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McGeever: Bowman's turn and oil plunge challenges Fed's hawkish stance
In recent years, the financial markets have consistently underestimated the Federal Reserve’s willingness to reduce interest rates. The latest Fed talk, softer economic data and the dramatic drop in oil prices could indicate that they are right this time. Last week, the central bank appeared to snuff out traders' hopes of a dovish steering. The Fed's summary economic projections maintained its median "dot plot" projection of two rate cuts of 25 basis points this year. It was a close call and the Fed lowered its 2026 forecast from two rate cuts to just one. In the days following, it was widely believed that the hawkish stance of policymakers reflected their desire to anchor inflation expectations. The traders' expectations for rate reductions this year dropped to less than 50 basis points. This reading may be premature. First, the fear of rising energy costs due to conflict in Middle East has disappeared. Oil prices have fallen back to their previous levels, despite the fact that they rose by as much as 17 percent in the days following the Israel-Iran conflict on June 13. The price of oil is falling and, late Monday night, U.S. president Donald Trump announced the two countries had reached a ceasefire. The Fed has made a number of dovish remarks in the past few days, and they are not only from the usual suspects. This suggests that the U.S. Central Bank may be closer than previously thought to lowering rates. NEGATIVE SURPRISE It is not impossible to justify a more dovish approach. Fundamentally, the U.S. economy is deteriorating. Citi's U.S. Economic Surprises Index has been declining since the end May, and is now negative. This means that economic data are underperforming expectations. It fell to its lowest level since September of last year. It is important to be cautious when analyzing the economic surprise indexes following significant movements, because initial expectations could have been overly pessimistic. The current shift is a valid red flag. We look at the surprise factor and how it compares to consensus expectations. Citi's Stuart Kaiser points out that both have fallen into negative territory. The 'hard activity data' index is also now negative. What is 180 DEGREE Turn? Michelle Bowman, Fed Vice Chair of Supervision, surprised investors by saying that she would vote for a rate reduction as early as July if the inflation pressures "remain constrained". Bowman's remarks are important. She hasn't spoken about the economy for over two months. In March, she said that the labor market would be a more significant factor in policymaking. Since her appointment as Fed governor in 2018, she has been consistently one of the most hawkish members on the Federal Open Market Committee. The move came after Governor Christopher Waller said on Friday that a rate reduction next month was on the table. Waller is one of the FOMC’s most dovish members. This is not surprising. Traders and investors should take note if a FOMC hawk such as Bowman now sings from the same hymnal. Cynics might question the timing of Bowman’s apparent 180-degree turnaround, which comes just as Trump intensifies his attacks against Fed Chair Jerome Powell over not cutting interest rates. There's no evidence that political pressure was at work. The recent drop in oil prices will also help her case. It fell 7% on Monday, the largest drop in three years. It was more impressive when you consider that it opened the day at 6% and reached a five-month peak in response to Saturday's U.S. nuclear bombings of Iranian facilities. The price of crude oil did not increase on an annual basis following Israel's initial strike against Iran on June 13. Oil prices have been falling since January and are down by 20% on a year-over-year basis. It's not energy prices that are causing inflation to be sticky. Waller - and Bowman - will love this. It is possible that traders are not overestimating the Fed’s willingness to reduce rates this time. They could be on the right track with their bets that 125 bps will be eased by the end next year. You like this column? Open Interest (ROI) is your new essential source of global financial commentary. ROI provides data-driven, thought-provoking analysis. The markets are changing faster than ever. ROI can help you keep up. Follow ROI on LinkedIn, X.
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Investors assess Iran-Israel ceasefire and oil prices rise
The oil prices rose on Wednesday as investors assessed whether the ceasefire agreement between Iran and Israel would hold. Brent crude futures increased 75 cents or 1.1% to $67.89 per barrel. U.S. West Texas Intermediate crude (WTI), which is a blend of U.S. West Texas Intermediate and West Texas Intermediate, gained 71c, or 1.1% to $65.08. Brent settled at its lowest level since June 10, and WTI, since June 5. Both were before Israel launched an attack on Iranian nuclear and military facilities on June 13, After the U.S. attack on Iran's nuclear facility over the weekend, prices had risen to five-month peaks. According to an initial U.S. Intelligence assessment, U.S. Airstrikes didn't destroy Iran's nuke capability, but only pushed it back a few months. This was as a fragile ceasefire between Iran and Israel, brokered by U.S. president Donald Trump, took hold. Both Iran and Israel announced earlier on Tuesday that the air conflict between the two countries had ended, if only for the moment, after Trump publicly scolded both nations for violating the ceasefire. Both countries claimed victory as they lifted civil restrictions after 12 days war, which the U.S. also joined by attacking Iran's uranium enrichment facilities. Investors were worried by the direct U.S. involvement. The Strait of Hormuz is a narrow waterway that connects Iran and Oman. It carries between 18 and 19 million barrels of crude oil per day, or bpd, which represents nearly a fifth of the global demand. Investors are awaiting Wednesday's U.S. government report on crude oil and fuel stocks. Market sources cited American Petroleum Institute data on Tuesday to say that U.S. crude dropped by 4,23 million barrels during the week ending June 20.
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SRG Global wins contracts in Australia and New Zealand worth $551,7 million
SRG Global, a construction and engineering company, announced on Wednesday that it had secured contracts in Australia and New Zealand worth A$850 Million ($551.65million) across various sectors. These agreements include deals with Origin Energy and South32. BHP Iron ore, Genesis Minerals, BHP, and BHP are also included. The company has signed a contract for five years to provide asset integrity services and reliability services at Origin Energy's Darling Downs and Eraring power assets in Queensland and New South Wales. SRG's five-year agreement with South32, which is the largest manganese producer in the world, will see it provide specialist shutdown maintenance for its Worsley mines, located in the southwest of Western Australia. The company also has asset integrity and reliability service contracts with BHP iron ore assets in the Pilbara region in Western Australia, BHP copper assets in South Australia Alcoa refineries in southwest Western Australia and Anglo American assets throughout Australia. SRG has finalized an agreement with Genesis Minerals for the provision of specialist production drilling services and grade control at Jupiter Gold's operations. The Australian-based company, which provides a wide range of infrastructure services, has also secured other contracts in areas such as health, education and defence, water, health care, data centres, and defence. SRG has won A$700m worth of contracts in Australia and New Zealand. (1 Australian dollar = 1.5408 dollars) (Reporting and editing by Mohammed Safi Shamsi in Bengaluru)
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Advisors: Britain must lower electricity prices to achieve climate goals?
In a Wednesday progress report, Britain's climate advisors stated that the country must lower its electricity prices in order to accelerate the adoption of technology to reduce emissions, such as heat pumps and electric vehicles. Britain is aiming to achieve net zero emissions in 2050. This will require electrification for sectors like heat and transport that are currently dominated by fossil fuels. It also faces high electricity prices. Piers Forster said in an annual report briefing that the "most important recommendation" we have for government is to lower the cost of electric for both households and businesses. He said that if we want to see the benefits of electrification in the country, it must be reflected on the utility bills. Ofgem in Britain, which regulates domestic energy prices and sets the cap, has reduced it by 7% since July. It is still around 50% higher than the prices in summer 2021 before Russia invaded Ukraine and caused an energy crisis across Europe. The Committee produces annual reports on the progress made by the government towards its climate goals. The report stated that Britain could achieve 68% of the reductions in emissions it pledged to under the Paris Climate Agreement. The report made 43 recommendations, including lowering energy prices, accelerating grid connections for clean power projects and introducing regulations that require only low-carbon heating for new homes. The UK's emissions are down 54% since 1990, thanks to the increased use of renewable energy and the closing of coal-fired power stations.
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Research shows that policymakers ignore forest regeneration when fighting climate change
Naturally-regenerating forests are often ignored by policymakers working to curb climate change even though they hold an untapped potential to rapidly absorb planet-warming carbon from the atmosphere, scientists found in a research paper published Tuesday. The research in Nature Climate Change suggests that these so-called secondary forest, which have grown back after being destroyed, usually for agricultural purposes, can help the world get closer to the target of net-zero emission needed to slow down global warming. They found that young forests consisting of trees aged between two and forty years can remove up to eight-times more carbon per hectare from the air than newly planted forests. Companies are spending millions of dollars on reforestation to create carbon credits that they can then sell to industries looking to offset their greenhouse gas emission. The secondary forests are not often allowed to regenerate for long enough, to be able to improve the climate. This is because they have been cleared, or they are prey to pests and fires. In the tropics they found that only 6% reach two decades of regrowth. Nathaniel Robinson is a scientist and one of the authors of the study. He works at the Center for International Forestry Research and World Agroforestry. He said that the vulnerability of these forests "is probably due to policy loopholes." Robin Chazdon is a professor of Forest Research Institute of the University of the Sunshine Coast in Australia. He was not involved with the study, but said that the refined assessment of the global mitigation potential of regrowing forest had important implications which could influence new climate policies. Last week it was revealed that a loophole within the Amazon Soy moratorium, an agreement by top grain traders around the world to not purchase soy produced on land recently deforested, allowed Brazilian farmers market soy from razed secondary forest as being deforestation free. Like many conservation policies in the world, the Moratorium protects old-growth forests, but does not protect regrown rainforests. Scientists found that in the Brazilian Amazon half of secondary forest is cleared within 8 years after regrowth. The Nature Conservancy's Susan Cook-Patton is one of the authors. She said that these secondary forests are responsible for the fastest and biggest carbon removal. She added that these forests are "just not appreciated." (Reporting and editing by Manuela Andréoni, Aurora Ellis and Stefanie Eschenbacher)
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US cities record highest temperatures in heat wave
The oppressive heatwave that has been sweeping the United States since last week is expected to reach its worst on Tuesday. National Weather Service: Temperatures are expected to reach 101 degrees Fahrenheit in Washington and Boston, breaking previous records of up to 6 degrees. Central Park in New York City could see temperatures reach 99 F (37 C), exceeding the previous high of 96. According to the NWS, there is the possibility of record heat in other parts across the Eastern U.S. including northern Georgia and the Carolinas. Bob Oravec is the lead forecaster for the National Weather Service, College Park, Maryland. He said that the Northeast is experiencing the most intense heat. Extreme heat in the Northeast is disrupting public transportation. Amtrak, a U.S. passenger rail company, has announced that it will have to reduce train speeds on Tuesday, between Washington and New York, and between Philadelphia to Harrisburg. This could cause delays. Even some tourist attractions are affected. According to the National Park Service, the Washington Monument will close on Tuesday and Thursday due to heat. Construction companies are compensating for severe weather in order to keep their workers safe. Jeff Wagner, the communications manager for Fluor Construction, told reporters that the company provided cooling stations and heavy duty water bottles to more than 2,000 workers working on an Indiana pharmaceutical project. Wagner said that "we have safety meetings each morning. But knowing this would be an extremely hot week, we talked about hydration, and making sure employees are pacing themselves." He said that workers will start their shifts one hour earlier to finish before the hot part of the day. Residents in New York City who wanted to vote in the primary elections were forced to endure the high temperatures. Alex Antzoulatis (53), an accountant from Astoria in New York, said he regretted that he didn't vote by mail. He went to the polling place in 100-degree heat because voting is his duty. "But the heat will keep many people away." Warm weather in the Plains of the U.S. and Canada has affected crops. The dryness of June in Saskatchewan, Western Canada, where canola, wheat, and pulses are grown in large quantities, has affected newly-seeded plants. Bill Prybylski of Yorkton in Saskatchewan said that recent rains came too late. The damage was partially mitigated by the smokey air caused by wildfires which prevented direct sunlight from scorching crops. Oravec, at the NWS, said that temperatures would begin to drop on Wednesday. "Like, Thursday's high temperature in New York will be forecast at 84 F and it is supposed to reach 75 F on the following Friday." (Reporting and editing by Sandra Maler; Additional reporting in New York by Maria Tsvetkova, Ed White in Winnipeg and Heather Schlitz, Chicago.
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US foreign direct investment in the first quarter of 2018 falls sharply amid uncertainty over tariffs
The Commerce Department reported on Tuesday that foreign direct investment in the U.S. dropped sharply to $52.8 billion in the first quarter from a downwardly-revised $79.9 billion during the fourth quarter 2024. This drop coincided with a high level of business uncertainty due to President Donald Trump's proposed tariff plans. As announced U.S. Manufacturing projects worth billions of dollars get underway, and Nippon Steel acquires U.S. Steel for nearly $15 billion, the data from current and future quarters will be boosted. As businesses rushed to import goods ahead of Trump's tariffs, the lower FDI inflows during the first quarter contributed to a rise in U.S. Current Account Deficit to a new record of $450 billion. Bureau of Economic Analysis of the Commerce Department also reported that the current account data of the fourth quarter has been revised and now shows a gap of $312.0 billion, not $303.9 billion. Current account data is a measure of the net flow in and out of a country of goods, investments and services. The large and persistent U.S. deficit in trade has been partially offset by foreign direct investments and investment into U.S. assets, including plant and equipment and corporate mergers and purchases. In dollar terms, the first-quarter FDI was the lowest since the fourth-quarter of 2022 when $42.4 billion inflows occurred. This period coincided with high inflation after the pandemic. Commerce Department data show that, except for this drop, quarterly FDI had risen to $61 billion since the COVID-19 epidemic eased, and reached a high of $135 billion during the third quarter 2021. Economists warn that the extreme uncertainty surrounding Trump's tariffs may paralyze business investment decisions and slow economic growth. Trump claims that his tariffs have prompted companies to invest in the U.S. so as to avoid tariffs. Capital Economics' chief North American economist, Paul Ashworth, acknowledged that there was a possibility that the uncertainty in the market could impact some investment decisions, but warned that quarterly FDI can be volatile due to specific transactions, such as mergers and acquisitions or large projects. Ashworth, a professor of economics at the University of California, Berkeley, said that the data for the first quarter was likely noise and not indicative or anything more serious. He predicted that FDI would increase in the future as Japanese and other automakers begin to invest in U.S. manufacturing. Hyundai Motor of South Korea and Hyundai Steel announced in April that they would invest $21 billion in new U.S. manufacturing alongside Trump at the White House. The hard-fought acquisition of U.S. Steel by Nippon Steel for $14.9 billion closed last week. This will be reflected in the second quarter inflows. Ashworth said, "I'd expect FDIs to increase."
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Democratic-led States Challenge Trump's Ability to Slash Grant Funding
Democratic state attorneys filed a suit on Tuesday, asking a court to declare that the Republican administration of President Donald Trump has been using a tool to cancel federal grant funding in an illegal manner. Attorneys general from 20 states, the District of Columbia and Pennsylvania joined forces with the governor of Pennsylvania to file a lawsuit in Boston Federal Court to challenge the administration's reliance upon a regulation that the White House Budget Office adopted during Trump’s first term which strengthened the agencies' ability to cancel grant awards. The White House Office of Management and Budget, in its 2020 regulation, states that federal agencies may terminate a grant when it no longer "accomplishes the program goals or agency priority." This language has been used by the Trump administration to cancel billions in federal funding for states and non-profits, as part of their efforts to reduce federal support for a variety of projects, such as those that it considers to be supporting diversity, inclusion, and climate change preparedness. Elon Musk, the billionaire who founded the Department of Government Efficiency (DGE), a major player in Trump's campaign to cut federal spending, was responsible for the DGE. States, nonprofits, and others have brought a variety of lawsuits to challenge these grant terminations. Last week, a Boston judge sided with Democratic states and declared that the termination of hundreds of grant applications by the National Institutes of Health because of their perceived connection to diversity-related issues was illegal. In court, the administration argued that it was within its rights to freeze and cancel grants which did not reflect new priorities of agencies following Trump's inauguration in January. The state attorneys general, however, argue that the Trump administration can't rely on OMB regulations to overrule the laws Congress passed appropriating grant funds. Letitia J. James, New York's Attorney General, said that Congress has the power to fund programs. The president can't cut billions of dollar of funding just because he does not like them. According to them, the regulations only allow agencies to terminate grants if additional evidence shows that it is ineffective for achieving program objectives. They asked the judge to declare that the rule prohibits termination of grants based on newly identified agency priorities after the grant has been awarded. The White House has not responded to a comment request. (Reporting and editing by Alexia Garamfalvi, Aurora Ellis and Nate Raymond from Boston)
The FX effect has a negative impact on the pre-tax profits of Chilean miner Codelco
Codelco Chile, the largest copper producer in the world, reported on Friday a slight increase in production for the first quarter. However, this was not enough to offset the exchange rate effects that caused the company's profits to plummet.
Codelco reported a 53% decline in pre-tax profits compared to the same period last year, falling to $213 millions for the first quarter of the year.
The state-owned company said that its own production increased by 0.3% to total 296,000 metric tonnes, while total production, including its stakes at Freeport's El Abra and Anglo American Sur, as well as Teck's Quebrada blanca, rose 1.6% to total 324,000 metric tonnage.
The miner aims to increase output for the second consecutive year after it fell to a quarter century low in 2023.
Codelco reported that rains in the first quarter and a nationwide power outage in February reduced copper production by 10,000 tonnes.
Codelco reported that core earnings (earnings before interest, tax, depreciation, and amortization, or EBITDA) fell by nearly 12%, to $1.35billion, as the peso currency lost value.
The Chilean Peso increased by 2.76 percent from March 2024 until March 2019.
Codelco said that the company had experienced rising costs as a result of planned maintenance at mines and plants, as well higher operating costs in equipment leasing. These costs were partially offset by lower input costs, such as power and fuel.
The miner stated that the Andesita segment is expected to begin production at El Teniente in the second quarter, followed by Andes Norte in the third.
The ramp-up at Rajo Inca in Codelco’s Salvador Division is expected to finish in the third quarter. Reporting by Fabian Cambero, Natalia Siniawski and Alistair Bell; editing by Kyrry Madry and Alistair Bell
(source: Reuters)