Month: July 2024

Authored by Julianne Geiger via OilPrice.com,

• Natural gas power generation hit a record high in the US on July 9th due to extreme heat.

• Despite record demand, natural gas prices remain relatively low due to high storage levels.

• The surge in gas demand highlights the fuel’s critical role in meeting peak electricity needs.

On July 9, 2024, U.S. power plant operators in the Lower 48 states generated 6.9 million MWh of electricity from natural gas, marking a record high since the collection of hourly data began on January 1, 2019. This surge in natural gas-fired generation was driven by exceptionally high temperatures across the country and a significant decrease in wind generation.

The National Weather Service reported that temperatures on July 9 were well above average nationwide, with particularly high temperatures on the West Coast and East Coast. Concurrently, wind generation plummeted to 0.3 million MWh, substantially lower than the 1.3 million MWh daily average recorded in June 2024.

This data further affirms the essential nature of natural gas as it steps in to fill the electricity generation gap left by renewable energy during periods of high demand.

Wholesale natural gas spot prices fell to record lows in the first half of 2024, pricing data shows, with the monthly wholesale spot natural gas price at the U.S. benchmark Henry Hub falling by 20% to $2.56 per MMBtu between January and June.

So, while July demand hit record highs, dry natural gas production reached new highs in November and December, averaging 106 Bcf/d, leading to an inventory surplus that sent more natural gas into U.S. storage than usual. Production began coming back down (101.6 Bcf/d in April), with May and June injections into storage dipping to averages well below usual. July natural gas in storage, however, was still 17% more than the five-year average for that time of year, EIA data shows, weighing on pricing.

Henry Hub spot nat gas pricing in June averaged $2.53, a strong rebound from March’s $1.49. Prices slumped again in July despite the strong demand and are now sitting just above $2.10.

Passengers familiar with Southwest Airlines know the sometimes chaotic free-for-all boarding policy has been around for decades. However, this policy is ending as the airline plans to introduce assigned seating. The change aims to boost revenue in response to worsening revenue challenges and mounting pressure from an activist investor demanding an overhaul of the airline’s leadership and operating strategy. 

The Wall Street Journal reports that Southwest’s business model will undergo “sweeping changes in a bid to broaden its appeal to passengers and boost revenue.” These changes include ditching the free-for-all boarding policy for assigned seating with premium options and extra legroom. 

“It isn’t clear when flying with assigned seats and premium rows will start, but Southwest said bookings for them are expected to begin next year,” WSJ wrote, adding, “The exact timing of the changes depend on the airline gaining regulatory approval and retrofitting its planes.” 

Additional details about the policy shift will be provided to investors in late September. There’s also a plan to operate red-eye flights, attracting overnight travelers starting next year. 

The revenue challenges were highlighted in the company’s second-quarter earnings report today, with a profit last quarter beating expectations. However, its forward guidance for revenue costs in the quarter was much worse than Wall Street’s estimates. 

“We are taking urgent and deliberate steps to mitigate near-term revenue challenges and implement longer-term transformational initiatives,” CEO Bob Jordan said in a statement, quoted by Bloomberg, adding seat changes are a critical move to “an ongoing and comprehensive upgrade” to passenger accommodations.

The airline has faced several challenges, including fewer-than-expected aircraft deliveries from Boeing, a series of safety incidents that prompted a Federal Aviation Administration review this week, and slowing growth. As a result, its shares have fallen nearly 8% this year.

Last month, Elliott Investment Management revealed a $1.9 billion stake in the carrier, calling for leadership to reverse years of underperformance and calling management “stubborn unwillingness to evolve the company’s strategy.” 

“Southwest’s executive chairman and its CEO, who have spent a combined 74 years at the company, have presided over a period of severe underperformance, and they have demonstrated that they are not up to the task of modernizing Southwest,” the activist said.

Southwest has said it will examine Elliott’s proposed changes: “The Southwest board of directors is confident in our CEO and management’s ability to execute against the company’s strategic plan.”

While Southwest was quick to act on reformatting its boarding policy, which could very well attract new customers, we doubt the airline will change the “bags fly free” policy – or face a boycott with customers. 

Shares of chipmaker STMicroelectronics tumbled in Europe after the company slashed its full-year revenue and margins guidance for the second time (the last cut was in April) on soft chip orders from the automotive industry. Demand troubles from STMicro’s industrial clients may signal a slowing global economy.

The Franco-Italian company, whose clients include Apple, Tesla, Robert Bosch, Samsung Electronics, Hyundai Motors, and General Motors, has revised its revenue forecast for the year to $13.2 billion to $13.7 billion, down from the previous range of $14 billion to $15 billion. Additionally, its gross margin is now expected to be around 40%, compared to the earlier estimate in the low 40s.

STMicro’s Supply Chain 

Here’s a snapshot of the full-year outlook (courtesy of Bloomberg): 

• Sees net revenue $13.2 billion to $13.7 billion, saw $14 billion to $15 billion, estimate $14.29 billion (Bloomberg Consensus)

• Sees gross margin 40%, estimate 41.1%

“During the quarter, contrary to our prior expectations, customer orders for industrial did not improve and automotive demand declined,” CEO Jean-Marc Chery wrote in the second quarter financial results. He said automotive revenues were lower than expected and offset higher sales in the company’s personal electronics business. 

In a call with investors, the CEO said, “We are facing a longer and more pronounced correction in industrial than what we anticipated due to a progressive weakening of demand amplified by a severe inventory correction.” 

The slowdown in the electric vehicle market has been a main pressure on chip companies with high exposure. Sliding EV sales have been visible from Tesla to Porsche to Ford Motor to Mercedes-Benz.

Interestingly enough, the CEO said an unnamed customer in China could spark significant growth for the company later this year:

“I confirm that H2 will be a growth driver for ST for all the components related to electrical vehicles, particularly for silicon carbide, and particularly everywhere, in China and also with our main customer.” 

On Wall Street, JPMorgan analyst Sandeep Deshpande told clients that “Despite a small beat in the reported quarter, the company did not see the expected recovery in industrial orders and automotive orders declined,” adding, “The key question is, given the company’s very significant sequential cuts, will the market believe that the worst is over?”

Here’s what other Wall Street analysts are saying (courtesy of Bloomberg):

Stifel, Juergen Wagner (buy)

• EPS estimates for 2024 could be cut by about 15% as inventory correction in automotive and industrial remains a burden
• The downgrade is likely expected but the magnitude is slightly higher than feared

Bernstein, Sara Russo (outperform)

• Automotive was lower than expected with microcontrollers and power & discrete segments struggling, while industrial also showed no improvement
• Guidance does imply that 4Q will see sequential improvement versus 3Q, but after several quarters of missed guidance, it may be challenging for investors to hold confidence in that forecast
• “The lack of clarity on the bottoming out of the cycle is what’s difficult” for STMicro

Citi, Andrew Gardiner (buy)

• The outlook cut was more than expected, indicating a 6% downgrade to 2024 revenue estimates and even more for Ebit
• Given the severity of two guidance cuts at 1Q and 2Q results, “the bottom of cycle cuts” is probably near

JPMorgan, Sandeep Deshpande (overweight)

• Key question is whether the market will believe that worst is over after sequential cuts to outlook
• End-market datapoints in automotive are still declining in the quarter, but “we believe we are close to the trough”

Here’s more from Goldman’s Alexander Duval: 

We expect a negative stock price reaction to results, noting the miss on 3Q24 EBIT and significantly below consensus FY24 sales and GM guidance at the midpoint. The shares have underperformed EU Tech by -1%/-8% in the last 1M/3M, albeit we note that the stock is down -4% this week following peer NXP’s below cons next-quarter guidance. The guide down and commentary on automotive demand may also be taken as a potential negative read to peer Infineon, albeit IFX has significantly less Tesla exposure in EVs and greater exposure to the more dynamic China EV segment, and has already made cuts to its PSS and Industrial segment guidance. We also look for further colour on the call (8:30am UK time) on the demand trends specific product categories in the automotive business (e.g. EV and ADAS), inventories/lead times, pricing dynamics across various segments, and potential timelines for a recovery in industrial and consumer demand.

Duval’s 12-month price targets stand at 42.5 euros/ ADR $45.8 “based on an 8x CY25E EV/EBITDA multiple,” adding “there are risks to our view and price targets include a quicker/slower-than-expected inventory correction trough in consumer semis, accelerating/slowing Silicon Carbide momentum at competitors and evidence that currently favourable pricing can be sustainable.”

Shares of STMicro in Europe fell nearly 14%. 

The quarterly results for chipmakers have been mixed so far.

Texas Instruments said Chinese electronics makers were increasing orders again after working through stockpiles. Meanwhile, Dutch chipmaker NXP Semiconductors NV reported revenue declines because of the auto industry slowdown. BE Semiconductor Industries reported a 20% decline in net profit for the second quarter because of sliding revenue and increased R&D expenses. Nvidia will be reporting earnings in late August.

As for the AI bubble and chip companies powering main equity indexes higher in recent months, well, Steve Clayton, head of equity funds at Hargreaves Lansdown, warned the party is over, “If there was a bubble in the AI and Magnificent 7-part of the market, then last night saw it pop.” 

The 2024 Paris Olympics will officially open on the night of Friday, July 26 – but already there are warnings that terrorists are looking to disrupt the games. Israel is now loudly warning that its athletes are prime targets.

Israeli Foreign Minister Israel Katz on Friday has sent an alarming letter to his French counterpart, Stéphane Séjourné, informing the French side of an alleged Iranian-backed plot to attack the Israeli delegation of athletes.

“There are those who seek to undermine the celebratory nature of this joyous event,” wrote Katz in the message. “We currently have assessments regarding the potential threat posed by Iranian terrorist proxies and other terrorist organizations who aim to carry out attacks against members of the Israeli delegation and Israeli tourists during the Olympics.”

Katz did acknowledge the “unprecedented security measures” put in place by French security forces to protect Israelis attending the games. He also noted that French authorities rejected some calls among the Left to ban all Israeli participants from the Olympics.

In total 88 Israeli athletes are at the games, and they have reportedly been given unprecedented, around-the-clock protection from both French and Israeli security services. At this point Israeli has not presented any evidence publicly to back its assertion that Iranian proxies are plotting an attack.

Just the night prior to this new warning, Prime Minister Benjamin Netanyahu addressed Congress in a nearly hour-long speech which had a heavy focus on the ‘Iran threat’. He claimed that Tehran is behind “all the terrorism” and “all the killing” in the Middle East while making a case that it is the biggest backer of Hamas and Hezbollah.

Worrisomely, police in Belgium have just announced the arrest of seven people on Thursday on suspicion they were preparing a “terrorist attack.” Federal prosecutors indicated it was the result of 14 raids and counter-terror monitoring nationwide.

However, a government spokesman said there is yet no evidence of any link to the 2024 Paris Olympics. There are “no details at this time as to the locations or targets but what was found leads us to believe an attack was being prepared,” a statement issued to AFP said.

It said all of them “are suspected of participation in a terrorist group’s activities, financing of terrorism and preparation of a terrorist attack.”

Already there have been reports of groups of protesters threatening the Israeli delegation in Paris…

À Paris, à la sortie du parc des princes, la racaille tente d’attaquer les supporters israéliens. Bravo aux forces de l’ordre pour leur intervention. #Israel #JeuxOlympiques pic.twitter.com/tmfOR9xWYJ

— Jimmy Bourlieux (@BourlieuxJimmy) July 24, 2024

At this moment while the Gaza war is raging and Palestinian death toll in soaring, Israel is wary of the potential for a repeat of the 1972 Munich Olympic games massacre.

It involved affiliates of the Palestinian militant group Black September kidnapping and killing a group of Israeli athletes. Twelve victims died – almost all of them members of the Israeli Olympic team – in an attack which shocked the world.

Authored by Eric Lendrum via American Greatness,

On Wednesday, a federal judge rejected a motion by ABC News and George Stephanopoulos to dismiss the defamation lawsuit filed against them by former President Donald Trump.

As reported by The Hill, the lawsuit stems from an interview in March where Stephanopoulos, while talking to Congresswoman Nancy Mace (R-S.C.), repeatedly described President Trump as being “liable for rape” following the judgement in a civil lawsuit filed by disgraced former author E. Jean Carroll. The jury in that case technically found Trump liable for sexual assault, but not for rape.

In her 21-page ruling, U.S. District Judge Cecilia Altonaga rejected ABC’s multiple claims to protection, including their assertion that they were not liable for defamation under the “fair reporting privilege.” The network pointed to a prior ruling by U.S. District Judge Lewis Kaplan, a Clinton appointee, who previously ruled that it did not constitute defamation when Carroll herself described Trump as guilty of rape, claiming that the legal distinction “is minimal.”

“Here, of course, New York has opted to separate out a crime of rape; and Stephanopoulos’s statements dealt not with the public’s usage of that term, but the jury’s consideration of it during a formal legal proceeding,” Judge Altonaga, an appointee of George W. Bush, said in her ruling, determining that the issue at hand was whether or not Stephanopoulos’ statements were substantially true.

“Once again, the Court does not find that a reasonable jury must — or even is likely to — conclude Stephanopoulos’s statements were defamatory,” Altonaga continued. “A jury may, upon viewing the segment, find there was sufficient context. A jury may also conclude Plaintiff fails to establish other elements of his claim … But a reasonable jury could conclude Plaintiff was defamed and, as a result, dismissal is inappropriate.”

Stephanopoulos referred to Trump as “liable for rape” 10 different times in the interview with Mace, even as the congresswoman pushed back on his assertions. The lawsuit against ABC and Stephanopoulos, which was filed in Miami, is seeking an unspecified amount of money in compensation for damages.

President Trump declared the ruling to be a “big win” for his case. In a post on his Truth Social website, Trump said that “before you know it, the fake news media will be forced by the courts to start telling the truth.”

Russian bombers showing up in skies off Alaska on occasion has become something to be expected, and the US military intercepts and monitors such activity typically at least once every few months, to the point that it has become somewhat ‘regular’.

However the presence of Russian and Chinese military aircraft together buzzing near US airspace is highly unusual and more alarming. The North American Aerospace Defense Command (NORAD) has announced that it intercepted two Russian and two Chinese bombers in Alaska’s Air Defense Identification Zone (ADIZ) on Wednesday.

Specifically they were Russian TU-95 Bear and Chinese H-6 bombers, and this marks the first time ever that H-6 bombers entered the Alaska ADIZ, according to military officials.

NORAD immediately scrambled US and Canadian fighter jets to intercept and monitor the inbound foreign aircraft, a statement from NORAD said.

These involved US F-16 and F-35 fighter jets, alongside Canadian CF-18 fighter jets, according to details given to CNN. The statement added that in the end the foreign aircraft were not seen as a threat.

The Russian and Chinese sides later confirmed their aerial forces had conducted “joint strategic aerial patrol in the relevant airspace of the Bering Sea” as part of an existing annual cooperation plan between the two militaries.  

NORAD has previously said Russian bomber flights near Alaska occur “regularly” – but has not indicated this about the much more rare joint patrols involving China. Some Republicans are already pointing out that the combined flyby came a mere hours after President Biden projected a very weak image in his awkward Oval Office televised speech yesterday.

China’s defense ministry in a briefing described of its increasing operations with Russia that the allies are “further testing and enhancing the level of cooperation between the two air forces, as well as deepening strategic mutual trust and practical cooperation between the two countries.”

The Russian Defense Ministry subsequently put out footage…

New video shows the U.S. intercepting Chinese and Russian bombers off the coast of Alaska. NORAD says the planes were not seen as a threat.

More: https://t.co/tFWIGDtLR4 @DempseyReports pic.twitter.com/YHQU4jNB1d

— NewsNation (@NewsNation) July 25, 2024

“This action is not aimed at third parties, it is in line with relevant international laws and international practices and has nothing to do with the current international and regional situation,” the statement from Beijing added.

Starting months ago, the head of US Northern Command, Gen. Gregory Guillot, began warning that China has been observed farther north into the Arctic with its long-range patrols. He said in March that he expects to see Chinese aircraft there “as soon as this year potentially.”

Authored by Kyle Anzalone via The Libertarian Institute,

The State Department approved a proposed sale of military technical equipment to Saudi Arabia. Washington views Riyadh as a key partner in the Middle East, even as the Kingdom rules its people with an oppressive dictatorship and wages war abroad. 

On Wednesday, a statement posted by the Defense Security Cooperation Agency (DSCA) said the “State Department has made a determination approving a possible foreign military sale to Saudi Arabia of System Logistics and Sustainment Support and related elements of logistics and program support for an estimated cost of $2.8 billion.”

The sale includes “Joint Mission Planning Software (JMPS) hardware and support; KIV-77/78 cryptographic devices” and “US Government and contractor engineering, technical, and logistics support services; and other related elements of logistics and program support.”

The DSCA statement explained that the State Department determined that the sale “will support the foreign policy goals and national security objectives of the United States by improving the security of a partner country that is a force for political stability and economic progress in the Gulf Region.”

Saudi Arabia is ruled by a theocratic monarchy that regularly commits human rights abuses against its people. Additionally, the Kingdom waged a brutal seven-year war against Yemen that killed at least 377,000 people, including many children who were starved to death.

However, the Kingdom’s long list of human rights abuses is problematic for the White House, which has attempted to present Washington as the enforcer of democratic values and international law. 

When campaigning for office four years ago, President Joe Biden pledged he would treat Saudi Arabia and its de facto leader, Crown Prince Mohammad bin Salman, as a “pariah.”

Throughout his presidency, Biden has worked on a blockbuster deal between Saudi Arabia and Israel. That agreement would have required Riyadh to normalize ties with Tel Aviv in exchange for the US providing both a security pact and a nuclear program. 

Why is President Biden determined to put American lives on the line for Saudi Arabia’s defense? pic.twitter.com/aAAZkjJwKq https://t.co/CXWGCsNMJq

— Quincy Institute (@QuincyInst) May 20, 2024

As the Israeli onslaught in Gaza has raged on over the past nine months, the Kingdom has shown less interest in the agreement. The White House has sought to include the rebuilding of Gaza in the normalization agreement but has faced a number of hurdles. 

Initial jobless claims dropped modestly (SA) from 245k to 235k last week (while on an NSA basis, claims crashed back to earth after last week’s spike)…

Source: Bloomberg

New York, Michigan, and California all saw claims crash last week on an NSA basis…

…but Texas claims continue to surge due to the storm…

Source: Bloomberg

Continuing jobless claims continue to hold above the 1.8 million Maginot Line – at their highest since Dec 2021…

Source: Bloomberg

Is this enough for more rate-cuts?

After yesterday’s panicked oped by idiot Bill “recession is here, so cut rates before Trump is elected” Dudley, expectations were for a Q2 GDP print this morning at zero if not outright negative to greenlight a July rate cut. Of course, that oped is all that was needed for Kamala’s Census Bureau to release a blowout print (because we now have just 100 days to establish Kamalanomics as the next sliced bread) and that’s precisely what happened moments ago when the first estimate of Q2 GDP came in at a whopping 2.8%, double the final Q1 print of 1.4% (which was already the lowest print since the technical recession in Q2 2022)…

… and also came in more than 2-sigma higher than the consensus estimate of 2.0%; in fact, there was just one analyst estimate that was higher at 3.0%.

The increase in real GDP primarily reflected increases in consumer spending, private inventory investment, and nonresidential fixed investment, according to the BEA.

According to UBS, details suggest very strong growth: investment rose 8.4% q/q SSAR, the highest since Q3 2023. It looks like AI-related investment supported the growth as information processing equipment rose 10.2% q/q. Personal consumption rose 2.5% in Q2, better than the decline of 2.3% in Q1. Government spending rose 3.1% q/q, higher than 1.8% in Q1.

Meanwhile, core PCE index fell to 2.9% y/y from 3.7%, but higher than 2.7% consensus.

Developing

 

The headline US durable goods new orders print for preliminary June data was a disaster – plunging 6.6% MoM (vs expectations of 0.3% MoM rise!). That dragged goods orders down

Source: Bloomberg

However, through the rose-colored glasses of everything’s still awesome, core durable goods orders surprised to the upside (+0.5% MoM vs +0.1% exp, rebounding from May’s 0.1% MoM decline)…

While war spending rose, non-defense spending is plunging…

Source: Bloomberg

Doesn’t seem like it’s supporting the big AI Capex boom narrative too much?