Oil prices extend losses on worries of supply rising later in 2024

Oil prices declined at the start of trading on Tuesday, continuing the downward trend from the previous session. Concerns among investors about an increase in supply later in the year contributed to the decline. Brent crude futures dropped by 20 cents or 0.3% to reach $78.16 per barrel. This marked the first time since February 7 that Brent closed below $80, following a more than 3% drop on Monday. U.S. West Texas Intermediate crude futures also decreased by 17 cents or 0.2% to $74.05 per barrel. It had settled near a four-month low on Monday after sliding 3.6%. Over the weekend, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by Russia, agreed to extend most of their oil output cuts into 2025. However, they left room for voluntary cuts from eight members to be gradually unwound starting in October.
According to Walt Chancellor, an energy strategist at Macquarie, the voluntary cuts in crude production being extended through the third quarter will further tighten the market during the summer. However, the possibility of some supply returning in October suggests that the strong support from OPEC+ may not be sustainable in the long term.

In addition, the weakening demand growth has also had an impact on oil prices in recent months, with a particular focus on data on U.S. fuel consumption. GasBuddy data shows that the average gasoline price in the United States dropped by 5.8 cents per gallon to $3.50 per gallon on Monday.

On Wednesday, the U.S. government will release inventory and product supplied data, which will provide insights into demand. The product supplied data, which is considered a proxy for demand, will reveal the amount of gasoline consumed over the Memorial Day weekend, marking the start of the U.S. driving season.

J&J must pay $260 million in latest talc trial, Oregon jury says

In a recent verdict, Johnson & Johnson has been ordered to pay $260 million to a woman from Oregon who claimed that she developed mesothelioma, a fatal cancer associated with asbestos exposure, from using the company’s talc powder. The jury’s decision, reached in the 4th Judicial District Circuit Court in Portland, includes $60 million in compensatory damages and $200 million in punitive damages, covering both the plaintiff and her husband.

This ruling comes at a time when Johnson & Johnson is actively seeking a proposed $6.48 billion settlement for most of the talc-related lawsuits against the company through a prepackaged bankruptcy. Despite the verdict, Erik Haas, J&J’s worldwide vice president of litigation, maintains that the scientific evidence consistently proves the safety of talc, stating that it does not contain asbestos and does not cause cancer. Haas announced that the company plans to appeal the verdict and is confident in obtaining a reversal.
Kyung Lee, the plaintiff in this case, was diagnosed with mesothelioma at the age of 48 last year.

According to Lee, she was exposed to asbestos-contaminated talc for over three decades. The exposure began in her infancy when her mother used the talc on her, and continued as she used it herself as a deodorant.

Johnson & Johnson (J&J), the defendant, argues that their talc products are asbestos-free and do not cause cancer. They claim that numerous scientific studies conducted over the years support the safety of their products.

During the trial, a lawyer representing J&J suggested that Lee’s illness was most likely caused by her exposure to asbestos in a factory near her childhood home.

The trial was observed by Reuters through the Courtroom View Network.

J&J is currently facing more than 61,000 lawsuits related to talc. The majority of these cases involve women with ovarian cancer, while a smaller number involve individuals with mesothelioma. The company has already settled the majority of the mesothelioma cases.
In order for J&J to secure approval for a bankruptcy settlement that would bring an end to the litigation, they need the support of at least 75% of the remaining plaintiffs. This settlement would effectively put a stop to future cases and prevent individuals from opting out of the agreement.

Previous attempts by the company to resolve the talc cases through bankruptcy have been rejected by the courts. However, J&J remains confident that the current effort will succeed with the support of the plaintiffs.

A class action lawsuit was filed on May 22 by a group of plaintiffs who are opposed to the settlement. They argue that it is a “fraudulent” abuse of the bankruptcy system and are seeking to halt the deal.

The outcomes of the talc cases have been mixed, with significant victories for the plaintiffs, such as a $2.1 billion judgment in 2021 awarded to 22 women with ovarian cancer. However, J&J also won an ovarian cancer case in April but was hit with a $45 million verdict in a mesothelioma case.

Dollar wallows at multi-month lows as Fed cut bets grow

The US dollar remained weak against the euro and sterling on Tuesday, hitting its lowest level since April. This was due to indications of a weakening US economy, which further supported the argument for earlier interest rate cuts by the Federal Reserve. The US currency also struggled against the yen, hovering near a two-week low, following data that revealed a second consecutive month of manufacturing slowdown and an unexpected decrease in construction spending. As a result, the probability of a rate cut in September rose to 59.1%, according to LSEG’s rate probability app, up from around 55% on Friday. The dollar had experienced its first monthly loss of the year in May, partly due to stabilizing consumer price pressures. The upcoming monthly US payroll figures on Friday will be a crucial indicator for the situation.
According to James Kniveton, a senior corporate FX dealer at Convera, the continuous high-interest-rate policy of the Federal Reserve is being closely examined as it continues to have an impact on the U.S. economy. Analysts are paying close attention to the upcoming job data to assess any signs of economic strain.

Currently, the market has fully priced in a quarter-point rate increase by the Fed’s November meeting, with a total of 41 basis points of tightening expected by the end of the year.

Kniveton highlights that November could be a volatile period for the U.S. dollar due to the combination of a potentially decisive Federal Reserve meeting and the U.S. elections.

The Fed’s next policy meeting is scheduled to conclude on June 12, coinciding with the release of consumer price data. Although traders and analysts do not anticipate any policy changes at this meeting, officials will provide updates on their economic and interest-rate projections.
The dollar index, which gauges the currency’s performance against major counterparts such as the euro, sterling, and yen, dipped by 0.05% to 103.99, reaching its lowest level since April 9.

Meanwhile, the euro strengthened by 0.11% to $1.09155, marking its highest point since March 21.

Although the European Central Bank has hinted at rate cuts during their upcoming meeting on Thursday, a recent uptick in inflation data may cause policymakers to reconsider the timing of any further easing measures.

Sterling also experienced a slight increase of 0.05% to $1.2814, hitting its highest level since March 14.

On the other hand, the dollar managed to gain 0.14% against the yen, rising from its overnight low of 155.95, which was the first time it had fallen below 156 since May 21.

Both the Bank of England and the Bank of Japan will be holding crucial policy meetings later this month.

In other news, the New Zealand dollar reached $0.6194 for the first time since March 8, while the Australian dollar remained steady at $0.66895, staying close to its two-week high of $0.6695 from the previous day.

US senator urges FAA to ensure accountability in Boeing quality plan

A U.S. senator responsible for aviation matters is calling on the head of the Federal Aviation Administration (FAA) to ensure transparency and accountability in Boeing’s efforts to improve quality.

Senator Tammy Duckworth, a Democrat who chairs a subcommittee on aviation, emphasized the importance of transparency and accountability in Boeing’s safety and quality assurances. This comes after Boeing submitted a comprehensive quality improvement plan last Thursday, following a directive from FAA Administrator Mike Whitaker in February to address “systemic quality-control issues” within 90 days.

Whitaker had a phone conversation with Duckworth on Monday and will be present on Capitol Hill on Tuesday to update members of the House Transportation and Infrastructure Committee. As of now, neither the FAA nor Boeing have provided immediate comments on the matter.
“Last week, Whitaker emphasized the importance of a strong and unwavering commitment to safety and quality from Boeing, regardless of the number of planes they build. He emphasized the need for systemic change and acknowledged that there is still a lot of work to be done.

In February, Whitaker prohibited Boeing from increasing production of its popular 737 MAX plane after a door panel incident on a flight operated by Alaska Airlines. He stated that he does not anticipate Boeing gaining approval to increase production in the next few months and has not yet had any discussions with the company regarding this issue.

Boeing has now revealed six critical areas in production that will be addressed with a focus on safety. These areas include employee proficiency, the time taken to address issues, the total number of rework hours per airplane, and supplier shortages.”
According to Boeing, the data will offer immediate and valuable insights into the health of their production system. This will enable the company to detect and address potential quality and safety risks before they escalate. Boeing CEO Dave Calhoun, who recently had a lengthy meeting with Whitaker, is expected to step down by the end of the year as part of a larger management restructuring following the Alaska Airlines incident. However, Boeing has not yet announced a successor.

BHP Faces a Test of Patience After $49 Billion Anglo Bid Falters

Following BHP Group’s unsuccessful attempt to acquire Anglo American Plc for $49 billion, investors are advising Chief Executive Mike Henry to remain composed. BHP believes that their restraint in the Anglo takeover is commendable, especially considering the mining industry’s history of wasteful spending on disappointing projects and poorly timed acquisitions. The key question now is whether BHP can maintain this discipline, despite the pressure from mining executives to increase copper production, given its status as the most sought-after metal in the energy transition.
According to anonymous sources, BHP’s ambitious plan to become the top global producer of copper through the Anglo tilt has not succeeded. As a result, BHP is now hesitant to pursue further acquisitions in the copper market. This is partly due to the scarcity and high cost of developing major copper deposits, as well as the limited availability of viable acquisition targets. The potential acquisition of Anglo may be reconsidered by BHP in six months’ time, as per the regulations set by the UK Takeover Panel. The sources requested anonymity as these discussions are not public.
According to David Radclyffe, managing director at Global Mining Research, BHP’s portfolio will take time and significant investment to deliver results. This is why they saw an opportunity in acquiring Anglo’s interests in three key assets in Chile. Copper is a highly sought-after commodity, but there are limited assets available and it is challenging to develop them.

The recent battle between BHP and Anglo has captivated the mining sector. It would have been the biggest merger in over a decade and a highly complex one at that. BHP’s proposal required Anglo to divest its South African platinum and iron ore assets before being acquired by the Australian mining giant.

However, Anglo’s board rejected the offers and instead decided to pursue its own turnaround plan.

Oil Pushes Lower as OPEC+ Plan Spurs Concerns About Ample Supply

Oil prices continued to decline after OPEC+’s decision to increase production earlier than anticipated raised concerns about a potential oversupply. Brent crude dropped below $78 per barrel following a 3.4% decrease in the August contract on Monday. West Texas Intermediate also fell below $74 per barrel. Despite worries about the demand outlook and ample supply from non-OPEC+ countries, the alliance plans to start easing output cuts as soon as October. This move has drawn mixed reactions from market observers, with some expecting the cuts to be extended until the end of the year. There are also doubts about the group’s ability to increase production amid a surge in rival supplies. Furthermore, some key OPEC+ members have exceeded their assigned production quotas recently.
According to Warren Patterson, the head of commodities strategy for ING Groep NV in Singapore, the reversal of production cuts will result in a slight surplus in the oil market next year. However, OPEC+ has emphasized that the reintroduction of barrels may be halted if the market conditions are not favorable for increased supply.

Since the beginning of April, oil prices have been declining due to a decrease in geopolitical risks and weakening demand, which has caused some refiners to reduce their operating rates. As a result, the prompt spread for Brent has narrowed, indicating an abundance of near-term supplies and reflecting a bearish contango structure.

Asian Shares Fall After Weak US Manufacturing Data: Markets Wrap

Asian stocks fell as concerns about the US economy overshadowed hopes for early Federal Reserve policy easing. Shares in Japan and South Korea declined, while those in Hong Kong and mainland China experienced fluctuations. US equities futures remained stable.

In Asia, Treasury yields stabilized after a rise on Monday triggered by data showing a faster contraction in US factory activity. The 10-year yields increased by two basis points to 4.41%, following a previous decrease of 11 basis points. Australia’s equivalent yield dropped by five basis points, while New Zealand’s slipped by eight basis points.

The dollar, which had weakened against most of its Group-of-10 counterparts earlier, stabilized. Asian currencies like the Thai baht and Malaysian ringgit strengthened.
The latest US data reveals that the manufacturing sector is facing challenges in gaining momentum. This is mainly due to high borrowing costs, limited investment in equipment, and a decrease in consumer spending. Additionally, manufacturers are also struggling with increased input costs.

Gary Pzegeo from CIBC Private Wealth US commented on the Manufacturing ISM data, stating that it confirms the prevailing economic trends of slower growth, decelerating inflation, and a tight labor market. Pzegeo also mentioned that there is an increased likelihood of a rate cut later this year, which is reflected in the pricing of interest rate futures.

Swap contracts tied to upcoming meetings continue to fully expect a quarter-point rate cut in December. The probability of a rate cut in September has risen to around 50%, with high odds also given for a rate cut in November.

Ian Lyngen and Vail Hartman from BMO Capital Markets noted that there have been some signs of weakness in the real economy, particularly in consumption. As a result, investors are cautious and monitoring for any indications that the downward trajectory is accelerating.
The S&P 500 index experienced a late surge as a rally in big tech companies offset a sharp decline in energy producers. The New York Stock Exchange faced technical issues earlier in the day, leading to temporary halts in trading due to erroneous volatility.

In the commodities market, oil prices dropped as OPEC+ announced plans to increase production. Meanwhile, Bitcoin briefly reached a record high of $70,000, and gold maintained its strongest gain in two weeks following weak US economic data, which raised expectations of a rate cut by the Federal Reserve.

In Asia, two data releases from China on Monday provided some optimism for the country’s sluggish economy. Shanghai and Shenzhen saw an improvement in homebuyer sentiment after easing property restrictions, signaling a positive development for the struggling real estate sector after months of decline.
Additionally, a recent private survey revealed that China’s manufacturing sector experienced its fastest expansion in almost two years in May. This contradicts the weak official data that had previously dampened the country’s growth prospects.

Furthermore, investors are eagerly awaiting the results of India’s elections on Tuesday. Exit polls indicate that Prime Minister Narendra Modi is likely to secure a third term victory.

As the US earnings season draws to a close, traders are now turning their attention to the trajectory of inflation. They are particularly interested in whether inflation is cooling off or if it remains stuck in a loop that would prolong the current state of “higher-for-longer” interest rates. Chris Larkin from E*Trade at Morgan Stanley emphasizes that the upcoming jobs report will serve as a crucial test in this regard.

In addition to the jobs report, traders will also closely monitor a series of labor-market indicators throughout the week, with particular focus on Friday’s payrolls figures.
Oscar Munoz, from TD Securities, stated that if job openings continue to decline this week, it will further emphasize that the labor market is no longer a significant concern for inflation in the near future.

Hedge Fund Dymon Expands Hong Kong Office, Bucking Trend

Hedge fund firm Dymon Asia Capital is expanding its presence in Hong Kong’s central business district, despite the city facing an increase in office vacancies and falling rental rates. Dymon has secured a lease for a 7,000 square-foot office in the Edinburgh Tower, located within the Landmark commercial complex owned by Hongkong Land Holdings Ltd. This new space will be able to accommodate over 70 employees, double the capacity of its current office in the Nexxus Building. The vacancy rate for grade-A offices in Hong Kong reached a record high of 16.7% at the end of March, and rental rates have declined for the 20th consecutive quarter. According to a report by CBRE Group Inc., the combination of new office supply and cost-cutting measures may result in more vacant premium office space and continued pressure on rental rates.
According to Kan, Dymon has been occupying the Nexxus Building office since 2016 and currently has over 30 employees in Hong Kong. The multi-strategy hedge fund, valued at $2.5 billion, has achieved an estimated 10% return in the first five months of this year.

Kan also mentioned that out of the approximately 15 portfolio managers hired since the beginning of 2023, 40% have chosen to work in Hong Kong, despite being given the option to work in other locations such as Singapore, Tokyo, Mumbai, and Shanghai.

Due to the increasing number of talented individuals opting to work in Hong Kong, Dymon found it necessary to search for a larger office space earlier this year. Kan emphasized that Hong Kong remains a crucial market for Dymon Asia and that they will continue to expand their team in the city.

As a result of this news, shares of Hongkong Land, the largest commercial property landlord in Central, experienced a significant increase of up to 3.6% in Singapore trading on Tuesday, marking the largest intraday gain in two weeks.
Hong Kong is facing challenges in attracting talent and firms back to the city. The strict Covid-era restrictions, geopolitical concerns, and China’s economic slowdown have caused many to leave. Despite government efforts, the economic realities have made it difficult to achieve this goal.

The lack of investment banking deals has led to international financial firms reducing their office space. In the first quarter, Hong Kong had the lowest proceeds from initial public offerings since 2009. For example, Bank of America Corp. had to cut down on office space in Cheung Kong Center and relocate some staff to a more cost-effective location.

Furthermore, mainland Chinese companies, which were once the city’s primary tenants for premium offices, are not rushing to lease spaces either. Data from CBRE shows that they only accounted for 8% of new leases in the first quarter.
Hong Kong has been the leading hub for hedge funds in the region when it comes to asset management. According to Eurekahedge Pte gauge, China-focused hedge funds have only managed to generate an average return of 1.1% this year, still far from recovering their losses since 2021.

Dymon is set to relocate to its new office in the early fourth quarter. However, Kan, the spokesperson for the company, refused to provide details regarding the lease duration and rental rates due to a confidentiality agreement.

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