August 18, 2022
- Phillips 66, Enbridge Swap Stakes in US Pipes Through JV Merger. Phillips 66 and Enbridge Inc. swapped interests in two major US pipelines as part of a transaction to merge joint ventures between the companies. Phillips 66 increased its ownership of DCP Midstream LP to 43.3% from 28.3% while slashing its stake in Gray Oak Pipeline LLC to 6.5% from 42.3%, the crude refiner said in a statement. The company will pay Enbridge $400 million in cash as part of the transaction. Enbridge’s share of Gray Oak will increase to 58.5% from 22.8% while its stake in DCP will fall to 13.2% from 28.3%, the Calgary-based company said. Enbridge has also agreed to operate the pipeline, currently managed by Phillips 66, starting in the second quarter of 2023. In a separate announcement, Phillips 66 said it has made a non-binding offer to buy all publicly held common units of DCP Midstream for $34.75 each. The shares fell 3.5% Wednesday to $34.75, paring this year’s gain to 26%.
- Caisse’s Emond Has No Regrets About Exiting Oil Stocks Early. The head of Caisse de Depot et Placement du Quebec says he has had no second thoughts about its decision to divest from oil producers, arguing the fund is already profiting from a long-term shift toward renewable energy and cleaner fuels. The C$392 billion ($304 billion) pension manager decided to sell its remaining shares in oil producers and increase investments in renewable power and technologies that help industrial polluters reduce their carbon footprint. Chief Executive Officer Charles Emond announced the move last September. The Caisse has followed through. Regulatory filings show the pension manager sold its entire stake in oil-sands majors Canadian Natural Resources Ltd. and Suncor Energy Inc. in the first half of this year. Caisse officials said they’ve now nearly completed the process of selling all oil-company stocks.
- Manitoba Says Winter Wheat, Fall Rye Yields Seen as ‘Average’. Crop conditions range from good to very good in most parts of the province, Manitoba’s agriculture ministry says in a report posted on its website. 57% of winter wheat and 22% of fall rye crop harvested as of Aug. 16. Fall rye yields are averaging 75-85 bushels per acre. Winter wheat yields 60-75 bushels per acre. “Quality has been variable”. Canola crops are variable across Manitoba with many in excellent condition and others rated as poor.
- Asian stocks fell as disappointing results from some key Chinese firms and worries about the outlook for the region’s biggest economy weighed on investor sentiment. The MSCI Asia Pacific Index slipped as much as 0.7%, with benchmarks in the biggest markets of Japan and China down close to 1%. Risk appetite improved a smidge after President Xi Jinping said China will persist with opening up its economy, the comments coming in after the nation’s markets closed.
- European stocks were little changed amid thin summer trading as investors assessed the outlook for the Federal Reserve’s policy, following minutes from the last meeting as well as progress on China’s economic reopening. The Stoxx Europe 600 Index was less than 0.1% higher by 10:11 a.m. in London after yesterday snapping its longest winning streak since March. Energy outperformed, while personal care and bank stocks lagged. Among individual movers, Adyen NV’s shares fell the most in almost four years after reporting first-half results, as higher costs saw profit margins miss analyst estimates.
- U.S. equity-index futures traded slightly higher even as sentiment remained fragile after the Federal Reserve signaled inflation-busting rate hikes will continue despite a weakening economy. September contracts on the S&P 500 and Nasdaq 100 rose about 0.1% after the underlying benchmarks posted losses on Wednesday. The two-year Treasury yield, the most sensitive to monetary tightening, fluctuated as investors parsed some dovish elements in the minutes of the Fed’s latest meeting.
- Oil rose as investors weighed lingering concerns about a global economic slowdown against bullish signals from the US and OPEC. West Texas Intermediate climbed 1.1% to over $89 a barrel, while Brent jumped by 1.4% to almost $95. Oil’s main contracts have both traded in a narrow range for the past few days, though futures are still on track for a weekly loss as fears over a downturn and the potential for more supply from Iran continue to hang over the market. A bullish Energy Information Administration report offset some of the gloom over a potential recession. US crude stockpiles sank by 7.06 million barrels last week, exports rose to a record and gasoline demand climbed to the highest this year.
- Gold rebounded from a two-week low as investors weighed minutes from the Federal Reserve’s July meeting, which signaled further interest-rate hikes but at a slower pace. Bullion pared losses on Wednesday after the minutes were released, though still ended the day down. The transcript showed Fed officials saw the need to dial back the pace of rate increases at some point but also wanted to gauge how their monetary tightening was working toward curbing US inflation. They also saw the risks of tightening more than necessary. Swaps tied to Fed policy meeting dates indicated lower odds of a 75-basis points hike next month as opposed to a half-point move. Spot gold rose 0.4% to $1,769.54 an ounce by 11:27 a.m. in London, after dropping 0.8% on Wednesday. The Bloomberg Dollar Spot Index was little changed, holding recent gains. Silver was steady, while platinum and palladium rose.
- Aluminum and zinc swung between gains and losses as investors assessed output cuts due to power crises in Europe and China against a weakening demand outlook. Used in everything from cans to cars, aluminum is one of the most energy-intensive metals to produce. In China, power rationing in Sichuan province has cut nearly 400,000 tons of annualized capacity, or about 1% of the country’s total, researcher Shanghai Metals Market said in a note. In Europe, Norsk Hydro ASA plans to shut a smelter in Slovakia, adding to closures of around half the region’s aluminum and zinc capacity in the past year. Energy issues are contributing to volatile trading of base metals as traders assess supply losses against the rising risk that runaway inflation and tightening monetary policy will hammer demand. China’s worsening economic outlook is also weighing on industrial metals after Goldman Sachs Group Inc. and Nomura Holdings Inc. further downgraded their growth forecasts for the world’s biggest commodities consumer. Aluminum was little changed at $2,411 a ton on the London Metal Exchange as of 10:27 a.m. local time, following a 0.8% gain on Wednesday. Zinc dropped 0.3% to $3,503, while copper gained 1%. Iron ore in Singapore was little changed at $101.70 a ton, holding near its lowest close in nearly four weeks.
- China’s state media said local governments could sell more than $229 billion of bonds to fund infrastructure investment and plug budget gaps, a further move by Beijing to shore up an economy hit by worsening coronavirus outbreaks and a property slump. The reports came alongside a raft of bad economic news this week: Covid cases reached a three-month high, suggesting more lockdowns are likely; real-time data indicated property sales continued to fall this month; weak economic data on Monday signaled a slump in domestic spending; and heat waves caused energy shortages in several provinces, forcing some factory shutdowns. Economists are turning even more bearish, with Goldman Sachs Group Inc lowering its projection for gross domestic product growth to 3% from 3.3% while Nomura Holdings Inc slashed its forecast to 2.8% from 3.3%. That’s below the 3.8% consensus in a Bloomberg survey of economists and far away from the government’s original target of around 5.5% set for the year.
- The US and Taiwan will start formal talks on a trade and economic initiative, following through on a long-planned promise to deepen ties amid opposition from China. The first round of trade talks is set to take place “early this fall,” the Office of the US Trade Representative said in a statement Wednesday, unveiling a negotiating mandate for the US-Taiwan Initiative on 21st Century Trade announced in June. Discussions will cover trade facilitation, regulatory practices, anti-corruption standards, deepening agriculture trade and other issues, the office said. China said Thursday following the announcement that it “firmly opposes” the initiative, with the Ministry of Foreign Affairs warning the US against doing any deal that could imply Taiwanese sovereignty.
- The historic heat wave that’s smothered western Europe this summer has caused transportation chaos. Railroad tracks warped, airport runways failed and key roads buckled. On July 18, the busy A14 highway in Cambridge, England, was shut down after developing a bizarre ridge that, while enticing to skateboarders, would be calamitous to fast-moving cars and their passengers. Supply chains depend on vehicles with wheels to get goods, people and pretty much everything else everywhere. Ships, trains and planes may do much of the long hauling, but those new jeans you ordered online will arrive at your door by van. As roads fail more often, it’s becoming clear how the economic cost of inaction could quickly add up. The good news though is that the technology exists to sufficiently harden what’s arguably the most critical of infrastructure. The bad news is it will require government at all levels to spend a lot of money upfront.
- Kohl’s Falls After Lowering Outlook as Retailer’s Woes Deepen. Kohl’s Corp. cut its full-year sales guidance for the second straight quarter as inflation suppresses demand and costs continue to climb. The department-store chain now expects full-year earnings per share, excluding some items, in the range of $2.80 to $3.20. That’s below the $4.17 average estimate of 15 analysts polled by Bloomberg. Kohl’s had already slashed its forecast in May, telling investors to expect $6.45 to $6.85. Net sales are projected to decline 5% to 6%, down from an already lowered outlook of flat to up 1% this year.
- Apple Targets Sept. 7 for iPhone Launch in Flurry of Devices. Apple Inc. is aiming to hold a launch event on Sept. 7 to unveil the iPhone 14 line, according to people with knowledge of the matter, rolling out the latest version of a product that generates more than half its sales. The new iPhones will kick off a busy fall product season, which will also include multiple new Macs, low-end and high-end iPads, and three Apple Watch models. Apple is updating its flagship product at a precarious time for the industry. Smartphone sales have begun to flag as consumers cope with inflation and a shaky economy. But Apple appears to be faring better than its peers: The iPhone sold well last quarter, and the company has signaled to suppliers that it doesn’t foresee a dropoff in demand.
- Cisco Rises on Upbeat Outlook After Supply Challenges Ease. Cisco Systems Inc., the biggest maker of machines that run the internet and corporate computer networks, gave a bullish forecast for quarterly sales as chip supply shortages ease and it’s able to fill more orders. Revenue in the fiscal first quarter will grow 2% to 4%, Cisco said in a statement Wednesday. Analysts had predicted that sales would be roughly flat from a year ago, when revenue was $12.9 billion. For fiscal 2023, the company expects sales to expand as much as 6%. The shares gained 4.4% in premarket trading before New York exchanges opened. The shares fell 11 cents to $46.66 on Wednesday and had dropped 26% this year.
- MUFG Said in Talks to Buy Two Home Credit Lending Units in Asia. Mitsubishi UFJ Financial Group Inc. is in advanced talks to acquire consumer lender Home Credit’s assets in Indonesia and the Philippines, according to people familiar with the matter. MUFG, as Japan’s biggest lender is known, has emerged as the likeliest buyer for the businesses after outbidding other rivals, the people said, asking not to be identified because the matter is private. The combined assets in both countries could be valued at about $500 million or more, the people said. The parties are negotiating terms of a potential agreement which could be reached as early as next month, the people said. Talks could still face delays or even fall apart, and other bidders remain interested in certain assets, they said.
- Tesla Asks Chinese Government to Help Secure Power to Suppliers. Tesla Inc. and SAIC Motor Corp. told Shanghai’s government they may have difficulty maintaining production if a power crunch in Sichuan continues to impact suppliers, according to people familiar with the matter, prompting city officials to ask the southwestern province if it could prioritize electricity for the carmakers’ suppliers. The two companies informed authorities in Shanghai that key parts of their supply chains may be impacted by power cuts in Sichuan, which is seeing its worst drought on record. The Shanghai Municipal Commission of Economy and Information then reached out to the government in Sichuan in a document that subsequently circulated on Chinese social media. According to the document, the Shanghai government asked that electricity supply to 16 auto-parts suppliers based in Sichuan — including Chengdu Yinli Car Parts, the only company named in the document — be extended.
- China Attacks US Chip Handouts While Warning of Market Slowdown. China lashed out at a $52 billion program to expand American chipmaking, saying the landmark blueprint contains elements that violate fair market principles and targets Beijing’s own efforts to build a semiconductor industry. The US Chips Act, signed into law this month and part of an overall package of incentives worth in excess of $200 billion, is intended to give China’s rivals a helping hand, said Yu Xiekang, vice chairman of the China Semiconductor Industry Association. Parts of it also clearly discriminate against the Asian country, he said without elaborating. The US legislation contains clauses that specifically prohibit companies that receive funding from expanding production of advanced chips in China. Yu’s comments mirror accusations from Washington that the Chinese government uses subsidies and other less-tangible policy measures to propel the growth of local players such as Semiconductor Manufacturing International Corp. and Yangtze Memory Technologies Co.
- India is studying a slower retirement of aging coal-fired power plants as it adds newer sites, a move that would keep fossil fuel capacity higher for years and potentially stall efforts to hit climate goals.
- Australia’s biggest polluters may be forced to reduce emissions by up to 6% a year under new proposals. The Labor government plans to toughen up the “safeguard mechanism” that covers more than 200 facilities that together accounted for more than a quarter of the nation’s emissions last year.
- China Says Hollywood Needs to Show Respect as Films Blocked. China wants US filmmakers to show more cultural respect, in a rare public comment on Hollywood’s dwindling fortunes after the Asian nation shunned a series of American blockbusters. “We hope the quality of American films can continue to be improved on the basis of respecting our culture, customs and audience behaviors,” said Sun Yeli, vice minister of the Communist Party central committee’s publicity department. “We will import from whichever countries that make better films and films that are more suitable for the taste of Chinese audience.” The country is the world’s largest movie market and an important source of revenue for Hollywood. About 41% of the films the world’s second-biggest economy has imported over the past 10 years have been American, and the box office earnings of some US titles in China exceed revenue earned back at home, Sun said
“Do what is right, not what is easy nor what is popular.” —Roy T. Bennett
*All sources from Bloomberg unless otherwise specified