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A sign outside an Esso filling station informs the public that it has no fuel on Sept. 25, 2021 in London, England.
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A worldwide energy shortage is threatening to develop into a full-blown crisis.
The scenes in the U.K. over the weekend were reminiscent of the 1970s, as drivers queued at thousands of filling stations amid fears of a fuel shortage, sparked by a lack of truck drivers. But the panic at the pumps is really a sideshow. Natural-gas prices in Europe and around the world have skyrocketed amid shortages, leading to higher household bills and suppliers collapsing.
China is experiencing its own energy crunch as shortages have led to record coal prices and soaring natural-gas costs. It’s beginning to have an impact; production at a number of factories—including some supplying
Apple
and
Tesla
—has been halted.
Nomura
and
China International Capital Corp
have already downgraded Chinese growth forecasts as a result.
Meanwhile, oil prices and energy stocks are gaining early on Monday.
Goldman Sachs
raised its year-end Brent crude price forecast to $90 from $80, also lifting its West Texas Intermediate forecast to $87. Most notably, the bank’s analysts said Hurricane Ida should prove to be “the most bullish hurricane in U.S. history.” They added that the global oil supply-demand deficit is larger than they expected, with the recovery in demand from the Delta coronavirus variant impact faster than anticipated. Throw in the global gas shortage and winter oil demand is firmly skewed to the upside, they said.
The bigger question is whether the energy disruptions will derail the economic recovery or not. In any case, for all the talk of a green energy transition, the unfolding events show the economy is still very much powered by traditional fossil fuels.
—Callum Keown
***Join Barron’s senior managing editor Lauren R. Rublin and deputy editor Ben Levisohn today at noon to discuss the outlook for financial markets, industry sectors, and individual stocks. Sign up here.
***
In Congress This Week: Debt Ceiling, Infrastructure Spending
Congress faces several major initiatives this week, including Monday’s Senate vote on federal government funding and the debt ceiling, a House vote on the $1 trillion bipartisan infrastructure bill later this week, and ongoing negotiations on the $3.5 trillion bill Democrats expect to pass by reconciliation.
- House Speaker Nancy Pelosi said the first priority is to avert a government shutdown on Oct. 1. Senate Republicans vowed to block a vote on the House-approved bill to extend government funding through Dec. 3 and suspend the debt limit until late next year.
- An alternative is to pass a short-term government funding extension—something Republicans could support—and address the debt ceiling in the $3.5 trillion bill, which is focused on President Joe Biden’s social spending and climate change agenda.
- Pelosi told ABC’s “This Week” that the House will pass the $1 trillion infrastructure bill this week. She also said it’s “self-evident” the $3.5 trillion bill will get smaller during negotiations. Even some Democrats oppose the bill’s size.
- Pelosi said that despite clashes over details, Democrats “overwhelmingly” support Biden’s economic agenda, including lowering middle class taxes, measures to fight climate change, and tax rises on corporations and the wealthy to pay for it.
What’s Next: The House voted to suspend the debt limit through December 2022, but Republicans want to absolve themselves of the matter, saying Democrats pushed through $1.9 trillion in spending without GOP votes this spring. Democrats say raising the debt limit should be a bipartisan effort, as it was in the past.
—Janet H. Cho
***
German Elections Leave No Clear Winner to Succeed Merkel
Germany’s Social Democrats seemed to have won a narrow plurality of votes in Sunday’s parliamentary election, but months of tough negotiations with other smaller parties lie ahead for a coalition government to be formed.
- Olaf Scholz, the current finance minister and Social Democratic candidate for chancellor, led his SPD party to a 26% victory, according to the latest results. He said he would now attempt to form a government before Christmas with the Green and the Liberal parties, which received 15% and 11.5% of the votes, respectively.
- Angela Merkel will step down when her successor is appointed. Her conservative party only received 24% of the vote, its worst-ever election result. But conservative candidate Armin Laschet nonetheless hinted he might also try to form a government supported by a majority of the Bundestag, the lower house of Parliament.
- The various parties have different stances on taxes, fiscal policy, the green transition and economic reforms, so analysts think workable compromises will take weeks, if not months, of tough bargaining.
What’s Next: One of the first results of the election might be that Merkel’s 16-year rule is extended until the end of the year. And that the SPD, if Scholz becomes chancellor, will have to row back on some of its proposals on taxes, and the way to finance the fight against climate change.
—Pierre Briançon
***
Chinese Agencies Take Steps to Shield Consumer Funds from Evergrande Crisis
Local governments in China are taking control of
Evergrande
’s
property sales revenue amid an unfolding liquidity crisis at the developer, the Financial Times reported. Stalled development projects this summer sparked complaints and public protests.
- In a district near Guangzhou, a housing agency asked an Evergrande subsidiary to put presale proceeds from the stalled Sunshine Peninsula residential development into a state-owned custodia account, the report said.
- An agency in Zhuhai, near Macau, also asked Evergrande to put sales revenue in a government account. As many as eight other provinces have asked Evergrande, since August, to put presale revenue into custodial accounts as it put hundreds of unfinished developments on hold.
- Evergrande has $300 billion in debt, including $20 billion held offshore. Last week, Evergrande missed a payment on $2 billion of debt, reports said. Separating presale revenue prevents it from being used for debt payments.
- Federal Reserve Chair Jerome Powell has said China is highly levered for a developing economy but that there isn’t a lot of derelict U.S. exposure to Evergrande debt.
What’s Next: Wall Street is worried how an Evergrande failure would affect markets. Property contributes a quarter of China’s economic activity and is a major source of household wealth there. A drop in property prices could hurt consumer confidence and worsen China’s economic slowdown.
—Liz Moyer
***
Congestion at Busiest U.S. Ports Causing Shipping Delays Nationwide
The busiest U.S. ports at Los Angeles and Long Beach, Calif., are experiencing unprecedented backlogs, with thousands of shipping containers to move and more than 60 ships waiting to dock, contributing to shipping delays nationwide, The Wall Street Journal reported.
- Shipping demands have increased as businesses replenish their pandemic-depleted inventory, but supply shortages are worsening at apparel maker
Nike
,
and retailer
Costco
,
which is limiting paper towel sales. - Unlike ports in Asia and Europe that are open around the clock, U.S. ports operate in two shifts on weekdays, because overnight or Saturday shipping is more expensive. Trucking companies are short of drivers to haul boxes, or to load or unload containers from freight trains.
- In the U.K., thousands of gas stations ran dry Sunday and supermarket shelves were sparsely stocked after a truck driver shortage delayed the delivery of fuel and groceries. The government will issue 5,000 temporary visas for foreign drivers. The British Retail Consortium called it “too little, too late.”
- To attract more supply-chain workers, logistics providers are raising pay, increasing shift flexibility, and bringing in robots to help with surging e-commerce volumes.
Walmart
,
Amazon
and
United Parcel Service
are offering signing bonuses, including college tuition help.
What’s Next: Worker shortages are speeding up automation in what were largely manual warehouse and fulfillment operations.
GXO Logistics
added 40% more robotics and automation systems in North America in 2021, with plans to open nine new automated U.S. sites this year for e-commerce.
—Janet H. Cho
***
WHO Reviving Investigation Into Origins of Covid-19 With New Scientists
The World Health Organization is reviving its investigation into the origins of Covid-19, which has killed more than 4.7 million people worldwide, assembling a new team of about 20 scientists to search for new clues in China and elsewhere before critical evidence disappears.
- The U.S. and its allies have urged the WHO to proceed with the investigation, while China has argued that new inquiries should focus on other countries. A previous WHO-led inquiry that visited Wuhan, China, said data from Chinese scientists could not determine when, where and how the virus began.
- Previous WHO-led teams urged their Chinese counterparts to analyze blood banks, test farmworkers, and study the earliest cases. China and its allies say the investigation should scrutinize other possible sources such as Italy, or a U.S. military bioresearch facility in Fort Detrick, Md.
- Columbia University professor Jeffrey Sachs disbanded a task force of scientists investigating the origins of Covid-19, saying its links to the nonprofit EcoHealth Alliance risked perceptions of bias, because it used U.S. funds to study bat coronaviruses with the Wuhan Institute of Virology.
- Demand for and questions about boosters have increased since the Centers for Disease Control and Prevention recommended them for people 65 and older, those with underlying medical conditions, and those at higher risk of infection who received the
Pfizer
–
BioNTech
vaccine. More than 2.6 million Americans have received boosters.
What’s Next: New York Gov. Kathy Hochul may bring in the National Guard and out-of-state medical workers to fill hospital staffing shortages, as thousands of unvaccinated workers could lose their jobs with Monday’s mandated healthcare worker Covid vaccination deadline looming.
—Janet H. Cho
***
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My 76-year-old mother recently moved into assisted living, and she may need to sell her house to cover her expenses. Is there something we can do now to reduce the capital gains on the house in the future, should she outlive her savings?
A MarketWatch correspondent will answer this question soon. Meanwhile, send any questions you would like answered to thebarronsdaily@barrons.com.
***
—Newsletter edited by Liz Moyer, Camilla Imperiali, Steve Goldstein, Rupert Steiner