated an average total investor return - defined as equity appreciation plus dividend yields - of 5.1% a year over the three years after the split. That compares to an average annual 8.7% total return for the S&P 500 during the same time frame.

"You don't get multiple expansion for free in this type of transaction, you have to earn it," said Jeff Haxer, a partner at Bain who led the study.

Spinoffs underperformed in the three-year timeframe for a broad range of reasons, including a loss of synergies that had helped the parent company control costs or maintain margins, Haxer said. The firm looked at spinoffs that created companies with a market value of more than $1 billion, including Baxter's spinoff of its Baxalta biopharma business and Kraft's spinoff of its snack business into Mondelez International.

Whether GE's latest spinoff will meet a similar fate remains to be seen. GE in 2021 said it would split into three companies focused on aerospace, healthcare and energy, part of CEO Larry Culp's plan to unlock value and make capital allocation more transparent to investors.

Its healthcare business, GE HealthCare Technologies, was spun off in January 2023 and has so far bucked the broader trend. The company's shares are up nearly 50% since it broke off, while the parent company's shares have risen almost 170%.

Investors Hope GE Spinoff Will Defy Poor Track Record of Breakups_1

Some investors are betting the company's latest spinoff will see similar success.

Jason Adams, portfolio manager of the T Rowe Price Global Industrials Fund, said GE's aviation business puts it in the top tier of global industrial companies.

GE Aerospace has been a cash cow for the Boston-based company, with some analysts estimating its market value at more than $100 billion after the spinoff.

At the same time, the new GE Vernova could see growth due to the increasing consumption needs of data centers that will power generative artificial intelligence, Adams said.

"Aerospace was a better known entity and its growth outlook better understood, but I think Vernova has been more recently discovered by the investment community and that's what has been behind the pop in (GE's) the stock this year," said Adams, who plans to be a shareholder in both companies.

Vernova last month said it expects to clear a massive backlog in offshore wind equipment over the next two years, signaling improved market conditions for the beleaguered sector, which has faced hefty writedowns as soaring inflation, interest rate hikes and supply chain issues increased project costs.

Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, said the remainder of GE is now a better pure play on aviation. He expects its multiples to improve from a current 22 times trailing earnings as investors get a clearer look at its earnings growth and balance sheet, separate from GE's power business.

"The aviation business is humming along on all cylinders," said Tentarelli, who owns GE and plans on holding onto his Vernova shares.

Whether the deal becomes a net positive for investors will likely hinge on the growth of the renewable business for GE Vernova, said Chris Snyder, an analyst at UBS. He has a buy rating on both companies, with a target price of $154 for GE and $37 for GE Vernova.

Of the analysts covering GE, 13 now have a buy or strong buy and 5 have a hold, according to LSEG.

"GE is taking share and has pricing power," Snyder said, while the rising demand for energy due to AI data centers is making him "increasingly positive on the prospects for GE Vernova."

Source: The Globe and Mail

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Cohen

Economic

The Harmonized Index of Consumer Prices (HICP), a measure of inflation for the Eurozone, will be released on Wednesday, April 3. The inflation data from the old continent will be closely scrutinized by the European Central Bank (ECB) against rising speculation that the bank could start its easing cycle as soon as at its June event.

A glimpse at recent European data saw consumer prices in the euro bloc climb at an annualized 2.9% in the year to December 2023, just to recede in the subsequent two months to 2.8% and 2.6%, a move that mirrored other G10 nations.

In her last comments on March 20, ECB’s President Christine Lagarde expressed difficulty in determining whether the current price pressures stem merely from delays in adjusting wages and services prices, combined with the cyclical fluctuations in productivity, or if they indicate persistent inflationary trends.

Lagarde added that, unlike previous phases of their policy cycle, there are indications that the anticipated disinflationary trajectory will persist. Should the data unveil a significant correlation between the underlying inflation trend and the ECB projections, Lagarde thinks the bank can transition into the phase of scaling back its policy measures.

What to expect in the next European inflation report?

As a result, economists anticipate that Core HICP inflation will rise by 3.0% on a yearly basis in March (from 3.1%), while the headline gauge is seen rising by 2.6% from a year earlier, matching the gain observed in the previous month.

Reinforcing the idea of persistent disinflationary pressures, the advanced Consumer Price Index (CPI) in Germany rose by 2.2% on a yearly basis in March, down from February’s 2.5% gain.

Eurozone Inflation Release: Lower Price Pressures Could Weigh On The Euro_1

According to the ECB Consumer Expectations Survey (CES), the median predictions for inflation in the next 12 months dropped from 3.3% to 3.1%. However, expectations for inflation three years ahead stayed steady at 2.5%.

When will the Harmonised Index of Consumer Prices report be released and how could it affect EUR/USD?

Eurozone preliminary HICP is due to be published at 09:00 GMT on Wednesday.

Heading into the highly-anticipated inflation release from Europe, the Euro (EUR) is struggling below the round milestone of 1.0800 against the US Dollar (USD), as investors continue to assess the likelihood of the start of the easing cycle by the Federal Reserve (Fed) in June.

According to Pablo Piovano, Senior Analyst at FXStreet, “Looking ahead, the EUR/USD is anticipated to encounter initial resistance at the key 200-day SMA at 1.0833. A move above this zone in a convincing fashion should restore the constructive bias and potentially allow for further gains in the short-term horizon.”

Pablo adds, “On the flip side, a reach of the so-far April low of 1.0724 (April 2) could trigger a deeper decline towards the 2024 low of 1.0694 (February 14).”

Source：FXStreet

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Owen Li

Economic

Energy

Consolidation in China's crowded solar power sector is pushing smaller players out of the market, but excess production capacity - with more on the way - threatens to keep global prices low for years.

China accounts for 80% of solar module production capacity after years of subsidies, driving oversupply that has triggered a collapse in global prices and provoked import duties from trading partners to stave off being swamped by low-cost equipment.

U.S. Treasury Secretary Janet Yellen, set to visit China this week, plans to warn Beijing of the harm done by subsidies for clean energy products including solar panels that she says are flooding global markets and pose a threat to U.S. firms, workers and the global economy.

Overcapacity in China's solar industry is emblematic of the challenges facing the world's second-biggest economy. High levels of state-guided industrial investment and low levels of household consumption mean many sectors produce more than the domestic market can absorb.

Oversupply pushed prices of finished solar panels in China down 42% in 2023, making Chinese panels more than 60% cheaper than U.S.-made equipment, with some module-only manufacturers taking orders at negative margins to preserve market share, said Wood Mackenzie analyst Huaiyan Sun.

At the end of 2023, China's annual production capacity for finished solar modules was 861 gigawatts (GW) equivalent according to China Photovoltaic Industry Association data, more than double global module installations of 390 GW.

China Solar Industry Faces Shakeout, But Rock-Bottom Prices to Persist_1

Production capacity is expected to increase by a further 500 or 600 GW this year, according to forecasts by Wood Mackenzie and Rystad Energy, as Chinese heavyweights including Longi , Jinko Solar and JA Solar continue to build new plants.

Sector expansion has been driven by local government policy support and comes after years of breakneck demand growth.

"China's estimated wafer, cell and module capacity that will come online in 2024 is sufficient to meet annual global demand now through to 2032," said Xuyang Dong, China energy policy analyst at Climate Energy Finance in Sydney.

Nearly half of China's solar panel exports in 2023 were to Europe, data compiled by energy think tank Ember showed, where multiple factories have announced plans to close due to the flood of imports.

Chinese solar panels have been subject to U.S. tariffs for more than a decade, with further duties recently imposed on several Chinese solar panel makers who finished their panels in Southeast Asia.

China Solar Industry Faces Shakeout, But Rock-Bottom Prices to Persist_2

'SURVIVAL OF THE FITTEST'

China's solar industry generated 2.5 trillion yuan ($346 billion) in investment, goods and services last year, according to a study by think tank Carbon Brief, making it the top contributor to the country's economic growth as investment poured in.

"Many non-solar companies in China have been enticed by massive sustained market growth opportunities in solar and favourable policy support," said Dong of Climate Energy Finance, who expects most plans by such players not to materialise.

Between June 2023 and February 2024, at least eight companies cancelled or suspended more than 59 GW of new production capacity, equivalent to 6.9% of China's total finished panel production capacity in 2023, according to the China Photovoltaic Industry Association.

Utilisation rates for finished solar panel production capacity tumbled to 23% in February 2024, down from more than 60% a year earlier, according to data from consultancy PV Infolink.

Marius Mordal Bakke, a solar supply chain analyst at Rystad, said the largest vertically integrated players will grow market share as smaller players are squeezed out.

The top four module manufacturers, Jinko Solar, Trina Solar , Longi and JA Solar, all have integrated cell and wafer supply chains.

Transition to more efficient N-type modules gives an advantage to higher tech manufacturers. N-type modules often incorporate additional chemical elements to silicon such as gallium to achieve better performance under high-temperature or low-light conditions.

Against this backdrop, consolidation is "good for the leading players, and also good for customers," said Dennis She, vice president of Longi, which recently said it will lay off about 5% of employees in April.

China Solar Industry Faces Shakeout, But Rock-Bottom Prices to Persist_3

Analysts cautioned consolidation was unlikely to significantly support prices in the short term, meaning the dumping concerns being raised by Yellen this week are likely to persist.

"As supply is still set to outpace demand in 2024 a sustained increase in component prices is unlikely to happen unless supported by policy changes", such as reforms to bidding for solar components that keep sales prices above input costs, said Rystad's Bakke.

China has yet to announce plans for any such changes. Overcapacity means that buyers still hold bargaining power, making it difficult for individual manufacturers to raise prices, said Wood Mackenzie's Sun.

"The overcapacity issue will not be easily solved in the short term as more capacity continues to come online," Sun said, describing the industry as facing "survival of the fittest".

Source: Reuters

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FOREX.com

Forex

GBP/USD seasonality by month:

As a refresher, GBP/USD has averaged a positive return of 0.85% in April according to data from the past 43-years. Its median return is even higher at 1.07%, which suggests a few negative, outlier returns have weighed the average down in April over the years. Furthermore, GBP/USD has a positive win rate of 66.7% in April, which is its highest win rate of the year.

Of course, we also need to factor in that traders are trying to price in multiple BOE cuts. And if economic data from the UK continues to deteriorate over the coming weeks, GBP/USD could be in for a bearish month (especially if US data remains strong). But there may be another factor at play that could at least support GBP/USD over a particular period of the month.

GBP/USD seasonality in April, by the day:

The chart above shows average returns in April for GBP/USD by the day. And it is interesting to note that it tends to perform quite well on the days between 8th – 19th April, most days of which have a positive win rate. Furthermore, that bullish period arrives near the beginning of the financial year which lands on April 6th. Whether there is some sort of repatriation trade occurring for some FTE companies or not, I really have no idea. But it does appear to be a pattern worth keeping in mind as we head into next week, as next Monday lands on April 8th.

The most bearish day of the month lands on April 20th, although as that arrives on Saturday this year then perhaps GBP/USD traders should be on guard for a selloff on Friday 19th April. The most bullish day of the month lands on April 28th with an average return of 0.22% and win rate of 84.6% - and this year it lands on a Friday.

A sidenote on seasonality data:

Seasonality data is certainly nice to know, but it is not a roadmap for the future. It is simply taking an average of past performances, which ignores the individual drivers for its performance over any period of time. And that means traders need to keep a close eye on current and developing themes as they can easily take precedence over seasonality. So it really should just be used as an additional tool alongside other forms of analysis to try and find higher probability events.

GBP/USD technical analysis:

Cable has fallen over 2.7% since its false break of the December high. It has found support around the February close low and formed a small bullish inside day, which suggests bears are either beginning to cover, bulls are entering or a combination of the two.

Like all FX majors, GBP/USD is likely at the mercy of today’s ISM services report and Friday’s nonfarm payroll data, where weak figures are required to weaken the US dollar, yields and bolster pairs such as GBP/USD.

But the closer GBP/USD traders towards the December low, the more I suspect a bounce could be due. If fact, what I would really like to see is a false break of the December low before the weekend, where bulls could then seek evidence of a bounce next week as it enters the seasonally bullish part of April (represented by the green box).

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Swissquote

Economic

Stocks

Mood was down in Asia today as the strongest earthquake in 25 years led to halted operations in TSM and United Microelectronics.

Elsewhere, major stock and bond markets in Europe and the US were painted in the red yesterday as well; rising oil and commodity prices fueled inflation expectations while further strength in the US economic data boosted worries that the Federal Reserve (Fed) may not cut the interest rates as much as wished this year. Yesterday’s data showed faster-than-expected recovery in factory orders, though job openings fell more than expected.

The market now prices less than three rate cuts from the Fed this year, below the three rate cuts plotted by the Fed members at last month’s FOMC meeting. And even though Fed’s Mary Daly and Loretta Mester said that three rate cuts look appropriate this year – God knows why – Mester added that ‘it’s a close call’ on whether fewer rate cuts will be needed. She was certainly referring to robust economic data and up-ticking inflation!

The US 2-year yield extended to 4.73% yesterday, the 10-year yield spiked to 4.40%, the S&P 500 tipped a toe below the 5200 level but managed to close above this psychological mark. Nasdaq closed near 1% lower and volatility rose. The US dollar index however retreated despite the positive pressure on yields.

Today, investors have their eyes set on the ISM non-manufacturing index and the latest ADP data. The US economy is expected to have added nearly 150K new private jobs in March. Friday’s jobs data should split hairs between those anticipating three rate cuts and those banking on just two. A strong set of jobs figures – that would add more spice to strong US growth and picking inflation – should further soften the Fed doves’ hand, weigh on equity and bond valuations and keep the US dollar sustained against most majors, starting with the euro.

The EURUSD rebounded before hitting 1.0740 yesterday as the US dollar fell sharply despite supportive economic data. But the data released in Europe confirmed that inflation in Germany cooled for a third straight month and today’s aggregate Eurozone inflation is expected to show further easing. The headline inflation is expected to ease from 2.6% to 2.5% and core inflation from 3.1% to 3%.

Unlike the strong US growth and rising US inflation since the start of the year, the persistent slowdown in European inflation and gloomy Eurozone economies justify a European Central Bank (ECB) rate cut and should continue to weigh on the EURUSD. Across the Channel, Cable saw support near 1.2550 on a broadly softer US dollar, but the data fueled the Bank of England (BoE) rate cut hopes: inflation in British stores dropped to the lowest level in more than two years.

Overall, the US is isolated on an island with a surprisingly strong economic data and rising inflation. But the dollar inflation could easily spill over to the rest of the world if the US dollar gained strength backed by a significant retreat in dovish Fed expectations.

FTSE 100 in a good place to catch up with the rest of Western indices

The FTSE 100 benefited from rising oil & commodity prices and softer sterling to extend gains past the 8000p psychological mark. The FTSE 100 will likely see more tailwinds if oil and commodity prices pick up momentum and the British blue-chip index could be a good hedge against rising inflation worries.

Across the Atlantic, the moodiness in US stocks since the quarter started is mostly due to a retreat in Fed expectations because of strong data, but note that strong economy per se is not a reason to be sad about. This is why the S&P 500 could temper the significant retreat in Fed cut expectations since the start of the year. If the US earnings continue to satisfy, the US stock markets may avoid a significant meltdown.

Oops

Tesla released the first quarter deliveries report yesterday and the numbers were hard to swallow. Analysts were expecting around 6% drop in deliveries last quarter compared to a year earlier, but the deliveries fell 8.5%. Inventories rose and the inventory build-up will be another major headwind to the cashflow. As such, Tesla closed the session almost 5% lower and will hardly reverse losses when the 50% annual sales growth narrative continues to fade away. Tesla’s PE ratio is still around 63 giving it a large room for extending losses.

Elsewhere, Rivian built and sold more EVs than expected but shares plunged more than 5% on overall gloomy outlook for the EV sector.

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