Market round-up: Goldman turns cautious on stocks
In other news, unemployment is falling but wages aren’t rising; the hidden cost of renewable energy
The longer the seemingly unstoppable reflation rally continues, the more warning signs start to flash for Goldman Sachs Group Inc.—especially in stocks. The bank’s strategists have lowered their three-month outlook for global stocks to neutral, while staying overweight cash and underweight bonds, given the recent shift by central banks to a “slightly more hawkish” stance. The US Federal Reserve is forecast to raise its benchmark interest rate later on Wednesday in an environment where markets are demonstrating historic calm. Goldman is also positive on the Asia-Pacific region, especially China, with the firm returning to an overweight on Chinese stocks earlier this week on mounting evidence of strength in the economy. Bloomberg
Unemployment is falling but wages aren’t rising
From York, UK, to Montreal, and Osaka to Seattle, it’s a pretty good time to be looking for a job as a member of the labour force in many developed countries. Unemployment rates in Group of 7 (G7) nations such as Canada, the US, Britain, Japan and Germany are nearing or even slightly below what officials describe as a maxed-out jobs market. But wage gains worldwide have been only creeping along. For developed economies, that means the powerful cycle of higher compensation fuelling stronger demand and then business investment and, eventually, a little more pricing power, has proven elusive. Solving this puzzle matters, since it casts uncertainty over the health of the world’s labour markets and the direction of monetary policy. Central banks, which are supposed to tune their policy rates to inflation, could end up tightening too fast too soon if they conclude employment gains mean inflation is right around the corner. Or if they focus on the weak wage gains, they may end up leaving rates too low for too long, fuelling asset bubbles. Bloomberg
The hidden cost of renewable energy
A study by West Bengal Electricity Regulatory Commission (WBERC) shows that integration of renewable energy to the stipulated level can raise electricity tariffs by as much as 45 paise per unit, said Motilal Oswal Securities Ltd in a report. The state is estimated to have an evening peak demand of around 12,000 megawatts (MW), day peak demand of 8,000MW and solar peak demand of 4,000MW. During the day, the conventional energy usage is crimped to 4,000MW to accommodate 4,000MW of solar. But as evening sets in and generation from solar falls, utilization of coal power plants has to be ramped up to meet the evening peak demand. This swing in utilization of conventional plants will raise costs, warns WBERC. “Frequent backdown/box-up of coal-based plants to accommodate the swing in RE (renewable energy) generation impacts operating efficiencies, increases fuel consumption and impacts the life of the plant,” adds Motilal Oswal.