Morning Reads
- Accelerating Inflation in Asia Puts Pressure on
- U.S. Aims to Expand Export Bans
- How War in Ukraine Roiled Russia’s ‘Coolest Company’
- Michael Burry Sees Inflation Sticking Around
- Wall Street Says a Recession Is Coming
- A Poor Country Made Bitcoin a National Currency
- Crypto Lender Voyager Digital Files for Bankruptcy
- Russia’s Brain Drain Is Officially Underway
- Red States Are Winning the Post-Pandemic Economy
- Hiring Demand Remained Strong
- FDA Suspends Ban on Juul While Vaping Company Appeals
- More Companies Are Trying Out the 4-Day Workwee
- Ford’s U.S. Sales Increase 32%
- In Defense of Dollar Cost Averaging
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Just hours after telling an energy summit in Abuja that the oil industry was "under siege" from years of under-investment, OPEC's Secretary-General Mohammad Barkindo has died at the age of 63. Barkindo had served in the role since 2016, though his passing isn't likely to shake the turbulent oil too hard, as he was due to step down at the end of this month. Recession fears slammed oil prices on Tuesday, with crude tumbling 8% to under $100 a barrel as investors fretted over a soaring dollar and a downturn that could slam demand.
Snapshot: OPEC's Secretary-General is in constant contact with international bodies, and convenes the group's meetings, which used to happen twice a year, but now includes almost monthly extraordinary sessions. Haitham al-Ghais, an oil industry veteran and former Kuwaiti governor to OPEC, is due to succeed Barkindo, who is credited with guiding unity among the group's members. Barkindo was specifically involve in clinching a deal with non-OPEC, energizing the group by bringing Russia and other key producers on board for a series of production cuts since 2017. That agreement shored up the market following the supply glut and oil plunge of 2014-16, while he also kept the alliance together through the coronavirus pandemic, when the price of oil crashed and even briefly went negative.
That doesn't mean there hasn't been criticism. Besides the war in Ukraine, the U.S. and other countries have accused OPEC for creating "artificial tightness" in global energy markets, with Washington coordinating a release from the Strategic Petroleum Reserve and taking other measures after OPEC refused to aggressively boost output. For their part, big producers like the Saudis and UAE have said that they are near maximum production capacity, while worsening political crises in Libya and Ecuador have made it challenging for the group to cover its quotas.
Price movement: Energy stocks slid with the price of oil yesterday as S&P 500's energy sector ended the session down 4%. The biggest losers included Halliburton (HAL), APA Corp. (APA) and ConocoPhillips (COP), which fell 8.1%, 7.6% and 7%, respectively. Oil forecasts for the rest of the year are all over the place, with Goldman Sachs still calling for crude to hit $140 or more, while Citi sees prices falling to $65/bbl if the economy tips into recession. (4 comments)
Three weeks ago, the Federal Reserve's Federal Open Market Committee made news when it announced its biggest rate hike since 1994, in an effort to show markets that it's serious about taming inflation. Today, the central bank will release the minutes from the June 14-15 policy meeting, giving investors a window into the FOMC's decision-making process. The details could provide more clues on how the Fed made its decision to go with the three-quarters of a percentage point increase, triple its standard 25-bps increase, and if it will go for another at the end of July.
Bigger picture: The Fed's policy rate is important because it works its way through the financial system to increase interest rates for everything from credit card rates to mortgages. With higher interest rates, consumers and businesses alike will be more cautious about taking on debt, which is likely to temper demand and reduce inflation. It's also important to note that the minutes will only reflect Fed officials' thinking from three weeks ago, and doesn't take into account data that has been released since then or other market trends, like the latest yield curve inversion that happened on Tuesday.
What we know: Besides the May inflation CPI, showing headline inflation had surged 8.6% Y/Y, consumer sentiment figured into the Fed's calculus to go with 75 bps. Specifically, the University of Michigan's Consumer Sentiment reading indicated rising long-term inflation expectations, according to Fed Chair Jerome Powell, increasing the possibility of a wage-price spiral. Kansas City Fed President Esther George was also the only official to vote for a 50-bps hike, though the minutes will show if there were others who voiced the opinion but eventually voted for the 75-bps increase.
What we don't know: a) If any official argued for selling securities from the Fed's balance sheet (a move that would allow it to tighten policy further without the need for larger rate hikes), b) Which risks policymakers are most worried about and how confident they feel about achieving a soft landing (the market is concerned the U.S. economy is heading for a recession), c) If FOMC members are arguing to ease up on subsequent hikes (the CME's FedWatch tool now assigns an 85.6% probability for a 75-bps rate hike in July). (2 comments)
Tesla (TSLA) is no longer the world's biggest electric vehicle maker as the EV pioneer takes a backseat to BYD (OTCPK:BYDDY). The Chinese automaker, which is backed by Warren Buffett, sold 641,350 new energy vehicles in the first six months of 2022, representing a 315% increase from the same period last year. Tesla, on the other hand, only delivered a total of 564,743 vehicles in H1 as it contended with supply chain problems, factory lockdowns and sales disruptions in China.
Fine print: BYD's figures include electric and plug-in hybrid vehicles, while Tesla's only include battery electric cars (it doesn't produce a hybrid). The numbers still highlight the trajectory of BYD's growth, compared to the Elon Musk-run company, which just snapped a two-year streak as deliveries fell 18% last quarter. The developments have also been highlighted in their stock prices, with shares of BYD climbing 15% since the start of the year and Tesla tumbling 42% YTD.
"The performance looks impressive," said Jeff Chung, an auto analyst with Citi, referring to BYD's sales growth. The firm has also surpassed South Korea's LG as the world's second-largest producer of EV batteries, behind industry leader Contemporary Amperex Technology, known as CATL.
Go deeper: While BYD is also located in China, the carmaker has weathered regional coronavirus lockdowns much better than Tesla. That's because its factories are largely based away from COVID hotspots like Shanghai, which is the location of Tesla's Gigafactory 3. The facility accounted for half of Tesla's global production in 2021, but was shut for 22 days in May and has since struggled to reach pre-pandemic levels due to ongoing parts shortages. (27 comments)
Sterling went on a bit of a ride yesterday, falling to a two-year low against the dollar before rebounding. The movement came alongside a fresh crisis for British Prime Minister Boris Johnson's government, and put further pressure on a currency already hit by recession fears and a strong greenback. Chancellor of the Exchequer Rishi Sunak and Health Secretary Sajid Javid tendered their resignations within minutes of one another, presenting a serious challenge to Johnson's ability to hold on to power.
What happened? Both lawmakers are concerned that the U.K. prime minister is leading the country in the wrong direction, especially with regards to the economy and fiscal conservatism. Sunak has been prepared to put up taxes to balance the books of government, compared to Johnson, who is eager to start tax cuts. The risk of Sunak's point of view is if the government were to slash taxes in the middle of an inflation crisis, the economy can end up in an even worse situation.
Several other Tory lawmakers also made public statements last night, including junior ministers who said they could no longer stay in government due to a series of scandals that have plagued the administration. Johnson still showed determination to hang on to power by appointing Nadhim Zahawi - previously education minister - to the post of Chancellor of the Exchequer (finance minister), as well as filling other vacancies. Remember, Johnson already survived a confidence vote a month ago, and while party rules mean he cannot face another such challenge for a year, some lawmakers are seeking to change those policies.
Coming up: Divisions will be laid bare today as Johnson appears for his weekly question session in the House of Commons, followed by a two-hour grilling in front of senior MPs of the so-called Liaison Committee. He is already under investigation over lying about COVID lockdown breaches, in a scandal known as partygate, and recently attempted to rewrite Brexit and trade in Northern Ireland.
Today's Markets
In Asia, Japan -1.1%. Hong Kong -1.2%. China -1.4%. India +1.2%.
In Europe, at midday, London +1.5%. Paris +1.6%. Frankfurt +1.4%.
Futures at 6:20, Dow -0.1%. S&P -0.1%. Nasdaq -0.1%. Crude +0.3% to $99.78. Gold flat at $1763.60. Bitcoin +2.2% to $20,176.
Ten-year Treasury Yield unchanged at 2.81%
Today's Economic Calendar
7:00 MBA Mortgage Applications
9:00 Fed's Williams Speech
9:45 PMI Composite Final
10:00 ISM Service Index
10:00 Job Openings and Labor Turnover Survey
2:00 PM FOMC Minutes
Companies reporting earnings today »
What else is happening...
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Roblox (RBLX) surges to double-digit gain alongside retail chatter.
Sonic toothbrush maker Brüush (BRSH) files for proposed U.S. IPO.
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HIVE Blockchain (HIVE) receives notice of deficiency from NASDAQ.
Embattled Crypto broker Voyager Digital (OTCQX:VYGVF) files for bankruptcy.