Economics

The European Central Bank is now making the economic case for decarbonisation. Not as climate policy. As monetary policy. Frank Elderson, ECB board member, argues in the Financial Times that Europe's dependence on imported fossil fuels is a structural threat to price stability (👉 https://lnkd.in/eKWWjKbh). The data is damning: energy price shocks pushed euro area inflation to 10.6% in October 2022. Every geopolitical tremor in the Middle East shows up in European energy bills. And the ECB is caught in an impossible bind: tighten to fight inflation and deepen the slowdown, ease to support growth and entrench inflation. The solution is not better forecasting models or finetuned monetary policy. It is cheaper energy. Spain shows what is possible. Wholesale electricity prices in early 2024 were approximately 40% lower than they would have been had wind and solar generation remained at 2019 levels ( 👉 https://lnkd.in/edXgxh9q). Once the infrastructure is built, the energy itself is virtually free. Volatile global commodity markets simply become less relevant. Elderson is explicit: €660 billion per year in clean energy investment sounds large. But Europe already spends nearly €400 billion annually on fossil fuel imports, money that leaves the continent and buys geopolitical vulnerability. Analysis in the UK shows that for every pound invested in sustainable energy, benefits outweigh costs by a factor of 2.2 to 4.1 ( 👉 https://lnkd.in/emEXVfiw). This is precisely what I argued in my piece for Triodos a few weeks ago: Europe's crisis response has been backwards. We keep treating energy dependence as a shock to manage rather than a structural problem to fix. (👉https://lnkd.in/ehFqA6iY) The ECB cannot decarbonise Europe. What it can do is name the conditions: keep the ETS, mobilise capital toward renewable capacity, strip out fossil fuel subsidies, and stop confusing cheap fossil fuels with affordable energy. If people need help with energy costs, target it: don't suppress the price signal that drives the transition. The cheapest energy is the energy we no longer have to import.

Wars don’t just destroy nations. They expose how fragile our systems really are. Over the past few years, every global disruption, from conflicts to pandemics to supply shocks, has shown us one thing clearly: We have built a world that is highly efficient… but dangerously dependent. - Food travels thousands of kilometres before it reaches our plates. - Energy systems rely on distant, unstable sources. - Waste is exported, outsourced, and forgotten. And the moment something breaks somewhere in the world, everyone, everywhere, feels it. Maybe the question isn’t: How do we make global systems stronger? Maybe the question is: Why are we so dependent on them in the first place? And what if our cities, towns and villages could: • Grow more of their own food • Generate more of their own energy • Manage their own waste • Create and consume locally This isn’t about isolation. It’s about resilience. Because when systems are decentralised: • Communities recover faster • Livelihoods are created locally • Environmental impact reduces • And people regain a sense of ownership This is where sustainability meets survival. Decentralised production systems are not just a climate solution. They are a risk mitigation strategy for an uncertain world. The future isn’t global vs local. It’s global and local. In fact, its hyperlocal. But the balance has clearly tipped too far. If there’s one lesson from the world we’re witnessing today, it’s this: The strongest communities are the least dependent ones. Time to build local. Time to act resilient. Time to rethink how we produce, consume, and live. What do you think? #Decentralisation #Sustainability #Resilience #ClimateAction #LocalEconomies #CircularEconomy

The latest reporting from the Financial Times highlights a point that energy analysts have been making for years: geopolitical shocks consistently strengthen the case for renewables, electrification and storage. Microsoft’s global vice-president for energy notes that oil and gas price spikes linked to the Middle East conflict reinforce the value of wind, solar and batteries in providing price stability. Once installed, renewables offer predictable cost profiles and reduce exposure to volatile global fuel markets. We saw this dynamic after Russia’s invasion of Ukraine. Europe accelerated solar deployment, heat pump uptake increased in several countries, and governments revisited questions of energy security through the lens of diversification and electrification. The underlying issue remains unchanged. Fossil fuels must continuously flow through complex global supply chains. When those flows are disrupted, prices spike and economies are exposed. Renewables, by contrast, are capital intensive upfront but deliver long term domestic supply and insulation from commodity shocks. There are short term risks. Inflation, higher interest rates and supply chain constraints can slow clean energy investment. Some governments may also respond by doubling down on gas infrastructure. The policy challenge is to avoid locking in further structural vulnerability. Energy security and climate policy are not competing objectives. In a world of recurrent geopolitical instability, they are increasingly aligned.

🆕 Following extensive consultations with our stakeholders, the European Commission has proposed a Steel Regulation that should help restore balance to the EU #steel market. WHY❓Global overcapacity, driven by non-market policies, is threatening the long-term competitiveness of European steel. In just a decade, the EU's steel trade balance has deteriorated dramatically: from a 11 million tonne surplus to a 10 million tonne deficit. Meanwhile, other economies are rapidly expanding their steel sectors. This is no longer just one country issue. WHAT❗️A new import regime, replacing the current safeguard that expires on 30 June 2026, will: ✔️ Cut the tariff-free import quota by 47%, from 33 million tonnes to 18.3 million tonnes. ✔️ Introduce a prohibitive 50% out-of-quota tariff. ✔️ Imports from all third countries - except our EEA partners - will be covered. ✔️ While importers must disclose where the steel was melted and poured. 🔜 These measures are WTO-compatible, clearly allowed under existing rules. Unlike others, the EU continues to be largely open and will transparently engage with partners under GATT Article XXVIII, offering compensation. We're committed to rules-based trade but must defend our interests. 👉 https://lnkd.in/ecmuXZSD 👉 https://lnkd.in/egGRdXpx EU Trade

President Trump's announcement that steel and aluminum tariffs will rise to 50% this week is terrible news for U.S. manufacturing. The reason is simple: steel mills and primary aluminum plants employ a fraction of the people that are employed in downstream industries that use steel and aluminum. One chart below created from the 2022 Economic Census (https://lnkd.in/gmSA3E8F) - you can't access higher frequency data for aluminum employment from the Current Employment Statistics survey. Thoughts: •The left two columns are payrolls at steel mills (NAICS 33111) and primary aluminum (NAICS 331313). Together, these industries employ somewhere between 80-90k people. •The three rightmost columns show payrolls in downstream industries: fabricated metals (NAICS 332), machinery (NAICS 333), and transportation equipment (NACS 336). Those three industries alone account for over 4 million workers employed. •Why do I say this is negative news? Simple: domestic producers will raise their prices of steel and aluminum, which will increase the cost structures of downstream users. We have ample evidence from numerous economics papers that upstream protectionary tariffs reduce total manufacturing jobs by impacting downstream employment. Two examples: Cox (2025): https://lnkd.in/d6CeCaqA Barattieri & Cacciatore (2023): https://lnkd.in/gWgxQjtY Implication: raising steel and aluminum tariffs to 50% is, simply put, horrible economic policy. Domestic producers will raise their prices for these metals, which will inflate cost structures for tens of thousands of plants than employ over 4 million workers (compared with just 80-90k in the protected industries that make steel and primary aluminum). This makes exports of goods containing steel and aluminum less competitive and may be the final straw that encourages EU retaliation. Remember: Canada is our largest source for imported steel and especially aluminum, so arguing this is for national security just doesn't make sense. #supplychain #shipsandshipping #economics #markets #manufacturing #freight

I’ve been headhunting in the CPG industry for the past decade, and I’ve never seen a post-inflation market like we’re in right now. For the past three years, customers have been capitulating to price hikes by extending their budgets. But now, they’re at a breaking point. American families, already tethering on edges of their budgets, do not have the ability or the desire to expand their budget in order to accommodate increased prices. I’m sure you’d agree with this, because my family certainly does. With grocery bills through the roof, we’d rather skip on groceries and essentials rather than paying a premium right now. A couple things led us here, starting the pandemic and the post-pandemic impact on spending and savings. Secondly, the wave of AI and tech developments that caught us off guard. So, where do the companies go now? Once the “price increase” playbook is done, CPG brands can only win in both value and volume by shifting gears. In my chats with executives, I’m sensing a change in tone. To stay competitive, they’re looking for ways to shift from the post-pandemic survival mindset to a growth-focused one that accommodates the customer as well. Rather than hiking prices, the focus is now on bringing down costs, and getting to terms with consumer’s limited budgets and increasing product choices. Layoffs aren’t the only way to bring down costs. In my view, CPG companies do have the leeway to embrace data-driven innovation and efficiency to cut costs. Here are some of the ways in which companies can use AI and ML to achieve targets in 2025 and beyond: 1/ Predicting the demand: Post-pandemic behavior is tough to predict, especially in CPG markets. With AI, the companies can now leverage real-time insights from sources like point-of-sale systems, social media, and even economic indicators to see future trends more clearly. PepsiCo, uses Tastewise to track what consumers are eating across 60+ million touchpoints and making decisions that align with local preference. 2/ Inventory management: With AI-powered predictive analytics, companies are now turning inventory management into a science. Procter & Gamble’s Supply Chain 3.0 initiative is one example of this shift. 3/ Increased personalization: Leaders are tapping into geographical intelligence to connect meaningfully with audiences. Estée Lauder has a voice-enabled makeup assistant for visually impaired customers, reaching a new market while boosting brand loyalty. Bottom line is: customers are no longer meeting brands where they’re at. It’s high time that companies start caring about customers and their shrinking bottom lines. Are you excited to see your grocery bill go down in the next few months? #CPG #AI #ML #fmcg #marketing #trending

Here is a strategy I will deploy in my Macro Hedge Fund. Macro hedge funds should deliver uncorrelated returns to stock and bond markets by finding dislocations all around the world and across asset classes. So here is a potential macro dislocation we are tracking. All countries in the world have followed the Fed hiking cycle in lockstep. But not all economies can handle ''higher for longer'' equally well. Or in other words: high rates for long might actually ''break something'' in some of these more vulnerable economies. So - how do we rank countries and spot macro trade opportunities following this narrative? We developed a Vulnerability Score for each country (x-axis of the chart below: right = more vulnerable). It's based on: 1️⃣ Long-term growth potential We analyze future trends in demographics and productivity to gauge which countries have the highest/lowest growth potential to handle higher interest rates 2️⃣ Private debt vulnerabilities We look at the level and rate of change of private sector debt: have households and corporates levered up over the last 10 years and to which level? High levels of private debt + high interest rate produce a strong cocktail of vulnerabilities. We also look at the share of floating rate loans and mortgages as higher interest rates pass through more quickly in that case. And finally focus on the refinancing cliffs: how early must the private sector refinance at high rates? 3️⃣ Fiscal trends The US has the exorbitant privilege of issuing the world's reserve currency, and therefore deficits and bond supply are more easily absorbed. You can't say the same about other countries. 👉 The final result is the Vulnerability Score, which is the x-axis of the chart. If we want to find out which countries are the most exposed to ''something breaking'', we need to look into that red box. These countries are not only vulnerable, but the tightening cycle (y-axis) has been very intense as well. That's a dangerous cocktail. Canada, Sweden, New Zealand, EU, and UK qualify as the most vulnerable countries out there. And GDP growth in these countries is already flirting with 0%. It doesn't surprise me. What surprises me is the markets' obsession with ''when will something break in the US?''. The US is not the most vulnerable country to higher interest rates: slow refinancing cliffs, a lot of long-dated fixed mortgages, private sector not ultra leveraged compared to 2007. It's going to take longer for higher rates to hit the US economy this time. But other economies are already feeling the pain. What economies are the most vulnerable in your opinion? P.S. Enjoyed this macro analysis? Follow me (Alfonso Peccatiello) so you don't miss any post & stay updated on the launch of my Macro Hedge Fund! P.P.S. FREE TRIAL to my Institutional Macro Research? Join the biggest institutional investors in the world reading it every day - send me a DM and I'll set you up!

The European Commission has introduced a new carbon tax on imported goods called the Carbon Border Adjustment Mechanism (CBAM). This is meant to make sure that European companies and companies from other parts of the world are on the same page when it comes to carbon pricing and environmental commitments. Here are the main changes: 🔴 Emissions Reporting: Starting in October this year, companies have to start keeping track of how much carbon is linked to the goods they import. They need to start reporting this data by January 2024. This reporting will continue until the end of 2025. 🔴 Carbon Leakage Prevention: CBAM is a way to prevent companies from moving their production to places with weaker environmental rules to avoid carbon costs. It makes sure that European products and products made outside of Europe have similar carbon costs. 🔴 CBAM Certificates: Importers have to get CBAM certificates to match the carbon pricing between EU and non-EU products. They need to provide details about the product's carbon footprint, where it's from, how it's made, and its emissions data. This includes emissions during production and indirect emissions, like electricity use. 🔴 Covered Sectors: CBAM applies to industries with high carbon emissions like iron and steel, cement, fertilisers, aluminium, electricity, hydrogen, and some downstream products like screws and bolts. It also covers certain indirect emissions under certain conditions. Importers mainly need to report emissions during the transition phase until 2026. To help importers and producers outside of the EU adapt, the EU Commission is providing guidelines and tools to calculate emissions. They're also offering training materials and webinars. Some important data points to consider: 🟢 Carbon Leakage: A study by the European Environmental Bureau warns that unchecked carbon leakage could cause a 15% increase in global emissions, undermining climate efforts. CBAM aims to prevent this. 🟢 Emissions Differences: The World Trade Organization says that different countries have different emissions rules, leading to different carbon costs. CBAM aims to make this fairer. 🟢 Economic Impact: The European Commission estimates that the global carbon allowance market could be worth €4.5 billion per year by 2030. CBAM will significantly affect international trade and revenues. 🟢 Industry Shift: A study by the European Parliament Research Service shows that without CBAM, high-emission industries might move to places with weaker rules, leading to job losses and less competitiveness in the EU. 🟢 Green Transition: The International Monetary Fund says that well-designed carbon pricing like CBAM can encourage industries to become more environmentally friendly, contributing to a greener global economy. 🟢 Regulatory Challenges: CBAM's reporting requirements might be tough for importers initially. However, the long-term benefits of fair carbon pricing are expected to outweigh the challenges.

Amid rising tariffs and shifting geopolitics, the foundations of the rules-based global economy are being redefined. With the US policy shifts, the uncertainty is real. In fact, I just got back from New York, where I met with a number of CEOs – and for the first time, all of them said the same three words: “I don’t know.” It’s clear we’re not going back to “business as usual”. That’s why we felt it was crucial to bring our clients together today to hear from Deputy Prime Minister and Minister for Trade and Industry Gan Kim Yong at a closed-door conversation. He’s just been appointed Chairman of the new Singapore Economic Resilience Taskforce, and his perspectives were insightful, as he also listened to the concerns and questions our clients brought to the table. Looking ahead, I believe we’re in for more short-term volatility and uncertainty. My advice to clients: lock in good rates, manage your FX exposure, and address any supply chain constraints. Longer term, we need to think about the new world order more strategically. There are four key areas businesses need to focus on: • Supply Chain – Diversify sources and build in resilience • Logistics – Plan for the possibility of longer routes and ensure continuity • Financial and Payments – Prepare for alternatives beyond USD • Technology – Be ready for dual tech ecosystems and interoperability costs The silver lining is that we are in Singapore. While Asia does bear the brunt of tariffs, it is also home to 18 of the 20 fastest-growing trade corridors. Also, even though we have had slowdowns in our neighbourhood, we are still surrounded by big economies – China, India and Indonesia. Over the years, we’ve walked alongside our clients through many turning points, and we’ll keep showing up, especially when things get tough. Whether it’s navigating treasury decisions, managing volatility, or adapting supply chains. Storms may come, but like Singapore, we’ll stay steady – anchored, open, and here for the long haul.

Picture of the Week: European power prices are now lower than pre-Ukrainian times! The significant reduction in #European wholesale power prices in 2024 compared to 2021, especially in countries like #Spain and #Portugal, can be attributed to several key factors: 1. Expansion of Renewable Energy: Spain and Portugal have made substantial investments in #renewable energy, particularly #solar and #wind power. Since the onset of the Ukrainian crisis, these two countries have added nearly 20 GW of solar and wind capacity, which now represents about 15% of their total installed electricity capacity. This massive build-out of renewables has played a crucial role in reducing reliance on fossil fuels and lowering electricity prices. As a result, Spain has seen a dramatic increase in the share of #electricity generated from #renewables, rising from 51% in 2021 to 65% in 2024. This shift has significantly contributed to reducing wholesale power prices by half compared to 2021 levels. 2. Diversification Away from Russian Gas: The European Union, along with individual countries, has made concerted efforts to reduce dependence on #Russian #naturalgas, which was a major factor driving high energy prices during the 2022/2023 period. These efforts included securing alternative gas supplies, increasing LNG imports, and enhancing gas storage capacities. The shift away from Russian gas, coupled with a mild winter and lower overall demand for gas, has eased pressure on gas prices, which in turn has lowered electricity prices across much of Europe. 3. Energy Efficiency Measures: Governments across Europe have implemented #energyefficiency programs aimed at reducing overall energy consumption. These measures, along with public campaigns promoting energy savings, have contributed to reducing electricity demand, helping to stabilize or lower prices. 4. Government and Industry Cooperation: There has been close cooperation between governments and energy companies to stabilize the energy market.