Economy

NUSA DUA, Indonesia (Reuters) – Electric vehicles (EVs) shuttled G20 delegations and security forces across the southern tip of Bali this week in a symbolic show of Indonesia’s ambitious energy transition plans. But virtually none of the cars on display, led by Hyundai’s retro-boxy Ioniq 5, would qualify for a new U.S. $7,500 tax credit for North American-built EVs – a sore spot for some leaders and ministers at the just-concluded G20 leaders summit.Some U.S. allies, notably from Europe and South Korea, used the gathering to make their displeasure known to President Joe Biden and his Treasury Secretary, Janet Yellen, over the restriction of the tax credit for EV purchases to those assembled in North America only. The move angered foreign governments and foreign-owned carmakers who say the change will disqualify a majority of their EV fleets from North American markets. Previously all electric vehicles were eligible for the credit. Biden’s Inflation Reduction Act (IRA), which grants the tax credits, also aims to cement U.S. firms such as Tesla (NASDAQ:TSLA) and General Motors (NYSE:GM) as industry leaders and prevent the use of China-derived battery components and critical minerals. French Finance Minister Bruno Le Maire has said the revamped tax credits in the IRA are a “major shock” to the European industry and brought the issue up at a meeting with Yellen on the G20 summit sidelines. Le Maire told reporters he hoped some solution to the problem could be defined, at least for European manufacturers, in time for French President Emmanuel Macron’s planned U.S. state visit to the White House in early December. “I think that we can fully understand the determination of the American government to defend their economic interest and promote greener technologies,” Le Maire said. “But it should not have negative side effects on their European allies and the European economy.”European industry is already suffering from high energy prices caused by Russia’s war in Ukraine and from weakening demand, and a U.S. EV subsidy that excludes European products will heap further pain on Europe’s automakers, he said. “We don’t want, at the end of the war in Ukraine, to have Europe being weakened,” Le Maire added.South Korean President Yoon Suk-yeol also spoke to Biden about the issue during a bilateral meeting at the G20 summit, according to Yoon’s office. Yoon asked Biden to prevent discriminatory measures against South Korean companies, his office said, adding that Biden had said the implementation of the law should account for the contribution of South Korean investment in the U.S. economy.The White House acknowledged the two leaders discussed the IRA without providing details in a briefing after the meeting.Jose Munoz, chief operating officer of Hyundai Motor, told a Reuters automotive conference last month that the North American-only rule would be an “astronomical” blow to Hyundai. EXPLAINING BENEFITSYellen acknowledged there were questions over how the law will be interpreted and said the administration was happy to hear more about the concerns raised by France and others. “We stand ready within the limit of the law that Congress has passed, to work with them to address concerns to the extent we possibly can and also to explain ways in which the law will benefit them,” Yellen told reporters.The Treasury is working to define the rules for some $278 billion worth of tax credits on EVs, solar and wind power investments and a range of other technologies. Foreign-owned automakers and governments are seeking delays, grace periods and exemptions from the tax credit rules as they are developed, particularly for North American mineral content requirements for EV batteries. While a number of countries have said the U.S. tax credits likely violate World Trade Organization rules, none have sought to file a formal challenge. U.S. and EU officials last month announced a task force to discuss the issue. WTO Director-General Ngozi Okonjo-Iweala told Reuters at the G20 summit that it would be far better to resolve the issue without bringing it to the WTO. “Some members have said they have difficulties with this. The EU, Korea has said so,” Okonjo-Iweala said in an interview. “They are having bilateral talks, and we strongly encourage that. We think that one way to resolve disputes is to stop them from coming to WTO, to talk to each other and try to iron things out,” Okonjo-Iweala said. More

The largest trade union federation in the country, COSATU, and other federations representing the majority of the more than 1 million public sector workers told a news conference on Thursday that they would continue to protest until the government improves its 3% salary increase offer.Wage negotiations between unions and the government collapsed in early October, with the government subsequently saying it would unilaterally implement the 3% increase outlined in October’s mid-term budget.The Treasury has been trying to rein in spending on civil servants’ compensation, which makes up around a third of consolidated spending. “This is the beginning and it will go on until we declare an indefinite strike. Whether it happens now or early next year will depend on how government responds on November 22,” December Mavuso, deputy general secretary of the National Education, Health and Allied Workers’ Union, told reporters.If the marches mushroom into a full-blown public sector strike it would be the first major one since 2010, potentially disrupting critical government services in places like hospitals and border posts. The Public Servants Association (PSA), a union representing 245,000 civil servants, earlier this month held a separate march over the wage issue in Pretoria, handing over a list of demands. Union officials said on Thursday that the government had not yet responded to the PSA’s demands. More

For decades now, environmentalists and free-traders have been circling each other warily in mutual suspicion. Dating back to the time green campaigners helped to collapse the legendarily disastrous 1999 World Trade Organization conference in Seattle, each tends to regard the other as, respectively, planet-destroying neoliberals or Luddite protectionist ignoramuses. This long-term dysfunctional relationship means missing a big opportunity — a strong trade dimension is notably absent from the COP27 climate conference, wrapping up in Sharm el-Sheikh this week. There has been an increase in defensive environmental measures in trade, levelling the international playing field to protect businesses from imports produced to lower standards. But given the vast improvements in green technology, from renewables to electric cars, the drive to reduce carbon emissions needs a stronger element of open trade and the transfer of technology.In recent years, addressing the environment has mainly meant bolting increasingly complex additional chapters on to the traditional preferential trade deals, or PTAs, that set conditions for better market access. Quite often, environmental issues stop trade deals getting done at all. The prospects of an EU agreement with Indonesia have been dimmed for years by the European parliament in effect blocking imports of palm oil because of worries over deforestation — a concern now being extended to restrictions on a whole range of different products.In the vein of not giving environmental villains competitive advantage, the EU’s other big contribution to the trade-and-environment debate is the proposed carbon border adjustment mechanism to prevent the “carbon leakage” of emissions-intensive industries moving abroad.Some of this may be fine as far as it goes, though sceptics are right that green provisions can get misused for protectionist ends. Certainly research shows green conditionality has reduced exports from countries to the EU under PTAs, though whether that actually benefits the environment or not is debatable.

But equalising environmental standards doesn’t by itself produce and disseminate the technology that makes a prosperous low-carbon future possible. In fact, the growth of new sectors frequently kicks off fresh trade wars, as producers try to establish a dominant position in markets with first-mover advantage and economies of scale.The installation of solar panels in the world’s big economies has been retarded and complicated by a series of trade disputes going back a decade, European and US producers complaining about competition from China. There have been similar rows over trade in e-bikes and windpower equipment.To be fair, in the years since the solar trade wars started, the danger of being dependent on China for hard-to-replace technology has clearly increased. Beijing has become increasingly willing to use economic coercion, though its early run-outs against advanced economies (Australia and Lithuania) haven’t been entirely successful. It makes sense for economies, middle-income as well as advanced, to diversify their supply networks. But resilience frequently overbalances into protectionism. Reducing reliance on China shouldn’t mean automatic onshoring. If every economy in the world tries to develop its own technology and its own domestic industry, there will be a vast and inefficient archipelago of discrete markets rather than an efficient critical mass.There’s a compelling case for government investment in green technology, given the environmental benefits it can bring. But tying that spending to local content requirements, as the US is notoriously doing with its electric vehicle tax credit, isn’t a sensible way to do it. Governments may do well to invest lavishly in supporting new cutting-edge products, as opposed to creating gluts by building capacity in mature sectors like manufacturing semiconductors. But a subsidy race where onshoring concerns trump efficiency is not the way to create and disseminate the most efficient technology. It’s more likely to irritate trading partners who then respond with import duties against products they consider dumped or unfairly subsidised.The trade aspect of technology and climate change has been seriously neglected. Talks among a coalition of (initially) willing countries over cutting tariffs on goods to benefit the environment started at the WTO in 2014. But they soon ran into trouble when the EU in particular objected to China’s perfectly reasonable contention that bicycles were environmentally friendly products, and talks stalled.Moreover, a vague sense that global commerce is bad for the planet because of cargo ships and freight planes burning fossil fuels has often been allowed to roam around policy circles and public opinion without effectively being challenged. In fact, international freight transport is on average considerably less than half the carbon footprint of traded goods. As ever, globalisation and open trade are never all good or all bad, though they tend to the former. They certainly don’t bear the main responsibility for the state of the planet and its climate, but they could be playing a much bigger role in improving [email protected] More

US stocks of diesel and heating oil have plunged to historic lows, driving up prices for fuels critical to industry, freight, farming and many households. Inventories of the fuel category that includes both products stood at 107.4mn barrels last week, according to government data released on Wednesday, up slightly from the week before but the lowest level for this time of year since 1951. The highway price of diesel is up 47 per cent from a year ago to $5.35 a gallon, while heating oil has jumped 70 per cent to almost $6 a gallon. West Texas Intermediate, the US crude benchmark, has gained only 6 per cent year over year. “It’s a challenging environment. There’s no question that the energy markets are volatile, and the inventories are historically low,” said Michael Ferrante, president of the Massachusetts Energy Marketers Association, a trade group whose members include heating oil dealers.

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The contraction of diesel stocks comes amid steady demand and rising exports to Europe to offset now-sanctioned supplies from Russia. Pressure on US stocks is expected to worsen in the winter, when European sanctions on seaborne Russian crude oil tighten in December and are extended to refined petroleum products in February. The changes threaten bidding wars between the US and Europe to secure supplies. The International Energy Agency warned on Tuesday of “fierce” competition for non-Russian diesel. “If Russian flows of diesel get cut off, everybody’s tighter and then it becomes more of a competition for who gets the volumes,” said Richard Joswick, head of global oil analytics at S&P Global Commodity Insights. Officials in the Biden administration have said “all options remain on the table” to deal with the decline in stocks, including possible restrictions on exports. Shippers have already rerouted some international diesel cargoes originally destined for Europe to the US north-east, drawn by strong prices, according to Oil Price Information Service, which tracks global oil markets. “Even though inventories themselves may be low, the reality is the market will price itself in such a way to attract that barrel from anywhere and everywhere,” said Eric Slifka, chief executive of Massachusetts-based Global Partners, which operates oil storage terminals and petrol stations.

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Diesel is a critical input for US industry, construction and goods transport. Domestic supplies have been pinched by recent closures of refineries, including Philadelphia Energy Solutions’ large 335,000 barrels-a-day plant on the US east coast. As of January 1, US crude oil refining capacity averaged 17.9mn b/d, the lowest since 2014, according to the US Energy Information Administration. “Refining [profit] margins remain supported by strong product demand, low product inventories and continued energy cost advantages for US refineries compared to global competitors,” Joseph Gorder, chief executive of large refining company Valero Energy, said in an earnings call last month. Consumer businesses such as Bath and Body Works, Kellogg and Clorox have all acknowledged higher diesel prices driving up costs for logistics and prices for products. “We expect that diesel prices will stay firm through the winter, so that does have ripple effects on inflation for the entire country,” Joswick said.

Farmers are also feeling the squeeze during the autumn harvest. “It really erodes into the profitability of farming and in some cases is actually impacting production,” said Brent Johnson, farmer and president of the Iowa Farm Bureau. The Energy Information Administration said this week that households using heating oil will pay 45 per cent more this winter than last. More than 5mn US households heat their homes with heating oil, a vast majority in New England and in middle Atlantic states. More

The war in Ukraine is wreaking havoc on global supply chains. Western sanctions in response to the invasion, price shocks resulting from Russia’s weaponisation of energy, and disruptions to goods shipments have punctured normal procurement practices. The reverberations are being felt across the span of global industries — but the effects on the chemicals and agribusiness sectors have been particularly severe.“Energy-intensive industrials and European fertiliser producers are the two groups that have been hit the most,” says Sebastian Bray, lead chemicals analyst at German investment bank Berenberg. “Any chemical company that is power or gas intense has generally not had a good past few months.”The world had come to rely on Russia for much of the energy and raw materials that power the food chain and global industries. Though accounting for less than 3 per cent of global gross domestic product, Russia, Ukraine and neighbouring Belarus play an outsized role as producers and exporters of agricultural commodities, minerals, fertilisers and energy.Russia is the world’s principal supplier of fertilisers and their core components. It accounts for roughly 45 per cent of the global ammonia nitrate market, 18 per cent of the potash market, and 14 per cent of global phosphate fertiliser exports. Svein Tore Holsether, chief executive of Norwegian chemicals group Yara International, one of the world’s largest producers of nitrogen-based mineral fertilisers, says the disruption following the invasion of Ukraine was rapid and profound — piling pressure on already tight market conditions. Even before the war, global fertiliser supplies had been stretched by Covid shutdowns, labour shortages, and general volatility.“The value chains were incredibly integrated,” he says. “When you look at the map — where Europe is, where Russia is, where the locations for natural resources are — these chains have been created over decades. Even during the coldest parts of the cold war, these products kept flowing so business was running. And that all changed radically in the course of a few days.”

Though no direct bans have been levied on food and fertiliser products from Russia, western nations say the war has cut off Ukraine’s food exports and Moscow is blaming sanctions for restricting its shipments.The invasion and those western sanctions swiftly blocked access to suppliers, while Russia’s suspension of gas flows to Europe has caused energy costs to soar. Producing fertiliser components such as nitrogen and ammonia requires vast quantities of natural gas: it accounts for some 80 per cent of production costs. But gas prices have surged 200 per cent in Europe this year, hitting record highs in August (although wholesale gas prices have since dipped, as nations build stockpiles).Many of Europe’s chemical companies — including sector behemoths Grupa Azoty, Achema and CF Industries — have responded to the turmoil with shutdowns and cutbacks. Europe has lost about half of its ammonia capacity and 33 per cent of its nitrogen fertiliser operations, according to industry researcher CRU Group. More than two-thirds of fertiliser production has been slashed in the region.Yara had to cut 65 per cent of its ammonia production on economic grounds. Roughly 30mn British thermal units (mmbtu) of gas are used to produce 1 tonne of ammonia. So, if Russia pays $2 for gas, Holsether says, the variable cost to produce ammonia in Russia is about $60. But the contrast with the rest of Europe is stark. In August, the respective prices were $80 and $3,000. “It was not a marginal few dollars negative that made this decision,” Holsether says. “It was hugely unprofitable.”A fall in gas prices has enabled Yara to restart some production, but Holsether says the future remains uncertain: “We have to be very careful not to allow this to evolve to the extent that we destroy significant parts of the European fertiliser industry.”Dwindling fertiliser supplies are adding inflationary pressure to already elevated consumer prices and stoking concerns that the inevitable fall in crop yields will worsen the global food crisis. Talks to extend a UN brokered deal with Russia to allow the flow of foodstuffs and fertilisers from Ukraine beyond this month are under way.Holsether hopes the supply shock will be a reckoning for the world’s reliance on Russia. “[Moscow is] using energy and food as weapons of war,” he says. “That’s a huge wake-up call to all of us that we need to create a new food system, one that is less dependent on Russia.”Germany is often cited as an example of Europe’s precarious relationship with Russia. Before the invasion of Ukraine, 55 per cent of Germany’s gas came from Russia and, last year, Germany was the third greatest chemical exporter by value, after China and the US. Now, the industry is struggling to compete in the global market.European sellers have been among the worst affected, says Bray, as products are often priced on a global basis. “This limits the ability to pass on higher costs to end consumers for chemicals produced in Europe, because the customers can source the product for cheaper elsewhere, or simply can’t afford it.”Germany’s BASF, the world’s largest chemicals company by revenue, was hit both by surging gas prices and the limited availability and higher costs of naphtha, made from crude oil and used for resins and plastics. For the first nine months of 2022, the company’s natural gas costs in Europe were €2.2bn higher than the previous year. In response, BASF is to downsize in the region.

Germany’s BASF is permanently cutting back its operations after its natural gas costs rose €2.2bn this year © Sean Gallup/Getty Images

Then, this week, the Paris-based International Energy Agency warned that diesel, another key commodity for chemicals groups, could be the next focus of Europe’s energy crisis. “High diesel prices are fuelling inflation, adding pressure on the global economy and world oil demand,” it said — adding that “competition for non-Russian diesel barrels will be fierce” once an EU embargo on Russian oil imports is implemented in February.

Industries in Europe are looking to alternatives to reduce fossil fuel dependency and build resilience. BASF says it is “working to significantly reduce its dependence on fossil energy, especially gas, in the medium term”.“We need to build out renewable energy at a pace that we’ve never seen before,” says Holsether. Yara is developing a “green”, fossil-free fertiliser that will be fuelled by hydropower. A pilot plant is under way in Norway and the fertiliser is expected to reach market next year.Bray reckons the energy crisis will ultimately accelerate Europe’s investment in renewables but it will be a “tricky transition period”. “There is a cost in terms of procuring more gas, shutting plants, and also in the outlook for European economic growth,” he says. “It may be a case of near-term to midterm pain and some long-term gain to make up for it.” More

Are Britain’s bankers an endangered species? Almost certainly not. But are they one in decline? Possibly. The number of bankers in the UK has been shrinking. This June, the number of people working in the financial services and insurance industry fell to its lowest level since September 1987, according to figures from the Office for National Statistics. Not only are City dreams of a deregulatory Big Bang 2.0 reinvigorating the sector receding, employment in the financial services is back to the level of a year after Big Bang 1.0, as capital markets think-tank New Financial points out. So should this be another source of angst for an already anxious City, displaced this week by Paris as home to Europe’s largest stock market? Maybe. The first thing is to put the figures in context. Financial services employment never made it back to pre-crisis levels. It’s been hovering around the 1.1mn-1.15mn mark for most of the past decade: in that light, a drop to 1.07mn this June doesn’t seem so bad. It could be temporary. If you use survey data from workers instead of the industry information that is the ONS’s preferred measure, there hasn’t been a drop at all. Still, taking the preferred measure, there has been a clear decline since the end of 2020. And after holding pretty steady since 2016, the proportion of the workforce employed in the sector did hit a new low of 3 per cent this year.It’s not entirely clear what’s been driving the slide, except that it does seem peculiar to banking rather than insurance or fund management. There are a number of potential culprits. Branch closures as consumers shift their banking online is an obvious one. Banks argue that they can redeploy branch staff, and some cuts will come from more general automation. But employee numbers at the big high street banks have hardly been booming. NatWest shed 28 per cent of its workforce — just over 23,000 jobs — between 2016 and 2021 as it coupled a post-crisis retrenchment from investment banking and international operations with branch closures. Lloyds lost 18 per cent, or 12,500 roles.There are also wider technological changes. Some jobs that were once done in-house by banks will now be done by external tech providers. The expansion of the fintech sector may mean jobs that were once classed as banking roles are now technology ones. Growth in the number of IT roles has far outstripped the decline in financial services. Then, of course, there’s Brexit. The decline in financial services jobs picked up at the end of 2020, when the UK left the EU’s single market. The evidence shows that the direct Brexit impact on job numbers was far more limited than assumed at the time of the 2016 referendum. But, as Andrew Pilgrim of EY points out, “job shifts between the EU and UK aren’t over”. It’s more that they’ve become part of business as usual as both evolve as competing jurisdictions for the financial services sector. New Financial’s analysis indicates that the UK’s decline hasn’t been repeated elsewhere, with financial services jobs growth in the US, Canada, France and Switzerland since mid-2016 (though that’s not been true of Germany, Italy and the Netherlands). With the pandemic muddying employment trends, it is hard to unpick where the UK might be losing out.

The bigger worry, argues William Wright of New Financial, is the divergence between trends in the industry and the wider economy since the end of 2020 — what one might term the “missing” British banking jobs.Wright estimates that there would be about 91,000 more jobs had growth in financial services employment kept pace with the rest of the UK economy since the Brexit referendum. And, he argues, that matters given that jobs in financial services tend to be better paid than average, with consequences for the country’s tax take. That disquiet should be eased somewhat by the stellar growth in related professional services industries such as law and accounting. Official figures from the Nomis database show lawyers and accountants now outnumber bankers (though not financial services workers more broadly).There could be cause for concern if the decline in banking jobs signalled the diminishing standing of the UK’s financial services sector more generally — but that’s a far broader question. More likely, as Sarah Hall of the University of Nottingham suggests, is that the figures “fall into a wider picture of stability in financial services but not rapid growth”. Still, that might not offer much comfort to a sector seeking to revitalise itself and re-establish its global pre-eminence. [email protected] More

SINGAPORE (Reuters) – The dollar caught its footing on Thursday as strong U.S. retail data cast doubt on market bets that inflation is in retreat and U.S. interest rates need not rise too much further.The euro was also firm after NATO said a missile that crashed inside Poland was probably a stray fired by Ukraine’s air defences, and not a Russian strike.At $1.0394, the euro was close to breaking above its 200-day moving average. The Australian and New Zealand dollars fell slightly overnight, in response to the U.S. data, and were steady in morning trade on Thursday.The Aussie last bought $0.6742 and the kiwi $0.6152. The Japanese yen hovered at 139.25 per dollar, while the Chinese yuan nursed losses at 7.1033 per dollar after China’s central bank promised to keep local liquidity ample and to guide commercial loan growth.On Wednesday U.S. data showed October retail sales rose 1.3%, compared with economist expectations for 1.0%, a healthy signal but one that dented hopes for a pause in rate increases.”Markets have positioned for the Fed to pivot,” said Commonwealth Bank of Australia (OTC:CMWAY) currency strategist Kim Mundy. “The U.S. retail sales data very much challenges that narrative … the U.S. economy is driven by the consumer and if the consumer is still spending, it suggests it’s going to take inflation longer to ease.”This year’s long rally in the U.S. dollar made a sharp reversal last week when U.S. inflation came in a bit cooler than expected and stoked bets the pace of price rises has peaked.Hawkish remarks from Federal Reserve officials overnight also put some cold water on hopes for a shift, though, with San Francisco Fed President Mary Daly – until recently one of the most dovish officials – saying a pause was off the table.Kansas City Fed President Esther George told the Wall Street Journal that policymakers must be “careful not to stop too soon” on rate increases and that avoiding a recession might be difficult.The Treasury market is indicating a slowdown is expected, with 10-year U.S. government bonds yielding 67 basis points less than two-year bonds and that gap nearing levels last reached in 2000. [US/]The Aussie dollar didn’t catch much of an immediate boost from stronger-than-expected jobs data. Sterling was steady at $1.1918 in Asia. The U.S. dollar index found support at 106.31, after falling as low as 105.3 on Tuesday.It is up 11% this year.Later on Thursday the British finance minister is due to provide a budget update, with markets focused on what the timing of government spending cuts might mean for inflation and rates.Comments from a number of Fed and other central bank officials will also be closely watched. Indonesia’s central bank meets to set policy and a 50 basis point hike is expected.========================================================Currency bid prices at 0039 GMTDescription RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Euro/Dollar $1.0390 $1.0395 -0.05% -8.61% +1.0397 +1.0389 Dollar/Yen 139.4400 139.4700 -0.07% +0.00% +139.4800 +139.3750 Euro/Yen 144.89 145.02 -0.09% +11.18% +145.0500 +144.7300 Dollar/Swiss 0.9443 0.9452 -0.07% +3.54% +0.9445 +0.9440 Sterling/Dollar 1.1908 1.1913 +0.04% -11.88% +1.1918 +1.1914 Dollar/Canadian 1.3333 1.3328 +0.02% +5.43% +1.3336 +1.3325 Aussie/Dollar 0.6736 0.6741 -0.07% -7.33% +0.6746 +0.6734 NZ Dollar/Dollar 0.6137 0.6146 -0.10% -10.29% +0.6152 +0.6140 All spotsTokyo spotsEurope spots Volatilities Tokyo Forex market info from BOJ More

NEW YORK (Reuters) – Split control of the U.S. Congress following the midterm elections may provide a tailwind for stocks at the end of a bruising year, but inflation and the Federal Reserve are likely to remain the market’s main drivers, investors said. Republicans were projected to win a majority in the House of Representatives on Wednesday, setting the stage for two years of divided government as President Joe Biden’s Democratic Party maintains control of the Senate.”For the economy and markets it is policy that drives outcomes, rather than politics,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments. A split government “makes major policy changes unlikely, and that stability in policy tends to be reassuring for investors.”Historically, stocks have done better under a split government when a Democrat is in the White House: Average annual S&P 500 returns have been 14% in a split Congress under a Democratic president, according to data since 1932 analyzed by RBC Capital Markets. That compares with 10% when Democrats controlled the presidency and Congress.On a sector basis, a Democrat-led Senate may prove favorable for utilities, consumer discretionary and health care, as well as clean energy, wrote John Lynch, chief investment officer for Comerica (NYSE:CMA) Wealth Management, in a note published Tuesday.Sectors whose recent performance may have been helped by expectations of a stronger showing by Republicans, including energy, biotech, financials and defense, may take a breather as investors reassess the degree of fiscal and regulatory advantages going forward, Lynch said.A split government could stymie Democrats from pushing through several large fiscal packages, including $369 billion in spending on climate and energy policies and enacting a windfall tax on oil and gas companies, analysts at UBS Global Wealth Management wrote earlier this month.Some worried that such spending could help buoy inflation at a time when the Fed has ramped up its monetary tightening to bring down consumer prices from their highest levels in decades.On the other hand, gridlock comes with its own set of risks, including a possible standoff over raising the U.S. debt limit next year that could disrupt the economy at a point when Fed rates may still be at their peak.While a split Congress may lessen the risks of a bruising debt ceiling fight, “We will sleep with one eye open,” said Goodwin, of New York Life Investments.Still, macroeconomic concerns and monetary policy have driven markets all year, and investors believe that trend is unlikely to change anytime soon.The S&P 500 is up more than 10% from its October low, with cooler-than-forecast inflation data last week and Tuesday’s producer price index results boosting hopes that the Fed could temper its rate hikes sooner than expected. The index is still down nearly 17% this year as of Wednesday’s close. “Inflation matters more than anything else right now,” said Michael Antonelli, managing director and market strategist at Baird.Indeed, fund managers polled from Nov. 4-10 in the latest survey from BofA Global Research cited inflation staying high as the market’s top “tail risk.”Some investors are also counting on stocks to get a boost from seasonal trading patterns: November and December have tallied the second- and third-biggest average monthly percentage gains for the S&P 500 since 1950, according to the Stock Trader’s Almanac. Much of that seasonality boost, however, may depend on whether the period falls within a bear market – defined as when stocks have fallen 20% or more from their most recent high. In the last five instances when the November-December period occurred in a bear market, the S&P 500 logged an average two-month decline of 2.2%. “When we talk about end of year being generally positive, that’s the case in bull markets. If you look at bear markets there is no evidence of seasonality at the end of the year,” Antonelli said. More