Pakistan Stock Exchange witnesses lackluster movement

The week ended on December 16, 2022 witnessed a range-bound movement of the benchmark index. The highlight of the week was Thursday when the market took a hit and the index posted 1.0%WoW decline to close at 41,301 points.

Economic uncertainty caused by enhanced delays in the 9th Review of the IMF program, along with rising interest rate led to a lackluster sentiment in the market. Further exasperating the sentiment is the critical level of the country’s foreign exchange reserves, having dropped to USD12.6 billion. Average daily trading volume decreased further by 9.9%WoW, down to 180 million shares.

Major news flows during the week were: 1) five financing pacts worth US$775 million inked with ADB, 2) IMF wants to observe 3 more quarters, examine flood rehab plan, 3) Saudi Arabia may increase the amount of oil supply to Pakistan on deferred payments to US$2.4 billion a year, 4) Reko Riq project got green signal with definitive agreement signed, 5) Jul-Nov workers’ remittances decline 9.8%YoY, 6) Fed raised rates by half percentage point, sees economy nearing stall, and lastly 7) Jul-Oct LSM sector output down 2.89%YoY.

The top performing sectors were: Miscellaneous, Tobacco, REIT, Textile Composite, and Vanaspati & Allied, while the least favorite sectors were: Leasing companies, Automobile Parts, Close-end Mutual Funds, Refineries, and Jute.

Stock-wise, top performers were: PSEL, PAKT, SYS, ENGRO, and DCR, while laggards included: PGCL, LOTCHEM, TGL, THALL, and MTL.

Flow-wise, Foreigners topped the net sellers, offloading US$9.6 million followed by Mutual funds (US$7.1 million), Individuals (US$2.5 million), Insurance Companies (US$1.4 million) and NBFC (US$0.1 million). While Banks, Companies, Other organizations and Brokers were on the buying side, with a net buy of US$12.8 million, US$6.2 million, US$1.5 million, and US$0.2 million respectively.

With the rising policy rate amid political uncertainty, the market remains in a state of indecisiveness. Incoming news regarding delays in IMF was bound to invoke some gloom; the longer is the delay the more the uncertainty is going to influence the market, keeping volumes away.

The local currency has started paring some of the gains it had made recently, depreciating to PKR225/USD as the foreign exchange slips to critical levels despite restrictions on the opening of L/Cs.

With the winters approaching, inflation is expected to remain persistent. The market participants expect another cumulative rate hike of 200 bps in FY23.

Port of Savannah to become containers only facility

The Port of Savannah is upgrading to become a container-only facility to meet booming demand after a year-long increase in cargo volumes.

The port plans a US$410 million overhaul of one of its sprawling terminals to make room for loading and unloading larger ships while focusing its business almost exclusively on cargo shipped in containers.

The Georgia Ports Authority approved the project recently under a plan to expand Savannah's capacity for cargo containers by more than 50% by 2025.

"We're taking the Georgia ports from a Southeast gateway to a global gateway," said Griff Lynch, executive director of the Georgia Port Authority, which has seen over a decade of explosive growth at the state-owned seaports in Savannah and Brunswick.

Ocean Terminal will be converted to handling cargo in containers, from consumer electronics to frozen chicken by ship, train, or truck.

The terminal's berths will be upgraded with room to service two large ships simultaneously using eight new ship-to-shore cranes, at an additional cost of US$163 million.

Mass traffic jams off the West Coast caused shippers to divert cargo to Savannah and other ports along the East and Gulf Coasts. That resulted in Savannah handling a record 5.8 million teu of imports and exports across its docks in the 2022 fiscal year to June 30. That volume was just shy of Savannah's current capacity of 6 million teu.

The port authority's plan to add capacity for an additional 3 million teu by 2025 would give Savannah more room when the next cargo crush arrives. As Ocean Terminal undergoes its transformation, a newly expanded cargo berth will open in the summer at Savannah's main container terminal.

The expanded Ocean Terminal berths will be built in phases, with the first opening in 2025 and the second in 2026, Lynch said. He said converting an existing terminal to handle large container ships will be more efficient than building a brand new one, which would take up to five years.

Work will begin with rebuilding the docks to provide 850 m of berth space, capable of serving two ships simultaneously. 

Breakbulk cargo will shift to the Colonel’s Island terminal at the Port of Brunswick, which has historically focused on handling high-volume ro-ro shipments. 

The Port of Savannah, the US’ fourth-busiest container port, experienced a substantial increase in throughput in the post-pandemic era. In 2021, a boom year for containerized freight.

GPA moved about 10% of all US containerized cargo volume. The pace of growth continued this year. In August, the port handled 575,000 teu, an 18.5% increase compared to the same month in 2021. In October the port moved 553,000 teus, up 9.6% compared to the same month last year.

US shale oil output to grow at snail's pace

Oil output from the Permian shale basin in January is set to touch a record 5.6 million barrels per day (bpd), said US forecast on Monday, but the increase is a third of September's pace.

Output in the biggest US shale oil basin is set to rise by about 37,000 bpd, the smallest gain in seven months, based on projections from the US Energy Information Administration (EIA) in its monthly drilling productivity report.

Gains slowed as some of the largest firms are warning of overworked oilfields and less productive new wells.

Overall US output is forecast to reach a record 9.32 million bpd in January, according to the EIA, up only 94,500 bpd over the prior month. In August, the month-over-month increase was 207,500 bpd.

Legacy oil production change, which excludes output from new wells, will show steeper declines in all major shale producing regions in January. Production from new wells, defined as one that began producing for the first time in the previous month, also is expected to fall.

In the Bakken region of North Dakota and Montana, the EIA forecast oil output next month will rise 21,000 bpd to 1.22 million bpd, the largest total since November 2020.

In the Eagle Ford shale in South Texas, output will rise 10,000 bpd to 1.24 million bpd in January, its highest total volume since April 2020.

Natural gas production also is expected to grow by 535 million cubic feet per day to a record 96.28 billion cubic feet of gas per day. US gas production is rising sharply amid growing global need for the fuel.

In the biggest shale gas basin, Appalachia in Pennsylvania, Ohio and West Virginia, January output will rise to 35.53 bcfd, the highest since hitting a record 36 bcfd in December 2021.

Gas output in the Permian and the Haynesville field in Texas, Louisiana and Arkansas will rise to record highs of 21.39 bcfd and 16.41 bcfd in January, respectively.

EIA said producers drilled 1,005 wells in November, the most since March 2020. Total drilled-but-uncompleted (DUC) wells rose by 22 to 4,443 in November, the first monthly increase since June 2020

 

US to witness erosion in stockpiles due to pipeline outage and rig count decline

An outage of the largest oil pipeline to the United States from Canada could affect inventories at a key US storage hub and cut crude supplies to two oil refining centers, analysts and traders said on Friday.

TC Energy's Keystone pipeline ferries about 600,000 barrels of Canadian crude per day (bpd) to the United States. It was shut late Wednesday after a breach spewed more than 14,000 barrels of oil into a Kansas creek, making it the largest crude spill in the United States in nearly a decade.

The main question continues to be the duration of the potential outage. The longer the duration can potentially tighter inventories erosion of Cushing or heavy crude on the Gulf Coast," said Michael Tran, Managing Director at RBC Capital markets.

The line runs directly to the Cushing, Oklahoma, storage hub, which is currently about a third full with nearly 24 million barrels in stock.

If the outage last for more than 10 days, it could push Cushing storage to near the operational minimum of 20 million barrels, said AJ O'Donnell, Director at pipeline researcher East Daley Capital.

Volumes in the fourth quarter will be materially affected," as Keystone likely will run at a considerably lower pressure at least for some time once it restarts, said Harshit Gupta, Arc Independent research.

Other pipelines between Canada and the United States are at or near capacity, East Daley and data analytics firm Wood Mackenzie estimates.

"There's nowhere near enough to take 600,000 barrels a day. There's just not enough pipeline right now," O'Donnell said.

The spill in Kansas took place downstream from a key junction in Steele City, Nebraska, where Keystone splits to run into Illinois. That stretch of the line could be restarted, but the other segment affected by the spill will not come back until regulators approve a restart.

TC Energy aimed to restart on Saturday a pipeline segment that sends oil to Illinois, and another portion that brings oil to Cushing on December 20, Bloomberg reported, citing sources. TC Energy said it was evaluating plans to return the pipeline to service.

Volumes to the Gulf from Cushing have already dropped. Volumes on TC Energy's Marketlink pipeline, which flows from Cushing to Nederland, Texas, fell by about 300,000 bpd to less than 500,000 bpd, Wood Mackenzie estimates, after the leak was discovered.

Gulf Coast refiners, which could suffer shortages of heavy Canadian crude, can draw on supplies from offshore Louisiana facilities and from Colombia, Mexico and Ecuador.

US physical crude oil grade prices were mixed on Thursday and O'Donnell at East Daley said he expects volatility to continue as long as Keystone remained offline.

Meanwhile, a lengthy shutdown of the pipeline could lead to Canadian crude getting bottlenecked in Alberta, and drive prices lower, although the market's reaction on Friday was muted.

Western Canada Select (WCS), the benchmark Canadian heavy grade, for December delivery last traded at a discount of US$27.70 per barrel to the U.S crude futures benchmark, according to a Calgary-based broker. On Thursday, December WCS traded as low as US$33.50 under US crude, before settling at around a US$28.45 discount.

Rig Count

US energy firms this week cut the number of oil and natural gas rigs operating for the first time in six weeks as oil prices fell to their lowest this year.

The US oil and gas rig count, an early indicator of future output, fell by four to 780 in the week ended December 09, energy services firm Baker Hughes Co. said in its closely followed report on Friday. Oil rigs fell two to 625 this week, while gas rigs declined by two to 153, their lowest since July.

US oil futures were trading around US$71 a barrel on Friday, down about 6% so far this year, after topping US$130 in March after Russia's invasion of Ukraine.

US crude production was on track to rise from 11.25 million barrels per day (bpd) in 2021 to 11.87 million bpd in 2022 and 12.34 million bpd in 2023, according to federal energy data. That compares with a record 12.32 million bpd in 2019.

 

 

 

Globalization almost dead, says TSMC Founder

Morris Chang , father of Taiwan's chip industry said geopolitics have drastically changed the situation facing semiconductor makers and warned that globalization and free trade are almost dead, and unlikely to come back, reports Nikkei Asia.

Morris Chang, Founder of Taiwan Semiconductor Manufacturing Company was speaking at an event in Phoenix, Arizona, where the company marked the symbolic first equipment installation at its new plant.

It is TSMC's first advanced chip plant in the United States in more than two decades, and Chang said a lot of hard work remains to make it a success.

He compared the current US$40 billion project to when TSMC built its first plant in the US in Camas, Washington, in 1995, just eight years after the world's biggest contract chipmaker was founded.

"Twenty-seven years have passed and the semiconductor industry witnessed a big change in the world, a big geopolitical situation change in the world," Chang said.

"Globalization is almost dead and free trade is almost dead. A lot of people still wish they would come back, but I don't think they will be back."

His comments come amid growing fears that tensions between the US and China over chips, splitting the global tech supply chain into two camps. Washington's crackdown on Beijing's chip ambitions, seen most recently in new restrictions rolled out in October, have made it increasingly difficult for companies like TSMC to serve clients in China.

Chang said he had always dreamed of building a chip plant, or fab, in the United States because of his own background. He was educated and worked in the US for several decades. But his first experience did not go smoothly.

"It was, I thought, a dream fulfilled," Chang said. "But the first plant ran into cost problems. We ran into people problems, we ran into cultural problems. The dream fulfilled became a nightmare fulfilled. It took us several years to untangle ourselves from my nightmare, and I decided that I needed to postpone the dream."

In the decades that followed, TSMC focused on building up cutting-edge chip production capacity in its home market, a strategy that helped the company keep costs down while continually honing its technological know-how.

Chang said the tool installation event -- an important milestone in building a chip plant -- signaled the end of one phase in making its US bid pay off.

"The romance of the beginning is lost and the initial excitement is gone. A lot of hard work remains," the industry veteran said.

But Chang added that TSMC is much more prepared than its first time building a chip plant in the US with the support of the US government.

A large delegation of top chip and tech industry CEOs attended the event, as did US President Joe Biden, who lauded the plant as a win for the US in its push to make cutting-edge chips domestically.

Washington has cited national security concerns and supply issues for wanting to bring vital semiconductor production back to its shores. Many industry executives agree that the era of globalization is retreating, and that sourcing locally is now a top priority.

Lisa Su, CEO of chip developer AMD, told Nikkei Asia on the sidelines of the event that supply chain continuity is now one of the top priorities for companies like hers.

"The entire semiconductor ecosystem is ready to step up and work together. ... The industry has been through so much in the past few years. Having more geographically diversified capacity is so important," Su said, referring to the unprecedented chip shortage. "At the end of the day, what we want to do is ensure that our most important chips have a resilient supply chain."

Apple CEO Tim Cook also embraced the idea of onshoring chip production despite his company for years relying on global suppliers to lower the costs of its designed in the US products.

"Over the past several years, the progress we've made with Apple silicon has transformed our devices. It has unlocked new levels of performance for our users, enabling them to do things they could never do before," said Cook at the event. "And now, thanks to the hard work of so many people, these chips can be proudly stamped 'Made in America.' This is an incredibly significant moment. It's the chance for the United States to usher in a new era in advanced manufacturing."

"Building fabs is clearly very hard work," Nvidia CEO Jensen Huang told Nikkei Asia on the sidelines. "Today's event is marking that TSMC will be a fundamental partner of every company's aim for supply chain resilience. It will make TSMC even stronger. As TSMC increases its own supply chain resilience by building a fab in the US, it will give us resilience, too."

Apple, AMD and Nvidia are set to be among the first customers for TSMC's Arizona plant.

 

 

Brittney Griner saga

Basketball star Brittney Griner was released from a Russian penal colony Thursday — and America’s reaction has been so polarized, it’s like watching a split-screen.

The bare facts are these:

Griner was arrested in February at a Moscow-area airport with vape cartridges containing marijuana oil in her luggage. She pleaded guilty at her subsequent trial and, last month, was moved to a penal colony with a grim reputation in the western region of Mordovia.

In order to get her out, the Biden administration agreed to release a notorious Russian arms dealer, Viktor Bout, who had been serving a 25-year sentence imposed in 2012 for crimes including conspiracy to kill Americans.

Importantly, the deal failed to spring from captivity another American in Russian detention, Paul Whelan, who was arrested in 2018 on espionage charges. Whelan proclaims his innocence despite having been convicted by a Russian court in 2020 and sentenced to 16 years in prison.

Griner is a Black, lesbian athlete whose plight became a cause celebre, especially in liberal circles and in the worlds of sport and popular culture. 

Whelan is a white, middle-aged former Marine whose family has struggled to get his case into the headlines at all. 

Bout, for his part, has a story lurid and macabre enough to inspire a Hollywood movie and earn him the nickname “The Merchant of Death.”

 “The entire decision to release Griner and then the response to it is emblematic of America,” said Tobe Berkovitz, a Boston University professor emeritus who specializes in political communication.

“One part of America is celebrating the release of an African American gay woman, and another part of America is bemoaning the continuing long imprisonment of a white Marine.”

There is also the broader backdrop of Russia’s war in Ukraine to consider, as well as the frayed nature of American political culture.

“This is really the perfect storm,” said Democratic strategist Joel Payne. He added that, within the case, there are “a number of thorny domestic cultural issues exploding, along with difficult geopolitical challenges outside the US … What happens when those things meet?”

Carlson, in a segment on his show Thursday — the day of Griner’s release — put the contrast between Griner and Whelan in especially stark terms.

“The former Marine, who has been there for four years already, gets left behind in Russia, while the celebrity athlete [who] gets busted with hash oil is championed by her celebrity media friends like Gayle King [of CBS News] and is home in just months,” Carlson complained.

 “If you are someone who thought Brittney Griner should have spent nine years in a penal colony, I think it probably says something about the value you put on her as a Black woman, an athlete and an LGBT woman.”

Cherelle Griner, Brittney’s wife, speaking alongside Biden at the White House on Thursday, said the couple “will remain committed to the work of getting every American home, including Paul, whose family is in our hearts today as we celebrate BG being home.”

Xi calls for oil trade in yuan

President Xi Jinping told Gulf Arab leaders that China would work to buy oil and gas in yuan, a move that would support Beijing's goal to establish its currency internationally and weaken the US dollar's grip on world trade.

Xi was speaking in Saudi Arabia where Crown Prince Mohammed bin Salman hosted two milestone Arab summits with the Chinese leader which showcased the powerful prince's regional heft as he courts partnerships beyond close historic ties with the West.

Top oil exporter Saudi Arabia and economic giant China both sent strong messages during Xi's visit on non-interference at a time when Riyadh's relationship with Washington has been tested over human rights, energy policy and Russia.

Any move by Saudi Arabia to ditch the dollar in its oil trade would be a seismic political move, which Riyadh had previously threatened in the face of possible US legislation exposing OPEC members to antitrust lawsuits.

China's growing influence in the Gulf has unnerved the United States. Deepening economic ties were touted during Xi's visit, where he was greeted with pomp and ceremony and met with Gulf states and attended a wider summit with leaders of Arab League countries spanning the Gulf, Levant and Africa.

At the start of Friday's talks, Prince Mohammed heralded a historic new phase of relations with China, a sharp contrast with the awkward US-Saudi meetings five months ago when President Joe Biden attended a smaller Arab summit in Riyadh.

Asked about his country's relations with Washington in light of the warmth shown to Xi, Foreign Minister Prince Faisal bin Farhan Al Saud said Saudi Arabia would continue to work with all its partners. "We don't see this as a zero sum game," he said.

"We do not believe in polarization or in choosing between sides," the prince told a news conference after the talks.

Though Saudi Arabia and China signed several strategic and economic partnership deals, analysts said relations would remain anchored mostly by energy interests, though Chinese firms have made forays into technology and infrastructure sectors.

"Energy concerns will remain front and centre of relations," Robert Mogielnicki, senior resident scholar at the Arab Gulf States Institute in Washington, told Reuters.

The Chinese and Saudi governments will also be looking to support their national champions and other private sector actors to move forward with trade and investment deals. There will be more cooperation on the tech side of things too, prompting familiar concerns from Washington."

Saudi Arabia agreed a memorandum of understanding with Huawei this week on cloud computing and building high-tech complexes in Saudi cities. The Chinese tech giant has participated in building 5G networks in Gulf states despite US concerns over a possible security risk in using its technology.

Saudi Arabia and its Gulf allies have defied US pressure to limit dealings with China and break with fellow OPEC Plus oil producer Russia over its invasion of Ukraine, as they try to navigate a polarized world order with an eye on national economic and security interests.

Riyadh is a top oil supplier to China and the two countries reaffirmed in a joint statement the importance of global market stability and energy collaboration, while striving to boost non-oil trade and enhance cooperation in peaceful nuclear power

Xi said Beijing would continue to import large quantities of oil from Gulf Arab countries and expand imports of liquefied natural gas, adding that their countries were natural partners who would cooperate further in upstream oil and gas development.

China would also make full use of the Shanghai Petroleum and National Gas Exchange as a platform to carry out yuan settlement of oil and gas trade, he said.

Beijing has been lobbying for use of its yuan currency in trade instead of the U.S. dollar.

A Saudi source, speaking before Xi's visit, told Reuters that a decision to sell small amounts of oil in yuan to China could make sense in order to pay Chinese imports directly, but it is not yet the right time.

Most of Saudi Arabia's assets and reserves are in dollars including more than US$120 billion of US Treasuries that Riyadh holds, and the Saudi riyal, like other Gulf currencies, is pegged to the dollar.

Earlier, the Chinese leader said his visit heralded a new era in relations, voicing hope the Arab summits would become "milestone events in the history of China-Arab relations".

 

TSMC to triple US chip investment

Taiwan Semiconductor Manufacturing Company (TSMC) is to more than triple its investment in the United States to US$40 billion to bring the world's most advanced chip production technology to the country by 2026.

TSMC, the world's biggest contract chipmaker, announced to increase its investment in Arizona, where it is building a US$12 billion chip facility, to US$40 billion in order to build a second, even more advanced plant there.

The announcement came ahead of an equipment installation ceremony at the first facility attended by US President Joe Biden and numerous tech industry executives.

The additional facility will begin operation by 2026 and will be the first plant in the US to make 3-nanometer chips, the most advanced currently available, a White House official said.

In line with the expansion, TSMC will increase its workforce in Arizona to 4,500, from an initial plan of 1,600, the company said.

Nanometer size refers to the distance between transistors on a chip - the smaller the number, generally speaking, the more powerful the chip. As the brains of electronic devices, such chips are vital for everything from smartphones and autonomous vehicles to supercomputers and AI technologies.

TSMC's first plant, which is slated to begin production in 2024, will produce 4-nm chips of the kind used for iPhone 14 Pro processors. Once that plant and the 3-nm facility are operating at full capacity, TSMC's total output in Arizona will be 60,000 wafers per month, triple its original plan of 20,000.

"When complete, TSMC Arizona will be the greenest semiconductor manufacturing facility in the United States producing the most advanced semiconductor process technology in the country, enabling next generation high-performance and low-power computing products for years to come," TSMC Chairman Mark Liu said in a statement.

"We are thankful for the continual collaboration that has brought us here and are pleased to work with our partners in the United States to serve as a base for semiconductor innovation."

Apple and chipmakers AMD and Nvidia will be among the first customers buying chips from TSMC's Arizona plant, according to an announcement by the company and the White House, confirming an earlier Nikkei Asia report.

AMD told Nikkei Asia that it looks forward to having its most advanced chip products built in TSMC's Arizona fabs.

Nvidia's CEO Jensen Huang said in a statement that bringing TSMC's investment to the United States is a masterstroke and a game-changing development for the industry.

Biden's decision to attend the equipment installation ceremony underscores the importance of TSMC to Washington's chip ambitions.

Speaking at the event, Biden said America had once had more than 30% of global chip production.

"Then something happened. American manufacturing, the backbone of our economy, began to get hollowed out. Companies moved jobs overseas," he said.

"Today we're down to producing only around 10% of the world's chips, despite leading the world in research and design in new chip technologies. But ... where is it written that America can't lead the world once again in manufacturing? I don't know where that's written, and we're proving it can."

Biden was joined by a who's who of the tech industry, including CEOs from companies such as Apple, Nvidia and AMD as well as top chip making tool companies Applied Materials and Lam Research plus other chip-related players such as Entegris, Synopsys and Arm.

TSMC founder Morris Chang, Chairman Mark Liu and CEO C.C. Wei all attended.

Liu said in his remarks that the plant has the potential to generate US$10 billion in revenue a year and chips produced there could help build advanced electronics products worth US$40 billion a year.

The companies represented at the ceremony are worth at least US$4 trillion, making the event the most important gathering in the semiconductor industry in the post-pandemic era.

In the chip industry, a tool move-in event signals that the installation of essential equipment has begun and is a significant milestone for a chip making facility to become operational.

TSMC's announcement comes as Washington is pushing hard to onshore vital production of semiconductors. In addition to their economic importance, chips are also seen as vital to national security - a sentiment reflected in the latest round of export controls Washington imposed on China in an attempt to curb its semiconductor advancement.

Their importance was further brought home by a global chip shortage sparked by the pandemic and supply chain disruptions, hitting a range of industries.

Rising political tensions between China and Taiwan, the self-ruled democratic island where TSMC is based and which Beijing views as part of its territory, have further accelerated Washington's push to diversify chip production.

Most of the world's cutting-edge chips are built in Asia by TSMC and Samsung Electronics of South Korea.

The US is hoping to change this by offering incentives for companies to build chip capacity on American soil. In July, lawmakers passed the US$52.7 billion CHIPS and Science Act package to boost the domestic semiconductor industry.

In addition to TSMC's expanded investment plans, Samsung is building a US$17 billion plant in Texas, while top US chipmaker Intel is spending at least $40 billion to build chip plants in Arizona and Ohio.

Only TSMC, Samsung and Intel are building or attempting to build chips as advanced as 3-nm, and all aim to put even more advanced 2-nm chips into production by 2025.

 

Transition from WTO to TTC

After long championing the World Trade Organization (WTO) and its predecessor GATT as the key venue for pursuing its commercial economic interests, the United States shifted more than a decade ago toward building alternative trade architecture.

President Barack Obama’s Trans-Pacific Partnership was aimed at crafting an Asia-Pacific trade bloc that left out China, a plan that was upended by his successor. Now, there’s a new body that warrants close attention, United States-European Union Trade and Technology Council (TTC).

Opened for business in 2021, the TTC this week held its third minister-level gathering. Originally designed by the Biden administration to resolve and manage disputes, it’s been evolving into a forum for coordinating economic approaches to systemic rivals of the US and Europe, specifically Russia and China, reports Bloomberg.

With TTC links between Washington and Brussels bureaucrats set up last year, the council found fresh purpose with Russia’s February invasion of Ukraine, enabling more effective coordination on sanctions and export controls.

The TTC reaction to Vladimir Putin’s aggression is also serving as something of a template for China, should Xi Jinping choose to make war on Taiwan. Indeed, there’s already evidence the TTC is emerging as a forum for the US and Europe to link up on issues concerning Beijing.

On December 05, 2022 the TTC served as a venue for discussing President Joe Biden’s push to hobble China’s semiconductor industry. Coincidentally, Dutch officials are already planning new controls on exports of chip-making equipment to China, potentially aligning with the US efforts to restrict Beijing’s access to high-end technology.

Germany, France and other EU members remain much more hesitant to embrace aggressive moves toward reducing China’s place in global supply chains. German Chancellor Olaf Scholz’s visit to Beijing last month with an entourage of business leaders from his country showcased that dynamic.

But the TTC now provides a permanent venue in which moves against China can be debated. With the WTO’s ability to rule on controversial trade measures effectively crippled by its inability to hear appeals (thanks to Donald Trump), the TTC is fast becoming the West’s preferred platform for hashing out global trade strategy. 

The TTC, along with the less formal US-Japan initiative and Biden’s even-looser Indo-Pacific Economic Framework, aren’t technically focused on tariffs and quotas in the way traditional trade-talk forums or free-trade agreements were. 

Instead, these are aimed at the “soft infrastructure” of global commerce—standards, export controls, transparency requirements, investment reviews and labor and environmental rules, explains Stephen Olson, a former US trade negotiator now at the Hinrich Foundation. 

“The parties are essentially creating ecosystems,” Olson wrote in a note earlier this year. “Integration deepens not as a result of trade-barrier reductions, but rather in response to the need or desirability of doing business with partners that maintain similar labor protections or adhere to compatible technical standards.”

Underscoring the strengthening of US-European digital diplomacy—and an apparent determination to manage differences (like EU tax and regulatory policy toward US tech giants), the EU even opened an office in Silicon Valley.

There of course remain plenty of trans-Atlantic disputes, highlighted by European fury over Biden’s clean-energy and electric-vehicle subsidies in this year’s massive Inflation Reduction Act. This week’s TTC gathering, it turned, out provided another chance to address those.

But the council could become increasingly important in other ways, especially as digital trade and associated regulations develop. The TTC gathering in September of last year called out authoritarian regimes for aiming to use technology to implement social control at scale.

Benjamin Larsen wrote in a Brookings Institution paper this week that the TTC can be viewed as the beginning steps towards forming an alliance around a human rights-oriented approach to the development of artificial intelligence in democratic countries.

In May, the two sides of the TTC took strides in another direction, agreeing to set up a Strategic Standardization Information mechanism to share information on international standards development—an area of increasing Chinese interest, as this newsletter highlighted.

The next TTC session is slated for mid-2023 in Europe. It will likely be a forum well worth watching

 

 

 

Pakistan Stock Exchange benchmark index closes almost flat

Economic uncertainty regarding Pakistan’s ability to make good on its debt payments kept the market under pressure during the week ended December 09, 2022. The benchmark index closed at 41,698 points, posting a decline of 1.07%WoW.

State Bank of Pakistan (SBP) confirmed the payment of US$1.08 billion of International Sukuk. This brought down foreign exchange reserves held by the SBP to US$6.7 billion on December 02, 2022.

Saudi Arabia provided a much-needed breathing space to Pakistan by announcing the rollover of US$3 billion which would help meet external sector challenges and achieve economic growth.

Participation in the market improved, though negligibly, with average traded volumes increasing to 179.7 million shares from 161.8 million shares in the earlier week.

Other major news flows during the week included: 1)  ECNEC okayed RKR333.6 billion for flood-hit projects, 2) GoP announced to borrow RKR5.52 trillion domestic debt over the next three months, 3) GoP debt rose to RKR50.152 trillion, 4) revised flood damages estimates estimated at US$46 billion, 5) tractor sales anticipated to decline 67 percent, 6) auto financing dropped for the fourth consecutive month, 7) Cement dispatches Declined by 17%YoY in November 20222 and 8) Cotton arrivals plunged 40%.

Top performing sectors were: Miscellaneous, Closed end mutual funds, and Vanaspati and Allied Industries, while the least favorite sectors were: Pharmaceuticals, Jute and Leasing.

Stock-wise, top performers were: PSEL, PGLC, MUREB, ILP, and BAHL, while laggards included: GLAXO, PIOC, CHCC, PSMC, and SEARL.

Individuals were major buyers with net buy of US$8.82 million, followed by Insurance companies with net buy of US$1.26 million. As against this, foreign investors were major sellers, with a net sell of US$6.26 million. Mutual funds continued to be a seller, with a net sell of US$3.71 million.

The market is expected to remain range-bound in the near future, clouded by liquidity concerns of the country, with foreign exchange reserves held by SBP plunging to US$6.7 billion— a less than one month import cover.

Some respite may come in the form of Saudi Arabia’s expected US$4.2 billion (US$3 billion in deposits and US$1.2 billion in deferred oil facilities), alleviating the pressures off the country’s FX reserves to some extent.

Political uncertainty and any developments regarding the 9th review by the IMF would remain in the limelight.

Indonesia plans using B35 biodiesel beginning 2023

Indonesia may start implementing a program to use biodiesel with 35% blend of palm oil-based fuel, known as B35, from January, 2023, a senior energy ministry official said on Friday.

Currently the world's top palm oil producer, Indonesia uses B30, containing 30% palm oil-based fuel. The overall palm oil-based fuel allocation for 2023 is estimated at around 13 million kilolitres in 2023, he said. Indonesia's 2022 allocation was 11.03 kilolitres.

Indonesian President Joko Widodo told his cabinet earlier this week to prepare the mechanism to implement B35 amid expectations that the crude oil price would remain high next year.

"The B35 policy is taken in anticipation of rising world oil prices and to reduce imports, while on the other hand this policy also aims to increase the use of renewable energy," ministry official Dadan Kusdiana said.

Southeast Asia's largest and most populous country is among the region's top importers of fuel, but authorities said import bills have been slashed significantly since Indonesia started expanding the portion of palm oil in biodiesel.

The expectation of B35 implementation helped palm oil prices in Malaysia higher, although some market participants were disappointed the blend would be lower than the anticipated 40%.

The energy ministry has been running trials for biodiesel containing 40% of fuel made using palm oil.

"Ten out of 12 of the vehicles tested had completed the road test with no significant issue and next we will determine the specification for B35 biodiesel," Dadan added, referring to the B40 trials.

“Hopefully, the B35 program can be implemented starting January 2023."

Indonesia is testing two formulation of B40, the first is a mix of diesel with 40% fatty acid methyl esters (FAME) and the second a mix of diesel with 30% FAME mixed with 10% green diesel made of refined, bleached and deodorized palm oil (RBDPO).

 

Keystone pipeline history of oil spills

According to a Reuters report, Canadian TC Energy Corp has shut its Keystone pipeline in the United States after more than 14,000 barrels of crude oil spilled into a creek in Kansas, making it one of the largest crude spills in the United States in nearly a decade. It is unclear how long the closure will last.

The 622,000 barrel-per-day pipeline is a critical artery shipping heavy Canadian crude from Alberta to refiners in the US Midwest and the Gulf Coast.

There have been several spills on the line since it began operating in 2010. The following is a timeline of some of Keystone's biggest oil spills, based on data from the US Pipeline and Hazardous Materials Safety Administration.

2011

May: TC shut the pipeline for six days after a spill of about 500 barrels of oil due to a failed fitting at a North Dakota pumping station. (https://reut.rs/3iKr5JC)

2016

April: TC shut down the pipeline after about 400 barrels of oil leaked in Hutchinson County, South Dakota. (https://reut.rs/3W2FjUx)

2017

November: TC shut part of the Keystone pipeline system after a leak in South Dakota, caused by mechanical damage from original construction. Originally pegged at 5,000 barrels, a TC spokesperson later put the estimate at about 9,700 barrels. (https://reut.rs/3P9J6Nu)

2019

February: Portions of the Keystone pipeline were shut down after 42 barrels of oil leaked on land in rural St. Charles County, Missouri. (https://reut.rs/3HkTBLZ)

October: An estimated 9,120 barrels of oil spilled in North Dakota. The spill was one of the biggest onshore crude spills in the last decade and the largest for Keystone, according to PHMSA. (https://reut.rs/3Hq4zjH)

 

 

US approves record military spending

The US House of Representatives backed legislation on Thursday paving the way for the defense budget to hit a record US$858 billion next year, US$45 billion more than proposed by President Joe Biden.

The House passed the compromise version of the National Defense Authorization Act, or NDAA, an annual must-pass bill setting policy for the Pentagon, by 350-80, far exceeding the two-thirds majority required to pass the legislation and send it for a vote in the Senate.

The fiscal 2023 NDAA authorizes US$858 billion in military spending and includes a 4.6% pay increase for the troops, funding for purchases of weapons, ships and aircraft; and support for Taiwan as it faces aggression from China and Ukraine as it fights an invasion by Russia.

"This bill is Congress exercising its authority to authorize and do oversight," said Representative Adam Smith, the Democratic chairman of the House Armed Services Committee, in a speech urging support for the measure.

Because it is one of the few major bills passed every year, members of Congress use the NDAA as a vehicle for a range of initiatives, some unrelated to defense.

This year's bill - the result of months of negotiations between Democrats and Republicans in the House and Senate - needed a two-thirds majority in the House after disagreement from some House members over whether it should include an amendment on voting rights.

The fiscal 2023 NDAA includes a provision demanded by many Republicans requiring the Secretary of Defense to rescind a mandate requiring that members of the armed forces get COVID-19 vaccinations.

It provides Ukraine at least US$800 million in additional security assistance next year and includes a range of provisions to strengthen Taiwan amid tensions with China.

The bill authorizes more funds to develop new weapons and purchase systems including Lockheed Martin Corp's F-35 fighter jets and ships made by General Dynamics.

The Senate is expected to pass the NDAA next week, sending it to the White House for President Joe Biden to sign into law.

NDAA is not the final word on spending. Authorization bills create programs but Congress must pass appropriations bills to give the government legal authority to spend federal money.

Congressional leaders have not yet agreed on an appropriations bill for next year.