Economy

While the current escalation between Israel and Hezbollah in Lebanon raises concerns about wider regional instability, the broader global market impact remains somewhat contained for now. However, in the event of further escalation, especially one that involves Iran and the U.S., disruptions to energy supplies could affect oil markets and heighten global financial volatility.”We highlight the importance of diversified portfolios to limit the exposure to individual risks, but recommend staying invested to benefit from an overall supportive macroeconomic backdrop,” said analysts at UBS in a note.Given the potential impact on oil supply routes like the Strait of Hormuz, exposure to oil-related assets can serve as a hedge against energy disruptions. While oil prices have remained stable so far, any major disruption could drive prices higher, “damage to critical oil infrastructure could see Brent crude prices break above USD 100/bbl for several weeks,” the analysts said.UBS also flags gold as a valuable asset to include in portfolios during times of geopolitical tension. With gold prices rising nearly 30% this year, further gains are expected, driven by a combination of the U.S. Federal Reserve’s anticipated rate cuts, seasonal increases in jewelry demand, and ongoing central bank purchases. Gold is seen as a safe haven during market uncertainty, providing a stabilizing effect within a diversified investment portfolio.Analysts recommend maintaining exposure to high-quality credit assets, which can offer stability amidst market volatility. While the Israeli shekel has weakened due to the conflict, placing additional pressure on the country’s fiscal outlook, global markets should still focus on broader economic drivers, especially if the conflict remains regionally contained. More

The world’s power systems are undergoing a profound transformation as electrification expands, clean energy costs fall, and the investment landscape shifts toward greener, more sustainable alternatives. The cost of producing clean power has dropped, with a reduction of around a third since 2023, making renewable energy more competitive. This price deflation is most pronounced in Asia, where energy prices are now lower compared to Europe and the U.S., marking a global trend.Morgan Stanley predicts that the power markets are entering a ‘new normal,’ characterized by higher demand and sustained elevated prices. The tightening of power markets is not just a temporary situation but a structural shift. As the supply of conventional power generation has lagged, particularly after the COVID-19 pandemic, this has created an opportunity for renewables and hybrid power sources to step in and meet the growing demand. Hybrid systems that combine gas and renewable energy have been outperforming pure renewables as they are better suited to respond to tight energy markets, offering more reliable power generation and higher returns.Key to this tipping point is the rapid deflation of clean power equipment costs. Morgan Stanley notes that the cost of solar and wind technologies has fallen, surpassing expectations. Equipment prices for clean power have dropped by 20-50% in the past year alone, largely due to new localized supply chains and technological advancements, especially in regions like Southeast Asia and India. This deflationary trend is fueling greater investments in renewables, as lower costs improve the profitability of clean power generation.This shift in supply chains is also a critical aspect of the current market dynamics. While China has historically dominated the production of clean energy equipment, there are increasing signs of capacity growth in Southeast Asia and India, which could diversify global supply chains. This trend is seen as a response to trade barriers and the need for more resilient and regionally focused production capabilities.The analysts emphasize that investment in power grids is crucial to supporting this transition. Grid investments are at an inflection point, with capital being directed toward modernizing and expanding grids to handle the distributed generation profile of renewables. This shift is vital for ensuring that the increasing share of renewable energy can be efficiently integrated into the existing power infrastructure. Morgan Stanley flags that grid-related investments are ramping up across all major regions, with long backlogs for grid equipment orders reflecting the growing demand for infrastructure upgrades.Overall, Morgan Stanley suggests that the global clean power sector is poised for continued growth and potential revaluation. With power prices expected to remain higher for longer, alongside declining clean energy production costs, there is upside for renewable power generators, grid operators, and equipment suppliers. This tipping point in global clean power represents a structural shift rather than a cyclical one, marking a crucial moment for investors and stakeholders in the energy transition.As such, Morgan Stanley forecasts that companies operating in this space, particularly those with flexible generation capabilities and strong renewable portfolios, are likely to see improved returns on equity and stronger long-term growth prospects.  More

Historically, commodities have performed well following the first Fed interest rate cut, particularly in non-recessionary periods. In line with this historical trend, Wells Fargo expects that lower borrowing costs resulting from these rate reductions will stimulate demand, contributing to the ongoing commodity bull market.The Fed’s decision to reduce interest rates by 50 basis points in September marked a pivotal moment, as it was the first cut since the pandemic shock of 2020. The immediate response from commodity markets has been promising. Gold prices surged to all-time highs of over $2,600 per troy ounce, while the broader Bloomberg Commodity Index rose by 3.4% within a week of the Fed’s announcement​. Analysts at Wells Fargo believe that these price movements signal the beginning of a longer-term trend, bolstered by a combination of global liquidity increases and improved borrowing conditions.Wells Fargo’s analysts emphasize that the absence of a U.S. recession further strengthens the case for a commodity demand surge. Historically, when rate cuts have occurred in a non-recessionary environment, commodity prices have consistently risen over the subsequent 12-18 months.Analysts predict that the current cycle will follow this pattern, with the added benefit of the Fed’s aggressive rate-cutting approach providing a supportive monetary environment. Additionally, they argue that the combination of lower rates and the Fed’s moderate approach will prevent a sharp economic downturn, further fueling demand across key commodities like metals, energy, and agriculture.Wells Fargo expects this favorable backdrop for commodities to solidify, with a continued focus on global economic recovery. The easing cycle initiated by the Fed is likely to create a new liquidity wave, spurring investment and consumption across emerging and developed markets alike. Analysts maintain a positive outlook on the Bloomberg Commodity Index, targeting a range of 250 to 270 by 2025​. More

It said five officials, including the chairman of the National Development and Reform Commission, Zheng Shanjie, would attend the news conference.The topic will be: “systematically implementing a package of incremental policies to solidly promote economic growth, structural optimisation and sustained momentum of development”. The statement gave no further details.Tuesday is the first working day in China after a run of holidays over the past week, including National Day.Before the break, China’s central bank lowered interest rates and injected liquidity into the banking system while regulators eased some property curbs in a package of stimulus measures that sent stocks soaring. More

Indian companies are moving to fill the gap left by the exclusion of Chinese exports from the fast-growing US solar industry, as Washington steps up its crackdown on manufacturers with ties to Beijing.Sumant Sinha, chief executive of ReNew, among India’s largest renewables companies, told the Financial Times that there “will be demand” for solar components from India as Washington reduces reliance on Chinese supplies for its energy transition.“​​There is a need for some diversification, and India can actually become that plus one to China as far as the green tech supply chain is concerned,” Sinha said.He added that ReNew was considering exporting to the US from its solar factories in India pending US tariff rules. “[India] will fill the gap.”Washington is weighing additional tariffs on solar imports to protect the domestic industry after a flood of Chinese-produced panels drove global prices to record lows. Last week, the Department of Commerce released preliminary estimates of duties as high as 293 per cent for solar cell exporters in four countries in south-east Asia, where the US sources the bulk of its solar supplies, often from Chinese companies.The looming decision has driven developers and manufacturers to look beyond the region to markets not subject to tariffs. Wood Mackenzie expects cell manufacturing in countries outside of the main hubs of China and south-east Asia to more than double over the next couple of years, with India making up 40 per cent of new capacity.“There’s no modular manufacturer in India who is not thinking of exporting,” said Subrahmanyam Pulipaka, chief executive of the National Solar Energy Federation of India, a lobbying group that counts big developers such as Adani Group, Tata Power and ReNew among its members.US imports of Indian panels and cells surpassed $1.8bn last year, up from about $250mn the year before, according to BloombergNEF. Indian manufacturers are also investing in US factories following President Joe Biden’s landmark Inflation Reduction Act, which included lucrative subsidies for domestic producers, with Waaree and VSK Energy announcing manufacturing commitments worth at least $1bn each last year.“The main advantage is that they’re not Chinese,” said Martin Pochtaruk, chief executive of Heliene, which operates a solar panel factory in Minnesota. The company used to source its cells from Vietnam and Malaysia, but now purchases primarily from India to insulate itself from new tariffs. In July, Heliene announced a $150mn joint venture with Premier Energies, India’s second-largest solar cell manufacturer, to build a US factory.The Biden administration has raised protections against solar imports with ties to Beijing, doubling the duty rate for Chinese cells, applying anti-circumvention tariffs on Chinese companies in south-east Asia, and banning goods linked to forced labour in Xinjiang. The White House also maintained Trump-era tariffs that applied to solar products from most countries.Despite the efforts, US imports of panels sit at record highs. Several manufacturers, including VSK Energy, have delayed or scrapped their US manufacturing plans despite the availability of federal tax credits.“Tariffs haven’t worked,” said Pol Lezcano, a senior analyst at BloombergNEF.“Manufacturers don’t come to the US. They don’t really find the right business and supply chain environment that they need to scale up manufacturing.”Rapidly declining prices for imported panels have helped transform solar into the leading source of new power on the US grid. The Energy Information Administration expects solar installations this year to grow 42 per cent, reaching 127 gigawatts. In April, the largest US solar manufacturers, First Solar and Qcells, and others filed a petition for tariffs on cells to be applied to four countries in south-east Asia in order to rescue a struggling domestic industry.Luigi Resta, president of rPlus Energies, a developer, warned that the tariffs would slow down the pace of deployment and raise prices for consumers. The company has started to source from Indonesia, another emerging solar manufacturing market, to safeguard it against trade impacts. “The nature of the industry is that we have to be very flexible,” Resta said. The company now sources about 1GW of panels between Indonesia and Vietnam.Industry executives and analysts expressed concern that plans to build production lines in tariff-exempt markets may lead the US government to play a game of “Whac-A-Mole” with tariffs and fine those countries in the future, risking billions in capital expenditure.“If too many people go to one place, it just ruins it for everybody,” said Jim Wood, chief executive of SEG Solar. Last week the company broke ground on a $500mn factory near Jakarta, which will help supply cells to its panel factory in Texas.Climate CapitalWhere climate change meets business, markets and politics. Explore the FT’s coverage here.Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here More

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SAN FRANCISCO (Reuters) – Concerns about housing and crime are dominating San Francisco’s mayoral race, an election that gives voters a chance to choose which path they trust to pull their city out of a slump.San Francisco has come to represent the challenges faced by many large U.S. cities that have struggled with an uneven economic recovery and rising cost of living since the COVID-19 pandemic. To critics of its leadership, the city has become caught in what they call a doom loop, characterized by street homelessness and open-air drug markets. Downtown recovery has been slow, with many empty storefronts and low street traffic.Among major U.S. cities, San Francisco has the highest office vacancy rate at about 32%, according to March 2024 data from real estate company JLL.Against this backdrop, the famously liberal city has begun a political shift, including ballot measures passed this year that put in place new police surveillance technology and mandatory drug screening for recipients of city public assistance.Observers widely expect the upcoming mayoral race to reflect the growing popularity of the moderate-centrist wing of the local Democratic party, which saw gains in March elections.“What voters care about right now are not currently the kind of issues that progressives tend to do well on,” Jason McDaniel, political science professor at San Francisco State University told Reuters.Starting with early voting on Oct. 7, voters will choose from 13 candidates in an instant-runoff, ranked-choice voting system. Incumbent Mayor London Breed, who has been leading the city since a 2018 special election, has four major opponents, all Democrats. Breed has won the endorsement of the San Francisco Democrats.An August poll by the San Francisco Chronicle showed Breed leading, followed by moderate Democrats, former interim Mayor Mark Farrell and philanthropist and heir to the Levi’s fortune Daniel Lurie. Two progressive-left candidates, Aaron Peskin and Ahsha Safai, trailed. The poll showed the top issues among voters were crime and public safety, ahead of housing affordability and homelessness.’STARTING TO FEEL BETTER’A delay in the election may have helped Breed.A ballot measure passed in 2022 moved local elections in San Francisco to even-numbered years, in part in hopes that linking them to presidential elections will increase turnout.That meant rather than running for reelection last November, Breed had an extra 12 months to improve perceptions of her leadership.“Pushing the election back a year, people are starting to feel better about the city”, said McDaniel. Crime rates have fallen 32% year-over-year, according to the San Francisco Police Department. The drop is partly due to increased police resources and better deployed surveillance technologies, Breed said.“We have the systems. It’s working the way it should,” Breed said in an interview.Farrell says far more needs to be done. He promised to hire a new police chief in his first 100 days and said in a debate that he would declare a “fentanyl state of emergency” to access more state and federal resources to fight the scourge of the deadly drug.Breed’s critics also have taken aim at the slow pace of permitting and building new housing under her administration.The city is far behind the state mandated housing goals of adding 82,000 new units between 2023 and 2031. Only around 500 new units had received permits by July, according to the U.S. Housing Department, triggering a state law to streamline the approval process.“Many of our policies have made it very difficult to build, more expensive, and easier for people to oppose housing opportunities when they come to neighborhoods that are traditionally not used to building more housing,” Breed acknowledged. She said she wants to focus on underutilized areas for new construction while maintaining the fabric of the city. San Francisco is famous for its colorful and quaint Victorian homes.In a town where the median household income of the more than 800,000 residents is highest among major U.S. cities, homelessness remains intractable. The latest study showed around 8,000 people in the city are homeless, a figure some advocates say undercounts the population.Breed’s administration has been employing homeless tent sweeps since a June Supreme Court ruling found banning encampments constitutional. Breed has said the sweeps are part of a variety of solutions, including increasing shelter capacity and busing homeless people to family or networks outside the city.Peskin, one of the progressive-left candidates, said people are simply being moved from one neighborhood to another.Lurie, who founded a nonprofit aimed at reducing poverty, said Breed hasn’t done enough to keep people off the streets.Lurie has so far outspent all other candidates, contributing more than $6 million from his own wealth. Contributors to a committee supporting his run include Jan Koum, founder of messaging app WhatsApp, and other tech executives and venture capitalists.Homelessness is “against the law,” Lurie said, “and it’s not compassionate, and it’s not humane to allow people to stay on our streets.” More

“As we enter the final quarter of 2024, we believe the Fed’s desired destination of an economic soft landing is now in sight, decreasing the odds of a near-term recession,” strategists said in a Monday note.“U.S. economic activity has gradually slowed while a window of further disinflation progress has combined with a cooling labor market. These developments prompted the Fed to begin lowering interest rates on September 18 for the first time since the pandemic shock in 2020.”Wells Fargo believes disinflation will continue, which should boost consumer spending and real incomes. They argue that inflation “eased unusually early” this cycle compared to past recessions, allowing for more space for growth.Another significant factor contributing to the soft-landing outlook is the labor market. Despite some expected increases in unemployment, Wells Fargo notes that post-pandemic hiring gaps in sectors like healthcare will likely cushion broader employment declines. The gradual economic slowdown will result in higher unemployment but driven more by new entrants to the workforce rather than layoffs.The service sector, accounting for over two-thirds of U.S. economic activity, remains resilient. This ongoing strength is another cushion against a sharp downturn.“Service industries continue to expand, and we believe these divergent trends still net out to continued economic growth,” the note adds.Financial conditions have also remained accommodative, helping credit-sensitive sectors like small businesses and real estate. Wells Fargo points out that these conditions “are preventing the sort of late-cycle financial squeeze” that typically precedes a recession.Monetary policy is central to Wells Fargo’s view. They believe the Fed’s interest rate cuts are timely and will ease pressure on the economy.”A series of well-timed, more moderate interest-rate cuts by the Fed will provide relief to credit quality,” particularly benefiting lower- and middle-income households, the report states.While uncertainties remain, particularly as the global economy faces challenges in China and Europe, Wells Fargo concludes that a recession is not imminent. Instead, the bank foresees a “bumpy ride into early 2025 before cruising into a mild growth recovery.” More