The New Economy

Author

Todd Moses
March 29, 2024

The New Economy

March 28, 2024

Markets:

Bank of America reports that due to critical refinancing activity, the amount of high-yield debt coming due in 2024-2026 has been cut by 40%, or $329 billion.

Critical inputs: Axios reports, "This episode represents one of the most aggressive instances of maturity extension in the history of leveraged finance."

  • "The fact that yields are now consistently in that 7.5%-9.5% range makes a big difference for someone's portfolio," says Ken Monaghan, co-head of high yield at Amundi U.S.

Impact: Allan Schweitzer, head of distressed credit at Beach Point Capital Management, warns, "For a lot of companies, that day of reckoning is not today or tomorrow—it's down the road."

Web3/Crypto:

Sam Bankman-Fried gets 25 years, while Europe's Markets in Crypto-Assets Regulation (MiCA) begins in June.

Critical inputs: Seychelles-based crypto-exchange OKX delisted Tether (USDT) trading pairs for European Economic Area (EEA) users ahead of MiCA. 

  • "Moving forward, only EUR and USDC trading pairs will be accessible for spot trading," said OKX in a customer support message.

Impact: Christian Catalini, the founder of the MIT Cryptoeconomics Lab, explains, "The stablecoin landscape will evolve substantially across the globe as new regulation is passed, and we will see entry by new players—many of which won't be companies that started in crypto and are coming from traditional banking and fintech."

Geopolitics:

The U.S. is in an economic war with China with "executive orders to restrict outward investment into Chinese advanced technology and sanctions around Chinese tech."

  • The Diplomat reports, "Singapore has been a huge beneficiary, as talent and capital move from Greater China to the city-state."

  • USD investments are flooding India and Japan's capital markets. 

Critical inputs: The Wall Street Journal reports, "The chairman of China's battery-making champion said he isn't fazed by rising geopolitical tensions over the control of future technologies, as the company sets its sights on expanding in the U.S."

  • Contemporary Amperex Technology (CATL) supplies batteries to almost every major automaker, including Tesla, Volkswagen AG, and Toyota Motor Corp.

  • Reuters explains, "CATL is also working on faster charging batteries, opening a new tab for Tesla, and supplying machinery to the Elon Musk-led company's factory in Nevada, according to an interview Bloomberg News had with Zeng."

Impact: CATL is not just supplying batteries to the U.S.; it is partnering with Ford and General Motors, which have jointly owned battery manufacturing facilities.

Energy:

Bloomberg reports, "Oil prices have the potential to rally to $100 a barrel by the end of the Northern Hemisphere's summer."

Critical inputs: Bloomberg explains that there is a 50-50 chance that OPEC+ producers will decide to prolong cuts for the rest of the year.

  • Due to U.S. sanctions on Russian oil, Vox reports that a shadow fleet of 600 ships quietly exports oil from the country.

  • "They tend to be older, they may also be less well maintained, they are run by less experienced crews, and they carry less insurance than they should," Erik Broekhuizen, head of tanker research at Poten & Partners, an oil and gas consulting firm, told Vox.

Impact: In response to the shadow fleet and to avoid a substantial effect on global energy markets, the U.S., E.U., and G7 created a compromise for Russian oil.

  • Limited to $60 a barrel, Russians can use Western shipping infrastructure and insurance.

  • This is expected to limit Kremlin profits while expanding global control over energy production.

Real Estate:

Reuters reports, "Commercial property markets in the United States and Europe are in the grip of the biggest slowdown since the 2008-9 crash."

Critical inputs: "Adverse effects on valuations from higher interest rates and structural decline in demand for office and retail space may trigger broader impacts given bank and non-bank lenders' material balance sheet exposure to the sector," UBS said in its 2023 annual report published on Thursday.

  • Investopedia details that First Commonwealth Financial Corp. (FCF), M&T Bank Corp. (MTB), Synovus Financial Corp. (SNV), Trustmark Corp. (TRMK), and Valley National Bancorp (VLY) have been downgraded by S&P Global Ratings due to their exposure to commercial real estate.

Impact: CBS News reports, "More than 95 million square feet of New York City office space is currently unoccupied."

  • San Francisco is taking over Uber's H.Q. Building.

  • Amazon plans to cut $1.3 billion in office space costs.

Business:

Tesla is challenging the traditional assembly line with a new die-cast manufacturing method that reduces 400 parts into a single piece.

Critical inputs: Due to lower costs, China's E.V. maker BYD (BYDDF) has taken the global market from Tesla.

  • In response, Tesla has reduced the current Model S and X prices while challenging manufacturing techniques to build a $25,000 electric car that better competes with the Chinese offerings.

Impact: Regardless of direct car sales, Tesla owns the infrastructure for electric charging in the U.S.

  • Ford, General Motors, Volvo Cars, Polestar, Rivian, Nissan, and Mercedes-Benz announced that they would license Tesla's charging technology.

Read the latest from the global economic graph on Banananomics.