Oil Prices Climb as OPEC Agrees Small Output Cut

MARKET MOVERS

• Oil prices climb as OPEC+ agrees to a 100,000 barrel cut per day. OPEC+ agreed Monday to cut oil production for the first time in over a year, delegates said, saying it should pull back about 100,000 barrels a day amid fears of a global recession and more Iranian crude coming to the market in the event of a revived nuclear deal. The move shows how worries over an economic slowdown are dominating the global oil market.

• European natural gas prices spike as Russia keeps pipelines closed indefinitely. European natural gas prices rose more than 30% on Monday after Russian exports through Nord Stream 1 remained suspended. No date has been set to restart flows. The pipeline was supposed to reopen on Saturday after a maintenance period, but Russia said technical problems forced it to stay closed.

• Ocean shipping rates have plunged 60% this year. The cost to ship a 40-foot container from China to the U.S. West Coast now stands around $5,400 a box, down 60% from January, according to the Freightos Baltic Index. A container shipped from Asia to Europe costs $9,000, 42% less than at the start of the year. The backdrop of a potential global recession, driven by surging energy prices and rapid inflation, is driving down the market. Read more here.

• Affordable-housing projects derailed as developers struggle for financing. Rising interest rates and inflation have made financing for affordable housing more difficult and costly. Supply-chain issues for materials like lumber and appliances have eased a bit recently but haven’t gone away. These forces can disrupt all types of property development, but they have been especially detrimental to affordable housing.

• Liz Truss to become new UK Prime Minister. She will replace current Prime Minister Boris Johnson, who resigned on July 7 after more than 50 government ministers resigned, saying they had lost confidence in him as a leader. Voting closed on Friday and Sir Graham Brady, chairman of the 1922 Committee of Conservative backbench MPs, announced the result on Monday. Truss won 81,326 votes, compared to 60,399 for Sunak. Read more here.

WHAT TO WATCH

• TikTok is upending the music industry and Spotify may be next. Artists have soared to the top of the charts because of trends on TikTok, muddling the music industry’s business model. TikTok hasn’t fully capitalized on the phenomenon, but its parent company filed a trademark application that suggests something may be in the works. TikTok currently has partnerships and licensing agreements with major labels. Read more here.

• Expect mass layoffs in Q4 2022/Q1 2023 because a recession is already here. For now, the assumption is that the Fed will continue to keep rates elevated until inflation comes down since they have no other path. Expect the S&P 500 as a whole to be flattish revenue/EPS at best in a rising rates environment + recession. Financial services companies reliant on capital markets overhired and now needs to cut heads. Read more here.

• Nigeria and Binance are in talks for the digital city to develop blockchain. Nigerian authorities and cryptocurrencies platform Binance Holdings Ltd. are in talks to establish a digital economic zone that will help entrepreneurs fast-track blockchain technology in the West African nation. The partnership aims to build a digital hub, "similar to the Dubai virtual free zone,” according to a statement by the Nigeria Export Processing Zones Authority.

• Saudi Central Bank hires crypto chief to boost digital ambitions. Mohsen AlZahrani, a former managing director at consultancy Accenture, will lead the Kingdom’s virtual assets and central bank digital currency program. While the Kingdom has taken cautious steps to approach virtual assets, the emergence of a global crypto hub in the UAE has created “some urgency in Riyadh to draft more formal rules for the asset class.” Read more here.

• The labor shortage will get worse and may last for decades. The average annual growth of the U.S. prime working-age population is projected to slow sharply to just 0.2% over the next three decades, down from a 1% average annual growth over the past 40 years. By 2100, as much as two-thirds of the country could be out of the workforce.