David Fuller and Eoin Treacy's Comment of the Day
Category - General

    China Clamps Down on Webcasting by Weibo and Other Media Firms

    This article from Bloomberg News may be of interest to subscribers. Here is a section:

    On Thursday night, the State Administration of Press, Publication, Radio, Film and Television ordered services including Weibo to stop broadcasting what it said was negative commentary in violation of government regulations. While the regulator didn’t say in its one-line statement what precise actions should or would be taken, it was enough to send Weibo’s stock sliding 6.1 percent in New York on Thursday. Sina, which controls the company, slid almost 5 percent.

    The regulatory ban, the latest in a series of attempts to curb content on the internet, could disrupt a revival for Weibo that’s now underway. The messaging service turned to video streaming over the past year to rejuvenate growth and has since reignited user interest, pushing its monthly audience to 340 million people -- surpassing Twitter’s -- and its market value above $16 billion. Chairman Charles Chao is now focused on expanding Weibo into areas including news aggregation and live video streaming.

    Weibo, AcFun and Ifeng.com are “broadcasting large amounts of programming that don’t meet national standards and which propagate negative opinions on public affairs,” the national broadcasting regulator said in a statement posted on its website. “We’re taking measures to halt the programs and begin rectification.”


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    O'Reilly Automotive plunges after sales miss and warning of 'weak consumer demand'

    This article from Business Insider may be of interest to subscribers. Here it is in full: 

    O'Reilly Automotive plunged by as much as 16% in early trading on Wednesday after the company announced second-quarter sales results that were weaker than it had expected. 

    Sales at its auto-parts stores open for at least one year rose 1.7% in the second quarter, O'Reilly said in a release on Wednesday. That was improved from Q1 but weaker than its guidance of 3%-5% growth.

    "We faced a more challenging sales environment than we expected for the remainder of the quarter," after April, O'Reilly CEO Greg Henslee said, "due to what we believe were continued headwinds from a second consecutive mild winter and overall weak consumer demand." 

    "The comparable store sales shortfall will also have a consequent impact on our operating profitability," Henslee added. 

    Car sales in the US slowed in the first half of this year following seven straight years of record-setting volumes. Although sales have softened, continued employment growth suggests that consumer purchases of the big-ticket items may remain healthy. 

    Auto sales in June rose at a seasonally adjusted annual rate of 16.51 million, Autodata said on Monday, down 13.2% year-on-year. 


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    Energy Stat: Is "Fake News" Driving Down Oil Prices?...

    Thanks to a subscriber for this report from Raymond James which takes a bullish opinion on oil prices. Here is a section:

    Myth #2: U.S. shale production growth is going to flood the market at $35/bbl.
    The fear of massive U.S. oil supply growth at oil “breakeven” prices of $35-40 per bbl is the other panic button that most investors (and many sell-siders) have been happy to push over the past few months. Yes, there are many U.S. horizontal (especially Permian) operators that can make solid incremental well returns at $35-40 per barrel if and only if they do not include any costs other than the drilling and completion costs of that next well. The problem with this type of analysis is twofold: 1) It is definitely not capturing the fullcycle returns where companies must include lifting, overhead, interest expenses, and other sunk costs. On a full cycle basis, very few U.S. E&P companies are actually generating positive returns at oil prices below $50/bbl, and 2) There is simply not enough cash being generated by U.S. E&P companies at oil prices below $50 to justify current drilling and completion activity and some of the U.S. supply growth forecasts that are now starting to appear. In fact, at current oil prices (of around $45/bbl) we estimate that the U.S. E&P industry as a whole will outspend cash flow generated by a whopping 50% this year! That amount of outspend is simply unsustainable and means the unfettered U.S. oil supply growth assumptions in a sub-$50 oil world are highly, highly unlikely.

    We would also point out two other important points on this emerging U.S. supply growth panic. First, we have historically had one of the most aggressive (and accurate) U.S. oil supply growth models on the Street. Despite this, our global oil supply demand equation still suggests a meaningfully undersupplied oil market for the remainder of this year. In fact, if we go back to the beginning of this year (six months ago), our 2018 U.S. oil supply growth estimate of 1.3 million bpd was high on the Street and at least 500,000 bpd above consensus estimates at the time. Note that our current U.S. supply estimate is actually down about 500,000 bpd from our estimate a year and a half ago (early 2016) because of downward revisions in U.S. industry cash flows and emerging oil service equipment bottlenecks. In our opinion, forecasts of 2018 U.S. supply growth of 2.5 million bpd at oil prices below $50/bbl are simply not doing the math. Secondly, the longer-term fear of too much U.S. supply growth at $50/bbl ignores the fact that there is another~30 million bpd of OPEC and ~50 million bpd of non-OPEC supply (across a variety of geographies, both short-cycle and long-lead-time) that will likely be declining in a few years. Solely considering U.S. supply growth would be a “one hand clapping” approach: that is to say, it gives an exaggerated impression of how much global supply is actually growing. In 2017, for example, at least three significant nonOPEC producers – China, Mexico, Colombia – are posting sizable declines. Several others – Russia, Norway, Argentina – are flattish. Longer term, 2018 is shaping up to be the cyclical trough year for global long-lead-time project startups (down close to 50% versus 2016 levels) meaning non-U.S. oil supply growth will likely come under significant pressure in 2019 and beyond.



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    Australia Defies Hawkish Talk as Lowe Frets Over Household Debt

    This article by Michael Heath for Bloomberg may be of interest to subscribers. Here is a section:

    Lowe again pointed to the mixed nature of the nation’s labor market -- a key indicator. While the last three monthly reports have shown strong hiring gains and unemployment has dropped to 5.5 percent from 5.9 percent, under-employment remains high. There’s still plenty of slack in the labor market and this is the epicenter of any turnaround on wages -- which are increasing at the slowest pace on record.

    The central bank said wage growth is likely to remain low for a while yet. Core inflation remains below the central bank’s 2 percent to 3 percent target and is only forecast to “increase gradually” as the economy strengthens. As an aside, the RBA dropped its reference to an economic growth forecast of 3 percent and said the recent slowing in gross domestic product partly reflected temporary factors, like weather, but not all of it.

    “The RBA has explicitly chosen not to adopt a more hawkish tone,” said Sally Auld, head of fixed-income and currency strategy for Australia at JPMorgan Chase & Co. “Ultimately, a more hawkish central bank requires the distribution of risks around both growth and inflation to have improved, such that the current setting of financial conditions is no longer appropriate. Our sense is that this is not yet the case in Australia.”


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    Kim Seeks to Exploit U.S.-China Tensions With Missile Claims

    This article by Andy Sharp, David Tweed and Ting Shi for Bloomberg may be of interest to subscribers. Here is a section: 

    Trump turned to Twitter after news of the launch, before North Korea’s claim the missile was an ICBM. He wrote: "Perhaps China will put a heavy move on North Korea and end this nonsense once and for all!” In response, China Foreign Ministry spokesman Geng Shuang said Beijing had been "indispensable" in pressuring Kim.

    Reclusive North Korea has for decades relied on its weapons programs as a deterrent to outsiders. Kim is also no different from his father and grandfather -- both leaders before him -- in using his military clout as a bedrock for his internal power.

    Encouraging a personality cult around the Kim dynasty helps him keep a grip on generals at home and foster public obedience.

    North Korea has called its weapons program a "precious sword of justice” against invaders. It has drawn comparisons with former dictatorships in Iraq and Libya, arguing that Saddam Hussein and Muammar Gaddafi fell because they gave up on developing nuclear arms.

    The regime has also used provocations to secure concessions from neighbors in the form of aid. China, the main economic lifeline of North Korea, has been reluctant to press too hard in case it leads to the collapse of the regime and chaos on its border.


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    Manufacturing Pickup Signals Boost to U.S. Economic Growth

    This article by Shobhana Chandra for Bloomberg may be of interest to subscribers. Here is a section:

    Faster growth in orders and production in the final month of the quarter indicates solid demand that, together with rising exports, shows manufacturing is on solid footing. The ISM’s pulse of employment in the industry also indicates the government’s measure of factory payrolls, released as part of the Labor Department’s jobs report on Friday, will rebound in June after declining a month earlier.

    The expansion was broad based, with 15 of 18 industries surveyed by the purchasing managers’ group posting growth in June. They included machinery, transportation equipment, computer and electronic products, and petroleum and coal products. The three reporting contractions were apparel, textile mills and primary metals.

    The 2.9-point monthly gain in the ISM index, which was the largest jump since early 2013, is also notable as it comes amid fading expectations that the government will deliver a fiscal boost, via tax reform and infrastructure spending, in the near future.

    Official’s View
    “Everything was strong,” Timothy Fiore, chairman of the ISM factory survey committee, said on a conference call. Unless supply-chain constraints arise, “there’s really no reason” why the robust pace of manufacturing can’t continue, he said. At the same time, manufacturers are awaiting more clarity on potential policy changes such as taxes, regulations and tariffs on imported materials including steel, Fiore said.


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    Floods Slow Ivory Coast Cocoa Harvest Amid Worries About Rot

    This article by Baudelaire Mieu for Bloomberg may be of interest to subscribers. Here is a section:

    Heavy rains in Ivory Coast’s cocoa-growing areas are slowing the harvesting and sales of beans and farmers say they’re worried about black-pod disease rotting their crops.

    Roads to plantations in the southwestern area of Meagui have been cut off after rivers overflowed and farmers can’t access their crops, which means they don’t know how the flowers and pods on the trees are developing, according to local grower Dongo Koffi.

    “Everything is stopped at the moment,” he said by phone. “The sales have slowed down because we can’t harvest. Some farmers have some stocks of beans with them but they can’t sell them, because the roads aren’t accessible.”

    While it’s still unclear whether Ivory Coast output will be materially affected, any losses due to the heavier-than-usual rainy season in the world’s top cocoa producer may help ease some pressure on prices, which have dropped by more than a third in the past 12 months amid expectations for a global surplus. The country, which is currently harvesting the smaller of two annual crops, is expected to produce a record amount this year.


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