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(Editor's note: This daily digest of the latest news and perspective is a must read for those in business who need to keep abreast of the newest developments in the marketplace, yet do not have time to scour all the media outlets. In less than 10 minutes you will be caught up and in the know on the current events impacting the marketplace.—Jim Wyckoff)

China, Russia, Ukraine, Weather on the front burner

Warning on AI | Oil prices rally | Flooding in China's grain basket

In Today's Digital Newspaper

Heavy rains caused flooding across northeastern China, the country's grain basket, including top producer Heilongjiang province. The rains are expected to continue this week as typhoon season continues to wreak havoc. More in China section.

Oil prices reached their highest point in four months, largely due to increasing global supply concerns, but prices declined early today. More in Markets section.

On Saturday, another Ukraine sea drone hit a Russian-flagged oil tanker that supplies fuel to Moscow's forces in Syria. Ukraine's defense ministry confirmed it struck key bridges on one of two roads that connect Crimea to the Ukrainian mainland on Sunday. The attacks put at risk Russia's commodity exports via the Black Sea, a route that accounts for most of the grain and 15% to 20% of the oil that Russia sells daily on global markets.

Significantly higher insurance and shipping costs are likely to follow the increased attack in the Black Sea.

Placing the blame squarely on the Teamsters, cash-strapped Yellow Corp filed for bankruptcy, leading its stock to sink over 25% in premarket trading.

Saudi Aramco reports a 38% drop in quarterly profit. The state-controlled oil giant earned $30 billion in the second quarter, sharply lower than in the same period last year, driven partly by declining global crude prices.

Federal Reserve governor Michelle Bowman has expressed the potential need for further increases in interest rates to successfully lower inflation to the Fed's target of 2%. More in Fed watch below.

In recent negotiations with major automakers, the United Auto Workers (UAW) union has made quite a forward proposition. The union has requested a significant wage increase of 40%, along with the stipulation that employees appointed at newly established electric-vehicle (EV) battery factories will fall under the umbrella of the union's national contracts. These strong demands have been influenced by the substantial profits gained by Ford, General Motors, and Stellantis. However, amid the transition towards EV production, there is an impending risk of job reductions, serving as another motivating factor for the union's bold bid.

Energy-related news:

Punchbowl News takes a look at mostly congressional inaction ahead. See Congress section.

MARKET FOCUS

Equities today: Asian and European stock markets were mixed in overnight trading. U.S. stock indexes are pointed to slightly higher openings. In Asia, Japan +0.3%. Hong Kong -0.1%. China -0.6%. India +0.4%. In Europe, at midday, London -0.6%. Paris -0.4%. Frankfurt -0.6%.

U.S. equities Friday: The string of weekly gains for major indices came to an end, with the Dow losing 1.1%, the Nasdaq falling 2.9% and the S&P 500 down 2.3%. Stocks had been in positive territory much of the day but a late sell off sent them lower for the session. On Friday, the Dow declined 150.27 points, 0.43%, at 35,065.62. The Nasdaq was down 50.48 points, 0.36%, at 13,909.24. The S&P 500 fell 23.86 points, 0.53%, at 4,478.03.

Yellow, the trucking firm formerly known as YRC Worldwide, is filing for Chapter 11 bankruptcy protection, indicating it will wind down its operations. The filing with a Delaware court occurred on Sunday. Yellow has reported liabilities ranging from $1 billion to $10 billion, with over 100,000 creditors.

Yellow committed to reimbursing the $700 million loan received from the U.S. gov't amid the pandemic. This loan is part of the $1.3 billion in debt repayments the company claims are due by 2024, which includes a significant $567.4 million private-equity loan.

Darren Hawkins, the CEO of Yellow, expressed deep regret over the company's closure, recognizing the challenge this presents to clients. Yellow was known for its "less-than-truckload" shipments, where it carried loads for multiple companies in one truck. The trucking firm's troubles were brought on by the debt accumulated through the purchase of other carriers, as well as recent tense wage negotiations with the Teamsters union for the company's 22,000 union workers. It is yet unclear how Yellow's customers will adapt to the company's closure.

Saudi Arabia's oil giant, Aramco, experienced a 38% decrease in net profit during the second quarter, reporting 112.8bn riyal ($30.1 billion). This fall was partly due to lower crude oil prices. The downturn mirrors industry trends, with British firm BP also recording a 70% drop in year-on-year profit for the same quarter. This follows Saudi Arabia's announcement in June of a decrease in oil production by 1 million barrels.

Siemens Energy reported a net loss of €2.9bn ($3.2 billion) in its third quarter and forecasts a total annual loss of €4.5 billion. The company attributes part of these poor results to increasing costs within its wind-turbine division. This reflects broader issues in the wind turbine industry, as Siemens Gamesa and other manufacturers struggle with supply chain disruptions and escalating maintenance costs.

Market quotes of note:

Corteva shifts outlook lower. Agricultural firm Corteva released their earnings update on Friday (Aug. 4), reporting earnings were better than expected at $1.60 per share versus expectations they would be around $1.58 per share. But the company also reported sales had fallen to $6.05 billion from year-ago, a downturn of 3%.

Market perspectives:

• Outside markets: The U.S. dollar index was firmer, with only the euro slightly weaker against the greenback. The yield on the 10-year U.S. Treasury note was firmer, trading around 4.09%, with a mostly higher tone in global government bond yields. Crude oil futures were lower, with U.S. crude around $82.20 per barrel and Brent around $85.60 per barrel. Gold and silver were lower, with gold around $1,968 per troy ounce and silver around $23.47 per troy ounce.

• Oil prices reached their highest point in four months, largely due to increasing global supply concerns. Over the weekend, a critical Russian oil export port was attacked by Ukraine, which has further intensified these concerns. Considering Russia's status as the world's second largest crude oil exporter, this event bears significant implications for the international market. This recent development comes on the heels of decisions taken by Russia and Saudi Arabia, the world's largest crude oil exporter, to continue their oil output cuts. By reducing their supply, these countries aim to drive up the prices of oil on the global market.

• India might cut or abolish wheat import tax. India is considering cutting or abolishing import taxes on wheat, Food Secretary Sanjeev Chopra said, as the country struggles to contain price rises. Chopra said there is no plan to import wheat from Russia or engage in a government-to-government deal. In June, India imposed a limit on the amount of wheat stocks traders can hold, for the first time in 15 years, in an attempt to lower domestic prices.

RUSSIA/UKRAINE

— Russia: JPMorgan stops processing grain payments. Russia said U.S. bank JPMorgan had this week stopped processing payments for the Russian Agricultural Bank to the SWIFT international payments system. It was cut off by the European Union in June of last year. As a workaround to get Russia to extend and then rejoin the Black Sea grain deal, JPMorgan had been processing some Russian grain export payments with reassurances from Washington. However, that cooperation stopped this week, Russia's foreign ministry said. “The direct channel between the Russian Agricultural Bank and JPMorgan, which the West and the United Nations tried to present as a working alternative to SWIFT, was closed on Aug. 2,” foreign ministry spokesperson Maria Zakharova was quoted by Russian media as saying.

— The conflict between Ukraine and Russia has escalated with Ukraine drilling into Russia's economic lifeline — its commodity exports via the Black Sea. Over the weekend, Bloomberg reports sea drones crippled a Russian naval vessel and an oil tanker, marking the first time Russia's Black Sea commodity exports, which contributes most of Russian grain and 15-20% of its daily oil sales, were put at risk.

This escalation may result in increased insurance and shipping costs for Moscow, while also presenting risks to European and global markets. Freight rates are expected to balloon due to escalated risks in the Black Sea area. Some say the cost of shipping Russian crude from Novorossiysk to the west coast of India could potentially rise by 50%.

Impacts: Russian exports of approximately 500,000-550,000 barrels a day of crude and 450,000 barrels of refined products from Novorossiysk are now endangered. The port also loads about 250,000 barrels a day of crude from Kazakhstan which subsequently gets shipped to Romania for refining. The Caspian Pipeline Consortium, or CPC, loading tankers with about 1.3 million barrels of crude per day is also under threat.

— Ukraine grain exports running ahead of last year. Ukrainian grain exports since July 1 totaled 2.56 MMT, up 560,000 MT (28%) from the same period last year, according to ag ministry data. The volume included 1.27 MMT of corn, 977,000 MT of wheat and 329,000 MT of barely.

CHINA UPDATE

— Heavy rains pound China's northeast grain belt. Heavy rains caused flooding across northeastern China, the country's grain basket, including top producer Heilongjiang province. The rains are expected to continue this week as typhoon season continues to wreak havoc, raising the risk that more agricultural land will be flooded, according to the National Meteorological Center. The northeastern region, which also includes the provinces of Liaoning and Inner Mongolia, produces almost 30% of China's grains, accounting for 45% of the national corn harvest, 60% of soybeans and 20% of rice.

ENERGY & CLIMATE CHANGE

— Japan reportedly intends to start releasing treated wastewater from the Fukushima nuclear plant into the Pacific Ocean later this month. Prime Minister Kishida Fumio plans to assure the U.S. and South Korean presidents of the plan's safety in a meeting next week. This measure has received approval from the International Atomic Energy Agency, despite China's government voicing strong opposition.

— U.S. researchers duplicate a nuclear fusion feat. Scientists at the U.S. federal Lawrence Livermore National Laboratory have achieved a significant breakthrough in nuclear fusion research. They have managed to duplicate a previous achievement, where a fusion reaction resulted in a 'net gain' — that is, the reaction produced more energy than it consumed. On this occasion, even higher power output was recorded. This progression is vital, as it brings researchers closer to realizing nuclear fusion as a source of clean, inexpensive energy. However, this technology could still be several decades away from becoming a practical reality.

— The state of Oregon decided to revise a longstanding ban in place since 1951, which prohibited drivers from pumping their own gas. This change was enacted by a new law signed on Friday and became effective immediately, leaving New Jersey as the only state in the U.S. where drivers cannot pump their own fuel. However, the transition in Oregon comes with safeguards. The new law doesn't eliminate full service entirely in the state's 16 most populated counties. Regulations now stipulate that self-serve pumps cannot exceed half of the total pumps at any given station. Furthermore, for consumer assistance, it's required that a gas station employee is available at all times to pump fuel in those communities.

— Some requirements for a valuable new hydrogen tax credit may be phased in to support a growing industry that's key to reducing industrial carbon emissions, according to John Podesta, a top climate adviser to President Joe Biden. The administration hopes to strike a balance between the industry's need for flexibility and environmentalists' call for strict limitations.

The proposed tax credit, worth up to $3 per kilogram of green hydrogen, is expected to help lower costs for electrolyzers, which are crucial for extracting hydrogen from water. Environmental advocates have expressed concerns that if not properly regulated, the increased hydrogen production could lead to greater demand for fossil fuel-based electricity, thereby increasing greenhouse gas emissions and hampering U.S. climate goals.

The government will offer official guidance on this credit, which was established by a climate law passed last year. The guidance is anticipated in the coming weeks.

HEALTH UPDATE

— While a small percentage of U.S. adults are currently using prescription weight loss drugs, nearly half of them are interested in incorporating them into their health care routines, according to a survey conducted by the Kaiser Family Foundation. This signals high public awareness about these newer medications which are quickly gaining traction. This trend presents a substantial market opportunity for pharmaceutical companies such as Novo Nordisk and Eli Lilly, who can cater to this significant consumer interest.

— San Francisco-based startup Amber Bio just raised $26 million in seed funding to develop safer gene editing tools. It uses Crispr gene editing tools to target RNA rather than DNA, which has the potential to correct a wider variety of genetic disorders while reducing safety risks. The company is currently interested in applying its technology to genetic disorders of the eye.

CONGRESS

— The latest findings from The Canvass K Street survey indicate that 65% of K Street leaders believe that a government shutdown will likely occur on Oct. 1, which is the beginning of the new fiscal year. An even larger number, 80%, foresee a government shutdown at some point before January. The House and Senate, which need to pass 12 appropriations bills, have discordant approaches to fiscal year 2024 spending. In the House, draft funding bills propose significantly reduced spending versus what was settled in the debt-limit compromise between President Biden and House Speaker Kevin McCarthy (R-Calif.). In contrast, the Senate is utilizing funding levels determined by the Fiscal Responsibility Act.

The House has encountered difficulties in bringing these bills to the floor, notes Punchbowl News in talking about the survey, as illustrated by the recent postponement of the Agriculture funding bill due to insufficient support from GOP leaders. The Senate, on the other hand, successfully passed all 12 appropriations bills out of committee with bipartisan approval before the August recess.

Congress will be on recess until after Labor Day, leaving lawmakers with a limited window in September to attain a government funding agreement. It remains uncertain if a temporary resolution can be passed in September to provide more time for both parties to negotiate a longer-term deal.

If all 12 appropriations bills are not passed by Jan. 1, 2024, there will be a 1% across-the-board spending cut, as agreed in the debt-limit compromise, but that will not take effect until April, giving lawmakers more time. Of those surveyed, Democrats were more pessimistic, with 91% predicting a pre-2024 government shutdown, compared to 73% of Republicans.

In terms of other legislative matters, 66% of K Street leaders foresee Congress reauthorizing the farm bill. However, they are less hopeful about the passing of the cannabis banking reform, with only 14% believing it will happen. A substantial 80% believe it's likely for a FAA reauthorization bill to be passed, while under half, 49%, think that Congress will likely pass legislation addressing rail safety.

The Canvass K Street survey was conducted from July 10-28, in collaboration with the Locust Street Group.

By

For Kitco News