Aurelia Butler

Weakening competition between petrol station owners has pushed up prices for consumers, the UK’s competition watchdog has warned. Traditional cost-cutters such as Asda have been trying to boost margins, contributing to higher prices across the sector, according to the Competition and Markets Authority. The regulator says average supermarket fuel margins have climbed 6 pence a litre between 2019 and 2022, amounting to an extra £900mn in costs for customers of the top-four supermarket fuel retailers. The CMA is calling for the government to create a scheme that would give motorists access to real-time pump prices for ease of comparison and to monitor prices across the market.  More

“Looks like Mastodon’s active user base has increased by 110K (110,000) over the last day. Not bad,” Eugen Rochko, creator and chief executive of Mastodon, wrote on the platform late on Sunday.”I would prefer it if Elon Musk was destroying his site during the work week. This isn’t the first time,” another post from Rochko read.On Saturday, Twitter boss Elon Musk announced new limits on the number of posts accounts can read in a day. Previously, he had expressed displeasure with artificial intelligence firms like OpenAI, the owner of ChatGPT, for using Twitter’s data to train their large language models.Musk took over Twitter in October 2022. Since then, his erratic management style has prompted some users and advertisers to turn away from the site.Mastodon has similar features to Twitter but rather than being controlled by one company, it is installed on thousands of computer servers, largely run by volunteer administrators who join their systems together in a federation. (This story has been corrected to say Mastodon, not Mastadon, in the headline and paragraphs 1, 2) More

1. Tesla deliveries trounce expectationsTesla (NASDAQ:TSLA) announced that deliveries in the second quarter jumped to a record 466,140, in a sign that a decision by the electric carmaker’s boss Elon Musk to slash vehicle prices may be boosting demand.The figure — which is seen by shareholders as the closest proxy for sales that Tesla makes available — was 83% higher than the same period last year. It also beat Bloomberg consensus expectations for shipments of 448,350.Earlier this year, the company unveiled discounts to help lift volumes, with Musk arguing that hefty price tags have dissuaded a “vast number” of potential buyers from purchasing a Tesla car.Austin, Texas-based Tesla is also pursuing new technology that it hopes will make its cars more affordable and help fend off increased competition in the market for clean energy-friendly automobiles.The stock zoomed higher by more than 6% in premarket trading on Monday.2. Futures mixed as second half of 2023 beginsU.S. stock futures were muted on Monday ahead of a shortened trading week, with investors looking ahead to the second half of a year that has already been marked by strong gains on Wall Street.At 05:11 ET (09:11 GMT), the Dow futures contract dipped by 36 points or 0.10%, S&P 500 futures inched up 2 points or 0.06%, and Nasdaq 100 futures added 42 points or 0.27%.The main indices all posted increases in the opening six months of 2023. The standout performer was the Nasdaq Composite, which soared to its best first half since 1983 thanks in part to a surge in excitement over developments in artificial intelligence.The S&P 500 and Dow Jones Industrial Average also climbed during the period.U.S. stock markets are set to shutter early at 13:00 ET on Monday for the Independence Day holiday. They will also be closed tomorrow.3. Apple scaling back Vision Pro production targets – FTApple (NASDAQ:AAPL) is cutting its output goals for its mixed reality Vision Pro headset, according to the Financial Times, citing multiple people with knowledge of the situation.The product’s complexity has already forced the tech giant to lower its production targets and push back plans for a more affordable version of the device, the paper said.Apple declined to comment to the FT, while Luxshare (SZ:002475) — the Chinese firm contracted to assemble the Vision Pro — did not respond to a request for comment.The Vision Pro was first unveiled on June 5 to great fanfare, with some observers arguing that the device has the potential to become as key to the company’s success as its megapopular iPhone. Apple’s valuation has since topped $3 trillion.But questions remain over how its hefty $3,500 price tag will impact demand. Apple has also said the Vision Pro will not be available for sale until early next year, a delay that some analysts have chalked up to supply chain issues.4. Major decision over Microsoft-Activision megamerger loomsThe fate of Microsoft’s (NASDAQ:MSFT) planned $75 billion deal to acquire “Call of Duty” maker Activision Blizzard (NASDAQ:ATVI) could be decided this week if a San Francisco court delivers an expected ruling on a Federal Trade Commission request to temporarily block the tie-up.The FTC is seeking a preliminary injunction that will prevent Microsoft from completing the merger until its own in-house administrative court can make a judgment on the agreement.Microsoft’s lawyers and the FTC both presented their final arguments to a judge in a closely-watched hearing last week. The regulator has argued that the merger would hurt competition in the gaming market, a claim that Microsoft has refuted.According to legal experts cited by multiple news sources, the judge’s ruling, which could come as soon as Monday, may decide the future of the deal.5. Oil choppy amid interest rate concerns, supply forecastsOil prices were volatile on Monday as traders eyed the possibility for more Federal Reserve interest rate hikes and the outlook for supply.According to analysts cited by Reuters, further increases in borrowing costs by the Fed, which is keen to bring inflation back down to its 2% target, could weigh on global economic activity and hit oil demand. The dollar may also be strengthened, which would in turn make commodities more expensive to buy for holders of other currencies.However, other analysts have argued that supplies will likely tighten later this year following a promise by key exporter Saudi Arabia to slash output in July.By 05:12 ET, U.S. crude futures traded 1.46% higher at $71.67 a barrel, while the Brent contract climbed by 1.52% to $76.56 per barrel. More

Brad Setser’s paper on how China has stashed away almost $3tn worth of unofficial currency reserves in local commercial banks and other parastatal entities has naturally generated a lot of attention. After all, these “shadow reserves” are larger than the formal reserves of Japan, the world’s second-largest reserve holder according to IMF data. It’s almost three times larger than the assets of Norway’s sovereign wealth fund.In a recent note, Eurizon SLJ’s Stephen Jen and Joana Freire also observed that Chinese companies have been hoarding dollars lately: increasing their greenback deposits from $758bn at the end of 2019 to $912bn at the moment. But they also reckon this undercounts the accumulation, given the balance of payments over that period. They put China’s overall dollar accumulation at $2tn, and estimate that Chinese corporate dollar deposits are now actually closer to $1.78tn (of which about half is held in accounts with Chinese banks). “Fresh snow continues to build up, raising the risks of an avalanche one day,” they warn.Chinese corporates continue to hoard dollars. The total stock of dollars held by Chinese entities continues to rise. The dollar’s high carry may at present seem enticing to Chinese entities, but this configuration is fundamentally unstable. Prospective rate cuts by the Fed and/or an economic reacceleration in China could lead to a precipitous fall in USDCNY, as corporate treasurers in China scramble to sell the dollars they don’t need to have. We believe this is a major risk for H2 2023.Jen and Freire see three potential triggers for this “too large to be stable” dollar overhang to become an avalanche. Trigger 1. The Fed turning dovish later this year. We believe the Fed remains behind the inflation curve. Core CPI should soon decline with headline CPI, since there is no obvious reason why that should not be the case. The chart on the left below shows headline CPI and core CPI since 1958. Eye-balling this chart, one would struggle to conclude that, at any point during this period, core inflation in the US led headline inflation. The chart on the right below shows the 5-year rolling correlation of headline and core CPI.

Apols for the low res . . .  © Eurizon SLJ

One could see that, whenever US inflation rose due to a shock (in the late-1960 due to strong demand growth arising from tax cuts, in the early-1970s due to the Saudi embargo of crude oil, and in the late-1970s due to the Iranian Revolution), the correlation between these two variables was close to 1, both when inflation surged as well as when inflation normalised. It is, in particular, unclear how big a role such large and sharp interest rate hikes have played in pushing up interest costs of mortgages in the US, and subsequently rents. Housing costs are estimated to account for 61 percent of core CPI’s yoy inflation. Could US core inflation appear sticky ironically because of the Fed’s rate hikes, in turn raising the mortgage interest rates? We believe the Fed is likely to be wrong in being concerned about stickiness in core inflation, just as they were wrong in being concerned about persistent disinflation in 2020-2021. Trigger 2. A recovery in confidence in China. China currently suffers from an acute case of a lack of confidence resulting primarily from the domestic policy shocks since the summer of 2021. Notwithstanding the declarations made by the new Premier Li Qiang on the primacy of economic growth and development, households, businesses, and investors in China remain unsure whether the Xi Administration has pivoted left politically to embrace Maoist ideology of hard-core communism that would, from now on, favour SOEs (state-owned enterprises) at the expense of POEs (privately-owned enterprises) and to strictly constrain the property sector to only play the role of a ‘commodity’ for the populace to use and consume rather than an investment. Since properties accounts for 80 percent of household wealth – a draconian change in the nature and the dynamics of the property market permitted by the Xi Administration would significantly undermine the ability and the willingness of Chinese households to spend, with logical implications for the economy at large and investors’ outlook. On June 16th, the State Council, however, announced that stimulus measures would be deployed to ensure that China reaches its growth target of 5.0 percent for the year. A prospective restoration of general confidence in China would be positive for Chinese equities, Chinese bond yields, and the Chinese RMB. At the same time, a better economic prospect should also entice Chinese producers and exporters to engage in capital expenditures funded out of the hoarded dollar deposits. A large overhang of dollars could then trigger a sharp sell-off in USDCNY, we believe. Trigger 3. A normalisation of US/global services demand. During the Pandemic, the US and the world’s demand for goods surged while demand for services waned because of the lockdowns. However, relative demand for services and goods switched after the re-opening of the economies. This is particularly clear in the US, where relative demand for services is now materially stronger than that for goods. Services inflation, commensurately, has surged relative to goods inflation. This helps explain why services-centric economies like the US, Italy, and Greece are out-performing the goods-intensive economies like China and Germany. This is a good explanation of some of the dichotomies we are seeing in the global economy, but it is not something that will persist, in our view: if one feels the urgent need to go to Disney World because they hadn’t been there in three years, it is unlikely they will visit Disney three years in a row to ‘make up for the lost time’. More likely is a normalistion in demand for goods and services back to the pre-Pandemic norm, permitting Triggers 1 and 2.  More