Transatlantic Clean Investment Monitor: A Solar PV Snapshot

Economic

Energy

Summary:

This analysis compares the state of play in solar capacity in both the US and Europe.

Solar photovoltaic technology is set to be a critical enabler of the global energy transition, with mass deployment being enabled by a 90 percent drop in solar module costs over the past two decades. By 2025 more capacity to generate electricity from solar PV will have been deployed than any other generation technology (IEA, 2023a). A global solar manufacturing industry worth $90 billion has emerged, with China dominant. However, the market is marked by massive overcapacity, with global solar manufacturing capacity for modules in 2023 at 1,140 gigawatts (IEA, 2023b, 2024) compared to annual deployment of 345 GW (Ember, 2024).

Having kickstarted the solar industry with subsidies in the 2000s, Europe leads the United States in solar deployment. Yet, both regions generate similar amounts of electricity from solar, because of more sunshine in the US southwest. In the last few years, investment in US solar manufacturing has surged, spurred by the Inflation Reduction Act. This trend is not mirrored in Europe; the European Union imports almost all its solar cells and modules from China. Meanwhile, because of its trade policies limiting Chinese-origin imports, the US sources most of its solar equipment from Vietnam, Malaysia, Thailand and Cambodia.

Deployment

The solar industry was boosted by generous European subsidies in the 2000s. From more or less zero in 2005, solar deployment in the EU accelerated rapidly, increasing by 2011 to more than 20 GW annually (Figure 1). As subsidy schemes were phased down, solar deployment slowed in the early 2010s.

The US, despite significant investments in solar R&D in the early stages of development, largely missed this 2000s solar deployment wave. The first federal tax credit for solar generation, introduced in the Energy Policy Act of 2005, plus state-level support, primarily in California, helped drive a steady increase in solar deployment. By the second half of the 2010s, as solar panel prices fell, EU and US deployment converged to similar rates of around 10 GW per year.

In 2019, European annual deployment again picked up. This was not matched in the US. Consequently, the gap between the EU and US in terms of deployed solar capacity is again widening. As of 2023, the EU has deployed 257 GW of solar capacity, generating 9 percent of total electricity. This compares to 139 GW solar capacity and 6 percent in the US.

Transatlantic Clean Investment Monitor: A Solar PV Snapshot_1

In fact, despite the EU’s much greater deployed solar capacity, the EU and US generated similar amounts of solar electricity in 2023 (Figure 2). This is largely a consequence of the US having on average more sunlight hours per year. Average numbers of sunlight hours vary widely across both the US and EU. The difference between the two in output per deployed gigawatt demonstrates the advantage of deploying solar in sunnier geographies. Germany – with relatively low average solar hours – dominates European solar deployment, with more than double the capacity of any other EU country as of 2023 (Keliauskaitė et al, 2024).

Transatlantic Clean Investment Monitor: A Solar PV Snapshot_2

Manufacturing

While Europe leads the US in deployment, growth in solar manufacturing capacity is far faster in the US. Investments in the PV manufacturing supply chain were largely on par in the EU and US in 2021 and the first half of 2022 (Figure 3). US investment then started to accelerate in Q3 2022, coinciding with the enactment of the Inflation Reduction Act (IRA), which incentivises advanced manufacturing and clean electricity. These subsidies come on top of US tariffs that essentially block all solar imports from China.

Transatlantic Clean Investment Monitor: A Solar PV Snapshot_3

Companies invested more than $2 billion in US solar manufacturing in Q2 2024, a tenfold increase compared to the $198 million invested in Q2 2022. In Europe, investments in 2024 were at their lowest level ($281 million for the first half of the year) since 2021. A substantial volume of investment has been announced for Europe (Figure 4) but final investment decisions have been taken or construction started for only a small fraction. Since the IRA passed, the US has seen substantial growth in announcements.

Transatlantic Clean Investment Monitor: A Solar PV Snapshot_4

This sharp rise in solar manufacturing investment in the US is materialising into growing manufacturing capacity along the value chain (Figure 5). This can be seen by looking at three blocks of the solar value chain:

Wafers are sliced from blocks of melted polysilicon;

Wafers are then treated to create solar cells that convert sunlight into electricity;

Solar modules are assembled from many cells wired in parallel.

In the US, the installed capacity of module assembly almost doubled between 2023 and 2024 reaching 38 GW. Growth in earlier value chain stages has also been notable, with 8 GW of wafer production capacity under construction and 12 GW of solar cell manufacturing capacity. The US also has around 10 GW capacity for the production of integrated thin film solar panels produced from cadmium telluride (CdTe; Figure 5). This supply route is completely independent of our main focus on silicon-based solar panel production.

In comparison, Europe’s current manufacturing capacity, while also dominated by modules, is slightly more diverse, with 22 GW of operational solar module manufacturing capacity, 2 GW of wafer and 5 GW of cell manufacturing. Despite lower investment levels, Europe has capacity in the construction pipeline, with 12GW of module manufacturing capacity and 5 GW of both wafer and cell manufacturing.

Transatlantic Clean Investment Monitor: A Solar PV Snapshot_5

Trade

Both the EU and the US are heavily reliant on imports to meet solar PV demand, each running a trade deficit for solar PV modules and cells of about $20 billion in 2023 (Figure 6). In the face of threats to EU industrial capacity, the European Commission in 2012 investigated Chinese companies selling solar panels in Europe at far below market prices and subsequently imposed antidumping duties on Chinese solar panels in 2013. These tariffs reduced imports until 2018, when the tariffs were lifted amid fears that they undermined progress towards renewable energy deployment goals. EU imports of solar panels have increased markedly since then, most notably more than doubling from 2021 to 2022 as prices collapsed (McWilliams et al 2024).

Transatlantic Clean Investment Monitor: A Solar PV Snapshot_6

The US also imposed anti-dumping duties on solar panels from China in the early 2010s under the Obama administration, despite not facing large trade deficits like the EU. In 2018, the Trump administration imposed additional tariffs to protect the small US domestic solar manufacturing sector against low-priced imports. These policies shifted US imports away from China to four countries particularly (Vietnam, Malaysia, Thailand and Cambodia) which accounted for more than 75 percent of total US PV module imports and 64 percent of cell imports in 2023 (Figure 7a).

The Biden administration granted an exemption from tariffs to those four countries in 2022 to mitigate supply risks, while it attempted to bolster domestic clean technology manufacturing. From 2022 to 2023, the US solar trade deficit increased by 82 percent. In May 2024, following an investigation, the administration allowed the exemption to expire. By September, it had increased tariffs on solar cells imported from China.

Transatlantic Clean Investment Monitor: A Solar PV Snapshot_7

For the US, there are signs of supply chain diversification. The share of supply from India in US module imports increased from 2.5 percent in 2022 to 10.7 percent in 2024 (to time of writing; Figure 7a). For solar cells, Vietnam’s and Malaysia’s shares of US imports in 2024 are significantly reduced compared to 2022, falling from 22 percent to 10 percent and 62 percent to 34 percent, respectively. South Korea has filled this gap, supplying 34 percent of total imports in 2024 to date.

US cell imports rose significantly between 2022 and 2024 (Figure 8a). This was necessary because domestic solar module manufacturing growth has not been so far matched by operational domestic solar wafer or cell manufacturing. Imports from South Korea and India have increased significantly to meet this demand.

For Europe, China accounts for almost all solar module imports (96 percent to 98 percent in the past few years). In 2022 and 2023, imports of solar cells to the EU were almost exclusively from China. In 2024 to date, China’s share of solar cells imported to the EU has fallen by around 20 percent. Over the same period the value of solar cells imported into the EU has dropped significantly (Figure 8a).

Transatlantic Clean Investment Monitor: A Solar PV Snapshot_8

Looking ahead

With a rapidly changing manufacturing investment and trade policy landscape in the US, and Europe largely maintaining the status quo, it is likely that they will continue to experience diverging trends. In terms of PV supply chains, the current US approach is to aim for more domestic supply and less China-linked supply, whereas Europe prioritises fast-paced deployment of the technology in electricity generation. Our next Bruegel/Rhodium briefing notes will explore how these deployment and manufacturing trends materialise for other clean energy technologies.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

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SAXO

Economic

Introduction

Earnings season often brings heightened volatility to major stocks, and Amazon is no exception. For investors looking to gain exposure to Amazon at a discount, this volatility creates an ideal opportunity. A cash-secured put is a strategy that allows investors to “get paid to wait” by collecting premium income while positioning for a discounted entry if assigned.

This article explores how selling a cash-secured put on Amazon, with an example using the November 29, 2024, expiry, can capitalize on the elevated volatility surrounding earnings events. The options prices, premiums, and strike prices mentioned throughout the article are based on the conditions at the time the data was captured, and are provided purely as educational examples. By the time of publishing, actual prices and premiums may differ.

Important note: Investors should conduct their own due diligence and make independent decisions on expiry dates, strike prices, and other parameters to align with their personal investment goals and risk tolerance.The strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

We’ll walk through the details of this strategy, how it compares to using a limit order, and the associated risks and benefits.

What is a cash-secured put?

For those unfamiliar with the strategy, a cash-secured put is a conservative options strategy often used by investors who are interested in buying a stock at a specific price but would prefer to “get paid to wait” rather than placing a simple limit order. Here’s how it works:

When selling a cash-secured put, an investor agrees to buy shares of a stock at a predetermined price (known as the strike price) if the option is exercised. In return for taking on this obligation, the investor receives a premium upfront, which serves as income regardless of whether they end up buying the stock.

The “cash-secured” part of the strategy means the investor sets aside enough cash in their account to cover the purchase if they are assigned the shares. For example, if selling a put with a strike price of $180 on Amazon, they would reserve $18,000 (100 shares x $180) to buy the shares if assigned.

There are two possible outcomes:

The option expires without assignment: If Amazon’s stock price stays above the strike price, the option expires worthless, and the investor keeps the premium as pure profit.

The option is assigned: If Amazon’s price falls below the strike price, the investor buys the stock at that price, effectively acquiring Amazon at a discount when considering the premium collected.

This strategy appeals to investors who are comfortable owning a particular stock at a given price and enjoy the added benefit of premium income while they wait for a potential entry.

Why a cash-secured put on amazon makes sense during earnings season

Selling a cash-secured put on Amazon around earnings season offers two distinct advantages: income generation and the potential for a discounted entry into the stock.

Attractive entry point: By choosing a lower strike price (e.g., $180), investors can set a price below Amazon’s current level of $189.59, aligning with a strategic entry during high volatility.

Premium income: If the option is sold at a premium, such as $14.60 per share (or $1,460 for one contract), this income is collected upfront and kept as profit if the stock remains above the strike price by expiry. This translates to a return of around 8.1% for a 32-day period on the reserved capital.

Effective cost basis: Should Amazon’s price fall and the option be assigned, the investor’s effective entry price would be the strike price minus the premium collected, offering a discount from the original level.

Cash-secured put flowchart

To better understand this strategy, here’s a flowchart summarizing the steps involved:

Smart Investor - Getting Paid to Wait: Using Put Options to Buy Amazon at a Discount During Earnings Season_1

Why volatility around earnings is ideal for selling puts on amazon

Earnings events can generate substantial volatility for Amazon, driving up options premiums due to heightened implied volatility (IV). This elevated IV provides a unique opportunity for put sellers to capture higher-than-average premiums. Here’s why timing the strategy around earnings events can be beneficial:

Volatility advantage: During earnings season, implied volatility for Amazon’s options often increases for certain strikes. This elevated IV means investors can capture a higher premium by selling puts, capitalizing on market anticipation or post-earnings reactions.

Premium collection opportunity: With volatility elevated around the earnings period, the premium collected from selling a put provides an immediate income boost. Even if Amazon’s price remains above the chosen strike price, the investor keeps the entire premium, representing a strong return on the cash held in reserve.

Amazon’s historical price chart (5-year view)

For context, Amazon’s 5-year price chart provides a view of the stock’s longer-term trajectory, helping illustrate the positioning of this cash-secured put in a broader trend.

Smart Investor - Getting Paid to Wait: Using Put Options to Buy Amazon at a Discount During Earnings Season_2

Detailed breakdown of the cash-secured put trade on amazon

Strike price and expiry: A strike price below Amazon’s current level, with an expiry chosen to align with a post-earnings period (e.g., November 29, 2024), offers a balanced opportunity. It allows the seller to capitalize on Amazon’s volatility while setting a reasonable discount for entry.

Premium details: Selling a put at a premium (e.g., $14.60 per share) yields immediate income.

Profit scenarios:

If not assigned: The investor keeps the premium collected, representing a return on the reserved cash.

If assigned: Should the stock fall below the strike price, the investor buys Amazon shares at an effective cost basis below the strike price, with the premium helping to offset the entry cost.

Strategy window screenshot of the cash-secured put

To give readers a precise view of this setup, here’s a strategy window screenshot with details on the premium, breakeven, and profit zones.

Smart Investor - Getting Paid to Wait: Using Put Options to Buy Amazon at a Discount During Earnings Season_3

Comparing cash-secured puts with limit orders

An alternative to selling a cash-secured put would be placing a limit order. However, there are some key differences:

No income while waiting: A limit order at a specific price generates no income while the cash remains idle. In contrast, a cash-secured put collects premium upfront, providing a return while waiting.

Lower effective entry: If the option is assigned, the effective entry price with a cash-secured put can be below the chosen strike price, whereas a limit order would have an entry price at the set level.

Flexibility in outcomes: With a put, the seller can benefit if the price remains above the strike, collecting income without buying the stock.

This comparison shows how cash-secured puts allow for both income generation and a potentially better entry price.

Understanding the risks of cash-secured puts

While cash-secured puts can be rewarding, there are associated risks, especially during earnings:

Assignment risk: If Amazon’s earnings disappoint or volatility increases unexpectedly, the stock may drop sharply, leading to assignment at a price above the market. Investors should be prepared to hold Amazon at their effective entry price.

Capital commitment: With cash reserved, investors may miss other opportunities, as this capital is effectively locked up for the option’s duration.

Volatility crush post-earnings: After earnings, implied volatility typically drops, potentially reducing the option’s value. This means investors looking to close early might see reduced premiums.

Market and sector risks: Broader market conditions, economic trends, or tech-sector headwinds could impact Amazon’s price, adding risk.

Conclusion

Selling a cash-secured put on Amazon provides investors a chance to earn premium income while setting up a favorable entry point if the stock declines. By timing this strategy around earnings, investors can leverage high volatility to create income potential.

Selling cash-secured puts is just one part of a broader income strategy known as the “wheel strategy.” If assigned, the next step is to sell covered calls on Amazon shares. Stay tuned for our upcoming article that will dive deeper into the wheel strategy and how it can create consistent income.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Economic

UK autumn budget and higher global yields weigh on FTSE 100

The UK autumn budget with its £40bn tax increase, £28 billion annual borrowing and £70 billion spending boost for 2026-27 has led to a rise in UK borrowing costs. Both the 10- and 30-year Gilt yields rallied to one-year highs this week and dampened demand for stocks.

The FTSE 100's fall through its 8,150 September low following Wednesday’s UK autumn budget has also taken the index to below its 200-day simple moving average (SMA) at 8,100 with the late July low at 8,056, the tentative April-to-October uptrend line at 8,055, February 2023 peak at 8,047 and the psychological 8,000 mark representing a possible downside target zone.

Where to Next for the FTSE 100: Year-end and 2025 Forecast_1

A possibly steeper decline may take the FTSE 100 all the way down to its August low at 7,916.

Year-end 2024 target 8,200-to-8,300

Provide the FTSE 100 August trough at 7,916 underpins on a weekly chart closing basis, the FTSE 100 is expected to gradually head back up towards the 8,200-to-8,300 region as it enters the seasonally usually positive end to the year. The major August-to-October sideways trading phase between 8,169 and 8,414 is not expected to be exceeded this year, however, but may be overcome in 2025.

Where to Next for the FTSE 100: Year-end and 2025 Forecast_2

Minor resistance at the bottom of the wide 8,169-to-8,414 zone can be spotted at September-to-early October lows at 8,169-to-8,184.

For the bulls to be back in control a rise and daily chart close above the mid-October high at 8,395 would need to be seen. Such a bullish reversal currently looks highly unlikely, though.

What would a fall through the August low mean?

In case of the August low at 7,916 giving way, a significant long-term top would be formed with the July 2023-to-March 2024 highs at 7,785-to-7,687 being targeted in the first quarter (Q1) of 2025.

2025 forecast

As long as no fall through the August low at 7,916 occurs, the 500+ point wide April-to-October sideways trading range, is expected to be re-integrated as early as the first quarter of 2025.

Towards the middle part of next year another attempt at reaching the 8,500 mark could be made and, if successful, the 8,700-to-8,800 region be reached by end of 2025 as investors believe that the UK might have started to turn the corner and begins growing more substantially again following the autumn budget.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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ACY

Economic

Political

Rethinking 2016 as a Model for 2024

Leveraging the 2016 U.S. election as a template for forecasting 2024's potential outcomes might seem logical on the surface but could ultimately lead to flawed assumptions due to stark contrasts in context, voter sentiment, and candidate positioning. In 2016, Trump’s victory blindsided analysts and markets alike, with most major forecasting models, like FiveThirtyEight, assigning him around a 28% chance of winning. This unexpected outcome spurred rapid market recalibrations, as investors scrambled to interpret the incoming administration’s policies. By contrast, Trump’s 2024 candidacy is perceived as significantly more competitive, with current odds placing him above 50% in some prediction models, depending on the polling source. This shift in expectation indicates that a Trump win would likely not provoke the same degree of market shock as it did in 2016. While any unexpected result could still generate volatility, investors are arguably better prepared for a Trump win, dampening the probability of a drastic market shift on par with 2016. As such, market players might need to focus more on policy implications rather than bracing for surprises in outcome.

Prolonged Election Uncertainty and Its Impact on Markets

The U.S. equity market has historically struggled with prolonged election uncertainties, with significant examples from both the 2000 and 1876 elections underscoring how unresolved electoral disputes can instigate prolonged volatility. In 2000, a contentious recount process in Florida delayed the official declaration of a winner by over a month. This uncertainty induced a notable drop in the S&P 500, as apprehensive investors sought stability amidst the prolonged suspense. Similarly, the 1876 election experienced months of unresolved tension, exacerbated by the “Long Depression,” further compounding investor concerns and economic downturns. As we approach 2024, where tight races in battleground states are expected, there exists a considerable risk that recounts or legal disputes could delay a definitive result, mirroring the volatility seen in previous protracted elections. For markets, this would likely translate into hesitancy, with investors holding off on substantial commitments until a clear outcome emerges, increasing short-term volatility and risk aversion across equities.

Congress and Presidential Agenda: The Role of Unified and Divided Government

The power of a president to enact significant policy changes is intrinsically tied to the makeup of Congress. Recent presidencies have often commenced with unified government control, enabling swift advancement of the executive’s legislative agenda. A united Congress facilitates ambitious initiatives, such as fiscal stimulus, healthcare reform, or infrastructure investments, which have significant market implications. However, a divided Congress—where one party controls either the Senate or the House—often results in legislative gridlock, limiting the president’s ability to achieve significant policy wins and increasing the likelihood of fiscal debates and government shutdown risks. As 2024 nears, prediction models suggest a real possibility of a divided government, with neither party guaranteed sweeping control over both the presidency and Congress. Such an outcome could require substantial compromises on policies around fiscal stimulus, debt ceiling negotiations, and critical federal appointments, potentially resulting in market ambivalence or cautious optimism depending on the sectors most likely to be affected by this legislative impasse.

The Correlation of Polling Errors Across States and Elections

The historical correlation of polling errors across key states and election cycles has been a recurring theme, significantly impacting both the presidential race and congressional predictions. In 2016, polling data underestimated Republican support across several crucial swing states, ultimately tipping the scales in Trump’s favour. This pattern repeated in 2020, where many pre-election forecasts once again undervalued Republican turnout and performance. Such cross-state correlation suggests that polling errors tend to propagate across similar demographic or geographic regions, meaning a polling miss in one battleground state often mirrors inaccuracies in other key regions. For 2024, this raises caution for analysts relying on polling data to project outcomes in close races. Should polls once again underestimate Republican turnout or voter behaviour, such inaccuracies could ripple across predictions for both the presidency and congressional seats, underscoring the need for a critical examination of polling methodologies and the potential impact on market expectations, particularly in sectors sensitive to legislative shifts.

In preparing for the 2024 U.S. election, traders should incorporate lessons from past elections while accounting for present-day nuances. The evolving political landscape demands attention not only to candidate forecasts but also to the broader context of potential prolonged election disputes, the composition of Congress, and the ongoing correlation of polling errors. By recognizing these variables, traders can better anticipate areas of market sensitivity and prepare for potential volatility. In an election cycle where surprises are possible but not unprecedented, historical precedents combined with present-day insights will be key to navigating this complex terrain effectively.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Westpac

Economic

In Australia, the Q3 CPI reported a 0.2% (2.8%yr) increase in headline inflation and a 0.8% (3.5%yr) lift in underlying trimmed mean inflation, both of which broadly met expectations. The impact of rebates was apparent in the headline detail, a –17.3% fall in electricity prices in Q3 the main reason why headline inflation managed to return to the band, alongside softness in auto fuel prices (–6.7%). Abstracting from these big moves, the underlying narrative has not changed materially since Q2. Price pressures in policy-sensitive components of consumption remain benign, discretionary inflation (ex tobacco) holding at a 2.1%yr pace in Q3. However, inflation is only gradually abating across non-discretionary items (excluding energy) such as rents and insurance.

Following this data release, Chief Economist Luci Ellis affirmed Westpac’s view that the RBA’s rate cutting cycle will begin in February 2025. Importantly, Q3 trimmed mean inflation was broadly in line with the RBA’s own forecasts; together with the recent revisions to activity data pointing to a better picture around supply capacity and productivity than previously assumed, the inflation detail suggests the risks of further increases in interest rates have dissipated. That said, there looks to be little appetite for the RBA Board to reverse their guidance that rate cuts this year ‘do not align with its thinking’. From February, we believe the RBA will begin slowly reducing policy’s restrictiveness, a cut per quarter to leave the cash rate at a terminal rate for this cycle of 3.35% in Q4 2025.

Developments in economic activity will also prove critical to the RBA outlook. This week’s update on retail sales continued to highlight the price sensitivity of consumers, retail volumes up a modest 0.5% in Q3, only the second increase in volumes in two years, with spending concentrated in items where prices have fallen. While we lack visibility around services consumption, this result, alongside other partial data, points to some downside risk to total consumer spending in the September quarter.

On the international scene, politics were front and centre. Ahead of next Tuesday’s US Presidential and Congressional elections, opinion polls continue to indicate Donal Trump and Kamala Harris are neck and neck. While Trump seems to have edged ahead in some of the key swing states, his lead remains within the margin of error. Prediction markets in contrast imply close to a 2/3 probability of a Trump victory, and financial markets this week continued to position for such an outcome. Though it has to be said, US data this week was also consistent with a positive outlook for growth and the US dollar (more below).

Political uncertainty is also on the rise in Japan, the coalition government, led by the LDP, losing its majority in the lower house election last weekend. PM Ishiba, elected to lead his party only a month ago, is staying in his position hoping to find political support from other parties, likely in exchange for a commitment to higher future government spending. Turning to monetary policy, the BoJ kept the policy rate unchanged at 0.25% at its October meeting; but in the post-meeting communications, the Governor sounded more optimistic about the global outlook, particularly the US, and assessed that, domestically, wage increases remain supportive of consumer inflation. Another rate hike therefore arguably remains on the agenda for coming months, particularly if further Yen weakness is seen.

In the UK meanwhile, the new Labour government announced their first Budget, delivering a significant increases in public investment and spending worth around 2% of GDP per year. Looser fiscal policy is expected to boost UK GDP growth in the near term. According to official forecasts, GDP growth is on a trajectory to reach 2%yr next year, with around 0.5ppts coming from fiscal policy, before easing slightly in subsequent years. The extra spending will be funded almost equally by higher borrowing and taxes, the latter as a share of GDP forecast to rise above 38%, a record high and 5ppts above the pre-pandemic level. Financial markets showed concern over the fiscal outlook, the rise in projected government borrowing seeing Gilts yields rise across the curve.

In terms of the economic data flow, US GDP data confirmed the US economy carried robust momentum into the second half of this year, expanding 2.8%qtr annualised in Q3, only very slightly below the growth rates of Q2 and 2023 as a whole. Growth’s composition didn’t reveal any material changes to underlying trends, with personal consumption, business equipment investment and public spending leading the way. While net exports, inventories and residential investment were drags in Q3, lower interest rates should start supporting the latter, particularly if sentiment in housing and the labour market outlook remains firm.

Q3 Euro Area GDP also did not disappoint. Surprising market expectations, which had been weighed down by recent soft readings for economic sentiment, activity rose by 0.4%qtr in Q3. This was the strongest gain in two years and left annual growth at a more promising 0.9%yr. Temporary factors contributed – the Olympic Games supported growth in France, while a 2%qtr jump in Ireland surely is a one-off which will, at least partly, reverse – but there was also some positive news about underlying growth in key member states. Germany’s economy escaped recession, activity rising 0.2%qtr to partially reverse Q2’s 0.3%qtr decline. And Spain showed no signs of slowing down, GDP posting another 0.8%qtr increase, taking annual growth to 3.4%yr. Looking ahead, stronger Euro Area growth momentum should temper market expectations of steep ECB policy rate cuts over the coming year. We continue to expect a 25bp Deposit Rate cut at their final policy meeting of the year, followed by one cut per quarter through H1 2025.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Pepperstone

Economic

This favorable GDP performance demonstrates relative economic resilience in a challenging environment. Annually, GDP grew by 1.5%, with cumulative growth from January to September 2024 reaching 1.7%. However, these results, although encouraging, have not been sufficient to boost the Mexican peso, which continues to depreciate against the U.S. dollar due to a combination of internal and external factors.

External Factors and Market Risk Aversion

The strength of the dollar is one of the main obstacles for the peso. Recently, the U.S. economy reported an annualized growth of 2.8% in the third quarter, slightly below the 3% expectation but with robust consumer spending, the highest since early 2023. This increase in consumption, a cornerstone of the U.S. economy, was well-received by investors and has sustained demand for the dollar. Additionally, investors’ preference for safe-haven assets and market risk aversion today have adversely impacted major emerging market currencies, including the Mexican peso.

Another factor capturing market attention is the growing political uncertainty in the United States. With the 2024 presidential election approaching and the possibility of former President Donald Trump’s re-election, what is known as the “Trump Trade” has resurfaced, driving demand for the dollar.

Impact on the Peso and Short-Term Outlook

As these factors gain prominence, the Mexican peso is losing the key psychological level of 20 pesos per dollar today, reflecting pressure from the international context and domestic concerns. In the short term, attention is on the upcoming U.S. employment data, which could further influence perceptions of the U.S. economy and, in turn, dollar strength.

Looking ahead, the U.S. presidential election represents a high-volatility factor for the Mexican peso. If Donald Trump were to return to the presidency, the MXN could face additional depreciation, targeting around 22 pesos per dollar. This potential weakness reflects market expectations surrounding increased protectionist policies and a tougher stance on foreign policy, which could reshape capital flows to and from emerging economies like Mexico.

Technical Analysis USD/MXN

Weekly USD/MXN Chart Economic Recovery in Mexico Unable to Support the Mexican Peso_1

The weekly chart for USD/MXN presents an intriguing outlook, with the pair breaking through the confluence resistance area around the 19.89 level, corresponding to the 38.2% Fibonacci retracement, and the key psychological level of 20 pesos per dollar. This area, reinforced by its technical and psychological significance, has previously halted the peso’s advances multiple times, acting as a significant short-term barrier. A sustained break above this threshold could pave the way toward the 61.8% level at 22.14, signaling a potential shift toward further peso depreciation.

In the current context and with the U.S. presidential election approaching, the “Trump Trade” could play a decisive role, favoring the dollar. Consolidation above 20 pesos would reinforce expectations of additional appreciation for the U.S. currency.

Conclusion

The recent economic growth provides a reprieve for the Mexican economy, which had shown anemic performance over several previous quarters. However, the international environment and political dynamics in the United States pose a significant challenge for the Mexican currency. The coming weeks, marked by electoral uncertainty and key economic data, will be decisive for the peso’s future. Thus, despite its progress, the Mexican economy may face a challenging context in which dollar strength and changes in the global landscape continue to pressure the MXN.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Goldman Sachs

Economic

Energy

Reducing net carbon emissions to zero by 2070, and thus keeping global warming to about 2 degrees Celsius of pre-industrial levels, will require investment of more than $74 trillion, according to Goldman Sachs Research. The team recently updated its projections, as the path to keeping climate change to within 1.5 degrees Celsius of the pre-industrial era appears increasingly out of reach.

Reaching Net Zero is Forecast to Require Nearly $75 Trillion of Investment_1

While global carbon emissions have risen higher than previously expected, and the goals set out in the Paris Agreement are unlikely to be achieved, an ambitious path to containing temperature increases to 2 degrees may still be attainable, according to Goldman Sachs Research. The investments to achieve net zero emissions “have the potential to not only transform the global energy ecosystem but also the economy and society’s standard of living,” Michele Della Vigna writes in the team’s report titled Carbonomics: The GS net zero carbon scenarios — a reality check. The team had previously projected that $62 trillion would be required to reach net zero and envisioned reaching that level by 2060.

The roughly $75 trillion total, representing $1.5 to $2 trillion of infrastructure spending per year through 2070, spans a huge range of investment opportunities, writes Della Vigna, head of Natural Resources Research in EMEA in Goldman Sachs Research. The forecasts include $7 trillion for power networks, another $5.1 trillion on energy storage, and $3.7 trillion for the infrastructure that will make the transition to electric vehicles (EVs) possible. There’s also $9.3 trillion needed to make industrial processes carbon neutral, and $1.3 trillion for green hydrogen plants.

The report highlights changes in the outlook for specific technologies since the team first introduced its net-zero modeling in 2021. The adoption of EVs has moved more rapidly than was forecast (mainly because of faster-than-expected penetration in China), and solar power has accelerated, with the scaling up of manufacturing capabilities. Expectations have risen for the adoption of nuclear power, and the researchers now forecast a doubling of global installed nuclear capacity by 2050 from 2020. Moving in the other direction since 2021, the adoption of clean hydrogen and carbon capture have seen slower uptake than expected.

Global carbon dioxide emissions in the 2021 to 2023 period overshot what the researchers modeled in their 2021 assessment by about 6%, with power generation, agriculture, and transport driving the totals higher. Only emissions from buildings declined globally in that period, helped by adoption of low-carbon technologies such as heat pumps and milder temperatures.

That leads the researchers to conclude that:

An unlikely scenario that reduces net emissions to zero by 2050 and keeps warming to 1.5 degrees would require an acceleration in decarbonization efforts, including the retirement of coal plants by the early 2030s, creating $1.7 trillion of stranded assets. It would also entail the full electrification of auto sales by 2035. The scenario that achieves net zero emissions by 2070 amid 2.0 degrees of warming would represent infrastructure investment equal to 1% to 1.5% of global GDP each year. It implies lower stranded costs for coal but a material increase, versus the 1.5-degree path, in costs to adapt to a warmer climate by 2050.

The researchers now expect a longer life for hydrocarbon assets, with peak oil demand occurring after 2030 and demand for natural gas as a transition fuel growing until 2050. “This implies new greenfield oil and gas developments are likely to be needed beyond 2040,” Della Vigna writes.

Natural gas is the most sensitive fossil fuel to the various scenarios for decarbonization, because of its role as a transitional fuel to renewable energy. The paths for oil and coal demand, by contrast, are relatively similar in each of Goldman Sachs Research’s three scenarios for reaching net zero.

Reaching Net Zero is Forecast to Require Nearly $75 Trillion of Investment_2

Electrification of everything

The investment opportunity in renewable power generation on the path to net zero emissions by 2070 totals almost $30 trillion. That includes $11.1 trillion for solar photovoltaics, $9.5 trillion for onshore wind, and $6.6 trillion for offshore wind power. The report also sees investment of $4 trillion for nuclear power.

The task here is not simply to eliminate the carbon emissions from the power generation that’s needed today, according to Goldman Sachs Research. Power demand is going to rise as various sectors — such as road transport, heating of buildings, and industrial manufacturing — rely on electrification to reduce their carbon footprint. The report sees power generation increasing threefold from 2023 levels in order to reach global net zero by 2070. “Power generation is the most vital component for any net zero scenario,” Della Vigna writes.

Tackling industrial emissions

While renewable power and the electrification of transport attract much more attention, industrial emissions are the second-largest contributor to global carbon emissions. They present difficult reduction challenges.

In steelmaking, for example, which relies today on coal-fired blast furnaces, the report highlights how fuel switching and process innovation will be needed. “Over the past few years, we have seen a number of innovative alternative clean steel production processes being developed, primarily focusing on the increasing use of electricity and clean hydrogen,” Della Vigna says.

Cement production is another difficult challenge. In addition to the energy needed for the intense heat in cement kilns, the chemical process that turns limestone into cement releases carbon directly. For this reason, the report finds that carbon capture technologies are likely the most promising avenue for decarbonization of this vital global building material.

Goldman Sachs Research finds that the path to net zero emissions will likely rely on four key technologies: renewable energy, clean hydrogen, battery energy storage, and finally, carbon capture. The first of these is well-established and has benefited from a declining cost curve. But the world must move from a one-dimensional decarbonization approach based on renewables to a “multi-dimensional ecosystem” that incorporates all these technologies.

“Our path consistent with net zero by 2070 calls for an evolution of the de-carbonization process from one-dimensional (renewable power) to a multi-dimensional ecosystem” along those four important dimensions, Della Vigna says.

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