by tyler | Jun 26, 2023 | CNN, investing
Oil and natural gas prices climbed Monday, while wheat prices briefly spiked higher, as investors reacted to the weekend’s brief and chaotic insurrection in Russia.
Markets were largely focused on whether the turmoil in Moscow could disrupt global commodity supplies. Russia is the world’s second biggest exporter of oil, and the world’s biggest exporter of wheat.
US crude oil futures briefly climbed 1.3%, before trading up 0.8% by 12.15 p.m. ET. Brent crude, the international benchmark, gained 0.7%. Both contracts lost nearly 4% last week.
“Given that the short-lived event this weekend in Russia appears to have ended, we do not expect to see such a significant increase in oil prices,” analysts at Rystad Energy wrote in a note.
“We do, however, believe that the geopolitical risk amid internal instability in Russia has increased. As such, we are likely to see a marginal uptick in oil prices in the coming days if the situation does not deteriorate further.”
Benchmark prices for European natural gas were up 10% from Friday’s close to trade at €36 ($39) per megawatt hour. Prices have shot up over the past few weeks, mostly because of outages at some Norwegian gas plants. News that a Dutch gas field will close permanently in October has also boosted prices.
Russia’s gas exports to Europe have fallen sharply since its full-scale invasion of Ukraine in February 2022, but it still supplied 15% of EU demand last year.
Chicago wheat futures gained more than 2% in early trade before slipping back. Russia’s wheat exports are forecast to hit a record 45 million tons this year, putting it well ahead of the next biggest exporter, the European Union, according to the US Department of Agriculture.
Russia glimpsed the threat of armed insurrection over the weekend, with Wagner Group mercenaries marching toward Moscow as President Vladimir Putin vowed retribution, before a sudden deal seemed to defuse the crisis as quickly as it had emerged.
Although the immediate risk of bloodshed appears to have dissipated, much remains uncertain. US Secretary of State Antony Blinken said Sunday that the insurrection shows “cracks” in Putin’s role as a leader of the country.
“The potential risks to watch may be on any renewed opposition from the Russian public to Putin’s leadership,” said Yeap Jun Rong, market analyst at IG Group.
Signs that global energy demand could weaken as economies slow have pushed US crude prices down by nearly 14% so far this year to just under $70 a barrel. The international benchmark, Brent crude, is down by a similar margin.
But anything that could jeopardize Russia’s ability to keep supplying global energy markets will be watched anxiously by policymakers in the West and by the country’s biggest customers in Asia.
Reacting to the short-lived Wagner insurrection, the Russian ruble opened at its lowest level in nearly 15 months. It last traded down about 1% at 84.4 per US dollar.
Asian stock markets were choppy on Monday.
Japan’s Nikkei 225
(N225) opened lower and closed down 0.3%. Hong Kong’s Hang Seng
(HSI) Index also lost 0.5% in a seesaw session. China’s Shanghai Composite declined 1.5%, and Australia’s S&P/ASX 200 lost 0.3%.
European stocks slipped by 0.1%.
“The weekend developments in Russia increase the potential uncertainty over coming days but seem to have limited market impact at the open,” analysts at Jeffries said in a morning note.
Last Friday, global markets fell broadly as investors became increasingly worried that more interest rate hikes by central banks would tip major economies into a prolonged recession.
Federal Reserve Chair Jerome Powell said last Wednesday that further rises in interest rates were likely necessary this year to bring US inflation down to the central bank’s 2% target.
This was followed by a sharper-than-expected hike in UK borrowing costs by the Bank of England Thursday, which opted for an increase of half a percentage point after data earlier this week revealed surprisingly stubborn inflation.
And then on Friday, data showed that Japanese inflation excluding fresh food and energy costs hit a 42-year high of 4.3%, fueling speculation the Bank of Japan might rethink its loose monetary policy and start tightening.
— Anna Cooban contributed to this article.
by tyler | Jun 23, 2023 | CNN, investing
The FDIC mistakenly revealed to Bloomberg News details on the biggest customers at Silicon Valley Bank, the failed bank whose depositors were rescued through emergency action by regulators.
An FDIC document posted online by Bloomberg News on Friday offers new insights into who benefited from that controversial rescue in March when SVB became the second biggest bank failure in US history. According to Bloomberg, that document was accidentally released unredacted by the FDIC in response to a Freedom of Information Act request.
After SVB suddenly collapsed, the FDIC and other federal regulators decided to make all of the bank’s customers whole, including those with more funds than the $250,000 insurance limit.
That emergency move saved not only fledgling tech startups — some of which could have been wiped out by the SVB implosion — but some heavy hitters in the tech industry, too.
For instance, leading venture capital firm Sequoia Capital, held just more than $1 billion at SVB, according to the FDIC document. Sequoia, famous for its prescient investments in PayPal, Google, Apple and other tech firms, was SVB’s fourth-biggest depositor, according to the document.
Sequoia did not respond to a request for comment.
Another major SVB customer was Kanzhun, a Beijing tech firm that runs BOSS Zhipin, China’s largest online recruitment platform. The FDIC document indicates the Chinese firm held about $903 million at SVB.
The FDIC, charged with insuring deposits at banks, apparently did not intend to release the details on SVB’s biggest customers.
According to Bloomberg, the FDIC asked the media outlet to destroy and not share the depositor list, saying it meant to “partially” withhold some details from the document “because it included confidential commercial or financial information.”
The FDIC declined to comment to CNN.
Dennis Kelleher, CEO of financial reform nonprofit Better Markets, pushed back on the notion that the details should be hidden from public view.
“This is not, as regulators claim, ‘confidential commercial or financial information.’ It might be embarrassing information, but the American people have a right to know so there can be some oversight and accountability for regulators’ actions,” Kelleher told CNN in an email.
SVB’s biggest depositor was Circle Internet Financial, the stablecoin firm behind USD Coin. The FDIC document shows that Circle held $3.3 billion at SVB, a figure that the stablecoin company previously disclosed.
The streaming platform Roku held $420 million at SVB, according to the FDIC document. Hours after SVB failed, Roku warned investors it held about $487 million — roughly a quarter of its total cash — with the bank and did not know if it would be able to recover the funds.
US officials have defended the rescue of SVB depositors as the necessary step to prevent panic from spreading and imperiling the broader financial system.
But critics of the US response to the bank failures have argued the SVB rescue amounted to a bailout, one that would help foreign companies.
“Americans will also be paying to guarantee the deposits of many Chinese companies that were SVB customers,” former Vice President Mike Pence wrote in an op-ed. “We have to stop the insanity of bailout out failing businesses.”
The FDIC estimates the SVB failure will cost its deposit insurance fund $16.1 billion. The agency plans to recoup those losses by assessing fees on banks.
“The American people are going to pay the $16 billion bill to prevent the collapse of Silicon Valley Bank,” Kelleher, the Better Markets CEO, said. “Those banks are not going to cut their executives’ bonuses…They are going to recover those costs in higher fees and rates for everyday banking services and products for Main Street Americans.”
by tyler | Jun 22, 2023 | CNN, investing
The first half of 2023 has been a strange and volatile one for markets. Investors have had to contend with the possibility of recession, a banking crisis, interest rate hikes (and pauses), sticky inflation, and a softening US economy.
All the while, stocks were climbing out of a bearish phase into a bull market.
So what does the rest of the year have in store for Wall Street? If it’s anything like the first half of the year, it’s anybody’s guess.
Every June, just about every US financial institution releases its mid-year outlook, outlining the themes that its analysts believe will dominate the latter months of the year. Below are four of the most prevailing trends they’re prognosticating.
Recession obsession: Epic “will-they-or-won’t-theys” like Rachel and Ross, Mulder and Scully, and Sam and Diane have nothing on the two-year flirtation between the US economy and recession.
Unfortunately, Wall Street is unlikely to receive the clarity it seeks anytime soon.
“Investors are on edge — eager to protect their unexpected gains. Like Vladimir and Estragon from Samuel Beckett’s play Waiting for Godot, investors are anxiously awaiting the titular recession that may or may not arrive this year,” wrote State Street analysts Michael Arone and Matthew Bartolini.
Still, economists at the Federal Reserve believe that a recession seems more likely by the end of 2023 than not. The possibility of a downturn will be a key theme for traders through the latter half of the year as threats to the economy like tighter credit, diminished savings, more layoffs and banking turmoil continue, said JPMorgan analysts in their mid-year outlook.
“Historically, there has been a natural order to economic cycles,” wrote Darrell Cronk, president of the Wells Fargo Investment Institute. “A rapid rise in inflation has been followed by the Fed raising interest rates, which has often created conditions that lead to a bear market and then ultimately a recession.”
This order, he wrote, “is once again at play.”
Market disconnect: “The market is trying to reconcile two very different scenarios — one where the US economy remains fairly strong and the Fed doesn’t cut rates, and one where the Fed has to cut by several percentage points,” said Arif Husain, head of international fixed income and chief investment officer at T. Rowe Price.
That might explain an increasing disconnect between market reactions, policy actions taken by the Federal Reserve and economic data.
There was plenty of bad news in the first half of 2023 that could have derailed markets. The Fed raised interest rates at three of its meetings this year, corporate earnings have declined for two consecutive quarters year-over-year, a regional banking crisis led to the collapse of Silicon Valley Bank, Signature Bank and First Republic, debt ceiling negotiations in Washington nearly led to a default on US government debt and geopolitical tensions in Europe and Asia are ongoing.
But the S&P 500 is up nearly 14% so far this year.
“It must be maddening for market prognosticators to watch stocks and bonds continue to climb the proverbial wall of worry. The widening gap between financial assets’ performance and underlying risks underscores the notion that the economy is not the market and vice versa,” wrote State Street analysts.
For the second half of the year, they wrote, “the range of potential market outcomes has never been wider.”
Looking abroad: One common theme across mid-year market forecasts is the search for safe investment havens outside of the United States.
It’s a strange theme for some investors: Over the last 10 years, the US stock market has outperformed Europe by about 100% and China by 175%, according to a JPMorgan Chase analysis. Because of that, they said, over two-thirds of their US clients have no exposure to China and half of US clients are very minimally invested in Europe.
But “Europe has outperformed the United States over the last 12 months, and although China has lagged, we see reason to believe the tide could be turning,” they write.
Wells Fargo analysts also said that even though much of Europe has fallen into recession, European markets have “reached an inflection point.”
Trading abroad is fairly simple as nearly every major US financial institution offers a smattering of global equities funds — some of those offerings are unhedged to the US dollar, which means they’ll be denominated in a foreign currency. About 60% of global stocks are listed in the United States and about 40% of equities are listed elsewhere; a well-hedged portfolio could have the same distribution.
AI boom: Wall Street has a lot to worry about, but there’s at least one source of market euphoria: artificial intelligence.
Expect AI to continue to drive investment in a range of tech sectors, including semiconductors, memory and cloud storage, said Justin Thomson, head of international equity at T. Rowe Price.
It will also provide another big boost to big tech, he noted.
“AI programs also require expensive training,” he said. “All this plays to the strengths of the largest tech platform companies, which have the resources to develop new AI applications and/or refine existing ones.”
The boost from AI could defy bubble worries, said Liz Ann Sonders, managing director and chief investment strategist at Charles Schwab.
“As to whether AI represents a bubble, similar to the internet/dot.com era of the late-1990s, there is some good news,” she wrote in her mid-year forecast. “So far, the AI euphoria has been concentrated in a small subset of stocks, which are directly benefiting from the technology (think early 1990s, not late 1990s), and more reasonable valuations.”
A submersible carrying five people to see the wreckage of the Titanic at the bottom of the North Atlantic Ocean is still missing despite a massive search operation.
The vessel belonged to tourism and research company OceanGate Expeditions, which offered eight-day missions to explore the Titanic more than 13,000 feet below the ocean’s surface. The experience cost $250,000 per person, according to the company’s website.
Extreme tourism has become a growing trend among thrill-seekers looking for an adrenaline rush, pushing the boundaries of conventional travel and, sometimes, of safe travel, reports my colleague Samantha Delouya.
OceanGate Expeditions is just one of several companies that cater to demand from private individuals wanting to explore the seas and even the seemingly unreachable depths of the world’s oceans.
Many ultra-luxury excursions are pricey because they are high risk, which means a lot of expensive, careful preparations.
Some are so unique that they pose a regulatory challenge. For example, the missing Titan submersible is not subject to government regulations from independent groups that set safety standards because the technology is so new and hasn’t yet been reviewed, the tour operator claims.
It’s not just deep-sea exploration that carries dangers, though. The US Congress has a regulations moratorium on commercial human spaceflight, according to the Federal Aviation Administration, meaning that government safety regulations do not apply to the spacecraft designed by Virgin Galactic, Blue Origin or SpaceX.
Currently, paying customers who travel to space must sign “informed consent” forms to accept any danger that might happen during the mission.
If you have a sweet tooth, take note: Cocoa prices have been soaring — and that could drive chocolate prices higher.
Higher prices can be helpful for struggling cocoa farmers. But those prices, along with high prices of other key chocolate ingredients, might not be great news for shoppers watching their budgets, reports my colleague Danielle Wiener-Bronner.
So far this year, cocoa futures have risen about 21%. As is often the case, higher prices are being driven by demand exceeding supply.
This season, cocoa yields are underwhelming, likely due to crop disease and heavy rains. And next season, forecasters are expecting another deficit because of El Niño, a naturally occurring phenomenon in the tropical Pacific Ocean, which usually brings warmer global temperatures — poor conditions for growing cocoa.
Meanwhile, demand has stayed strong, particularly in Europe and Asia, noted Paul Joules, a commodity analyst for Rabobank who focuses on cocoa and dairy markets.
by tyler | Jun 20, 2023 | CNN, investing
The pandemic is over, yet Covid’s effect on white-collar work remains: People love working from home, it turns out, and corporations have been unable (despite their best efforts) to get folks back in the office full time.
But times are changing. Again. Businesses are stuck with trillions of dollars of commercial real estate they need to use. And they might be able to do just that as they regain the upper hand over their employees later this year when the job market slows.
What’s happening: The Financial Stability Oversight Council, a group that includes top brass from the US Treasury Department, the Federal Reserve and the Securities and Exchange Commission, warned Friday of increasing risks for the $20 trillion commercial real estate industry as office vacancy rates across the country grow.
Office and retail property valuations have been falling since the Covid-19 pandemic brought about lower occupancy rates and changes in where people work. Some firms have now made the decision to permanently downsize. The Fed’s efforts to fight inflation by raising interest rates have also hurt the credit-dependent industry.
But supply and demand are starting to even out: National demand for office space in May was up 13% from April. That’s still down 13% for the year and down 48% from pre-Covid levels, according to data from CBRE Global Commercial Real Estate Services. But it’s a spark of good news for the industry.
How are businesses getting employees back in the office? A combination of carrots and sticks: more at-home-like amenities combined with fewer options for workers. Before the Bell spoke with Nick Romito, CEO and founder of VTS, a real-estate technology firm which manages more than 60% of the most expensive office space in the United States, to discuss.
Before the Bell: Have you seen signs of recovery in the commercial real estate market as the return to office movement gains steam?
Nick Romito: The trend is definitely positive. As economic pressures lead to a tightening of the labor market, that gives more leverage to employers to ask people to come into the office. The companies in these buildings have had very little leverage over the past several years during the great resignation. Now they feel a lot more comfortable mandating that employees come into the office three days a week. We anticipate that trend will continue and likely go back to four days a week in the fall. It’s not like office occupancy is skyrocketing past 50 to 60%, but growth has been pretty steady and that’s a good sign.
But are corporations downsizing the amount of office space they rent as they permanently shift some roles to work from home?
We’ve learned over the past like three years that not every role needs to be in the office. So in some ways it is more efficient to have a smaller footprint, but have a space that is built for the people who need to collaborate to do that really well. So we are seeing a 12% smaller footprint in rented office space this year.
But if you look at the segment of the market that actually is performing well, it’s the trophy, newly built, highly amenitized office spaces. That market is actually seeing a rent growth of about 10% from before Covid.
What kind of amenities?
These buildings have large conference sites that allow you to effectively have offsite meetings in the building. They have lounges and gyms and restaurants built in. They’re a hybrid of workspace and home. I think that’s the future of the workplace.
Even medium-sized real estate owners with two or three buildings are consolidating and creating a campus where all of their customers in all of their buildings have access to a few central floors full of amenities. The workplace, which used to be the four walls your desk sits within, is now expanding to a campus.
Have you seen a shift in the commercial real estate market since the collapse of Silicon Valley Bank and Signature Bank in March?
The deterioration to the office market started well before then so it hasn’t had a huge effect on demand, or lack of demand, for office space. It has had a major effect on the capital markets themselves. The commercial real estate market depends on that significantly so there will probably be a follow-on effect to that. So it didn’t have a huge impact, but it didn’t help.
Could there be a compounding effect with the pandemic-induced slowdown in the commercial real estate market?
The commercial real estate market is largely a regional business, landlords are local. It’s an asset class that is being more and more institutionalized every year, but most real estate is still owned by private organizations, and they rely heavily on regional banks. So regional banking is a really important sector for commercial real estate.
Homeowners insurance, which typically protects against damage to homes from fire, winds and other disasters, is becoming much harder to purchase.
An increase in climate change induced weather disasters and rising costs to rebuild or make repairs have led major insurance companies to limit their offerings altogether, report my colleagues Chris Isidore and Ella Nilsen.
Major insurance companies have already virtually pulled out of the Florida market, leaving homeowners paying premiums nearly four times higher than those paid elsewhere in the country. Hurricane risk is part of Florida’s problem — Hurricane Ian last year was the most expensive storm ever to hit the state, they report.
It’s not just Florida. Two of the largest national insurers, State Farm and Allstate, are no longer writing new homeowners policies in California, partly because of the increased risk posed to homes by wildfires.
Uninsurable places are growing across all 50 states, experts said, but that’s especially true in California, Florida and Louisiana, which have larger and more frequent disasters like hurricanes and wildfires.
There are different factors at play in all three states, but similar outcomes are happening: More people are being driven to the state-supported insurer of last resort, where they typically have to pay more money for a narrower policy. While Allstate and State Farm have declined to write new policies, smaller insurers in states like Louisiana and Florida have gone bankrupt — driving people out of their insurance altogether.
We’ve heard about shrinkflation, when consumers get less for their money because a manufacturer has reduced the size of the product. But what about drinkflation?
Brewers in the United Kingdom are cutting the alcohol content — but not the price — of several of their most popular beers, reports my colleague Anna Cooban.
Greene King, a major UK brewer and pub chain, has cut the ABV, or alcohol content, of its popular Old Speckled Hen pale ale to 4.8% from 5%, a spokesperson for Greene King told CNN.
In March, the country’s oldest brewer, Shepherd Neame, slashed the ABV of its bottled Spitfire and Bishops Finger ales to 4.2% and 5.2% respectively, from 4.5% and 5.4%, a spokesperson said.
The spokesperson for Greene King told CNN that reducing the ABV had helped offset some of its rising costs, following years of “inflationary pressures on raw materials, packaging costs and energy prices.”
Cutting the ABV “lowers the [tax] we pay without noticeably affecting the beer’s flavor,” the spokesperson said.
In January, Dutch brewer Heineken lowered the ABV content of Foster’s larger — which it sells in the UK — to 3.7% from 4%.
A spokesperson for the brewer’s UK business told CNN that it had done so because “consumers are increasingly choosing lower-ABV products as part of a balanced lifestyle,” but added that it had experienced “unprecedented cost increases.”
by tyler | Jun 19, 2023 | CNN, investing
Billionaire investor Warren Buffett’s Berkshire Hathaway
(BRKA) has added to its holdings in Japan’s five biggest trading houses, likely underpinning strong momentum propelling the nation’s stock market to multi-year highs.
Berkshire said Monday its stakes in Itochu
(ITOCF), Marubeni
(MARUY), Mitsubishi Corp, Mitsui & Co
(MITSY), and Sumitomo now average more than 8.5%.
It first announced the buys in 2020, and the additional purchases are in line with its plans to hold the stakes long-term and increase them to as much as 9.9%.
Buffett’s investments and his optimism about Japan’s prospects have drawn attention to the country’s improving economic conditions and shareholder-friendly corporate governance reforms that have helped underpin a sparkling rally in the Nikkei
(N225)share average.
The market ended 1% lower Friday, and Berkshire’s announcement came after Monday’s close, but 10 weeks of consecutive gains have helped the Nikkei rise 28% this year.
“The tailwinds for Japanese equities continue to multiply,” said Charu Chanana, market strategist at broker Saxo Markets in Singapore. “While it was previously hinted that Berkshire will increase its stake … the announcement has come somewhat sooner than expected and will further boost optimism on Japanese stocks.”
Berkshire said the aggregate value of the investments is the largest of any Berkshire-held public stocks outside the United States.
Known as “sogo shosha,” Japanese trading houses deal in a variety of materials, products and food, often serving as intermediaries, and provide logistical support.
The stocks are all up more than 30% this year, with Marubeni shares up 62%. That stock has more than tripled in price since the end of 2020.
The trading firms’ regulatory filings of June 12 showed Berkshire holding 7.4% of Itochu’s stock, 8.3% of Marubeni and Mitsubishi’s stock, 8.1% of Mitsui’s stock and 8.2% of Sumitomo’s stock.
by tyler | Jun 13, 2023 | CNN, investing
Billionaire George Soros, a leading philanthropist and contributor to liberal political causes, has tapped his 37-year old son Alexander Soros to lead his charitable Open Society Foundations and political action committee, a foundation spokesperson confirmed.
In an interview with the Wall Street Journal Sunday, Alexander Soros revealed that he will chair the Open Society Foundations, Soros’ main philanthropic organization. While Alexander Soros had continued to be listed as deputy chair of the foundations in recent months, he was tapped as chair of the board in December.
Alexander Soros, who goes by Alex, told the Journal he is “more political” than his father, and that he expects to be embracing some different causes with the foundation, particularly voting rights and abortion rights.
He has recently met with members of the Biden Administration, Senate Majority Leader Chuck Schumer and some heads of state, including Brazil’s President Luiz Inácio Lula da Silva and Canada’s Prime Minister Justin Trudeau, to advocate for some of the issues important to the family.
George Soros, 92, is worth an estimated $6.7 billion according to Forbes, but his foundations are worth far more than that. He has given $32 billion to his foundation, according to its website. The organization was founded in 1979 with the stated goals to work for justice, democratic governance, and human rights worldwide. It has given grants of $19 billion since its founding.
His political action committee, Democracy PAC, gave $81 million in political donations during the 2019-2020 election cycle, according to Open Secrets, which tracks political donations and spending.
George Soros made his fortune as a hedge fund manager. He is a frequent target of attacks from conservatives as well as antisemitic conspiracy theories.
– CNN’s Olesya Dmitracova contributed to this report
– Correction: An earlier version of the story incorrectly stated the value of political donations given by Democracy PAC. The figure is $81 million during the 2019-2020 election cycle.
