Economics

The financial markets have started pricing in El Niño A sharp piece in the Financial Times this week maps how a hedge fund is raising a fund built specifically to profit from this year's El Niño and why banks across the industry are now publishing client primers on its market implications. ☕ Coffee and cocoa prices have surged as traders anticipate harvest damage across west Africa and Brazil 🌾 Wheat in Australia and rice in India face serious threats as Indian monsoon rainfall is already running more than a tenth below average 🚢 Panama Canal transit auction prices have hit record highs, as concerns about falling water levels echo the severe 2023–24 drought ⚡ Copper mining faces disruption in Zambia from drought and in Chile from flooding as the same event driving opposite risks in different places 🍬 A hit to Indian sugar production is being watched closely by analysts World Meteorological Organization says there is no evidence that climate change is increasing the frequency of extreme El Niño events. But what is clear is that global warming raises the stakes of every event that does occur, layering El Niño's typical 0.1–0.2°C temperature boost on top of an already dangerous 1.4°C of warming, and loading a warmer atmosphere with more moisture to fuel heavier downpours where El Niño already brings rain. The most sobering figure isn't a market one. The World Food Programme warns this event threatens to push at least 49 million more people into food insecurity, a reminder that the real damage lands hardest on those with the least capacity to absorb it. And it doesn't end quickly: a 2023 study in Science found major El Niño episodes depress growth in affected countries for years afterward. This is exactly why the forecast lead time WMO has been providing since spring matters so much. Markets are already positioning around this event, months ahead of its peak. The question is whether that same foresight reaches smallholder farmers, food security planners and vulnerable communities with the same urgency it reaches hedge funds. 🛰️ 📰 Source: Financial Times, "How will El Niño hit the world economy?" (Moral Money, 12 August 2026)

This time Is different We don't often say that about the Fed, but after yesterday's FOMC meeting, we think it may actually be true. In fact, we believe yesterday's meeting ushered in a new era of monetary policy in the United States.    For the better part of two decades, monetary policy has followed a familiar playbook: extensive forward guidance, frequent communication, data dependence and the  Federal Funds rate as the primary policy tool. While leadership has changed, the broader framework has remained remarkably consistent.   What we heard yesterday suggests the possibility of a meaningful evolution.   We believe the Fed may be moving toward a framework that places less emphasis on signaling every move in advance and more emphasis on assessing where inflation, employment and broader economic conditions are heading. In a world of real-time data and increasingly sophisticated analytics, that could prove to be a healthier and more effective approach.   We also continue to hear indications that the policy toolkit could broaden beyond the overnight policy rate, with greater consideration of balance sheet policy, liquidity conditions, money supply dynamics and longer-term interest rates.   Importantly, change does not automatically mean more volatility. A broader set of tools and a more forward-looking approach could ultimately increase confidence in policy outcomes rather than diminish it.   For investors, the near-term message remains straightforward: inflation is still above target and remains the Fed's primary focus. While rate hikes are far from certain, they remain a possibility that markets need to respect.   That's one reason we continue to favor income-oriented fixed income opportunities over pure interest-rate expressions. And when markets overreact to uncertainty around policy change, we think there may be opportunities to sell volatility rather than buy it.   This time may indeed be different, and it will be fascinating to watch how this evolution in monetary policy unfolds. The real question is whether less signaling creates more uncertainty, or ultimately more confidence in the Fed's ability to achieve its objectives.

India’s fertility rate falling below replacement rate should open a new economic conversation. Replacement rate simply means a country is no longer having enough children to replace its population over time. India still has demographic momentum because we are a young country, but structurally this changes the long-term math of growth. When fewer children are born, every worker matters more. Productivity matters more. Skills matter more. And female workforce participation matters much more. But this also creates a tension many developed economies have already experienced: as women become more educated and participate more in the workforce, fertility rates often fall further. So the real question is not: Should women work? That answer is obvious, economically and socially. The real question is: How do we make careers and family sustainable together? The countries that managed this relatively better did not solve it through rhetoric. They built ecosystems: childcare, flexible work, shorter commutes, family support systems, organized care infrastructure. For years we thought of infrastructure as roads, ports and power. In the next phase of India’s growth, childcare and care infrastructure may become equally important economic infrastructure. Not just AI. Human participation itself may become one of the biggest growth drivers.

A group of small public power utilities in Virginia is doing something deceptively simple—and potentially disruptive: deploying multiple 5 MW, distribution-connected batteries instead of pursuing a traditional transmission upgrade. At first glance, this is just smart economics. Small batteries can be deployed faster, with far less upfront cost, and can charge off-peak and discharge during system peaks. But the bigger story is what this signals about the future of “capacity.” For decades, grid economics have revolved around peak demand. Build enough generation and transmission to meet a handful of critical hours each year, and recover those costs through demand-based constructs like coincident peak pricing. Storage breaks that model. If a utility can shave just a few peak hours, it can avoid a disproportionate share of system costs. Peak demand is no longer something you simply serve—it’s something you can shape. That has real implications: • Capacity value becomes less about static MW and more about flexibility • Pricing models built around a few peak hours become increasingly fragile • Distribution-level solutions begin to substitute for large, centralized infrastructure This doesn’t mean capacity goes away. It means it evolves. Instead of a blunt, peak-hour construct, capacity becomes more granular, more locational, and more time-dependent. Value shifts toward resources that can respond precisely when and where the system is stressed. And yes—storage accelerates all of this. But moves like this in Virginia show where things are heading: Smaller, faster, more flexible assets—deployed closer to load—beginning to reshape both infrastructure planning and market design. The interesting question isn’t whether storage changes the system. It’s how quickly the rules will change in response. https://lnkd.in/ebXaC3PB

The European Central Bank is now making the economic case for decarbonisation. Not as climate policy. As monetary policy. Frank Elderson, ECB board member, argues in the Financial Times that Europe's dependence on imported fossil fuels is a structural threat to price stability (👉 https://lnkd.in/eKWWjKbh). The data is damning: energy price shocks pushed euro area inflation to 10.6% in October 2022. Every geopolitical tremor in the Middle East shows up in European energy bills. And the ECB is caught in an impossible bind: tighten to fight inflation and deepen the slowdown, ease to support growth and entrench inflation. The solution is not better forecasting models or finetuned monetary policy. It is cheaper energy. Spain shows what is possible. Wholesale electricity prices in early 2024 were approximately 40% lower than they would have been had wind and solar generation remained at 2019 levels ( 👉 https://lnkd.in/edXgxh9q). Once the infrastructure is built, the energy itself is virtually free. Volatile global commodity markets simply become less relevant. Elderson is explicit: €660 billion per year in clean energy investment sounds large. But Europe already spends nearly €400 billion annually on fossil fuel imports, money that leaves the continent and buys geopolitical vulnerability. Analysis in the UK shows that for every pound invested in sustainable energy, benefits outweigh costs by a factor of 2.2 to 4.1 ( 👉 https://lnkd.in/emEXVfiw). This is precisely what I argued in my piece for Triodos a few weeks ago: Europe's crisis response has been backwards. We keep treating energy dependence as a shock to manage rather than a structural problem to fix. (👉https://lnkd.in/ehFqA6iY) The ECB cannot decarbonise Europe. What it can do is name the conditions: keep the ETS, mobilise capital toward renewable capacity, strip out fossil fuel subsidies, and stop confusing cheap fossil fuels with affordable energy. If people need help with energy costs, target it: don't suppress the price signal that drives the transition. The cheapest energy is the energy we no longer have to import.

Wars don’t just destroy nations. They expose how fragile our systems really are. Over the past few years, every global disruption, from conflicts to pandemics to supply shocks, has shown us one thing clearly: We have built a world that is highly efficient… but dangerously dependent. - Food travels thousands of kilometres before it reaches our plates. - Energy systems rely on distant, unstable sources. - Waste is exported, outsourced, and forgotten. And the moment something breaks somewhere in the world, everyone, everywhere, feels it. Maybe the question isn’t: How do we make global systems stronger? Maybe the question is: Why are we so dependent on them in the first place? And what if our cities, towns and villages could: • Grow more of their own food • Generate more of their own energy • Manage their own waste • Create and consume locally This isn’t about isolation. It’s about resilience. Because when systems are decentralised: • Communities recover faster • Livelihoods are created locally • Environmental impact reduces • And people regain a sense of ownership This is where sustainability meets survival. Decentralised production systems are not just a climate solution. They are a risk mitigation strategy for an uncertain world. The future isn’t global vs local. It’s global and local. In fact, its hyperlocal. But the balance has clearly tipped too far. If there’s one lesson from the world we’re witnessing today, it’s this: The strongest communities are the least dependent ones. Time to build local. Time to act resilient. Time to rethink how we produce, consume, and live. What do you think? #Decentralisation #Sustainability #Resilience #ClimateAction #LocalEconomies #CircularEconomy

The latest reporting from the Financial Times highlights a point that energy analysts have been making for years: geopolitical shocks consistently strengthen the case for renewables, electrification and storage. Microsoft’s global vice-president for energy notes that oil and gas price spikes linked to the Middle East conflict reinforce the value of wind, solar and batteries in providing price stability. Once installed, renewables offer predictable cost profiles and reduce exposure to volatile global fuel markets. We saw this dynamic after Russia’s invasion of Ukraine. Europe accelerated solar deployment, heat pump uptake increased in several countries, and governments revisited questions of energy security through the lens of diversification and electrification. The underlying issue remains unchanged. Fossil fuels must continuously flow through complex global supply chains. When those flows are disrupted, prices spike and economies are exposed. Renewables, by contrast, are capital intensive upfront but deliver long term domestic supply and insulation from commodity shocks. There are short term risks. Inflation, higher interest rates and supply chain constraints can slow clean energy investment. Some governments may also respond by doubling down on gas infrastructure. The policy challenge is to avoid locking in further structural vulnerability. Energy security and climate policy are not competing objectives. In a world of recurrent geopolitical instability, they are increasingly aligned.

China is electrifying its trucking fleet so fast that it’s now reshaping global diesel demand. This has not been widely covered by the mainstream media. Here's how quickly things have shifted: ➡️ 2020: Nearly every new truck in China was diesel ➡️ H1 2025: Battery-powered trucks reached 22% of new sales ➡️ Dec 2025: Battery-powered trucks hit 54%, achieving a majority share for the first time China's sales of "New Energy Vehicle" trucks in 2025 were almost triple the 2024 total – and the share is now expected to reach around 60% this year. And what's driving this shift? Economics. Rapidly falling battery prices mean electric trucks are now cheaper to own and operate than diesel or LNG alternatives – with each truck saving fleet operators around $165,000 over a 10-year operating life. Fleet operators are also increasingly adopting depot charging, opportunity charging and battery-swap networks – removing the last points of friction. This is a market-wide shift in the most energy-intensive road transport segment in the world’s largest vehicle market. And it matters: road freight accounts for around one third of global transport emissions. The impact on oil demand is already visible: ✅ China's electric trucks are already cutting oil demand by the equivalent of more than one million barrels a day. ✅ China's transport sector is forecast to use 40% less diesel in 2030 than in 2024. So why did analysts miss this? Most models assumed heavy trucks would be the last segment to electrify — but China moved faster on battery-swap infrastructure, ultra-cheap LFP batteries, and high-utilisation urban freight fleets. The economics flipped earlier than the forecasts assumed. The result: diesel demand in China – the world’s second-largest consumer – could fall much faster than many predicted. And that's not all. Already the world's largest exporter of passenger cars, China is now eyeing the global electric truck market. Adoption is growing in the Middle East and Latin America and BYD is building a new electric truck and bus factory in Hungary. This is just the beginning.

U.S. policies are driving allies away from using American AI technology. This is leading to interest in sovereign AI — a nation’s ability to access AI technology without relying on foreign powers. This weakens U.S. influence, but might lead to increased competition and support for open source. The U.S. invented the transistor, the internet, and the transformer architecture powering modern AI. It has long been a technology powerhouse. I love America, and am working hard towards its success. But its actions over many years, taken by multiple administrations, have made other nations worry about over reliance on it. In 2022, following Russia’s invasion of Ukraine, U.S. sanctions on banks linked to Russian oligarchs resulted in ordinary consumers’ credit cards being shut off. Shortly before leaving office, Biden implemented “AI diffusion” export controls that limited the ability of many nations — including U.S. allies — to buy AI chips. Under Trump, the “America first” approach has significantly accelerated pushing other nations away. There have been broad and chaotic tariffs imposed on both allies and adversaries. Threats to take over Greenland. An unfriendly attitude toward immigration — an overreaction to the chaos at the southern border during Biden’s administration — including atrocious tactics by ICE (Immigration and Customs Enforcement) that resulted in agents shooting dead Renée Good, Alex Pretti, and others. Global media has widely disseminated videos of ICE terrorizing American cities, and I have highly skilled, law-abiding friends overseas who now hesitate to travel to the U.S., fearing arbitrary detention. Given AI’s strategic importance, nations want to ensure no foreign power can cut off their access. Hence, sovereign AI. Sovereign AI is still a vague, rather than precisely defined, concept. Complete independence is impractical: There are no good substitutes to AI chips designed in the U.S. and manufactured in Taiwan, and a lot of energy equipment and computer hardware are manufactured in China. But there is a clear desire to have alternatives to the frontier models from leading U.S. companies OpenAI, Google, and Anthropic. Partly because of this, open-weight Chinese models like DeepSeek, Qwen, Kimi, and GLM are gaining rapid adoption, especially outside the U.S. When it comes to sovereign AI, fortunately one does not have to build everything. By joining the global open-source community, a nation can secure its own access to AI. The goal isn’t to control everything; rather, it is to make sure no one else can control what you do with it. Indeed, nations use open source software like Linux, Python, and PyTorch. Even though no nation can control this software, no one else can stop anyone from using it as they see fit. [Truncated for length. Full text: https://lnkd.in/g299ZuwG ]

📢 EU CBAM is Now Fully Operational: What You Need to Know On January 1, the EU’s Carbon Border Adjustment Mechanism (CBAM) came into full effect. Here are the key things sustainability, finance, and strategy teams should understand: 🔹 An overview CBAM is the first fully operational border carbon pricing system designed to prevent carbon leakage, the shifting of emissions-intensive production outside the EU, while protecting EU firms subject to internal carbon costs. 🔹 What has changed? Unlike prior pilots, the 2026 implementation bases costs on actual emissions intensity of imports. The EU has “externalized” carbon pricing beyond its borders, which has implications for supply chains and global trade flows, especially for goods like steel, aluminum, cement, electricity, fertilizers, and certain chemicals. 🔹 What do companies need to do? Importers and their non-EU suppliers will need to: - Map supply chains and embedded emissions - Coordinate with suppliers on verified emissions data - Assess carbon cost exposure and potential downstream price impacts 📈 The big picture CBAM goes beyond a compliance issue for firms and has real implications for supply chains and operating costs. Investors and businesses are beginning to factor in carbon pricing and supply-chain decarbonization into their financial decisions. We’ve been helping firms manage these shifts and respond strategically. Send me a message if you’d like to learn more. Visual courtesy of Carbonwise #CBAM #EURegulations #CarbonPricing #ClimatePolicy #SustainableTrade #ClimateRisk #SupplyChainEmissions #NetZero #ESG #ClimateFinance #Decarbonization