Comment of the Day
21st February 2023
Eoin Treacy
Video commentary for February 21st 2023
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: bond yields jump on stronger EU and UK economic acitivity, tech stocks in both China and US retreat in tandem, natural gas accelerating lower, oil stedy, copper firm, Nasdaq & S&P500 testing their 200-day MAs.
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China Tech Giants Tumble Amid Growing Fears of Price Wars
This article for Bloomberg may be of interest to subscribers. Here is a section:
JD.com led losses Tuesday following the reports of its subsidy campaign, which is aimed specifically at competing against budget shopping app Pinduoduo. The stock plunged the most in four months.
“Embarking on an aggressive subsidy campaign could be an acknowledgment on JD.com’s part that it is facing market share pressure from Pinduoduo,” said Ling at Union Bancaire Privee. The offensives to lure cost-sensitive consumers also suggest internet leaders’ superiority in elements such as logistics aren’t proving enough to thwart competition from newer entrants and smaller players.
The glory days of Tencent’s domestic games business may be a thing of the past. Gaming was once the engine of Tencent’s earnings growth. While 2023 looks to be a better year for the Chinese gaming sector, we believe there has been a structural shift in the market. We expect Tencent’s domestic gaming sales to remain broadly flat through 2024-26.
Eoin Treacy's view
China’s tech companies grew out of a cauldron of creativity and copycat operations. The result is that while some companies have been more successful than others, they are all still aggressively chasing market share.
Tencent is a mobile games company it is also a social media venue, payments app, ride hailing, and advertising business too. Alibaba is an ecommerce business but also has significant payments and investments in ride hailing and food delivery. JD.com is an ecommerce business, Pinduoduo is also an ecommerce business but focuses on smaller cities. Meituan is a social media, reviews and food delivery company.
They all compete with one another for market share with Alibaba and Tencent owning pieces of several smaller companies. This kind of competition is expensive.
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Biodiesel and Renewable Diesel: It's All About the Policy
This article from farmdocdaily may be of interest. Here is a section:
Biomass-based diesel (BBD) production in the form of renewable diesel is undergoing a major boom. What is not well understood is that the boom is entirely policy driven. This is most directly evident in the fact that the price of BBD (as represented by FAME biodiesel) is about twice as expensive as petroleum diesel. The implication is that little or no BBD would be produced and consumed in the U.S. without substantial policy incentives. A further implication is that the renewable diesel boom cannot be understood without understanding the policies driving the boom. In this article, we use a simple model of the BBD market to illustrate the impact of a variety of policy scenarios. When considered in isolation, the market impact of the policies considered are fairly straightforward.
The analysis becomes much more complicated when multiple policies are in effect at the same time. In particular, the impact of a given policy may be heavily dependent on which other policies are in place at the same time. In the U.S., all four of the following policies are presently in place and interact to determine the price and quantity of BBD: i) blenders tax credit; ii) RFS mandates; iii) carbon credits in California; and iv) import duties (tariffs). The interactions between these policies can produce surprising and poorly understood economic outcomes.
Eoin Treacy's view
There was a great deal of enthusiasm for biodiesel in the run-up to the 2012 peak in corn and soybean prices. At that point the upward pressure using food crops to produce fuel was having on consumers became evident and the sector contracted. At that point food commodity prices collapsed because demand growth from the fuel business evaporated.
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US Natural Gas Futures Slump to a 28-Month Low on Warm Weather
This article from Bloomberg may be of interest. Here is a section:
US natural gas futures slumped to the lowest in 28 months as weather forecasts have shifted milder since last week, further eroding the prospect for heating demand this winter.
Gas for March delivery dropped 4% to $2.183 per mmbtu as of 8:51 a.m. in New York
Futures touched $2.168 earlier, the lowest since Sept. 2020
Weather across the eastern two-thirds is looking warmer next week when compared with Friday’s outlook, with above-usual temperatures expected for southern states: Maxar.
See WHUT for a map of latest 6-10 day weather forecast: NOAA
“The market appears ready to push natural gas steeply lower until storage surpluses stop ballooning and/or production responds more vigorously to lower prices,” analysts at EBW AnalyticsGroup said in a note to clients
Eoin Treacy's view
Natural gas prices are accelerating lower and swiftly approaching the psychological $2 area for Henry Hub. The warm weather for this time of year is depressing prices in the short term. Nevertheless, natural gas is an essential commodity for the global economy and lower prices will ultimately encourage demand and suppress supply.
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Eoin's personal portfolio: commodity long initiated and stock option long initiated February 14th 2023
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.
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