A new year of opportunities – Christian Gattiker, Head of Research
‘Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.’ This Samuel Beckett quote captures the human condition in general but applies to investing in particular. Starting with a clean slate, the beauty of a new financial year is about capturing new opportunities.
At the same time, investors know it is all about committing fewer mistakes than the crowd. Some label investing as the ‘losers’ game’ for that matter. I like Beckett’s fighting spirit more than being drawn down by negativity. So ‘new opportunities’ it is – while staying humble about the prospects of being right all the way.
Turning to the start of the year, the echoes of the past are quite eerie: a ship reportedly stuck in the Suez Canal, rioters storming a parliament (this time in Brazil), and reopening woes (this time in China), recall some of the major disturbances of the new year start in previous years.
Experience tells us, though, that similar events are less disruptive to financial markets, as for most investors the ‘been there, done that’ feeling sets in. This, in turn, should allow investors to appreciate the fact that the US labour market is coming off its red, hot, and glowing highs.
At the same time, China seems to be going all in on supporting its economy and facilitating a return to normalcy as bumpy and jittery as it may seem. Taken together, there are many signs that the privileges of US financial assets, such as capital inflows and valuation premia, are being dismantled. However, beaten-down assets around the world may get a continued boost. Of course, we know that such repricings take time and tend to go in waves. Nevertheless, our Technical Analysis team cuts back on US stocks for the first time in more than seven years.
On energy – Norbert Rücker, Head of Economics & Next Generation Research
The dynamics of energy markets are overwhelming. European natural gas and electricity prices have more than halved from their peaks in early December. Weather conditions are unusually mild. Not only Europe, but also North America and most parts of Northern Asia are experiencing above-average temperatures, which mutes energy demand. Weather has been a surprise element, but is not the only factor at play pressuring prices. Since autumn last year, Europe has been able to fully compensate Russia’s curtailments with overseas imports of liquefied natural gas (LNG).
Earlier concerns about insufficient LNG availability proved overdone. While supplies indeed are somewhat constrained, some buyers shifted to other fuels for economic reasons, which allowed Europe to ramp up imports. Moreover, French nuclear power generation largely recovered after intense repair and maintenance work, which, combined with solid wind conditions, weighed on natural gas and coal-fired power generation.
In consequence, Europe’s natural gas storage remains full to its brim from a seasonal perspective. We do not see structural energy scarcity. Asia’s pivot to coal and nuclear, and the accelerated energy transition globally quenches the appetite for natural gas. China’s reopening coincides with record clean energy power plant additions. LNG availabilities increase on the margin, as terminals return from repair and few small projects enter service this year.
What does this mean for the energy situation?
The energy supply situation continues to ease and fears about next winter are overdone. The energy crisis could disappear as fast as it appeared because it roots are cyclical not structural. That said, with some nervousness prevailing, any cold spell or geopolitical escalation is likely to cause more wild price swings, albeit with decreasing intensity. Due to hedging activities and costly resilience measures, the deflation on markets spills over to the broader economy only with some delay.