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Wednesday, Feb 10

We had the trade wars, then the tech wars (still ongoing of course), and the next cab off the rank is the climate wars. That’s according to the latest report from Bank of America’s thematic investing research team. They have highlighted in a 70-page report that climate change is about more than saving the planet, it’s a route to global supremacy. Following conflicts over trade, technology and capital markets BofA believe the next round of political tensions between the US and China is likely to be fought over climate action. The pressure points include supply chain dominance, domestic-focused manufacturing policies, human rights-related laws and carbon-related trade tariffs. Let’s not forget about Europe either, a leader in climate policy and home to 8 of the 10 largest clean-tech companies in the world. But it’s not all over yet for the existing sector just yet, according to Jefferies. They’ve just turned bullish on the energy sector and say the much-maligned sector might surprise investors with much better relative performance as economies re-open. In other research, FX strategists at UBS have put together an interesting piece on how FX can be used to play multiple themes such as equity rotation, ESG and cryptocurrencies. We also look inflation and whether China can be a source of global inflation with TS Lombard, and Rosenberg Research suggests the global pandemic has set in train a long-term trend in labor markets that will see humans replaced by the machine.
  1. cleantech ESG the energy transition Bank of America

    1. The climate war

    Just as technology has underpinned economic growth for the past decade, Haim Israel at Bank of America Global Research believes action on climate change is set to be the key global theme politically and economically for the coming decades. As such, he says leading the efforts to save the planet, and owning and controlling the required technologies, will be seen as key in a transforming world. Israel explains why following the trade and tech wars of recent years, he expects the next chapter in US-China tensions to be climate wars and why the increasing focus on climate policy and ESG investing could lead to a European revival.
  2. agriculture Energy Inflation Jefferies

    2. US energy – Total Recall II + Ag inflation

    Sean Darby at Jefferies has issued a note explaining why he has turned bullish on the energy sector. The rekindling of energy prices has been perfectly correlated to the announcement of a successful vaccine and then the ongoing worldwide roll-out, he says, while a weaker dollar and ultra-loose monetary policy globally has also helped. The much-maligned sector, according to Darby, might surprise investors with much better relative performance as economies re-open. He says it is worth noting that far from being a lead indicator of inflation, energy prices have lagged the break-out of commodity prices, most notably food. Indeed, in this note, “Global Asset Allocation: Agricultural and food prices are breaking out, (February 8)”, Darby explains how agricultural and food prices have ground higher into the New Year. He says this, along with increasing transport costs, is likely to push global headline inflation higher and accentuate income disparity following the pandemic’s disruptions. One of the best ways for investors to play the tightness in soft commodities, says Darby, is through higher agricultural machinery purchases.
  3. currencies digital currencies ESG rotation UBS

    3. The currency angle; equity rotation, ESG and crypto

    Away from his broad bearish view on the dollar, James Malcom at UBS explains how investors can use currencies to capture shifts in broader financial markets more efficiently. Equity sector rotation, for example, says Malcolm, such as value outperforming growth, is best proxied by buying NOK versus EUR or SEK historically, while an increased focus on ESG criteria may see Scandies outperforming and commodity sensitive and climate-crises exposed EM currencies exposed. As for cryptocurrencies such as Bitcoin, he argues why potential manipulation, a lack of haven credentials and looming regulation mean investors may be better off pursuing blockchain applications via less controversial avenues. 
  4. China Inflation TS Lombard

    4. Global inflation from China?

    Against a backdrop of rising commodity prices and PPI inflation in China, concerns have been raised that China will export a meaningful level of inflation to the rest of the world this year, according to Bo Zhuang at TS Lombard. He has issued a note explaining why China is unlikely to be a persistent source of global inflation in the months ahead, however, citing mediocre domestic consumption and declining demand for Chinese exports as vaccination programmes roll out in the developed world. Click here to contact us for the full report and discover what could alter this outlook.
  5. labour markets Productivity robots Rosenberg Research

    5. Labour markets; Welcome to the machine

    The pandemic’s impact in all aspects from government-mandated shutdowns, the infections themselves and the impact on economic behaviour, and the seemingly permanent loss of employment (4.3 million Americans have exited the labor force this past year) have led to a massive reorganisation of the labor force, writes Dave Rosenberg of Rosenberg Research. He says companies have learnt to adapt and in so doing have shifted their production inputs from labor to capital. Rosenberg anticipates this trend to not only continue in the near-term but accelerate through the post-pandemic recovery phase. The bottom line is that the labor share of income is going to continue its downward trend after the crisis ends and the adoption of automation, such as the use of robots, will only proliferate, Rosenberg maintains. Aside from the profit incentive that had always existed to motivate automation, this crisis has highlighted the pandemic risks associated with relying on labor availability.