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Markets in Australia, mainland China and Hong Kong closed

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SINGAPORE — Shares in Asia-Pacific were mixed in Monday morning trade, with multiple major markets in the region closed for holidays.

In Japan, Nikkei 225 rose 0.45% in early trade while the Topix index gained 0.25%. South Korea’s Kospi dipped fractionally.

MSCI’s broadest index of Asia-Pacific shares outside Japan traded 0.13% lower.

Looking ahead, Japan’s industrial production data for April is expected at 12:30 p.m. HK/SIN on Monday.

Markets in Australia, mainland China and Hong Kong are closed on Monday for holidays.

Currencies and oil

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 90.504 following a recent climb past the 90.3 level.

The Japanese yen traded at 109.73 per dollar, weaker than levels below 109.5 seen against the greenback last week. The Australian dollar changed hands at $0.7703 after falling from above $0.774 late last week.

Oil prices were little changed in the morning of Asia trading hours, with international benchmark Brent crude futures up fractionally at $72.73 per barrel. U.S. crude futures hovered above the flatline, trading at $70.92 per barrel.

Here’s a look at what’s on tap:

  • Japan: Industrial production data for April at 12:30 p.m. HK/SIN

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Oil giant raises dividend and starts share buyback

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A Shell logo seen at a petrol station in London. A court in The Hague has ordered oil giant Shell to reduce its carbon emissions by 45% compared to 2019 levels by 2030, in what is widely seen as a landmark case.

SOPA Images | LightRocket | Getty Images

LONDON — Oil giant Royal Dutch Shell on Thursday reported stronger-than-expected second-quarter earnings, lending further support to the energy major’s plans to reduce net debt and reward investors.

The Anglo-Dutch company reported adjusted earnings of $5.5 billion for the three months through to the end of June. That compared with $638 million over the same period a year earlier and $3.2 billion for the first quarter of 2021.

Analysts had expected second-quarter adjusted earnings to come in at $5.1 billion, according to Refinitiv.

Shell boosted its dividend for the second consecutive quarter and announced the launch of a $2 billion share buyback program that it aims to complete by the end of the year.

The dividend rose to 24 cents in the second quarter, up 38% from the first three months of the year. It comes a year after the company moved to cut its dividend to shareholders for the first time since World War II.

“We are stepping up our shareholder distributions today, increasing dividends and starting share buybacks, while we continue to invest for the future of energy,” Shell CEO Ben van Beurden said in a statement.

The results reflect a broader trend across the oil and gas industry, as energy majors seek to reassure investors they have gained a stable footing amid the ongoing coronavirus pandemic. France’s TotalEnergies and Norway’s Equinor have also announced share buyback programs.

Share prices of the world’s largest oil and gas majors have not yet followed an improvement in the earnings outlook, however, and the industry still faces a host of uncertainties and challenges.

Shares of Shell were up over 3% during morning trade in London. The oil and gas company has seen its stock price rise more than 17% year-to-date, having collapsed almost 45% in 2020.

Investor skepticism

Shell’s financial results come as oil and gas prices took another step up in recent months. International benchmark Brent crude futures rose to an average of $69 a barrel in the second quarter, up from an average of $61 in the first three months of the year. The oil contract was last seen trading at $75.38.

Oil prices have rebounded to reach multi-year highs in recent months and all three of the world’s main forecasting agencies — OPEC, the International Energy Agency and the U.S. Energy Information Administration — now expect a demand-led recovery to pick up speed in the second half of 2021.

It follows a year in which the head of the IEA had suggested may come to represent the worst in the history of oil markets. The oil and gas industry was sent into a tailspin in 2020 as the spread of Covid-19 coincided with a historic fuel demand shock, plunging commodity prices, unprecedented write-downs and tens of thousands of job cuts.

Ahead of this earnings season, analysts had warned that while energy companies were likely to try to claim a clean bill of health, investors were likely to harbor a “tremendous degree” of skepticism about the business models of oil and gas firms over the long term. This was predominantly a result of the deepening climate emergency and the urgent need to pivot away from fossil fuels.

Court ruling

Earlier this month, Shell confirmed its intention to appeal a landmark Dutch court ruling ordering the company to take much more aggressive action to drive down its carbon emissions.

“We agree urgent action is needed and we will accelerate our transition to net zero,” Shell’s van Beurden said in a statement on July 20. “But we will appeal because a court judgment, against a single company, is not effective.”

“What is needed is clear, ambitious policies that will drive fundamental change across the whole energy system,” he added.

Members of the environmental group MilieuDefensie celebrate the verdict of the Dutch environmental organisation’s case against Royal Dutch Shell Plc, outside the Palace of Justice courthouse in The Hague, Netherlands, on Wednesday, May 26, 2021. Shell was ordered by a Dutch court to slash its emissions harder and faster than planned, dealing a blow to the oil giant that could have far reaching consequences for the rest of the global fossil fuel industry.

Peter Boer | Bloomberg | Getty Images

The Netherlands court ruled on May 26 that Shell must reduce its carbon emissions by 45% by 2030 from 2019 levels. That’s a much higher reduction than the company’s current aim of lowering its emissions by 20% by 2030.

The court ruling also said Shell is responsible for its own carbon emissions and those of its suppliers, known as Scope 3 emissions.

The verdict was thought to be the first time in history a company has been legally obliged to align its policies with the Paris Agreement. The accord, ratified by nearly 200 countries in 2015, is seen as critically important in averting the worst effects of climate change.

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Volkswagen earnings Q2 2021

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Technicians work in the assembly line of German carmaker Volkswagen’s electric ID. 3 car in Dresden, Germany, June 8, 2021.

Matthias Rietschel | Reuters

Volkswagen posted record first-half earnings on Thursday while also raising its target for profit margin.

The results are a marked improvement from the same period last year when demand was ravaged at the height of the Covid-19 pandemic.

The German automaker saw first-half operating profit before special items hit 11.4 billion euros ($13.5 billion), exceeding pre-pandemic levels on the back of increased demand for premium cars in Europe and the Americas, while electric vehicle deliveries almost tripled.

As a result, Volkswagen upped its profit margin target for the second time in three months. The company now expects an operating return on sales of between 6% and 7.5%, having previously projected 5.5% to 7%.

“The record result in the first half of the year is clear proof of how strong our brands are and how attractive their products are,” CEO Herbert Diess said in a statement.

“The premium segment performed especially well with double-digit returns, as did Financial Services. Our electric offensive is picking up momentum.”

The group lowered its forecast for deliveries, however, amid “challenging market conditions.”

“Challenges will arise particularly from the economic situation, the increasing intensity of competition, volatile commodity and foreign exchange markets, securing supply chains and more stringent emissions-related requirements,” it said in the earnings report. Like many major automakers, Volkswagen is feeling the pinch from a global shortage of semiconductors.

Here are the quarterly highlights:

  • Second-quarter deliveries came in at 2.55 million vehicles, up from 1.89 million in the first half of 2020.
  • Quarterly group sales revenues were 67.29 billion euros, up from 41.08 billion euros for the same period last year.
  • Operating result before special items was 6.55 billion euros, up from -2.39 billion euros last year.

Half of Volkswagen’s sales are expected to be battery-electric vehicles by 2030, the German carmaker said in a recent strategy update, while almost 100% of its new vehicles in major markets should be zero-emission vehicles by 2040.

Those objectives are part of Volkswagen’s wider aim to be fully carbon neutral by 2050, and Volkswagen has earmarked 73 billion euros for the development of future technologies between 2021 and 2025, around 50% of the company’s total investments.

Volkswagen stock is up more than 34% year-to-date.

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Rent controls are becoming a highly divisive issue in Europe

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In front of the criminal court in Moabit, supporters of a left-wing housing project in Köpenicker Straße protest against its eviction. A woman holds a sign with the English inscription “A roof or your head a basic human right”.

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 LONDON — Rent controls are becoming increasingly popular in many European nations, but experts note that they rarely solve housing crises on their own and can even scare investors away.

Rent controls are government policies, whether on local or a national level, that aim to cap house price increases. They are intended to keep housing affordable, at least for the most vulnerable parts of a population. However, the policy has its critics.

In Sweden, for example, rent controls effectively toppled the government there. In Germany, the matter was subject to a year-long legal battle. Meanwhile, lawmakers in the Netherlands, the U.K. and Ireland have all had similar discussions about their property markets.

The root causes

Speaking about lofty prices in the Netherlands, Nic Vrieselaar, a senior economist at RaboResearch, told CNBC that the market is “becoming unacceptable.” “This is a matter of supply-demand due to the low interest rate environment,” he said.

There’s an age-old trend of people flocking to urban areas where there’s more jobs and higher salaries. But, at a time of low interest rates from central banks — which European nations have experienced in the wake of the sovereign debt crisis — and help-to-buy schemes, more people have bought property, either as a first home or as an investment to let. This demand then pushes up prices given the limited housing stock on the market.

High-rise buildings in the Märkisches Viertel in Berlin.

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In addition, the so-called “Airbnb effect” has worsened the situation, experts note. Rather than selling a property or letting it out long term, many landlords choose to make their houses or apartments available for short stays. This then means there’s less stock for the locals, thus contributing to a further acceleration of rental prices.

Between 2010 and the first quarter of 2021, rents increased by 15.3% in the European Union, according to Eurostat.

Separate data gathered by Europe’s statistics office showed that, in 2020, the estimated average rent levels for apartments was the highest in Dublin, followed by Copenhagen, then Paris, Luxembourg and Stockholm.

Colm Lauder, head of real estate at investment bank Goodbody, told CNBC that he expects rental prices to keep rising. He said: “In Ireland, we are concerned that [rent] controls will stop capital coming through.”

A vicious cycle

Property investors see a significant downside in rent controls in that they cap returns. In the case of Ireland, rent increases in certain areas are limited at 4% per year.

“If they can’t get [returns] then they will look elsewhere,” Lauder said.

Private investment plays a crucial role in supporting the housing market, by promoting construction and refurbishment. If investors find higher returns in other nations, they are likely to shift their funds there and supply will remain limited in that initial market.

However, not everybody agrees with this view.

Barbara Steenbergen, a member of the International Union of Tenants and former lawmaker for the German region of Cologne, told CNBC: “We are of course pro rent controls if it’s part of a comprehensive housing package.”

She highlighted how important rent controls are for low and middle-income families, noting that in Berlin, for example, rent increases have gone up exponentially, but salaries have not.

This divide is a “threat to social peace,” she said, while adding that she has not seen investment fleeing in any market that has rent controls. One of the challenges is that investors focus on luxury buildings and less on affordable and social housing, she said.

Ultimately, the solution may lay with the root of the problem.

“What I think needs to be done is increasing supply,” Vrieselaar said.

In a statement published in 2018, the European Central Bank noted that “housing completions in the euro area have remained substantially below their average level since the start of monetary union” in 1999. In addition, the ECB also said that the lack of building permits and labor shortages have been a constraint in improving supply. 

But Vrieselaar suggested that governments should change the way they tax the sector, so they can better tackle the housing crisis. Essentially, he believes that the Netherlands should tax people’s wealth more, including their second and third homes and lower the burden on people’s incomes so tenants have more room to spend on their rent.

 

 

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