Member Briefing October 20, 2022
Facing Tough Midterms, Biden Releasing Oil from US Reserve
President Joe Biden announced a plan on Wednesday to sell 15 million barrels of crude oil from the nation's emergency supply and begin refilling the reserve as he tries to dampen high gasoline prices ahead of midterm elections on Nov. 8. The move came two weeks after the Saudi Arabia-led Organization of the Petroleum Exporting Countries rankled Biden by siding with Russia and agreeing to a production cut, raising fears of a new spike in U.S. pump prices. He also repeated a plea to U.S. energy companies, gasoline retailers and refiners, asking them to stop using record-breaking profits to buy back stock, and to invest in production instead.
American Petroleum Institute (API) President and CEO Mike Sommers said in a statement that “Increasing energy demand and constrained supply coupled with geopolitical instability and faulty policy decisions have driven fuel prices higher. At a time when American energy can be a stabilizing force at home and abroad, we urge caution in continuing to rely on short-term efforts that are no substitute for sound long-term policies that enable American energy leadership. The administration should instead focus on addressing the fundamental economic and security challenges we face by spurring more investment in American energy, infrastructure and markets that enable U.S. consumers to benefit from America’s reliable energy resources.”
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Ukraine’s Economy Seems to be Growing Again – The Economist
- Russia Attacks Ukraine’s Power Supply Causing Widespread Blackouts - PBS
- Sergei Surovikin Says Russia’s Defence of Occupied Southern City ‘Not Easy’ as Ukraine Introduces Local News Blackout – The Guardian
- Russians Start Leaving Ukraine's Kherson City - BBC
- What Ukrainians Learn from Downed Drones Used by Russia - CNN
- U.S. and Europe to Address Iran's Drone Supply to Russia at U.N. Security Council - NBC
- Russians Arrested for Trading US Military Tech, Venezuelan Oil - Bloomberg
- McCarthy: No ‘Blank Check’ for Ukraine if GOP Wins Majority - AP
- Putin Declares Martial Law in 4 Illegally Annexed Regions – Washington Post
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
Euro Zone Escapes Double-Digit Inflation by Whisker on Revision
Euro zone consumer inflation was marginally lower in September than estimated earlier, data showed on Wednesday. The European Union's statistics office Eurostat said consumer prices in the 19 countries sharing the euro rose 1.2% month-on-month for a 9.9% year-on-year surge, revising down its earlier estimate of a 10% year-on-year reading.
Surging energy prices were responsible for 4.19 percentage points of the total year-on-year reading, with food adding another 2.47 points and services 1.80 points. Without the volatile unprocessed food and energy costs, or what the European Central Bank calls core inflation, prices went up 0.9% on the month for a 6.0% year-on-year gain.
U.K. Inflation Reaches 10.1% as Government U-Turns Cloud Outlook
Food prices jumped 14.6% in the year through September, led by the soaring cost of staples such as meat, bread, milk and eggs, the Office for National Statistics said Wednesday. That pushed consumer price inflation back to 10.1%, the highest since early 1982 and equal to the level last reached in July.
The figures immediately fueled demands that the government do more to help families and retirees as it struggles to regain credibility after an ill-fated package of tax cuts roiled financial markets. Treasury chief Jeremy Hunt ditched the package after he took office last week, but he has warned that this will be a difficult winter and spending reductions also will be needed.
US COVID – Study: Milder COVID Cases, Lower Viral Loads in Vaccinated Frontline Workers
A study of essential and frontline workers in six US states who tested positive for COVID-19 and received two or three mRNA vaccine doses before Delta infections and three doses before Omicron infections suggests that they had significantly milder infections and lower viral loads than their unvaccinated peers. In the study, published Tuesday in JAMA, HEROES-RECOVER Network researchers analyzed the weekly self-collected nasal swabs and whole-genome sequencing results from 1,199 frontline workers infected with COVID-19 from Dec 14, 2020, to Apr 19, 2022, with follow-up until May 9.
The workers, primarily healthcare professionals and first responders, were located in Arizona, Florida, Minnesota, Oregon, Texas, and Utah. Median age was 41 years, 59.5% were women, 72.6% were White, 19.3% were Hispanic, 14% were infected with the wild-type strain, 24.0% had a Delta variant case, and 62.0% had Omicron.
Zeldin Gaining Ground on Hochul in ‘Competitive’ N.Y. Governor’s Race: Quinnipiac, Siena Polls
A pair of new polls show Gov. Hochul’s lead over Lee Zeldin in the New York governor’s race narrowing as Election Day nears and crime remains voters’ biggest concern. The incumbent Democrat’s once comfortable buffer over her Republican challenger fell to just 11 points, down from 17% last month, according to a new Siena College poll released on Tuesday. A second poll put out by Quinnipiac University shows an even slimmer margin separating the pair, with Hochul holding a razor-thin four-point edge over the conservative congressman from Long Island.
Among issues impacting the election, crime is foremost on voters’ minds. Roughly 28% of New Yorkers believe crime is the most urgent issue facing the state, the Quinnipiac poll found. Inflation came in second at 20%.
Betting Markets Are Treating the Midterm Elections Like It’s a Presidential Election
For the past few weeks, we’ve been trying to figure out to what extent, if any, Republicans have regained ground in the race for control of Congress. And the answer is … probably some, but not necessarily as much as the conventional wisdom holds. In betting markets, there’s been a much sharper shift. In fact, the markets have the race at nearly even, with Republicans having a 49 percent chance of Senate control. That’s up from a low of 33 percent in late August. The markets were in pretty good alignment with FiveThirtyEight’s forecast for most of the cycle; now they’re not.
How come? Well, as I wrote two weeks ago, I don’t think it’s crazy for the markets to be concerned about systematic polling bias. It’s also not crazy for markets to have anticipated some fallout for Democrats from Thursday morning’s worse-than-expected inflation report. But the gap between the markets and the models is big — and growing. And it’s not just FiveThirtyEight’s model. Several other models are similar or don’t even show a Republican rebound at all.
CDC Recommends Novavax's Covid Shots as Mix-and-Match First Booster to Pfizer or Moderna
The Centers for Disease Control and Prevention on Wednesday recommended Novavax ’s Covid boosters for adults in the U.S., including for people who received Pfizer, Moderna or Johnson & Johnson’s shots as their primary series.
The Food and Drug Administration, in a factsheet for healthcare providers, said adults ages 18 and older can receive Novavax as their third dose six months after completion of the primary series of a U.S. authorized Covid vaccine. The CDC gave the final go ahead for pharmacies to start administering the Novavax boosters just hours after the FDA had authorized the shots. Dr. Evelyn Twentyman, a CDC official, announced the Novavax recommendation during a meeting of the agency’s independent vaccine experts Wednesday afternoon.
IRS Announces Inflation Adjustments for Tax Rates in 2023
Amid soaring inflation, the IRS this week announced higher federal income tax brackets and standard deductions for 2023. The agency has boosted the income thresholds for each bracket, applying to tax year 2023 for returns filed in 2024. These brackets show how much you’ll owe for federal income taxes on each portion of your “taxable income,” calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
The standard deduction will also increase in 2023, rising to $27,700 for married couples filing jointly, up from $25,900 in 2022. Single filers may claim $13,850, an increase from $12,950.
IBM Earnings: Big Blue Expects to Exceed Revenue Target on Resilient Cloud Momentum
IBM Corp (IBM) beat quarterly revenue estimates on Wednesday and said it expects to exceed full-year revenue growth targets as robust demand for its digital services helps cushion the blow from a strong dollar.
The IT software and services provider has been focusing on the so-called "hybrid cloud" after spinning off its legacy IT-managed infrastructure business and posted double-digit growth across all its segments and geographies on a constant-currency basis for the third quarter. The company's shares rose 6% in trading after the bell.
Apple To Cut to iPhone 14 Plus Production
Shares of Apple dipped Tuesday on a report that the company has asked one supplier to stop producing a component for the iPhone 14 Plus while the company re-evaluates demand. One of Apple’s manufacturers in China has been instructed to immediately halt production of a component for the phone less than two weeks after its debut, according to The Information. Two other suppliers that assemble modules from that component have also cut production dramatically, the report says.
The new report suggests that consumers are opting for the more expensive model among the two large-screened iPhones. That maps to an earlier report from Bloomberg that said the company told suppliers to bail on plans to increase iPhone 14 production in September. (The iPhone 14 is the cheaper alternative to the iPhone 14 Pro.) Demand for the new models failed to spike as high as anticipated, Bloomberg had said.
Cement Firm Lafarge Pleads Guilty to Supporting Islamic State
French cement maker Lafarge has pleaded guilty in the US to supporting the Islamic State and other terror groups. The firm agreed to a $777.8m (£687.2m) penalty for payments it made to keep a factory running in Syria after war broke out in 2011.
Prosecutors said it marked the first time a company had pleaded guilty in the US to aiding terrorists. The firm opened its plant in Jalabiya near the Turkish border in 2010 following a $680m investment. US prosecutors said that Lafarge's Syrian subsidiary had paid Islamic State and another terror group, al Nusra Front, the equivalent of $5.92m to protect staff at the plant as the country's civil war intensified. Executives likened the arrangements to paying "taxes", they said.
Procter & Gamble's Earnings Beat as Higher Pricing Offsets Drop in Volume
Procter & Gamble on Wednesday reported quarterly earnings and revenue that topped analysts’ estimates as higher pricing helped offset lower demand for its products and currency headwinds. Net sales for the quarter rose 1% to $20.61 billion, topping expectations of $20.28 billion. Unfavorable foreign exchange rates dragged revenue down by 6%.
The maker of Tide detergent, Charmin toilet paper and Pampers diapers also said it’s expecting foreign currency to hit its fiscal 2023 results more than previously expected. Net sales are expected to decline 1% to 3%, lower than its previous outlook of flat to up 2%. P&G is now forecasting earnings per share on the low end of its prior range of flat to up 4%.
Diesel Crisis Deepens As Inventories Fall To Dangerous Levels
While the OPEC+ agreement to cut crude oil production and the U.S. reaction to it dominate headlines, a much more immediate crisis is getting worse by the day. Global diesel and other distillate fuel stocks have been on the decline for a while now, and there is no reversal of this trend in sight. Demand, on the other hand, has been growing, leading to a widening shortage.
The situation has become so grave that U.S. buyers have begun snapping up diesel cargos originally sailing for Europe. Reuters reported earlier this month that at least three tankers carrying diesel from the Middle East had changed their course mid-journey and were now traveling to the United States. And this new competition is about to intensify.
BMW Joins the EV Frenzy With $1.7B U.S. Investment
BMW is upgrading the jewel in its global manufacturing crown to position the 7-million-square-foot crossover factory for the electric era. On Wednesday, the German performance brand announced a $1.7 billion investment to build at least six battery-powered models at the facility in Greer, S.C., by 2030.
The project includes domestic sourcing of next-generation batteries and a $700 million battery-pack assembly plant to be built in nearby Woodruff, S.C. It also requires construction of a new battery-cell plant in the state by Japanese battery-maker Envision AESC, although few details on that part of the project have been disclosed.
EU Seeks Power to Set Emergency Cap on Gas Prices
The European Commission, the EU’s executive arm, on Tuesday published proposals that include steps to encourage companies to pool their demand and buy gas together and rules for how gas could be shared across borders if some countries run short. Other measures seek to limit volatility on energy markets and boost the financial support that can flow to struggling consumers.
The proposals mark the EU’s latest response to Russia’s invasion of Ukraine and its decision to squeeze the supply of gas to the continent. Moscow cut the flow of gas through the Nord Stream pipeline entirely in late summer, contributing to a sharp increase in European gas prices. Last month, the pipeline was severely damaged in an explosion that Western officials have attributed to sabotage.
Germany Fudges Exit from Nuclear Power, Kicking Energy Crisis into Next Winter
Chancellor Olaf Scholz punted Germany’s looming energy crisis into next winter in order to end an internal feud over the fate of the country’s three remaining nuclear power plants. Despite vocal support from climate activist Greta Thunberg, he decided to extend the operational lives of the three plants only until April 15, 2023. Afterward, Germany’s more than 50-year-long experiment with atomic energy comes to a likely end just three months longer than planned.
“The problem has only been postponed,” wrote conservative first minister Markus Söder of Bavaria, the wealthy state that is home to one of the plants. “This may be a solution to the conflict in the coalition, but not for Germany’s electricity problem. The risk of a blackout in the coming year remains.”