April 2023
The downstream effects of monetary-policy tightening have become brutally visible in recent weeks, but rapid intervention by central banks and regulatory authorities has prevented a full-blown banking crisis thus far. Although sentiment indicators like the Ifo index and purchasing managers’ indices as well as hard data like US labor market statistics have been surprising a bit on the upside lately, the danger of a monetary policy mistake hasn’t yet been averted.
In a month of March jam-packed with news, equity markets held up very robustly despite the crises afflicting banks and public trust. Significant rotations, however, have been whirling beneath the surface – while US small and micro caps lately have been trading near their 52week lows, the tech-heavy Nasdaq index has swung upward to a seven-month high. Positive and negative drivers are more or less balancing each other out at the moment, so stocks may tend to stay rangebound for the time being. Bonds and cash are suitable investment alternatives today more than ever in these volatile and uncertain times.
The armed conflict in Ukraine is affecting society, our en-
vironment, and politics in multidimensional ways. One important dimension concerns energy consumption and energy policy in Europe. Although in the near term more fossil fuels are being used than would be desirable, over the longer term price signals on energy and commodity markets will likely accelerate the green transition in Europe.
Japan ranks among the exotic birds among the world’s equity markets. Given the Japanese stock market’s mostly disappointing performance in recent years (and decades), investors were well advised to minimize their exposure to the land of the rising sun. But now, a monetary policy pivot by the Bank of Japan and a strengthening of the yen may open a rare tactical window of opportunity in the months ahead.
Be it green, blue, or yellow, businesses and governments will only be able to reach their ever more ambitious net-zero goals by extensively utilizing clean hydrogen. The first and lightest element on the periodic table looks destined to get an enormous boost in the decades ahead. The hydrogen megatrend requires billions worth of investments and presents investors with interesting long-term opportunities.
Until something breaks – in the past, the US Federal Reserve invariably raised interest rates until the more restrictive monetary policy climate took a tangible toll on financial markets or the real economy. In the current cycle, British pension funds last autumn were the first to encounter problems caused by rising market interest rates and falling bond prices. Now it’s banks that have taken a hit in recent weeks. Silicon Valley Bank had to write off billions of realized losses on its securities positions and closed its doors for good shortly thereafter. The surprisingly swift demise of Credit Suisse ultimately also was an indirect consequence of the rapid sharp increase in the interest-rate level. The most forceful monetary policy sea change in 40 years could soon expose other fracture points. The real estate market and private asset markets (including the venture capital sector) rank among the vulnerable candidates and are already showing some isolated signs of weakness.
The downstream effects of monetary-policy tightening have become brutally visible in recent weeks, but rapid intervention by central banks and regulatory authorities has averted a full-blown banking crisis thus far.
The downstream effects of monetary-policy tightening have become brutally visible in recent weeks. In early March, Silicon Valley Bank and Signature Bank collapsed in the USA, and then two weeks later, Switzerland-based Credit Suisse had to enter into a forced marriage with UBS to avert an even worse fate. Although swift intervention by central banks and regulatory authorities has likely forestalled contagion to other financial institutions, a credit crunch on both sides of the Atlantic is bound to be one adverse effect of the latest banking crisis. The refinancing climate, which had already become tougher in recent months as is, now looks destined to get even worse for many companies. The adverse impact of this will likely shave 0.2 to 0.4 percentage points off economic growth in both the USA and Europe.
Despite the banking shocks, central banks raised interest rates again in March. After hikes of 25 basis points by the US Federal Reserve and the Bank of England and 50 basis points by the European Central Bank and the Swiss National Bank, the future interest-rate paths are now very uncertain. Although the threat of inflation hasn’t been completely warded off anywhere yet, central bank officials now must factor the banking cri-
sis’s damping effect on lending and sentiment into their future course plotting. That’s why central banks lately have largely refrained from issuing forward guidance and will likely predicate their next moves on actual developments in the real economy in the weeks ahead. Interest-rate expectations on the financial markets have been extremely volatile lately and recently have reverted back to pricing in substantial rate cuts by the Fed in the second half of this year. But for such rate-cutting to happen, macroeconomic data would first have to deteriorate severely, in our opinion.
Meanwhile, the interest-rate level is now in restrictive territory in all of the major currency areas. The events of the last few weeks have reiterated the lesson that monetary policy trickles down to the real economy with a time lag. Although sentiment indicators like the Ifo index and purchasing managers’ indices as well as hard data like US labor market statistics have been surprising a bit on the upside lately, a soft economic landing, particularly in the USA, doesn’t seem possible unless monetary policy immediately heads to the sideline now for the time being to study the further effects of the interest-rate hikes to date.
The armed conflict in Ukraine is producing a multidimensional range of consequences. One dimension concerns energy consumption and energy policy. Although in the near term more fossil fuels are being used than would be desirable, over the longer term price signals on energy and commodity markets will likely accelerate the green transition.
The armed conflict in Ukraine and the massive reduction in natural gas shipments from Russia (from 45% to 9% of total EU gas imports) was a dual shock at least for Europe. A huge spike in energy costs pushed the Eurozone to the brink of a recession, and policymakers were forced to accelerate the green transition. Even though the price of European natural gas has fallen in the meantime from a peak north of EUR 300/ MWh to a present level a bit above EUR 40/MWh, it is still around twice as high as the average during the 2018–2020 period. Lastingly elevated prices, relative shifts in prices between different energy sources, and new political initiatives look set to significantly alter energy markets and national economies in the future. There will be no going back to the pre-war situation (and to dependence on Russia).
The lessons from the past are unambiguous: price signals produce an effect – when something is expensive, less of it gets consumed. After the spike in oil prices in 1973/74 and again in 1979/80, industrialized nations dramatically reduced their energy consumption. In 2021, Europe consumed only 1.2% more energy than it did in 1978 despite its economic output having doubled since then. After the adjustment of supply and demand forced by the oil shock, crude oil prices retreated significantly. Similar (albeit slightly modified) dynamics are likely to unfold in the aftermath of the current energy and natural gas price shock. There will probably
be a continued push in the near term to save gas and to replace it with oil and coal. Over the longer term, though, high prices for fossil fuels, political initiatives, and generous subsidies should accelerate the transition to cleaner, greener, and more sustainable sources of energy. In the USA, the Inflation Reduction Act has earmarked USD 370 billion for the green transition. Europe’s spending efforts won’t be inferior to that. Market signals will likely facilitate the transition process. Since producers of fossil fuels are well aware of the green transition, they will be wary about making major longterm investments in developing new fossil fuel sources. This will likely keep fossil fuel prices at an elevated level, thus further incentivizing a green transition.
It will have to get worse before it gets better Germany is the best example of this. Caught off guard by Vladimir Putin, the government of Germany had to resume resorting more to black and brown coal this past winter to avert the threat of energy shortages. But to offset the resulting additional emissions, Germany has vowed to speed up its exit from coal. The government now intends to phase out the use of brown coal in western Germany by 2030 instead of 2038, and it is studying how coal-fired electricity generation can be ended throughout all of Germany before target year 2038. After a likely increase in CO2 emissions beyond set targets in the years ahead, by the end of this decade Germany’s emissions could drop below the path that had seemed probable before the outbreak of the war in Ukraine.
Over the longer term, though, high prices for fossil fuels, political initiatives, and generous subsidies should accelerate the transition to cleaner, greener, and more sustainable sources of energy
The government now intends to phase out the use of brown coal in western Germany by 2030 instead of 2038
US small and micro caps lately have been trading near their 52-week lows
In a month of March jam-packed with news, equity markets held up very robustly despite the crises afflicting banks and public trust. The positive and negative drivers are more or less balancing each other out at the moment, so stocks may tend to stay rangebound for the time being. Bonds and cash are suitable investment alternatives today more than ever in these volatile and uncertain times.
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Equities: Rotations beneath the surface
• In a month of March chock full of news, blue-chip indices held up very robustly despite bank failures in the USA, a forced marriage between banks in Switzerland, and concerns about latent risks on banks’ balance sheets. Beneath the surface, however, major rotations have been observable in recent weeks. US small and micro caps lately have been trading near their 52-week lows while the tech-heavy Nasdaq index has swung upward to a seven-month high. The market rotation was sparked by the banking crisis and especially by the sharp pullback in bond yields, which has made long-duration stocks more attractive again.
• A drop in yields and attendant lower discount rates caused by an imminent U-turn by the US Federal Reserve and/or by a significant slowdown in economic activity would reduce the downward pressure on stock valuations. However, that wouldn’t yet necessarily translate into sustained upside potential because corporate earnings look set to stay under pressure in the months ahead. Earnings estimates have uniformly been revised downward lately, and consensus earnings projections are still
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overly optimistic, in our opinion. A look at the low equity risk premiums (equity earnings yield minus risk-free bond yield) also reveals that stocks are not particularly attractive at the moment. Since safe money-market investments currently promise a yield of 3% to 5%, the attractiveness bar for stocks is higher today than it has been in a long time.
• Nevertheless, a big selloff and a renewed test of last year’s lows are not the most probable scenario right now, at least not in the immediate future because from a technical analysis perspective, some market segments are in a near-term oversold condition, and from a countercyclical standpoint, sentiment has already turned almost overly bearish
again. Trend-following strategies (CTAs) are just as underweight in stocks as fund managers are. According to a survey by Bank of America, fund managers are especially bearish on US stocks and are the most bullish on cash.
Fixed income: Cash is king – version 2.0
• In the wake of the demise of Silicon Valley Bank and Signature Bank, the motto “cash is king” took on an entirely new significance once more in March. Many bank customers wondered whether their money deposited in regional banks was still safe. The winners of this crisis of confidence were the big Wall Street banks and money-market funds. The latter scooped up more than USD 300 billion in new investor funds in March alone. Cash is becoming more and more attractive in Europe as well. Although investors are still losing considerable purchasing power on the money market after inflation is subtracted, in times of elevated uncer-
tainty, temporarily unallocated investment capital can be parked there at acceptable conditions at the moment.
• Returns on long-term bonds also turned positive in March. After 10-year government bond yields on the bellwether US market formed a double top at the 4% level, their latest move could mark a pullback from the definitive peak yield. We consider government bonds a suitable safeguard in a recession scenario, which has become more probable amid the recent banking turmoil and the Fed’s ongoing restrictive monetary policy. This asset class has become more interesting again also from a diversification standpoint because a monetarypolicy pivot by central banks would likely turn the performance correlation between stocks and bonds negative again. In such an event, price declines on stocks would be at least partially offset by price gains on bonds (in contrast to the situation over the past year).
After 10-year government bond yields on the bellwether US market formed a double top at the 4% level, their latest move could mark a pullback from the definitive peak yield
The gold price gained up to 10% in the course of the month
Alternative assets: A beneficiary of the crisis is gold (and Bitcoin)
The two most prominent cryptocurrencies, Bitcoin and Ethereum, were likewise viewed as safe havens by investors
• The flight to safety in March took on a number of different forms. As money-market funds benefited, so in particular did the price of gold, which advanced by as much as up to 10% over the course of the month and brushed up against the USD 2,000-per-ounce mark. Gold ETFs registered a net inflow of investor capital in March for the first time in ten months. The volume of bullish bets on gold on the futures market even hit a recordhigh level. However, the real litmus test for gold has yet to take place. The all-time high at the USD 2,070 mark, which has been tested twice thus far, is the next major hurdle to clear in the medium term. A sustained breach of this resistance level would generate a huge buy signal. An attempt to break through the resistance would have the best chances of succeeding during the course of a US recession. Digital gold has also been in heavy demand recent weeks. The two most prominent cryptocurrencies, Bitcoin and Ethereum, were likewise viewed as safe havens by investors. They are both up more than 50% year-to-date. But before a genuine new crypto bull market can get up and running, a number of technical obstacles have to be cleared away, and a broad bottoming appears necessary first for that to happen.
Currencies: Has the Swiss franc’s reputation been tarnished?
• EUR/USD: The EUR/USD exchange rate is a puppet
“Sell in May and go away…” – this old stock-market saying ranks among the few that harbor a kernel of truth. We did the math: since 1962, whoever has been invested in the US equity market exclusively during the summer half of the year (from the start of May to the end of October) has hardly earned any gains in inflation-adjusted terms even after 60 years. An investor thus could just as well have taken off on vacation to lie on a beach somewhere and spare her nerves. The bulk of the stock market’s performance takes place in the chilly half of the year. In the past, the buy-and-hold strategy delivered only a marginally better performance. But the devil lies in the details. Whether or not it pays to exit the market depends also on interest rates, inflation, and opportunity costs. Since a return of 3% to 5% can now be earned again on safe short-term fixed-income investments, for the first time in many years it’s worth considering taking a timeout from the ups and downs of the financial markets.
of interest-rate expectations now more than ever and is accordingly volatile at the moment. The US banking crisis has sparked recent expectations that the Fed will lower interest rates significantly by the end of this year. This has caused the US dollar to lose attractiveness from an interest-rate perspective and to accordingly depreciate. However, it’s important for investors to look at the big picture. We think that the euro carved out a long-term bottom in autumn 2022 and that its medium-term path is likely pointing to a sustained climb to above 1.10 against the greenback.
• GBP/USD: The Bank of England tightened the interest-rate screw for possibly the last time in March. Although the economic downturn on the British Isles is now likely to be less severe than was feared a few weeks ago, the UK nonetheless remains the weakest link among the major industrialized nations. The British pound’s extant appreciation potential due to its cheap valuation now looks set to first materialize in the long term.
• EUR/CHF: In the wake of the swift downfall of Credit Suisse and the questionable way in which Swiss institutions went about “rescuing” the bank, the Swiss financial center has been wounded. This may be one reason why the Swiss franc lost its typical safe-haven characteristic in March. However, the franc’s long-term strength doesn’t stem from emotions alone, but also from hard facts such as Switzerland’s perennial large current-account surplus. We do not think that the franc will become a soft currency anytime soon.
Japan ranks among the exotic birds among the world’s equity markets. Given the Japanese stock market’s mostly disappointing performance in recent years (and decades), investors were well advised to minimize their exposure to the land of the rising sun. But now, a monetary policy pivot by the Bank of Japan and a strengthening of the yen may open a rare tactical window of opportunity in the months ahead.
Strong performance, but only in yen Japanese stocks ranked among the frontrunners last year (alongside UK equities). But like so much on the financial markets, this is a relative observation because it is viewed through the lens of the Japanese yen. From the perspective of an investor with the US dollar as his or her reference currency, the return on an investment in Japan in 2022 actually underperformed the return on European or Swiss stocks and only marginally outperformed the weak US market. That was no anomaly. In fact, in recent years and decades, a bet on Japan was really a bet on a weak yen. Investors who hedged the currency risk were the only ones who were truly able to profit from the temporary rallies on the Japanese equity market. A textbook example of this was the Abe-
nomics rally that began in late 2012. In the span of less than two-and-a-half years, the rally caused the Topix index to more than double (in the local currency), but for US investors, the value appreciation amounted to only half that, and investors with the euro or the Swiss franc as their reference currency didn’t fare much better. Should investors enter Japan now armed with currency hedges? After all, they would have ranked among the winners had they done so in 2022.
But it’s not quite as simple as that. During the era of zero to negative interest rates, the cost of hedging yen risk was almost free of charge, but today the hedging expense ranges from 1.6% (CHF) to 5% (USD) per annum. In the wake of the interest-rate turn-
Should investors enter Japan now armed with currency hedges?
Over the last 35 years, there were five episodes during which the yen appreciated by at least 20% against the US dollar
Downward in the long term | Japan is a trading market Topix vs. S&P 500 index (in USD) and Japanese yen appreciation phases
USD/JPY: -24%
ΔTPX/SPX: 52%
USD/JPY: -20%
ΔTPX/SPX: -6%
USD/JPY: -49%
ΔTPX/SPX: -25%
USD/JPY: -31%
ΔTPX/SPX: 74%
around by central banks, Japanese stocks are only interesting if a strong yen acts as an additional positive performance driver.
A look at the past supports this assertion. Over the last 35 years, there were five episodes during which the yen appreciated by at least 20% against the US dollar. Averaging out all observations, the Topix outperformed the S&P 500 index by 16% during those phases, but with wide variances, mind you. There consistently was a robust outperformance (without currency hedging) whenever yen strength was accompanied by major po-
USD/JPY: -39%
ΔTPX/SPX: -15%
USD/JPY: -8%
ΔTPX/SPX: 18%
litical changes such as structural reforms and/or fiscal stimulus programs that attracted an influx of investment capital from abroad, such as during the periods from 1998 to 2000 (stimulus and recovery after the Asian crisis) and from 2002 to 2005 (structural reforms under then Prime Minister Koizumi).
The case for the Japan trade
Japan today may be poised to face another major upheaval in 2023, one that – strictly speaking – has already begun [link to article “What to watch in 2023: Bank of Japan under pressure”]. The Bank of Japan is in the process of returning its monetary policy to normal and bidding farewell to controlling the yield curve. There are plenty of reasons for doing that. Not only does the BoJ’s still ultra-accommodative monetary policy stand in stark contrast to the policies being pursued by every other central bank, but it also glaringly clashes with the reality of Japanese inflation, which could lastingly become unstuck from the deflationary glue that has prevailed in recent years (and decades). Japan’s aging population and the country’s shortage of skilled labor and its restrictive immigration policy point to this happening. A permanent inflation comeback in Japan is no longer merely a vision, but a realistic scenario today. The recently disclosed surprisingly high wage hikes in the annual labor agreement negotiations in Japan buttress this expectation and will likely encourage new BoJ Governor Kazuo Ueda in the months ahead to continue or even accelerate the normalization process that was started under Haruhiko Kuroda. This brightens the pros-
pects for many investors. It does so, on the one hand, for local investors, who have now finally resumed receiving interest on fixed-income investments in their homeland and no longer have to park their money outside Japan, and it does so, on the other hand, also for foreign investors, who get not just an inexpensively valued equity market in historical terms, but also one with a currency turbocharger attached to it to boot.
Alongside the reversal of net capital flows back into and no longer out of Japan, there are also additional arguments in favor of the Japan trade. In contrast to other markets, the correlation between bond yields and stock valuations in Japan has been positive in recent decades. This means that higher yields could foster an upward revaluation of Japanese stocks. After years of interest rates being at low tide, the rate reversal is bound to put a tailwind particularly behind banking stocks. Moreover, many Japanese companies in recent years have done their
homework and have strengthened their balance sheets and enhanced their profitability on the back of capital discipline, efficiency gains and shareholder-friendly policies. Finally, a look at the technical chart signals also inspires optimism: last autumn, the Topix in US dollar terms ricocheted upward off its uptrend line in place since 2009. This theoretically clears the way for the index to make a potentially successful second run at its all-time high from 1989 (after the failed attempt in 2021). The Japanese yen has appreciated by around 10% against the US dollar since October 2022. On a dollar basis, the Topix has outperformed the S&P 500 index by a good 15% since then. The Japan trade has thus gotten off to a good start.
Last autumn, the Topix in US dollar terms ricocheted upward off its uptrend line in place since 2009 In
Be it green, blue or yellow, businesses and governments will only be able to reach their ever more ambitious net-zero goals by extensively utilizing clean hydrogen. The first and lightest element on the periodic table looks destined to get an enormous boost in the decades ahead. The hydrogen megatrend requires billions worth of investments and presents investors with interesting long-term opportunities.
Light, versatile, energetic, elixir of life, highly flammable – these are just some of the many attributes ascribed to hydrogen. Hydrogen occupies first place on the periodic table of the elements, and it has also gained prominence in recent years in the public consciousness. That’s by no means by accident because the deployment of “clean” hydrogen is likely to become imperative on the road to decarbonization and attaining ambitious net-zero goals. Green hydrogen will play a particularly important role in this context. Green hydrogen is produced through electrolysis, a process that separates water into its constituent elements – hydrogen and oxygen – using electricity generated from renewable sources. Green hydrogen is considered low-carbon-intensive; only the equipment needed to produce it – e.g. electrolyzers, pipes and cables, tankers – continue to have a certain CO2 foot-
print. But many other color variations of hydrogen are also considered CO2-neutral. To produce blue hydrogen, the CO2 generated in the process of manufacturing climate-harming gray hydrogen from natural gas by means of steam methane reforming is captured and sequestered. Turquoise hydrogen is manufactured by thermally cracking methane into hydrogen and solid carbon – instead of CO2 – via a process called methane pyrolysis. In order for the manufacturing process to be CO2-neutral, the heat supply to the high-temperature reactor must come from renewable energy sources and the carbon must be permanently sequestered. White hydrogen occurs naturally and is also a byproduct of certain chemical plant processes. Orange/yellow hydrogen is based on organic substances such as biomass, biogas and biomethane. Red/purple hydrogen, on the other hand, is manufactured by means of electrolysis using electricity from nuclear power plants.
But many other color variations of hydrogen are also considered CO2neutral
Hydrogen is versatile and can be used both as an energy source and as a raw material in chemical and industrial processes
Versatile
The European aircraft manufacturer wants to bring a 100- to 200-seat hydrogen-powered passenger jet onto the market by 2035
Hydrogen is versatile and can be used both as an energy source and as a raw material in chemical and industrial processes. Hydrogen theoretically can also be used as a seasonal or temporary energy storage medium. However, since only 40% of the energy input is recovered when hydrogen is converted back into electricity, this potential use for hydrogen is likely to have limited real-world application. Other energy reservoirs have a much higher efficiency ratio (pumped storage hydropower plant: 80%; battery: 100%). Clean hydrogen is predestined, in contrast, for use in the transportation industry anyplace where using a battery is more expensive or hardly feasible. The aviation industry, for example, is pinning its hopes on hydrogen replacing kerosene. Hydrogen-powered airplanes are admittedly still a long way off, but Airbus is engaged in intensive research into this technology. The European aircraft manufacturer wants to bring a 100- to 200-seat hydrogenpowered passenger jet onto the market by 2035. Hydrogen-powered tractor-trailers could gain currency much sooner than that. Inside a fuel cell, oxygen and hydrogen atoms are combined into water. This conversion frees an electron, creating electrical energy. US-based electric-truck startup Nikola is teaming up with Bosch to develop a 40-ton hydrogen-powered truck with a range of up to 800 kilometers. The truck is already being tested by a group of pilot customers including the Anheuser-Busch brewing company. Clean hydrogen will also become indispensable in the manufacturing industry in the future to decarbonize production processes and meet the Paris climate protection targets. For energy- and CO 2-intensive industries like steel and chemicals, clean hydrogen
Multitalented (2/2) – Hydrogen has versatile uses Share of hydrogen in final energy consumption in 2050
presents the only way to make climate-harming production processes that still rely on the use of natural gas or coal today climate-neutral. Companies in the steel industry have resolved to invest billions to replace the traditional CO 2-intensive blast furnace route for steelmaking with a hydrogen-based direct reduction process. The chemical industry is on the verge of taking similar steps.
Hydrogen partnerships…
However, the journey to a future of cleaner energy is a marathon, not a sprint, and is fraught with obstacles because green hydrogen faces a lot of competition – electric cars, heat pumps and industry will also need a lot of wind and solar energy in the future. Moreover, many countries will have to import hydrogen on a large scale in the future. Industrial titan Germany, for example, will likely only be capable of covering around 30% of its green hydrogen needs on its own in the long run. Germany accordingly has embarked on a flurry of “hydrogen diplomacy” lately and in the meantime has signed hydrogen partnership deals with Australia, Morocco, Chile, Saudi Arabia, Norway, Canada and Turkey. A hydrogen future particularly presents opportunities for emergingmarket countries, many of which provide ideal conditions for producing clean hydrogen due to their geographic locations. India wants to become a hydrogen superpower and to meet “at least 10%” of worldwide demand for green hydrogen by 2030. But Africa is also moving into the spotlight. One example is Namibia – that country’s sparsely populated 2,000-kilometer-long Namib Desert along the Atlantic coast offers distinct location advantages for the production of wind and solar power.
Source: Bloomberg, Kaiser Partner Privatbank
It’s foreseeable that enormous quantities of hydrogen will have to be transported between countries and continents in the future. However, seaborne transportation of “pure” hydrogen poses formidable technical challenges and probably will be only one part of the solution. Unlike liquefied natural gas (LNG), hydrogen must be cooled not to “just” –162°C, but to –253°C to become liquified. The low temperatures and the high pressure of around 700 bars required to liquefy hydrogen impose severe stresses and strains on the materials employed and have been difficult to put into practice thus far. Moreover, liquefaction consumes around 40% of the energy content of hydrogen. The farther the transport distance and the longer the storage time, the greater the energy expenditure and the less efficiency. In comparison, it is easier to transport hydrogen derivatives like green ammonia and green methanol, which can be shipped using infrastructure that already exists today and do not necessarily have to be re-cracked at their point of destination because they are directly utilizable for processes in the chemical industry or even as a source of energy. Finally, transporting hydrogen in special storage media called liquid organic hydrogen carriers (LOHCs) could become another alternative. Under this method, hydrogen is absorbed into and stored in a non-flammable carbon-based carrier fluid and is released when needed. LOHC technology is currently being tested in pilot plant trials, but is not expected to be scaled up until after 2030.
Alongside maritime infrastructure, massive investments will also need to be made on land in the years ahead to build the necessary transport capacity for clean hydrogen. Today’s natural gas pipelines could lay the groundwork for a future hydrogen grid. Germany, for example, has enacted a “grid development plan” that envisages the creation of an 8,000-kilometer-long network of conduits by 2032, 80% of which would
consist of repurposed natural gas pipes. The German hydrogen grid is slated to grow to an overall length of 13,000 kilometers by 2045 for an estimated total cost of EUR 18 billion. However, similar to the challenges facing seaborne hydrogen transportation, going the pipeline route likewise presents obstacles to overcome and requires substantial research and investment because this bearer of hope also harbors risks: when hydrogen escapes into the atmosphere, it harms the climate much more than carbon dioxide does. Hydrogen does not have a direct climate impact, but it does exert an indirect effect because it alters the composition of the Earth’s atmosphere. Hydrogen in the atmosphere reacts with hydroxide molecules to form water, leaving less hydroxide for reactions with greenhouse gases. This causes the ozone concentration in the atmosphere to increase and results in a slower decomposition of climate-harming methane. Over a period of 20 years, hydrogen’s indirect climate impact has 33 times the climate impact of carbon dioxide. There is no consensus yet on the question of what standards are needed to prevent hydrogen from escaping into the atmosphere. Since hydrogen itself is not a greenhouse gas, its effects had been ignored until recently. Moreover, instruments to precisely measure escaping hydrogen have yet to be developed.
The International Renewable Energy Agency (IRENA) projects that green hydrogen will meet around 12% of the world’s energy demand by 2050 and will be used in the chemical, steel and cement manufacturing industries, in fuel cells, and in air and heavy-load transportation. The investments needed to build an infrastructure for the production, conversion, transport, storage, and distribution of green hydrogen are estimated to amount to a gigantic USD 4 trillion. The Hydrogen Council, a consortium of 150 companies (including BP, Airbus, Microsoft and Clariant) that want to accelerate the deployment of hydrogen in industry
The Hydrogen Council, a consortium of 150 companies that want to accelerate the deployment of
and transportation, lists a total of 534 green hydrogen projects (as of September 2022) with a total investment volume of USD 240 billion that are slated to go into operation by 2030 and will reportedly supply 26
opportunities are. A lot of money has to and will flow to the hydrogen industry in the coming decades. This is inevitably bound to benefit manufacturers of electrolyzers, the plants that separate water into hydrogen and oxygen with the help of (green) electricity. Other statistics spell out the potential: In Europe, electrolyzers with an aggregate capacity of only around 200 megawatts are currently in operation. According to Bloomberg, global electrolyzer manufacturing capacity was increased by 1 gigawatt last year. In 2030, manufacturers reportedly will be able to deliver electrolysis plants with an aggregate output of 85 gigawatts. Up to 4,000 gigawatts of electrolysis output must be installed worldwide by 2050 to reach net zero.
• April 18: World Heritage Day
People all around the world celebrate their cultural heritage every day by living their lives in a way that reflects who they are and where they come from. But one day a year is set aside to celebrate the joint history and heritage of the human race. World Heritage Day encourages us to celebrate all of the world’s cultures, to raise awareness about important cultural monuments and sites, and to underline the importance of preserving the world’s cultures.
• April 28: Interest-rate decision by the Bank of Japan
Kazuo Ueda is taking over the helm of Japan’s central bank and looks set to accelerate the return of the country’s monetary policy to normal. After spring labor negotiations saw many Japanese corporations agree to implement record-high wage hikes, the Bank of Japan now has an additional reason to end the era of monetary policy experimentation.
• May 5: Inflation data for Switzerland
Although inflation was less of a problem for Swiss consumers than for other Europeans over the past year, higher prices are nonetheless making themselves felt in wallets and purses in Switzerland. In the wake of yet another uptick in inflation at the start of this year, the Swiss National Bank, if nothing else, will likely have a wary eye on the latest inflation data.
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