Commodities & Energy Sector
The European Commission risks retarding the development of long-term contracting for renewable energy just as momentum is building. Policy uncertainty will continue to dog firms and households in the EU, if the Commission's attempts to lower energy costs for consumers at the expense of renewable-energy producers by extending “windfall profits taxes” and mandated lower costs succeed. Such measures will lower producers’ revenues, which will translate into lower renewables investment.
Slowing growth would be bad for equities, but so would stronger growth since it would mean more rate hikes.
In Section I, we note that the global growth outlook has modestly deteriorated over the past month, despite an improving 12-month outlook for Chinese domestic demand in response to the imminent end of the nation’s “dynamic zero-COVID” policy. Investors should remain conservatively positioned over the coming year, as we recommended in our Annual Outlook report. In Section II, we examine whether the structural risks facing global stocks are higher or lower today than they were prior to the global financial crisis, and what that implies for stock and bond risk premia.
Energy and metal supplies are becoming increasingly scarce. In such a market, we will re-establish our long commodity exposure via the COMT ETF after being stopped out with a -4% return this week. We remain long equity exposure to oil and gas producers, and metals miners via the XOP and XME ETFs, respectively. Our energy recommendations closed this year posted an average 18.4% gain.
Both the US and China have structural imbalances that need correcting. The former has a structurally imbalanced labour market in which demand far outstrips supply. The latter has a massively overvalued housing market. The concurrent correction of these two structural imbalances in the world’s two largest economies will necessitate a sharp slowdown in global growth, and leads to several investment conclusions.
Our recommendations for podcasts (on macro and markets, as well as non-work-related topics) to try over the holidays.
We explore the eight major themes that will define economic and market trends for Europe next year.