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David Fuller and Eoin Treacy's Comment of the Day
Category - Global Middle Class

    Sunak Delays UK's Petrol Car Ban as Part of Green U-Turn

    This article from Bloomberg may be of interest. Here is a section:  

    Sunak said in a speech on Wednesday in London that he would push back by five years to 2035 a plan to bar the sale of new petrol and diesel cars, casting the decision as an effort to protect families struggling with bills. The vast majority of vehicles sold in the UK would likely be electric by 2030 without government intervention, he said.

    “At least for now it should be you, the consumer, who makes that choice, not the government forcing you to do it,” Sunak said in Downing Street. 

    While Sunak insisted he was still committed to reaching net zero by 2050 and not watering down any targets, he said the UK must act in a “more proportionate way.” He affirmed his belief that climate change was “real and happening,” but said that the debate over the issue had been “charged with far too much emotion and not enough clarity.” 

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    US-China War Would Be Economic Disaster for Both

    Thanks to a subscriber for this article by Niall Ferguson. Here is a section:

    It is impossible to say how far the Chinese would prepare for a full-scale war with the US in the scenario of a blockade. It’s estimated by Western experts that that it would need a minimum of four months to be ready for prime time. The dilemma for Chinese strategists is that, if there is to be a war with the US, they would be better off striking the first blow, probably by attacking American naval assets in the Indo-Pacific, exploiting the classic vulnerability of ships in port.

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    Bunds Slide as Traders Mull Higher-for-Longer

    This note may be of interest. Here is a section:

    As evidence of economic stagnation increases the market is turning its attention to “how long the ECB will be able to keep rates steady,” said Mauro Valle, head of fixed income at Generali Investments. “It cannot be ruled out that the reversal of the monetary cycle may occur sooner than expected.”

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    Email of the day on Mexico

    “The following is the text of a message from a businessman from Monterrey Mexico I met recently in Austria. His business (offshoring) is based in Mexico generating USDs.

    “He is obviously pessimistic and believes there will be a new President next year.

    “Thank you for your valuable service.

    “Nice to have met you.  Following up on our conversation around the strong Mexican peso I mentioned that I think it is 4 things that are impacting, and some might not be sustainable, mind you I am not an economist or politician, just a small businessman."

    ​-

    “The artificially high official interest rates the Mexican central bank is paying, around 11 or 12 percent which is generating purely short-term financial investments from foreigners that can leave as fast as they came. 

    “At the same time Mexican companies cost of capital is extremely high as they mostly take loans in pesos The surprisingly high level of “remesas” which is the money that Mexican workers in the US send back home to Mexio, have grown from $20 billion us dollar annually to over $60 billion, story goes most of the BBC increase is related to the drug trade.

    “Nearshoring which is direct investment by American, European (or Chinese companies trying to avoid getting caught in the middle of a trade war) and being close to US markets due to supply chain mgmt., which could be really sustainable.

    Finally, the fiscal “discipline” of our government is more due to their lack of the most basic investments in schools, education, hospitals, medicine, highways, ports, infrastructure, and energy.  Once new govt takes over and realizes the major hole there, they will have to start the debt race again and the peso will probably lose value.

    I believe only the third point could be sustainable in the mid-term. 

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    Mexico Bonds Slump as AMLO's Spending Plan Spooks Traders

    This article may be of interest to subscribers. Here is a section:

    The government presented a draft 2024 budget late on Friday that boosts support for state oil giant Petroleos Mexicanos and social programs to consolidate Lopez Obrador’s legacy before the presidential election next June. Officials also proposed an $18 billion dollar-debt ceiling in the 2024 budget, triple the $5.5 billion set for this year.  

    The increased spending will result in a fiscal deficit equivalent to 4.9% of gross domestic product — the largest since 1988. It’s a reversal of the president’s penny-pinching ways, which had won him favor with investors in past years as other countries boosted spending to cope with the fallout from the coronavirus pandemic. 

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    Inditex's Momentum Makes It Sector Outperformer

    This note from the Dow Jones may be of interest.

    Inditex has entered the second quarter with momentum and strong execution, and that should have continued throughout the quarter, making it comfortably the most consistent outperformer of the sector over this period, analysts at UBS say in a note. The Spanish fashion retailer's business model inspires confidence, and there is further upside in the shares to be expected, according to the analysts. In this context, the second quarter should again show that the company stands out among peers, the analysts say. Its differentiated sourcing model and focus on full-price sales should ensure stable gross margins, they add.

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