Economics

This time Is different We don't often say that about the Fed, but after yesterday's FOMC meeting, we think it may actually be true. In fact, we believe yesterday's meeting ushered in a new era of monetary policy in the United States.    For the better part of two decades, monetary policy has followed a familiar playbook: extensive forward guidance, frequent communication, data dependence and the  Federal Funds rate as the primary policy tool. While leadership has changed, the broader framework has remained remarkably consistent.   What we heard yesterday suggests the possibility of a meaningful evolution.   We believe the Fed may be moving toward a framework that places less emphasis on signaling every move in advance and more emphasis on assessing where inflation, employment and broader economic conditions are heading. In a world of real-time data and increasingly sophisticated analytics, that could prove to be a healthier and more effective approach.   We also continue to hear indications that the policy toolkit could broaden beyond the overnight policy rate, with greater consideration of balance sheet policy, liquidity conditions, money supply dynamics and longer-term interest rates.   Importantly, change does not automatically mean more volatility. A broader set of tools and a more forward-looking approach could ultimately increase confidence in policy outcomes rather than diminish it.   For investors, the near-term message remains straightforward: inflation is still above target and remains the Fed's primary focus. While rate hikes are far from certain, they remain a possibility that markets need to respect.   That's one reason we continue to favor income-oriented fixed income opportunities over pure interest-rate expressions. And when markets overreact to uncertainty around policy change, we think there may be opportunities to sell volatility rather than buy it.   This time may indeed be different, and it will be fascinating to watch how this evolution in monetary policy unfolds. The real question is whether less signaling creates more uncertainty, or ultimately more confidence in the Fed's ability to achieve its objectives.

The European Central Bank is now making the economic case for decarbonisation. Not as climate policy. As monetary policy. Frank Elderson, ECB board member, argues in the Financial Times that Europe's dependence on imported fossil fuels is a structural threat to price stability (👉 https://lnkd.in/eKWWjKbh). The data is damning: energy price shocks pushed euro area inflation to 10.6% in October 2022. Every geopolitical tremor in the Middle East shows up in European energy bills. And the ECB is caught in an impossible bind: tighten to fight inflation and deepen the slowdown, ease to support growth and entrench inflation. The solution is not better forecasting models or finetuned monetary policy. It is cheaper energy. Spain shows what is possible. Wholesale electricity prices in early 2024 were approximately 40% lower than they would have been had wind and solar generation remained at 2019 levels ( 👉 https://lnkd.in/edXgxh9q). Once the infrastructure is built, the energy itself is virtually free. Volatile global commodity markets simply become less relevant. Elderson is explicit: €660 billion per year in clean energy investment sounds large. But Europe already spends nearly €400 billion annually on fossil fuel imports, money that leaves the continent and buys geopolitical vulnerability. Analysis in the UK shows that for every pound invested in sustainable energy, benefits outweigh costs by a factor of 2.2 to 4.1 ( 👉 https://lnkd.in/emEXVfiw). This is precisely what I argued in my piece for Triodos a few weeks ago: Europe's crisis response has been backwards. We keep treating energy dependence as a shock to manage rather than a structural problem to fix. (👉https://lnkd.in/ehFqA6iY) The ECB cannot decarbonise Europe. What it can do is name the conditions: keep the ETS, mobilise capital toward renewable capacity, strip out fossil fuel subsidies, and stop confusing cheap fossil fuels with affordable energy. If people need help with energy costs, target it: don't suppress the price signal that drives the transition. The cheapest energy is the energy we no longer have to import.

#Batteries have become so cheap that around-the-clock solar is becoming economically viable for the first time. And this isn't just theoretical, it’s based on real world data. In 2024 alone, average battery prices fell by 40% and signs are a similar fall is occurring in 2025. These cost reductions are being driven by: ➡️ The rapid scale up of assembly plants ➡️ Intense manufacturer competition ➡️ The continued decline of LFP battery cell prices But there’s more to it than just falling prices. Batteries are also getting better: ✅ Higher round-trip efficiency ✅ Longer usable lifetimes ✅ Projects becoming cheaper to finance as the technology de-risks 20 years is now the standard design life of the battery – a big shift from just a few years ago. Taken together, this changes the economics entirely. Pairing solar with enough batteries to keep the electricity flowing though the night is no longer a distant dream – it's an economic reality. At around just $76/MWh all in, dispatchable solar is already competitive with other forms of firm generation in many markets. This analysis focuses on markets outside of China and the United States, where competitive procurement of Chinese-manufactured equipment is reshaping global storage economics. This isn’t a silver bullet. Future power systems will still rely on a diversified mix, including wind, hydro where available, gas backup, potentially nuclear, interconnection and longer-duration storage. But cheap batteries fundamentally change the role solar can play. They turn it from a purely daytime resource into a genuine round-the-clock contributor and this has profound implications for power systems, investment decisions and energy security. Data and original chart is from Ember's latest report, link below. #energy #renewables #energytransition

In Delhi, the temperature hit 42.1°C this year. But some people didn't have the luxury of going indoors because the street was their workplace. India’s 3 crore+ street vendors from fruit sellers to chaat walas spend over 12 hours a day under the open sky. They’re not just battling heat; they’re battling the vanishing shade. A recent study by Azim Premji University in Hyderabad reveals a disturbing trend: "As Indian cities grow vertically, their green cover shrinks." And the hardest hit? Women, migrants, and informal workers who depend on those trees for a livelihood. “When the tree was there, I sold 20 plates of Bhel. Now, I sit in the sun and barely manage 6.” -  a street vendor in Delhi. This isn't an isolated story. According to Greenpeace India & National Hawkers Federation (2024) survey: - 50% of street vendors in Delhi lost income during the summer months - 80% saw a dip in footfall due to extreme heat - ₹500–₹600 worth of goods go bad daily due to heat damage - 71% couldn’t afford medical care - Women vendors reported rising BP, menstrual irregularities, and sleep deprivation. And yet, despite Delhi hitting a record-breaking 50°C last year, heatwaves are still not recognized as a national disaster. Worse, street vendors are often left out of urban planning and climate resilience strategies. Green spaces are not aesthetic choices- they are economic lifelines. For many vendors, a tree is more than shade. It’s a signboard, a cooling system, and a guarantee of survival. And yet, the people who pollute the least are paying the highest price for climate change. If you’re in a position to influence policy, design public spaces, or fund local initiatives - pause and ask: Are we building cities that everyone can survive in?

Is sustainability dying? As we start 2025, the United States has once again withdrawn from the Paris Agreement and key financial institutions have exited decarbonization alliances. All this has happened against the backdrop of record global temperatures and unprecedented climate disasters. From my recent conversations with sustainability leaders and executives in the financial sector, the answer is clear: no, sustainability is not dying—it is evolving. The challenges of today are not stopping progress but rather shaping a more mature, embedded, and economically driven approach to sustainability. In 2025, we are seeing three key shifts with big implications for businesses: 1. A move away from high-profile public commitments toward quieter, results-focused action. 2. The integration of sustainability into core business functions, making it part of the everyday fabric of firms. 3. A stronger focus on sustainability as a driver of economic opportunity and client value. These shifts demonstrate how sustainability roles and actions are developing and the ways in which they inform how firms operate in a rapidly changing world. #sustainability #sustainablebusiness #esg Forbes

I’ve been headhunting in the CPG industry for the past decade, and I’ve never seen a post-inflation market like we’re in right now. For the past three years, customers have been capitulating to price hikes by extending their budgets. But now, they’re at a breaking point. American families, already tethering on edges of their budgets, do not have the ability or the desire to expand their budget in order to accommodate increased prices. I’m sure you’d agree with this, because my family certainly does. With grocery bills through the roof, we’d rather skip on groceries and essentials rather than paying a premium right now. A couple things led us here, starting the pandemic and the post-pandemic impact on spending and savings. Secondly, the wave of AI and tech developments that caught us off guard. So, where do the companies go now? Once the “price increase” playbook is done, CPG brands can only win in both value and volume by shifting gears. In my chats with executives, I’m sensing a change in tone. To stay competitive, they’re looking for ways to shift from the post-pandemic survival mindset to a growth-focused one that accommodates the customer as well. Rather than hiking prices, the focus is now on bringing down costs, and getting to terms with consumer’s limited budgets and increasing product choices. Layoffs aren’t the only way to bring down costs. In my view, CPG companies do have the leeway to embrace data-driven innovation and efficiency to cut costs. Here are some of the ways in which companies can use AI and ML to achieve targets in 2025 and beyond: 1/ Predicting the demand: Post-pandemic behavior is tough to predict, especially in CPG markets. With AI, the companies can now leverage real-time insights from sources like point-of-sale systems, social media, and even economic indicators to see future trends more clearly. PepsiCo, uses Tastewise to track what consumers are eating across 60+ million touchpoints and making decisions that align with local preference. 2/ Inventory management: With AI-powered predictive analytics, companies are now turning inventory management into a science. Procter & Gamble’s Supply Chain 3.0 initiative is one example of this shift. 3/ Increased personalization: Leaders are tapping into geographical intelligence to connect meaningfully with audiences. Estée Lauder has a voice-enabled makeup assistant for visually impaired customers, reaching a new market while boosting brand loyalty. Bottom line is: customers are no longer meeting brands where they’re at. It’s high time that companies start caring about customers and their shrinking bottom lines. Are you excited to see your grocery bill go down in the next few months? #CPG #AI #ML #fmcg #marketing #trending

Here is a strategy I will deploy in my Macro Hedge Fund. Macro hedge funds should deliver uncorrelated returns to stock and bond markets by finding dislocations all around the world and across asset classes. So here is a potential macro dislocation we are tracking. All countries in the world have followed the Fed hiking cycle in lockstep. But not all economies can handle ''higher for longer'' equally well. Or in other words: high rates for long might actually ''break something'' in some of these more vulnerable economies. So - how do we rank countries and spot macro trade opportunities following this narrative? We developed a Vulnerability Score for each country (x-axis of the chart below: right = more vulnerable). It's based on: 1️⃣ Long-term growth potential We analyze future trends in demographics and productivity to gauge which countries have the highest/lowest growth potential to handle higher interest rates 2️⃣ Private debt vulnerabilities We look at the level and rate of change of private sector debt: have households and corporates levered up over the last 10 years and to which level? High levels of private debt + high interest rate produce a strong cocktail of vulnerabilities. We also look at the share of floating rate loans and mortgages as higher interest rates pass through more quickly in that case. And finally focus on the refinancing cliffs: how early must the private sector refinance at high rates? 3️⃣ Fiscal trends The US has the exorbitant privilege of issuing the world's reserve currency, and therefore deficits and bond supply are more easily absorbed. You can't say the same about other countries. 👉 The final result is the Vulnerability Score, which is the x-axis of the chart. If we want to find out which countries are the most exposed to ''something breaking'', we need to look into that red box. These countries are not only vulnerable, but the tightening cycle (y-axis) has been very intense as well. That's a dangerous cocktail. Canada, Sweden, New Zealand, EU, and UK qualify as the most vulnerable countries out there. And GDP growth in these countries is already flirting with 0%. It doesn't surprise me. What surprises me is the markets' obsession with ''when will something break in the US?''. The US is not the most vulnerable country to higher interest rates: slow refinancing cliffs, a lot of long-dated fixed mortgages, private sector not ultra leveraged compared to 2007. It's going to take longer for higher rates to hit the US economy this time. But other economies are already feeling the pain. What economies are the most vulnerable in your opinion? P.S. Enjoyed this macro analysis? Follow me (Alfonso Peccatiello) so you don't miss any post & stay updated on the launch of my Macro Hedge Fund! P.P.S. FREE TRIAL to my Institutional Macro Research? Join the biggest institutional investors in the world reading it every day - send me a DM and I'll set you up!

#payments rails across the globe and the models behind them have evolved in three major (but very different) patterns and yet they are converging in certain ways. Let’s take a look. About half a century ago, magnetic-striped cards triggered a payments revolution. Swiping plastic cards at POS merchant terminals conquered the west, with Visa and Mastercard managing the rails and becoming an almost mighty duopoly. Cards made a smooth transition into the digitized #economy by embedding in smartphones (and even turning them into processors) and becoming the springboard for the rise of the #ecommerce. While the west was transitioning from old cards to chips, China was driving its own local payments revolution that erupted at the beginning of the 2000s and transformed the country from a purely cash economy to a #digital frontrunner. Starting from high smartphone penetration and bank account ownership, China essentially leapfrogged the card-based (western) model moving directly to a digital set-up built on e-wallets and QR codes and driven by two private companies (Alibaba and Tencent) that managed to build vast (2-sided consumer and merchant) ecosystems that transformed them into ubiquitous SuperApps. In parallel, a third pole had been developing in other parts of the world: —     The payments revolution in Africa was led by telecoms (being the only infrastructure available) by means of an e-#money set-up based on mobile phones. Companies such as Kenya’s M-Pesa (launched in 2007) managed to provide long needed basic financial services (saving and transferring funds, making payments or accepting government subsidies) to large swaths of the population. —     Countries like India or Brazil developed over the past few years state-sponsored real-time payments infrastructures, powering multiple bank accounts into a single app under A2A and P2P models. India’s Unified Payments Interface (UPI) has over 300 mn monthly active users recording 60% y-o-y growth, whereas Brazil’s Pix, launched only in late 2020, has managed to become the most popular payments’ method with over 150 mn users. These parallel evolutionary developments could hardly have been more different: a robust decades-old, card-infrastructure in the west (monopolized by two private companies), against a digital, wallet-based closed-loop model in China (powered by 2 giant ecosystems), versus public, state-sponsored, open, real-time rails in India and Brazil. Despite their very different origins and set-up, digitization has been acting as a huge convergence driver lately: digital wallets, super-apps, real-time payments and CBDCs (Central Bank Digital Currencies) are only some of the common underlying elements. As payments evolve to their next phase, a new digital infrastructure is in the making, fast bridging seemingly big structural gaps. Opinions: my own, Graphic sources: Credit Suisse, Alipay, Matthew Brenan, BCB, Bacancy, Alicriti

The European Commission has introduced a new carbon tax on imported goods called the Carbon Border Adjustment Mechanism (CBAM). This is meant to make sure that European companies and companies from other parts of the world are on the same page when it comes to carbon pricing and environmental commitments. Here are the main changes: 🔴 Emissions Reporting: Starting in October this year, companies have to start keeping track of how much carbon is linked to the goods they import. They need to start reporting this data by January 2024. This reporting will continue until the end of 2025. 🔴 Carbon Leakage Prevention: CBAM is a way to prevent companies from moving their production to places with weaker environmental rules to avoid carbon costs. It makes sure that European products and products made outside of Europe have similar carbon costs. 🔴 CBAM Certificates: Importers have to get CBAM certificates to match the carbon pricing between EU and non-EU products. They need to provide details about the product's carbon footprint, where it's from, how it's made, and its emissions data. This includes emissions during production and indirect emissions, like electricity use. 🔴 Covered Sectors: CBAM applies to industries with high carbon emissions like iron and steel, cement, fertilisers, aluminium, electricity, hydrogen, and some downstream products like screws and bolts. It also covers certain indirect emissions under certain conditions. Importers mainly need to report emissions during the transition phase until 2026. To help importers and producers outside of the EU adapt, the EU Commission is providing guidelines and tools to calculate emissions. They're also offering training materials and webinars. Some important data points to consider: 🟢 Carbon Leakage: A study by the European Environmental Bureau warns that unchecked carbon leakage could cause a 15% increase in global emissions, undermining climate efforts. CBAM aims to prevent this. 🟢 Emissions Differences: The World Trade Organization says that different countries have different emissions rules, leading to different carbon costs. CBAM aims to make this fairer. 🟢 Economic Impact: The European Commission estimates that the global carbon allowance market could be worth €4.5 billion per year by 2030. CBAM will significantly affect international trade and revenues. 🟢 Industry Shift: A study by the European Parliament Research Service shows that without CBAM, high-emission industries might move to places with weaker rules, leading to job losses and less competitiveness in the EU. 🟢 Green Transition: The International Monetary Fund says that well-designed carbon pricing like CBAM can encourage industries to become more environmentally friendly, contributing to a greener global economy. 🟢 Regulatory Challenges: CBAM's reporting requirements might be tough for importers initially. However, the long-term benefits of fair carbon pricing are expected to outweigh the challenges.

There’s a bit of confusion on whether renewables will bring down energy prices from where they are today. People talk about the UK electricity price being set by international gas prices and therefore point to renewables giving us price reductions. However, the truth is a bit more nuanced. Wholesale electricity prices in the UK may well be set by international gas prices, but the wholesale price does NOT set the price that the majority of consumers pay in the UK. Why is that? It’s because of the contract for difference (CFD) that renewable energy producers get. There’s a great video attached which explains how the CFD works. Essentially, no matter the wholesale price, renewable producers with a CFD get the “CFD strike price”. So I thought it may be useful to look at the comparison of current wholesale energy market prices (set by international gas prices) and the (CFD) prices that consumers actually pay: Current wholesale prices: -Last 24 hours £68.61 -Last 7 days £77.09 -Last year £82.11 Most recent CFD strike prices in 2012 prices: -Solar £50.07 -Onshore wind £50.90 -Fixed offshore wind £54.23-£58.87 -Floating offshore wind £139.93 -Tidal stream £172.00 Now you may look at those strike prices and think they look attractive-and they do. But unfortunately, these are prices expressed as they would have been in 2012. And as they’re index linked (or inflation proof), they need to be restated to today’s prices. Restating them to 2024 prices (when the last CFDs were granted) gives you the following: Most recent CFD strike prices in 2024 prices: -Solar £69.87 -Onshore wind £71.03 -Fixed offshore wind £75.68-£82.16 -Floating offshore wind £195.28 -Tidal stream £240.03 So you can see that the build out of renewables will NOT materially reduce UK electricity prices from current levels. They may give price stability, and avoid future price spikes based on the international gas market, but they will definitely not reduce the price. So the next time you hear someone say the build out of renewables will reduce UK electricity prices, ask them to explain how. Because we need to get the facts out there so we can make the right decisions-we need to stop having a polarised debate populated with unsubstantiated, but convenient, sound bites. I fully support the move to a cleaner energy system. I am simply very frustrated that people peddle misinformation at best, and disinformation at worst. For example, I was talking to someone in a major UK energy retailer recently and asked why they kept telling people that more renewables would reduce energy prices when I didn’t think it would based on my analysis. What they said was quite surprising-they told me they were always careful to say that more renewables would reduce the WHOLESALE energy price, not the RETAIL energy price. Whilst that statement is factually accurate, I think it could mislead consumers. As the CEO of a major UK energy retailer, I am far more interested in what consumers pay. We should all be.