The energy crisis across the world has taken a turn for worse, and is now set to impact nearly every corner of the global economy. Supply remains scarce and expensive, triggering knock-on effects throughout many industries that are already dealing with soaring inflation. The near-term outlook isn’t looking any better, as companies and consumers prepare for a coming recession without adequate energy sources to get them through the winter.
Natural gas: European benchmark Dutch TTF natural gas futures jumped as much as 35% to €290/MWhr on Monday after Russia said the key Nord Stream pipeline would remain shut beyond last week’s three-day maintenance halt. The Kremlin had originally insisted that the closure was due to a leak, but now says that supplies will be suspended until the “collective West” lifts sanctions (Moscow will also retaliate if the G7 imposes a price cap on Russian oil). EU energy ministers will gather for an emergency meeting in Brussels on Friday to discuss a coordinated response, with gas futures surging more than 280% YTD. More stimulus? Rationing? Price caps? Trading suspensions?
Crude oil: WTI futures climbed back towards $90 a barrel after OPEC+ recommended a 100K bbl/day production cut starting in October amid fears over demand and a global recession. The decision will have little effect on actual production, since the group’s output is already running well below target, but the psychological impact is clear. The small cut effectively reverses the 100K bbl/day increase that OPEC+ said it would add to the market after President Biden’s recent visit to Saudi Arabia.
The grid: California declared a power emergency on Monday and expects all-time record demand today, as a heatwave that has pushed temperatures past 110 degrees Fahrenheit threatens to stretch the state’s electricity system to its limit. Ukraine’s Zaporizhzhia, the largest nuclear plant in Europe, has also been fully disconnected from the electricity grid due to shelling from Russian forces. That’s not all. Plummeting water levels from drought and overuse are threatening many regions and countries, weighing on hydropower and nuclear power that needs water to cool reactors. (5 comments)
British Foreign Secretary Liz Truss was named leader of the governing Conservative Party on Monday, making her the next U.K. prime minister after the scandal-plagued resignation of Boris Johnson. Truss edged out Rishi Sunak, who raised taxes following the pandemic and was seen as an instrumental force in bringing down Johnson’s government by resigning as Chancellor of the Exchequer back in July. The new U.K. leadership will have to contend with a serious cost of living crisis and skyrocketing inflation that’s running at a 40-year high of over 10%.
Platform: Truss has previously pledged to set “a clear direction of travel” for monetary policy, as well as a review of the Bank of England’s mandate that lead to greater oversight by members of parliament. She also wants to reverse corporate tax increases, and help low-income households and small businesses deal with spiraling energy costs. While she has declined to give details of those measures, she has promised to act quickly, coming up with a plan to tackle rising energy bills and securing future supplies within a week.
The stance has prompted investors to worry about more government debt at a time when borrowing costs are surging. Weakness in the pound has also been compounded and just hit the lowest level versus the U.S. dollar since 1985. Uncertainty over economic policies and the ability to control inflation, as well as a pledge to review the remit of the BoE and relentless rally in the greenback have all been factors in the descent of sterling, and some think the pound could even fall to parity with the dollar in 2023.
Worst-case scenario: “The economic challenges facing the U.K. economy are probably of a magnitude as great as anything we’ve seen in living memory,” said Mark Dowding, chief investment officer of BlueBay Asset Management. “There’s a really bleak path in which you end up with the U.K. almost needing to go back to the IMF for a bailout as a quasi-emerging market crisis.” (15 comments)
Beleaguered retailer Bed Bath & Beyond (BBBY) is back in the news after the passing of Chief Financial Officer Gustavo Arnal. The executive plunged to his death from the iconic new Tribeca building known as the “Jenga” tower, with New York City Medical Examiner’s Office ruling the death a suicide. The event comes days after the struggling chain announced it was closing stores and brands, laying off workers, and revealed plans for new financing and raising capital.
Quote: “The entire Bed Bath & Beyond organization is profoundly saddened by this shocking loss,” the firm said in a statement. “Mr. Arnal was instrumental in guiding the organization throughout the coronavirus pandemic, transforming the company’s financial foundation and building a strong and talented team. He was also an esteemed colleague in the financial community.”
The latest development comes at a time when Bed Bath & Beyond has been on a rollercoaster ride after becoming a meme-stock darling on Reddit’s Wall Street Bets. BBBY tumbled from more than $30 in March to less than $5 a share in July, then rocketed back to $30 intraday just weeks ago before sinking again to end Friday at $8.63. The stock is plunging again premarket, down 16% to $7.72.
Go deeper: Arnal and the company were sued on Aug. 23 over accusations of artificially inflating BBBY’s stock price in a “pump and dump” scheme. Bed Bath said it was “in the early stages of evaluating the complaint, but based on current knowledge the company believes the claims are without merit.” (148 comments)
CVS Health (CVS) has agreed to acquire Signify Health (SGFY) for $30.50/share in cash, for a total value of about $8B, beating out other potential buyers including Amazon (AMZN) and UnitedHealth (UNH). Private equity funds affiliated with New Mountain Capital, which owns 60% of Signify Health (SGFY) shares, have also agreed to vote the shares they own in favor of the deal.
Bigger picture: The transaction will add 10,000 contracted doctors and clinicians and give CVS (CVS) a hand in coordinating medical care for millions of Americans. Signify’s in-home model is part of a broad analytics-and-technology platform, which sees providers go into homes equipped with connected tablets to assess patient needs and follow-up services. The clinicians “operate much like Uber drivers,” explained CEO Kyle Armbrester. “We’re in a gig economy and this is a flexible model.”
Many companies (even outside the sector) have recently been pivoting to healthcare services. CVS has acquired insurer Aetna and pharmacy benefits manager Caremark, while in July, Amazon announced it would scoop up primary-care provider One Medical for $3.9B. Don’t forget Walgreens’ (WBA) deal for CareCentrix, UnitedHealth’s $5.4B buyout of LHC Group, and Humana (HUM) taking full control of Kindred at Home.
Statement: “We expect the acquisition to be meaningfully accretive to earnings and, as a result, are increasingly confident we can achieve our long-term adjusted EPS goals as outlined at our Investor Day in December 2021,” declared Shawn Guertin, CFO at CVS Health. An analyst and investor call discussing the deal will take place today at 8:30 a.m. ET. (40 comments)
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