š„ Carrots, Sticks, and Free Trade Talks
Incentives offered by the US Inflation Reduction Act (IRA) are the ācarrotsā executives think are too good to miss. At this weekās CERAWeek energy conference, Europeās policies were more frequently equated to āsticksā.
The IRAās subsidies are already directing new investments in American renewables ā the headlines of which are dominated by EV manufacturers moving critical pieces of their supply chain to the US.
The EU, South Korea, Japan, and other tech-heavy regions havenāt been quiet about their fears over the IRAās allure. A mass exodus of skilled labor, investments, and innovation is on the table.
As far as technology companies are concerned, these countries should take note and offer similar incentives to diversify supply chains. The complicated policies that regulate companies, i.e., the āsticksā, are a stark contrast to the simplicity created by the IRA.
This weekās announcement from Exxon harps on the Europe/stick narrative. The company plans to review its investments in Europe in response to the EUās āwindfall tax,ā enacted after surging energy prices floated oil and gas profits to record levels.
After this weekās EU-US visit between President Biden and European Commission President Ursula von der Leyen, Europe appears poised to get in on at least a fraction of the IRAās incentives by creating a āfree-tradeā-like status for EU-sourced battery minerals. Europeās raw battery minerals would be eligible for roughly half of every electric vehicleās $7,500 tax credit if fruitful.
š¦ Banking On Uninsured Deposits
Silicon Valley Bankās (SVBās) cataclysmic week is spilling concerns about uninsured deposits and rising interest rates over the banking industry. In SVBās case, interest rates are at the heart of the beginning and the end.
The Fedās interest rate hikes have stifled investing activity, leading to decreased deposits and more clients withdrawing their funds entirely. To buffer against these lost deposits, SVB attempted to sell its $21 billion bond portfolio dominated by U.S. Treasury bonds ā another investment vehicle taking a beating with high interest rates. The bank lost ~$1.8 billion on the sale, and clients pulled money out precipitously.
Rising interest rates arenāt isolated to the US, so banks worldwide are weary of downstream bank runs. Likewise, companies with considerable uninsured deposits are concerned the crisis will leave them without resources to cover payroll.
As of the end of 2022, 89% of SVBās $175 billion in deposits were uninsured, so companies are only guaranteed the FDICās max payout of $250,000 if the FDIC canāt find a deal to safeguard deposits.
Quick Shots:
š Sorry, Not Sorry: Canada Cuts Russian Metals
Canada banned Russian aluminum and steel product imports on Friday, coinciding with the start date of the USā new 200% tariff on Russian aluminum products. In 2021, Canada imported ~$32 million (C$45mm) and $154 million (C$213mm) of aluminum and steel from Russia, respectively. For context, Canada imported roughly 113,000 metric tons of steel from Russia in 2021, amounting to ~1.6% of the countryās total steel imports of 7 million metric tons.
š Embargoes Erode Dollar Strength
The US dollarās dominance in international trade is at odds with embargoes levied against Russia. In response to the EU/G7/US sanctions against seaborne deliveries of Russian crude and oil products, Russia and its customers see few reasons to transact with the long-standing dollar.
India is the perfect example. The country stepped in to fill the sizeable hole left in Russiaās pockets when Europe, its historically dominant importer, turned away. Now, India is sourcing Russian crude at favorable rates and paying for cargo in non-dollar currencies, including the Russian rouble and UAE dirham.
ā” EU Trims Consumption
On Friday, officials finalized a deal to trim the EUās energy consumption by 11.7% by 2030, short of the original target of 13% set by the European Commission in 2022. The legally binding policy places extra weight on energy efficiency, with officials at the meeting targeting old buildings as a primary culprit.