August 10, 2022
- West Fraser Timber said it’s permanently curtailing ~170m board feet of combined production at its Fraser Lake and Williams Lake sawmills and ~85m square feet of plywood production at its Quesnel Plywood mill. Expected to impact 77 positions at Fraser Lake, 15 at Williams Lake and 55 at Quesnel.
- European equities were little changed as investors braced for US inflation data that will provide clues about the path of the Federal Reserve’s monetary policy. The Stoxx Europe 600 edged 0.06% higher by 11:31 a.m. in London. Technology shares declined after Micron Technology Inc. became the latest chipmaker to warn about slowing demand. Health care also underperformed while travel and leisure stocks gained. Among individual movers, Vestas Wind Systems A/S advanced after it reaffirmed its revenue forecast for the full year, with analysts welcoming pricing strength. Meanwhile, Deliveroo Plc gained after its loss widened less than analysts had estimated after the company generated sales from a new ad platform and increased average customer fees.
- US equity futures posted modest gains on Wednesday in cautious trading before US inflation data that will shape investor expectations for further Federal Reserve interest-rate hikes. S&P 500 contracts climbed 0.3%, following a fourth session of declines in the underlying gauge Tuesday after Micron Technology Inc. became the latest chipmaker to warn of slowing demand. Nasdaq 100 futures also rose 0.3% as Tesla Inc. gained in premarket after Chief Executive Officer Elon Musk’s biggest share sale on record. Bonds steadied. The two-year Treasury rate exceeds the 10-year by almost 50 basis points, an inversion — around the deepest since 2000 — that is viewed as a sign of a looming recession under the Fed’s monetary-tightening campaign to curb inflation.
- Asian stocks fell as risk-off mood prevailed ahead of a key US inflation data release, with traders weighing recession risks and weak corporate earnings. The MSCI Asia Pacific Index dropped as much as 1.1%, headed for the lowest in two weeks. Technology shares were the biggest drags after Micron Technology became the latest chipmaker this week to sound the alarm over a slowdown in demand. Chinese and Hong Kong shares led losses in the region as traders digested the policy implication of inflation accelerating in the world’s second-largest economy. Meanwhile, Xinjiang and Tibetan capitals in China remain under heavy movement controls as the nation sticks to its Covid Zero strategy.
- Oil fell in another choppy session as flows through a major pipeline from Russia to Europe looked set to resume soon, while industry estimates showed an increase in US inventories. West Texas Intermediate reversed earlier gains to trade below $90. Hungarian refiner Mol Nyrt said it has transferred a fee to Ukraine that should allow the restart of Russian oil flows along the southern leg of the Druzhba pipeline. Russia’s pipeline operator Transneft PJSC said oil may reach Slovakia by the end of Wednesday. Though likely short-lived, the disruption to the Druzhba pipeline is crimping crude flows at a time when Europe is grappling with a wider energy crisis. Later this week, the Rhine River is set to become virtually impassable at a key waypoint in Germany, choking off shipments of energy products.
- Gold edged lower — after rising more than 1% over the previous two sessions — as traders weighed the Federal Reserve’s likely rate path and the chances of a global recession. Investors are waiting for US inflation data due Wednesday to gauge how hawkish the Fed may be at its September meeting, with more rapid tightening likely to spur losses in the precious metal. Bullion has rallied for the past three weeks as increased concerns over an economic downturn and heightened US-China tensions around Taiwan boosted haven demand. Market indicators signaling a coming recession are spreading from Treasuries to bonds worldwide, as investors fret that aggressive policy tightening to tame inflation may put a sharp brake on growth.
- Donald Trump said he will be questioned Wednesday by the New York attorney general, who is probing potentially fraudulent asset valuations by his company. In a post on his Truth Social media account, Trump said his “great company, and myself, are being attacked from all sides.” The deposition — which had been delayed a month because of the death of his former wife Ivana Trump — comes just days after Trump’s Mar-a-Lago residence was searched by federal agents investigating whether the former president took classified documents from the White House. Trump and two of his children, Donald Trump Jr. and Ivanka Trump, agreed to each sit for seven hours of sworn testimony, after losing a court battle to quash the subpoenas. New York Attorney General Letitia James is investigating whether the Manhattan-based Trump Organization manipulated asset valuations to secure more favorable terms for bank loans and insurance, as well as tax breaks.
- China’s military said exercises held around Taiwan in response to US House Speaker Nancy Pelosi’s visit had concluded, while pledging to continue regular patrols near the island. The People’s Liberation Army “successfully completed all tasks” set out in exercises last week, Eastern Theater Command spokesman Senior Colonel Shi Yi said Wednesday. The statement ended ambiguity on the status of the drills three days after navigational alerts warning ships and airplanes to avoid six large areas around the island expired. Still, the PLA planned to “regularly organize patrols in the direction of the Taiwan Strait,” Shi said, adding that such activities would be based on the development of the cross-strait situation. The remark held open the possibility of frequent Chinese military operations across the US-drawn median line that divides the waterway.
- Russia is getting ready to resume oil flows through a pipeline to central Europe after Hungary’s sole refiner stepped in to resolve a problem over the payment of a transit fee to Ukraine. Crude flows via the southern leg of the Druzhba link may reach Slovakia by the end of Wednesday, Transneft PJSC spokesman Igor Dyomin told Bloomberg on Wednesday. The Russian crude-pipeline operator has received a confirmation from Ukraine that it’s ready to resume oil transit, he said. The southern leg of the Druzhba pipeline, which delivers Russian crude through Ukraine to Hungary, Slovakia and the Czech Republic, halted operations on Aug. 4 after European banks refused to transfer a payment from Transneft to its Ukrainian counterpart Ukrtransnafta JSC amid EU sanctions.
- President Joe Biden signed into law a broad competition bill Tuesday that includes about $52 billion to boost domestic semiconductor research and development, calling it a “once-in-a-generation investment in America itself.” “We need to make these chips here in America to bring down everyday costs and create jobs,” said Biden at a signing ceremony for the CHIPS and Science Act on the White House South Lawn, joined by executives from US semiconductor firms and congressional leaders. Biden said he had visited the US facility where Javelin missiles were made and said the bill would make the nation less reliant on other countries to provide the advanced chips needed for those weapons systems, as well as other products.
- Elon Musk offloaded $6.9 billion worth of stock in Tesla Inc., saying he wanted to avoid a sudden sale in the event he’s forced to go ahead with his deal to acquire Twitter Inc. Tesla’s chief executive officer sold about 7.92 million shares on Aug. 5, according to regulatory filings released after US markets closed Tuesday. Musk tweeted that he was done selling and would buy shares in the electric-car maker if the Twitter deal doesn’t close. Musk has now dumped about $32 billion worth of Tesla shares since November. The world’s richest person said less than four months ago he had no further stock sales planned and has attempted since then to terminate his $44 billion acquisition of Twitter. The social media company has sued to force Musk to go through with the deal, and a trial is scheduled for October.
- SoftBank Group Corp. expects to post a gain of more than $34 billion from selling down its stake in Alibaba Group Holding Ltd., cashing in a chunk of its most storied investment to shore up finances as global markets deteriorate. The Japanese investment giant’s board approved Wednesday the early physical settlement of prepaid forward contracts corresponding to about 242 million American Depositary Receipts. After the settlement, which will run from August to September, its stake in China’s e-commerce leader will fall to 14.6% from 23.7% as of the end of June. Masayoshi Son has this year accelerated the sale of assets, speeding the transformation of his conglomerate into a pure investment house. Investors have long pressed SoftBank to cash in its shares in Alibaba, monetizing one of the most lucrative bets in venture capital history — and one that made Son’s reputation as a startup investor.
- Lenovo Group Ltd.’s profit jumped a better-than-projected 11% after the world’s largest PC maker relied on businesses beyond PCs to counter a worsening slump in global electronics demand. Global PC makers from HP Inc. to Dell Technologies Inc. are grappling with a potential global recession and supply chain snags as China imposes strict Covid prevention measures. Semiconductor stocks tumbled on Tuesday after Micron Technology Inc. became the latest chipmaker this week to sound the alarm over a slowdown in consumption. But Lenovo said sales growth from businesses beyond its bread-and-butter division — including servers, cloud computing and data storage — helped offset worsening PC sales. The Infrastructure Solutions Group, which sells enterprise equipment including networking gear, booked a record 14% increase in revenue. North America and Europe led sales for that business, Chief Executive Officer Yang Yuanqing told Bloomberg News.
- Kohlberg & Co. is acquiring 50% of United States Infrastructure Corp. from investment firm Partners Group in a deal valuing the utility location service provider at $4.1 billion including debt. The purchase of the stake by Kohlberg is being done alongside a new group of investors that includes funds managed by Neuberger Berman, according to a statement reviewed by Bloomberg News. Partners Group will retain a 50% investment in the overall business. Founded in 2008, USIC provides more than 1,300 clients with outsourced services for locating, identifying and marking underground utility infrastructure such as pipes and cables. It has a workforce of roughly 9,000 technicians who perform about 80 million so-called locates a year for cable, telecom, electric, gas, water and sewer lines. The Indianapolis-based company serves customers across the US and Canada.
- New York City’s Metropolitan Transportation Authority is one step closer to rolling out a congestion pricing plan that would charge some motorists as much as $23 to enter Manhattan’s central business district. The tolling scenarios for the plan, a first for a US city, was outlined in an Environmental Assessment report released Wednesday by the Federal Highway Administration, New York State Department of Transportation, MTA Triborough Bridge and Tunnel Authority and New York City Department of Transportation. The new fees are projected to bring in $1 billion in revenue a year. During official peak hours, tolls could be as much as $23 and $17 during off-peak times for E-ZPass holders, according to documents reviewed by Bloomberg. The report said that different rates would apply for vehicles without an E-ZPass.
- Coinbase Global Inc. posted a record $1.1 billion second-quarter loss and lower-than-expected revenue as the largest US cryptocurrency exchange was battered by tumbling digital-asset prices. Shares of the company, which were first listed last April, dropped about 6% in US premarket trading. Coinbase has slumped 65% so far this year amid what has been labeled as the latest “crypto winter.” Revenue declined by more than 60% to $808.3 million, missing the $854.8 million estimate from analysts polled by Bloomberg. Monthly transacting users dropped to 9 million in the second quarter, a 2% decline from prior quarter. Trading volume also missed estimates, with Bitcoin’s share of trading volume rising to 31% from 24%. Total assets on platform plunged 63% to $96 billion.
- Foxconn Technology Group defended its $800 million investment in Chinese chipmaker Tsinghua Unigroup as a simple financial deal aimed at forging better ties with customers in the country. Chairman Young Liu on Wednesday played down a Financial Times report that Taiwan will force it to sell its stake, which it acquired after Unigroup’s $9 billion bailout. In a briefing following its quarterly results release, he stressed the company has a backup plan should authorities reject the acquisition. The investment by a unit of Apple Inc.’s main iPhone assembler, known also as Hon Hai Precision Industry Co., raised eyebrows as tensions rise between Beijing and Taipei. National security officials have been brought in to review the case because of the political implications of allowing a Taiwanese company to back one of mainland China’s most important semiconductor firms, the FT reported, citing people familiar with the matter.
- Benchmark German power prices rose to a record, with an ongoing heat wave and drought set to severely restrict one of Europe’s key waterways for shipping energy supplies. The blistering summer heat is adding stress to Europe’s energy system while Russia limits exports of gas to the continent. That’s set to hit the finances of households and businesses across Europe, a crisis that will only intensify as energy demand rises during winter. Almost every aspect of the power system is contributing to higher prices right now. The latest literal choke point is the Rhine River, which is set to become virtually impassable later this week, cutting supplies of coal to plants that are meant to run more to allow Europe to save its gas. While they can still get the fuel by road or rail transport, it’s more expensive to do so.
- Russian inflation likely decelerated for a third month to the lowest since the invasion of Ukraine, after consumer prices declined in consecutive weeks thanks to a stronger ruble and a seasonal drop in the cost of fruit and vegetables. International sanctions aimed at crippling Russia’s economy initially led to a brief currency shock and supply disruptions. A wave of panic buying that followed drove up inflation to more than quadruple the central bank’s 4% target. But annual price growth peaked just two months after the invasion in February and probably slipped to 15.3% in July, according to the median forecast in a Bloomberg survey of 16 analysts. On a monthly basis, inflation was slightly below zero for a second month, another poll showed.
- Electricite de France SA asked its main shareholder, the French state, for 8.34 billion euros ($8.5 billion) in compensation after the government forced it to sell power at cut-rate prices to protect consumers from surging inflation. “Following an in-depth legal analysis, and in light of the losses incurred,” the company asked the Conseil d’Etat, the country’s highest administrative court, to overturn the orders requiring it to sell electricity at a discount, EDF added in a statement late on Tuesday. The court case illustrates the tension between EDF’s roles as a publicly traded company and an arm of the French state carrying out government energy policy. France has begun the process to acquire the 16% of EDF that it doesn’t already own, aiming to nationalize the debt-laden company to keep consumer electricity bills in check while making the huge investments needed to reduce dependence on imported fossil fuels.
- Prudential Plc’s first-half earnings rose less than expected as the pandemic disrupted sales in key markets such as Hong Kong, underscoring the challenge posed by the insurer’s pivot to Asia. Adjusted operating profit from continuing operations climbed 6% from a year earlier to $1.66 billion, the company said Wednesday. That missed the $1.73 billion average of three analyst estimates compiled by Bloomberg. Prudential is completing its shift toward Asia and Africa, having spun off its UK and US operations. The results came amid recent senior departures and before the scheduled arrival next February of Anil Wadhwani, the new group chief executive officer who will be based in Hong Kong alongside about 65% of its head office staff.
“Do what is right, not what is easy nor what is popular.” —Roy T. Bennett
*All sources from Bloomberg unless otherwise specified