The world is “truly in the middle of the first global energy crisis,” according to Fatih Birol, head of the International Energy Agency. The dire warning comes as LNG markets tighten due to Russia’s war in Ukraine, as well as OPEC’s recent decision to cut supply by 2M barrels per day (or about 2% of global supply). “[It is] especially risky as several economies around the world are on the brink of a recession, if that we are talking about the global recession… I found this decision really unfortunate.”
What it means: “It is not the United States that will suffer most under high energy prices,” continued Birol. “It is mainly emerging and developing countries because their import fees go up and they have a weaker currency [compared to the dollar] that will cause a lot of hardship. It is countries in Africa, Asia and Latin America – mainly oil and energy importing countries.”
The deepening crisis is still being felt all over the world, and across many industries, as it grows in “depth and complexity.” Prior to Feb. 24, Russia was the No.1 food to fuel exporter of the world, including oil, gas and coal. As long as a peaceful resolution to the conflict remains out of reach, volatility will stay entrenched in oil and gas markets globally. Oil consumption is expected to grow by a further 1.7M bpd in 2023, so the world will still need Russian oil to meet demand.
Go deeper: Birol noted that turning to other sources of energy and renewables will not only help the world achieve climate goals, but that energy security should be the number one driver of the energy transition. In fact, additional low-carbon sources would have helped ease the current crunch, and a quicker transition is the best way to stave off the global energy crisis. (17 comments)
Rishi Sunak was elected Tory party leader by fellow Conservative lawmakers on Monday, and will formally become the U.K.’s third prime minister in two months following a meeting today with King Charles III. The revolving door at 10 Downing Street comes after Liz Truss rocked financial markets with an economic plan to cut taxes and increase spending, which prompted a selloff in the British pound and U.K. gilts. Sunak had spent a previous leadership battle warning of the economic consequences if she were chosen for the top job, and is now on hook to restore market order and head off a recession.
Quote: “The United Kingdom is a great country, but we face a profound economic crisis. That’s why I am standing to be leader of the Conservative party and our next prime minister. I want to fix our economy, unite our party and deliver for our country.”
In terms of economic policy, Sunak will have a wide range of issues to contend with from spending and reducing the deficit to immigration and the U.K.’s relationship with the EU. Based on his resume, he’s likely to prioritize fiscal conservatism and trim spending where possible, even if that entails deep cuts. He also backed Brexit in the 2016 referendum, but wasn’t a hardliner, and will face pressure to solve a dispute related to the Northern Ireland Protocol.
Some history: Before entering politics, Sunak worked as an analyst at Goldman Sachs and was a partner at hedge funds like the Children’s Investment Fund Management and Theleme Partners. He was first elected as a Conservative MP for a constituency in North Yorkshire in 2015, but then worked his way up inside the party. Sunak served as Chief Secretary to the Treasury from 2019 to 2020 and as Chancellor of the Exchequer from 2020 to 2022 under former Prime Minister Boris Johnson.
How many times has the word “inflation” been mentioned by company executives this earnings season? On around 2 out of 3 conference calls, according to a transcript analysis by FactSet. The pressures have been on full display on both the producer and consumer sides of the equation, showing that companies have a lot more to think about when determining pricing and products. The latest CPI data from September came in at an elevated 8.2%, while the most recent PPI wholesale figures showed an 8.5% year-over-year expansion.
Quote: “Clearly, we have some caution in terms of what’s going to develop in the marketplace,” Dover (DOV) CEO Richard Tobin said last Thursday. “I fundamentally disagree with what the Fed is doing now.”
There’s also been some dispute on how long inflation will last, or if and how it will ease in some categories before others. “Inflation remains persistent and elevated, and we anticipate this to continue well into 2023 with some moderation in the back half of 2023,” Tractor Supply (TSCO) CEO Harry Lawton declared. “Inflation continues to be a stubborn force globally,” related Abbott (ABT) CEO Robert Ford, “though we’ve started to see some moderating impacts in certain areas of our businesses compared to earlier in the year.”
Outlook: So far, around 20% of companies in the S&P 500 have reported Q3 results in the first two weeks of earnings season. Another 165 firms, representing around a third of the benchmark index, will issue their quarterly report cards this week. They include the megacap tech names, like Google parent Alphabet (GOOG, GOOGL) and Microsoft (MSFT), which will report earnings later today.
Investors on Monday failed to give Beyond Meat (BYND) some much-needed love after the company announced the launch of Beyond Steak. Historically, new products have boosted sales, though the stock dipped another 1.4% during the session and is down over 80% YTD. The steak alternative will be available at Kroger (KR), Walmart (WMT) and other stores nationwide, with a 10-ounce package going for $7.99.
Snapshot: The company described Beyond Steak as “seared to perfection” and chopped into bite-sized pieces for meat lovers and flexitarians alike. Featuring a faba bean base, it contains 21 grams of protein per serving, while offering other nutritional benefits. Beyond Meat says it has a lower saturated fat content than beef steak, with 0 mg of cholesterol and no added antibiotics or hormones.
The launch follows a challenging period for the company that is also behind the Beyond Burger, Beyond Beef, Beyond Sausage and Beyond Meatballs. Chief Operating Officer Doug Ramsey was arrested in September after allegedly biting a man’s nose in an Arkansas parking garage, which ultimately led to his departure from the firm. Beyond Meat also intends to lay off 19% of its workforce, or about 200 of its total employees worldwide, after axing 4% of its global workforce in August.
Commentary: “Though we appreciate the opportunity for BYND to improve margins via newly-announced efficiencies, we may struggle to locate a bottom in the shares until we see evidence that demand is growing for the company’s products,” wrote J.P. Morgan equity analyst Ken Goldman. He reiterated a Sell-equivalent rating and withdrew a price target on the stock, while reducing revenue estimates for the foreseeable future. “Our EBITDA estimates increase to account for cost savings; however, we still model EBITDA well below zero for each of the next few years.” (8 comments)
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