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Commodity and Cryptos: Oil rallies, gold pares weekly gain, Musk pumps up Dogecoin

Oil Crude prices continue to rally on optimism that the oil market will remain tight as COVID pandemic starts to move into the endemic phase.  Money managers are turning very bullish with Brent crude, sending bullish bets to an 11-week high.  Today’s…

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Oil

Crude prices continue to rally on optimism that the oil market will remain tight as COVID pandemic starts to move into the endemic phase.  Money managers are turning very bullish with Brent crude, sending bullish bets to an 11-week high.  Today’s oil price rally is very impressive given how strong the dollar is today.

WTI crude prices pared some gains after the weekly Baker Hughes rig count data showed oil rig counts increased by 11 to 492.  WTI crude is not too far from the October 25th high of $85.41, which means if that level is surpassed, prices may not have much resistance until just ahead of the psychological $90 level.

Gold

Gold finished on a down note as the dollar surged after bank earnings painted a picture that most companies will face higher-than-expected expenses. The first taste of big earnings has everyone on Wall Street worrying about wage inflation and that might force the Fed to be more aggressive in removing accommodation.

Gold may be in for a choppy period until the January 26th FOMC meeting.  Gold traders want more clarity on how aggressive the Fed may be in reducing the balance sheet as that will dictate how high rates on the back-end of the curve can go.

Cryptos

Elon Musk’s tweet that Tesla merchandise can now be bought with Dogecoin sent the meme-based cryptocurrency surging higher.  Dogecoin rallied over 20% to $0.20 before settling around $0.1869.  Last month, Musk hinted this would happen as a pilot was done for accepting Dogecoin on a test basis.

Despite Dogecoin’s big move, this Tesla story isn’t a gamechanger and probably won’t be a catalyst for it to recapture the highs seen last summer.

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Government

Weekly investment update – The soft underbelly of hard inflation data

Warnings by the US and Chinese authorities have underscored the dilemma of conflicting inflation and growth data, with energy and tight labour markets…

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Warnings by the US and Chinese authorities have underscored the dilemma of conflicting inflation and growth data, with energy and tight labour markets pushing up producer and consumer prices amid creeping signs of softening growth. This has put global monetary policy, and markets in risky assets, in a bind.

The Dow Jones Industrial Average fell for the seventh consecutive week last week, while the benchmark US Treasury 10-year yield hovered around 3.0% (almost double the 1.6% of a year ago). Commodity prices came under selling pressure as risk aversion among investors mounted. Safe-haven flows pushed up the US dollar, driving its trade-weighted index to near two-decade highs (see Exhibit 1).

Policy warnings…

China fanned market worries early last week, with Premier Li Keqiang warning that the domestic jobs situation was getting ‘complicated and grave’. The country’s zero-Covid policy is taking a heavy toll on the local economy with negative spillover effects globally. While Shanghai’s lockdown may be wound down soon, other major cities (including Beijing) are facing renewed restrictions.

US Federal Reserve Chair Jerome Powell issued a warning mid-week: The Fed could not guarantee a ‘soft landing’ as it looked to get runaway inflation back to its 2% target amid a tight US labour market. The US Senate nonetheless overwhelmingly confirmed Powell for a second term, signalling monetary policy continuity.

Earlier in the week, former Fed Chair Ben Bernanke warned about the risk of stagflation in an interview with The New York Times.

Aggravated by hard inflation data…

US consumer price inflation was 8.3% YoY in April, down slightly from 8.5% in March. However, core inflation (which excludes food and energy prices), rose on the month from 0.3% to 0.6%, a level still too high for the Fed’s comfort.

Services inflation was particularly strong, rising by 0.7% MoM in April, marking the biggest monthly gain since August 1990. Underscoring continued robust consumer demand, retail sales rose by 0.9% vs the prior month, though this marks the third month in a row that the growth rate has decelerated. 

The prospects for inflation to fall back to the Fed’s 2% target anytime soon may not be good: High wage growth – hourly earnings rose at around 5% YoY – could continue to fuel inflation in the near term. We note that services inflation tends to be much stickier than other index components.

From the Fed’s perspective, these price pressures could in turn drive inflation expectations higher.

The market perceives the latest inflation report as sealing a 50bp rate rise at the June and July meetings of Fed policymakers. It also boosts the chances of the Fed persisting in its aggressive tightening stance at later meetings. A key question is the extent to which – and when – higher interest rates will hit real incomes and crimp demand growth, slowing the economy overall. 

The high services inflation data also suggests labour market tightness would have to ease significantly to bring wage growth back to levels that are acceptable to the Fed. We believe something will have to give. If not, the Fed may have to tap harder on the brakes down the line.

The ECB continues to move closer towards a hawkish policy, with the market now expecting its asset purchasing programme (APP) to end in July, to be followed by a 25bp rate rise soon after. Underpinning the ECB’s policy tightening stance is strong inflation, which rose by 7.4% YoY in April (same as in March), and falling unemployment (the jobless rate hit a record low of 6.8% in March).

The war in Ukraine has added to the upside risks to inflation via food and energy price increases and supply bottlenecks. In addition to higher inflation, the ECB also appears to be concerned about the spillover effects from wage increases. An increasing number of policymakers has spoken out recently in favour of an initial rate rise as soon as July.

And creeping signs of slower growth

Indications of weakening growth momentum have appeared, most noticeably in the UK where GDP growth contracted unexpectedly by 0.1% MoM in March.

In the eurozone, industrial production shrank by 1.8% MoM in March and manufacturing output was down by 1.6%. The main culprit was disruption caused by the war in Ukraine. The weakness was concentrated in Germany, whose supply chains are more integrated with eastern Europe. Its car sector is missing components produced in Ukraine.

Even in the US, recent data showed signs of slowing growth. Jobless claims filings showed an increase in initial claims; the May Senior Loan Officer Opinion survey recorded a drop in demand for mortgages; the University of Michigan consumer sentiment May index hit its lowest level since the start of the pandemic; and the May Empire State Manufacturing survey plunged.

China also released weak data, with industrial output, fixed-asset investment and retail sales all showing year-on-year declines. The property market’s woes deepened, with new home sales and starts falling precipitously.

Investment implications

Mr. Bernanke’s warning of stagflation underscores the dilemma facing policymakers and financial markets: Inflation and growth data are sending conflicting signals. Parts of the US yield curve are inverted, pointing to some risk of an economic recession.

The slowdown concerns are linked to inflation forcing the Fed to tighten policy into restrictive territory and turning weaker growth into a contraction.

The situation is similar in the eurozone: inflation is at its highest ever and could lead the ECB to take stronger measures, exacerbating headwinds from weak Chinese activity and a Russia-induced energy supply shock.

Against the backdrop of the continuing Ukrainian conflict and prolonged supply-chain disruptions, we do not favour sovereign bonds and European equities at this point. We prefer commodities, Japanese and emerging market equities, including Chinese stocks.


Disclaimer

Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience.

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Chi Lo. The post Weekly investment update – The soft underbelly of hard inflation data appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

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Spread & Containment

Diesel Costs Deliver Body Blow To Trucking Industry, Impacting Broader Economy

Diesel Costs Deliver Body Blow To Trucking Industry, Impacting Broader Economy

By Noi Mahoney of Freightwaves

With diesel prices remaining…

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Diesel Costs Deliver Body Blow To Trucking Industry, Impacting Broader Economy

By Noi Mahoney of Freightwaves

With diesel prices remaining elevated — forcing significant costs onto shippers and trucking companies — the impact of fuel costs on inflation could put a dent in consumer spending, according to experts.

Diesel pump prices averaged $5.61 a gallon nationwide, 51% higher than diesel prices across the country in January

Economist Anirban Basu said the elevated price of diesel fuel damages the near-term U.S. economic outlook and “renders the chance of recession in 2023 much greater.”

“These high diesel prices mean that despite the Federal Reserve’s early stage efforts to curb inflationary pressures, for now, inflationary pressures will run rampant through the economy,” Basu, CEO of Baltimore-based Sage Policy Group, told FreightWaves. 

Earlier this month, the Federal Reserve announced a half-percentage-point increase in interest rates, the largest hike in over two decades. The U.S. inflation rate is at 8.3%, near 40-year highs.

Basu said consumer spending remains strong, even with elevated diesel prices, but that could change as shippers and trucking companies eventually must pass higher fuel costs on to the public. 

“One of the things we’ve been seeing in the U.S., particularly on the East Coast, is that diesel fuel inventories have been shrinking, which suggests that despite all this inflationary pressure, there’s still a lot of consumer activity, still lots of trucks on the road and the supply is unable to keep up with demand,” Basu said. “The higher price of diesel fuel will become embedded in the cost of everything consumers purchase.” 

Prices of fresh produce rising

Jordan DeWart, a managing director at RedWood Mexico, based in Laredo, Texas, said the types of consumer goods that could be immediately affected by higher diesel prices include fresh produce. Redwood Mexico is part of Chicago-based Redwood Logistics.

“With produce, that’s typically more in the spot rate business, and any of those smaller trucking companies are going to be heavily impacted by fuel costs,” DeWart said.

The U.S. imported more than $15 billion in fresh produce from Mexico in 2021, including avocados, tomatoes, grapes, bell peppers and strawberries, according to the U.S. Department of Agriculture.

“Everything coming northbound from Mexico through Laredo, the rates have been very sustained, but fuel prices keep going up, presumably with any differences being absorbed by the trucking companies in the spot market,” DeWart said. “When we talk to asset-based truckers, especially the smaller companies, they’re really feeling the pinch.”

It’s not only cross-border operators feeling the pinch. Growers and shippers in Texas’ Rio Grande Valley are also suffering because of increased fuel costs, said Dante Galeazzi, president of the Texas International Produce Association (TIPA).

“Our growers, shippers, importers, distributors … basically our entire supply chain has been and continues to be impacted by rising fuel costs,” Galeazzi told FreightWaves. “Between one-third to one-half of the costs for fresh produce is the logistics; you can see how quickly increases in that expense category can impact the base price.”

The Rio Grande Valley is the epicenter of the Lone Star State’s fresh produce industry, stretching across the southeastern tip of Texas along the U.S.-Mexico border. More than 35 types of fruits and vegetables are grown in the valley, which contributes more than $1 billion to the state economy annually.

“More concerning is that this wave of fuel increases is in line with the statistic that our industry is paying anywhere from 70% to 150% more year-over-year for OTR shipping,” Galeazzi said. 

TIPA, which is based in Mission, Texas, represents growers, domestic shippers, import shippers, specialty shippers, distributors and material and service providers. 

Right now, Rio Grande Valley growers and shippers are absorbing higher input costs instead of passing them on to consumers, but that could soon change, Galeazzi said.

“While the fresh fruit and vegetable industry continues to experience rising input costs across the board (seed, agrochemicals, labor, fuel, packaging, etc.), we have yet to experience sufficient upstream returns associated with those expense increases,” Galeazzi said. “Our industry is citing an 18% to 22% anecdotal increase to overhead costs. Meanwhile food inflation for fresh produce is hovering around 7%. That means the costs are slowly being felt by consumers, but it’s not yet at a commensurate level with input expenses.”

Diesel fuel prices at all time highs

The cost of diesel continues to soar across the country. Diesel pump prices averaged $5.61 a gallon nationwide, according to weekly data from the Energy Information Administration (EIA). That’s 51% higher than diesel prices nationwide in January. 

California averaged the highest fuel prices across the U.S., at $6 per gallon of gas and $6.56 per gallon for diesel, according to AAA. Diesel prices are also at an all-time high of $6.41 in New York.

The higher prices of diesel fuel and gasoline are being caused by a combination of factors, including surging demand and reduced refining capacity, along with the disruption to global markets caused by COVID-19, the current lockdown in China and the ongoing Russia-Ukraine conflict, said Rory Johnston, a managing director at Toronto-based research firm Price Street.

“The overarching oil market is feeling much tighter because of the Russian-Ukraine situation,” Johnston, also writer of the newsletter Commodity Context, told FreightWaves. “What we’ve seen is a larger immediate impact from the loss of Russian refined products; in addition to exporting millions and millions of barrels a day of crude oil, Russia also exported a lot of refined products, most notably middle distillates, like gasoline or diesel.”

Several refineries on the East Coast — including facilities in Newfoundland and Labrador, Canada — scaled back during the early days of the pandemic, which has hurt diesel capacity, Johnston said.

“There was also a refinery in Philadelphia that exploded just prior to the COVID-19 period starting,” Johnston said. “There’s not enough refining capacity on the global level, and particularly in the West right now and particularly in the northeastern U.S.”

He said he doesn’t foresee any relief from increasing diesel prices over the next few months or more.

“Things are going to be really tight for at least the next year, barring any kind of economic recession and some kind of demand slowdown materially,” Johnston said. 

DeWart said trucking companies that don’t have a fuel surcharge component or contract in place and are depending on spot rates could be in big trouble over the next several months as diesel prices either keep rising or stay higher than average. 

“Their fuel costs keep going up, but they’re really not able to negotiate higher rates right now with a really tight spot market,” DeWart said. “It’s really impacting small trucking companies, anyone that decided to kind of play the spot market, rather than being locked in contracted rates. They’re really feeling the pain right now.”

DeWart said for trucking companies, it’s critical to get some type of fuel reimbursement program in place “just to protect themselves in case the cost of fuel goes even higher.”

Tyler Durden Wed, 05/18/2022 - 19:25

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Government

Upcoming FDA Decision A Potentially Major De-Risk Event For Revive Therapeutics

It’s been a long and arduous road for Revive Therapeutics Ltd. (CNSX: RVV, OTCMKTS: RVVTF) regarding their Phase 3 clinical trial to evaluate the…

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It’s been a long and arduous road for Revive Therapeutics Ltd. (CNSX: RVV, OTCMKTS: RVVTF) regarding their Phase 3 clinical trial to evaluate the safety and efficacy of Bucillamine to treat COVID-19. The trial—fraught by several milestone misses and enrollment delays—could potentially receive a material boost after Revive submitted a request to the U.S. Food and Drug Administration (FDA) to determine and agree on reorganizing the current study’s primary efficacy endpoints to a “symptoms” focus versus the current benchmark measuring a reduction of death and hospitalizations. If successful, the trial would undergo a major de-risking event, as clinical outcomes observed over the course of the pandemic have shifted.

The announcement by Revive Therapeutics, disseminated on May 16, reaffirmed what many observers had expected following a changed primary endpoint of Adamis Pharmaceutical’s Tempol trial from a hospitalization to symptoms focus. The company confirmed that it “has submitted a request” to “determine and agree” on potential new primary efficacy endpoints with the FDA. Furthermore, Revive reaffirmed that following the expectations of “obtain(ing) FDA agreement on the potential new primary efficacy endpoints in June 2022”, it will also meet with the study’s Data Safety and Monitoring Board shortly thereafter to determine next steps.

The unusual endpoint change precedent was recently established in the Adamis Pharmaceuticals Tempol trial, which began in September 2021. It was originally designed to enroll 248 patients overall to measure a reduction in hospitalizations versus placebo. Given overall lower hospitalization rates in the general population as the pandemic has progressed, the company requested and was granted endpoint change from hospitalizations to lower-threshold COVID symptom endpoints in April. The new benchmark allows Adamis to evaluate the difference in the rate of sustained clinical resolution of symptoms of COVID-19 at Day 14, as opposed to the rate of hospitalization in Tempol-treated vs. placebo patient population.

The FDA’s midtrial endpoint change allowance is a rare event and signals flexibility by the organization to allow parameter changes in accordance to the shifting symptomatic profile of the pandemic.

Furthermore, Pfizer’s Paxlovid trial was previously designed with a focus towards symptom improvement as a primary endpoint. Although Paxlovid failed to show symptom improvement initially, the study was unblinded and continued. Eventually, Pfizer demonstrated enough efficacy and safety that the FDA issued an emergency use authorization for Paxlovid for the treatment of mild-to-moderate coronavirus disease (COVID-19) in adults and pediatric patients 12 years and older.

At the present time, Paxlovid is considered the gold-standard frontline oral COVID therapeutic currently available in the marketplace, although there are already signs that real-world efficacy is waning.

Revive Therapeutics is hoping for similar consideration that Adamis received from the FDA regarding symptomatic endpoint change. With much more Phase 3 patient data (715) in its database, it appears to have solid grounds to request similar treatment. In Pfizer’s case, the FDA outright allowed symptoms reduction as a primary endpoint.

Either way, the precedent for COVID symptomatic reduction has long been set. Revive Therapeutics is strategically attempting to use a similar endpoint threshold that has already been established by the FDA. This includes soliciting Biomedical Advanced Research and Development Authority (BARDA) support for Bucillamine to explore the potential of securing development and commercial scale-up funding.

We’ll find out soon enough whether the FDA amicable supporters of Revive’s endpoint pivot.

What This Could Mean For Revive Therapeutics

The upcoming FDA decision to potentially allow new primary efficacy endpoints is a game-changing event given that deaths and hospitalizations have been declining with subsequent COVID variants—such as Omicron and BA.2—becoming dominant. While there is evidence that Bucillamine has demonstrated outstanding efficacy on a standalone basis in the current trial, it will be difficult to prove statistical significance against the placebo arm if hospitalization rates remain low. Hence, we view the potential lowering of endpoint threshold to a symptoms benchmark as a material de-risking event for the company.

Indeed, declining hospitalization rates have likely prompted Revive to become very selective on patient enrollment. Increased vigilance towards patient selectivity—along with enrollee competitiveness with other pharmaceutical companies conducting COVID trials—has impacted the speed of Revive’s COVID trial. So much so that Revive Therapeutics announced last December that it would fill part of its patient enrollment quota outside of the U.S. in a bid for patient diversification.

Ultimately, the shift to symptoms as a primary endpoint is all about probabilities. With the current endpoints of death and hospitalizations, Revive has a much higher bar to obtain statistical significance against the placebo arm in the trial. This is not an indictment of the efficacy of Bucillamine, but rather an acknowledgement of the reality that most folks do not require hospital visitation upon catching COVID.

The bottom line: FDA endpoint change approval will greatly improve Revive’s odds of favorable clinical trial outcome and possible Emergency Use Authorization approval downstream. Given increasing evidence that frontline oral COVID medications are failing—and plenty of extra-curricular evidence that thiol drugs are effective against SARS-CoV-2 to prevent injury—Revive appears to be sitting in a favorable position for endpoint change assuming the current trial data is sound.

Now, in the less than 30 days, the FDA is poised to deliver a decisive verdict. One that can change both the fortunes of the general population, and Revive investors alike.

The post Upcoming FDA Decision A Potentially Major De-Risk Event For Revive Therapeutics appeared first on The Dales Report.

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