House passes Inflation Reduction Act

President Biden is expected to sign it in the coming days

• Revenue Raised: 1) 15% Corporate Minimum Tax & companies will be allowed to deduct depreciated assets. 2) Medicare negotiation of prescription drugs. 3) IRS Tax Enforcement. 4) 1% Excise tax on stock buybacks starting January 2023.
• Spending: Energy Security and Climate Change: $369 billion. Affordable Care Act Extension: $64 billion.
• Total Deficit Reduction: Approximately $300 billion.
• The bill will allow Medicare to negotiate for prescription drug prices and extend the expanded Affordable Care Act program for three years, through 2025.
• The bill will invest in solar, wind, hydrogen, nuclear, oil, and gas.
• The bill includes extension of $7500 tax credit for EV purchases. The tax credit will be limited to cars priced at $55,000 or lower and trucks and SUVs priced at $80,000 or lower.
• The bill will require that tens of millions of acres of land be allocated for oil and gas production in order to offer wind and solar leases on Federal land and other locations.
• Private equity was exempted from 15% corporate minimum tax.  
• The Senate Parliamentarian said that provision that capped prices of prescription drugs in private market violated Senate rules and it was removed. The provision for Medicare negotiation was allowed to stay in.
• Congressional Budget Office said Inflation Reduction Act would "would have a negligible effect on inflation" in 2022; inflation would probably be between 0.1 percentage point lower and 0.1 percentage point higher in FY23.

Energy Stocks: XOM, CVX, BP, SHEL, OXY, COP, XLE, USO, DVN.

EV Stocks: TSLA, GM, F, HMC, TM, VWAGY, STLA, RIDE, LCID, FSR, CHPT, BLNK, EVGO. RIVN.

Solar Stocks: TAN, FSLR, SPWR, CSIQ.

Healthcare Stocks: UNH, HUM, CNC, MOH, CI, ANTM, THC, UHS, CYH, HCA, MRK, PFE, LLY, TEVA, GILD.

Nuclear Power Stocks: CCJ, UUUU, UEC, DNN, FLR

Private Equity: CG

Gold miners : high dividend yield

•  Gold miners now have the highest dividend yield in almost a decade.

Natural gas -- Dutch TTF

Natural gas trades at different prices in different parts of the world. There are three global benchmarks for natural gas, at hubs in the U.S., Europe and Asia. In Europe, the hub is in the Netherlands and the futures contract is known as Dutch TTF. In Asia, it’s the Japan Korea Marker, or JKM. In the U.S., gas trades at the Henry Hub in Louisiana.

Crude oil, by comparison, has been traded globally for decades, and prices around the world have converged more than natural-gas prices.  U.S. oil, in the form of the benchmark West Texas Intermediate (WTI) crude price, trades slightly below the global price, which is tracked by Brent crude futures, a product originally based on oil from Europe’s North Sea.

  

Dutch TTF natural gas, the European reference price, reached $166.72 on Tuesday, moving past the post-invasion high of over $154. Dutch TTF is calculated based on the price of liquefied natural gas, which is shipped by tanker around the world. Prices in the U.S., based on the cost of gas delivered by pipelines within the country, are significantly lower.

Supplies of gas to Europe from Russia are at seasonal lows because flows to the Dutch trader GasTerra and the renewable-energy company Orsted have been cut in response to their refusal to pay for gas in rubles, Citi strategists said. Russia’s Gazprom has stopped supplying gas to both companies because they refused to make their payments in the Russian currency at the end of May.

Shipping rates retreat from their peak

Supply chain issues have created more demand for exports and driven shipping rates, ultimately reflected in how much a shopper pays for a given good. But those rates are starting to retreat from their peak.

Shipping rate for a 40 foot container from Shanghai to Los Angeles -- a route that Chinese exports are often taken through when sent to US consumers. 

In one way, this is the silver lining of inventory build ups seen across retailers -- there's less demand for more product, which in some ways insulates from shipping congestion and supply chain issues. But it's also helpful to break down inflation as pre-war contributors (shipping rates, demand resurgence) and post-war drivers (oil prices, grains export bans). To see this move in shipping rates could instill some optimism that those pressures are indeed easing. 

Market update: Federal Reserve hikes short-term rates by 0.75% (15 June 22)

S&P 500 after the Fed's 75-basis point rate hike yesterday, which was the largest move in 28 years.

Several central banks elsewhere also raising their key rates:  the Swiss National Bank surprised overnight with a 50-basis point rate hike (its first hike in 15 years), Brazil's central bank raised its key lending rate by 50 basis points, and the Bank of England increased its key lending rate by 25 basis points while projecting a 0.3% decline in Q2 GDP as a whole. 

Market update: Nasdaq Composite Index ($COMPQ) (10 June 22)

 

(live chart)

Yen weakness

The Japanese currency has weakened yet again after Bank of Japan Governor Kuroda said “monetary tightening is not at all a suitable measure” citing recession odds and higher commodity prices. As the ECB and RBA look to catch up to the Fed in terms of taming inflation, the BOJ cannot.  

Take a look at the Chinese offshore yuan versus the Japanese yen. Both are major Asian exporters as well as net importers of oil, getting hit hard by higher commodity prices and competing to get their goods to the rest of the world.

When the offshore yuan last hit the 20 level against the Japanese yen in April, China devalued its currency further against the dollar. The logic there is if the yuan is cheaper, then their exports will be more attractive and therefore attract more business.

So keep an eye on the Japanese yen against other pairs, and not just the U.S. dollar. There are ripple effects, especially as consumers try to get their hands on commodities and exports.