Morgan Stanley oil analyst Martijn Rats has cut his oil price forecasts
“Over the last year we have argued that oil supply would be tight-enough-for-long-enough that some demand erosion needed to take place. In June, prices reached levels that achieved just that, and demand appears to be softening in response. As a result, we lower our near-term price forecasts … Prices reached levels that are hard to absorb: Add to this tightness in the refining system and this explains why diesel and gasoline prices reached ~$187 and ~$180/bbl respectively in June. In response to the commodity-induced inflation surge, central banks are now hiking rates in-sync. Of the 38 central banks globally, 29 (or 77%) have hiked rates in the last 6 months. That percentage is at a 40-year high, making this the most-synchronized cycle of rate hikes since the early 1980s … This combination of factors continues to drive rapid downgrades to GDP expectations in all main regions. Our oil demand forecasts were not stretched, but equally, they were not designed for the breadth of rate hikes and magnitude of GDP slowdown that now appears to be unfolding. With actual oil demand data also starting to come in softer than expected, we lower our 2022e growth estimate from 2.2 to 2.0 mb/d, and our 2023e estimate from 2.7 to 1.8 mb/d”
Mr. Rats has reduced his fourth quarter WTI forecast by US$20 to US$107.50 and his second quarter of 2023 estimate from US$107.50 to US$97.50.
Walmart Inc. (WMT) cut its profit outlook for the second-quarter and fiscal year 2023, saying that high food and fuel prices are hurting customer’s ability to spend on general merchandise categories. The company anticipates more pressure on general merchandise in the back half.
“.. Food inflation is double digits and higher than at the end of Q1. This is affecting customers’ ability to spend on general merchandise categories and requiring more markdowns to move through the inventory, particularly apparel,” the company said in a statement.
WMT closed Monday regular trading at $132.02 down $0.19 or 0.14%. In the after-hours trading, the stock further dropped $13.12 or 9.94%.
The Retail giant projects comp sales for Walmart U.S., excluding fuel, to be about 6% for the second quarter. It is higher than previously expected with a heavier mix of food and consumables, which is negatively affecting gross margin rate.
For the second quarter, the company now expects adjusted earnings per share to decline around 8% to 9%, operating income to decline 13% to 14% and consolidated net sales growth to be about 7.5%. Analysts polled by Thomson Reuters expect the company to report earnings of $1.81 per share and revenues of $148.25 billion for the second quarter. Analysts’ estimates typically exclude special items. The company said in May that it expected earnings per share to be flat to up slightly, and consolidated net sales growth of 5%.
Net sales for the second-quarter included a headwind from currency of about $1 billion in the second quarter. Based on current exchange rates, the company expects a $1.8 billion headwind in the second half of the year.
The company maintained its expectations for Walmart U.S. comp sales growth, excluding fuel, of about 3% in the back half of the year.
Looking ahead for fiscal year 2023, the company now projects adjusted earnings per share to decline around 11% to 13%, operating income to decline 11% to 13%, and consolidated net sales growth to be about 4.5%.
Excluding divestitures, the company now anticipates adjusted earnings per share for the full year to decline 10% to 12%, operating income to decline 10% to 12% and consolidated net sales growth to be about 5.5%.
The company said in May that it projected annual earnings to decline about 1% and to be flat, excluding divestitures. It also expects consolidated net sales growth of 4 percent in constant currency and about 4.5% to 5%, excluding divestitures.
Gold Slips as Investors Prepare for Fed’s Jumbo Rate Hike
Gold headed back down after posting the biggest weekly gain since May as investors weighed prospects for tighter US monetary policy and concerns over an economic slowdown.
Bullion hit the lowest level since March 2021 last week, only to rebound as Treasury yields eased following poor US economic data. After raising rates in June by the most since 1994, Federal Reserve policy makers are expected to approve another 75 basis-point hike when they meet July 26-27. Second-quarter GDP data will also indicate whether the US is in a technical recession.
Gold is heading for a fourth monthly loss as Fed tightening and a stronger dollar dim its allure as a haven, overshadowing concerns about inflation and a slowdown. Over the weekend, while former Treasury Secretary Lawrence Summers cast doubt on the likelihood of a soft landing for the US, incumbent Janet Yellen said that she doesn’t see any sign the economy is in a broad recession.
Additional downward pressure on gold has come from waning investor interest, with holdings in bullion-backed exchange-traded funds ebbing for a sixth week, according to initial data compiled by Bloomberg. Hedge funds trading the Comex flipped to being net-short on gold for the first time since 2019, according to data from the Commodity Futures Trading Commission.
“Shanghai traders are accumulating silver,” TD Securities commodity strategy head Bart Melek said in an emailed note. “In sharp contrast to gold, where outflows from most major participants have translated into a liquidity vacuum.”
Spot gold fell 0.5% to $1,719.46 an ounce at 1:52 p.m. in New York. Last week, prices sunk as low as $1,680.99 on Thursday before ending the week 1.1% higher. The Bloomberg Dollar Spot Index weakened 0.1%. All other precious metals fell except platinum. Silver went 0.8% into the red. Spot palladium lead with a 1.4% fall.
Canadian retail sales jumped 2.2% in May, beating economists’ expectations. Good news right? Well, not really. The gain was driven more by higher prices, especially for gas, than by higher volumes.
Moreover, a preliminary estimate from Statistics Canada suggests weakness to come with sales seen rising just 0.3% in June from the month before, which CIBC economist Katherine Judge says would represent a decline in volumes.
“Indeed, with consumption to shifting towards services, while inflation erodes consumer purchasing power, demand for discretionary goods will be under more pressure ahead,” she wrote.
Newmont’s (NEM) Earnings and Revenues Lag Estimates in Q2
Newmont Corporation NEM reported net income from continuing operations of $379 million or 48 cents per share in second-quarter 2022, down from $640 million or 80 cents per share in the year-ago quarter.
Barring one-time items, adjusted earnings were 46 cents per share that missed the Zacks Consensus Estimate of 60 cents.
Newmont reported revenues of $3,058 million, almost flat year over year. The figure missed the Zacks Consensus Estimate by 0.5%. Higher average realized gold prices and copper sales volume were partly offset by reduced average realized co-product metal prices.
Newmont Corporation Price, Consensus and EPS Surprise
Newmont Corporation Price, Consensus and EPS Surprise
Newmont’s attributable gold production in the second quarter increased roughly 3.4% year over year to around1.5 million ounces in the quarter.
Average realized prices of gold rose 0.7% year over year to $1,836 per ounce.
The company’s costs applicable to sales (CAS) for gold were $932 per ounce, up 23.4% year over year. The increase was mainly driven by higher direct operating costs resulting from higher labor costs and increased commodity inputs, including higher fuel and energy costs.
All-in sustaining costs (AISC) for gold were up 15.8% year over year to $1,199 per ounce, mainly due to higher CAS per gold equivalent ounce.
Regional Performance
North America: Second-quarter attributable gold production in North America was 316,000 ounces, down 20% year over year. Gold CAS in the region was $1,124 per ounce, up 46% year over year.
South America: Attributable gold production in South America was 210,000 ounces, up 11% year over year. Gold CAS in the region rose 36% on a year-over-year basis to $982 per ounce.
Australia: Attributable gold in the region was 366,000 ounces, up 22% year over year. Gold CAS in the region was down 7% year over year to $710 per ounce.
Africa: Production in the region totaled 243,000 ounces of gold in the quarter, up 20% year over year. Gold CAS was $838 per ounce, up 10% year over year.
Nevada: Production totaled 290,000 ounces of gold in the quarter, up 2% year over year. Gold CAS was $1,035 per ounce, up 37% year over year.
Financial Position
The company ended the quarter with cash and cash equivalents of $4,307 million, down 6% year over year. At the end of the quarter, the company had long-term debt of $5,568 million, up 11.6% year over year.
Net cash from continuing operations amounted to $1,033 million. Free cash flow totaled $514 million in the second quarter.
Outlook
For 2022, Newmont expects attributable gold production of 6 million ounces. The company also expects gold CAS to be $900 per ounce and AISC to be $1,150 per ounce.
Newmont’s cost guidance reflects the impact of lower production volumes and higher direct operating costs related to labor, energy, consumables and supplies due to sustained inflationary pressures.
Price Performance
Newmont’s shares have declined 14.9% in the past year compared with a 29.5% fall of the industry.
Newmont Corporation (NYSE: NEM, TSX: NGT) (Newmont or the Company) today announced second quarter 2022 results.
SECOND QUARTER 2022 RESULTS
Produced 1.5 million attributable ounces of gold and 330 thousand attributable gold equivalent ounces (GEO) from co-products, an increase of more than 130 thousand total gold equivalent ounces from the first quarter
Generated $1.0 billion of cash from continuing operations and $514 million of Free Cash Flow (97 percent attributable to Newmont)*
Reported gold Costs Applicable to Sales (CAS)* of $932 per ounce and All-In Sustaining Costs (AISC)* of $1,199 per ounce
Adjusted Net Income (ANI) of $0.46 per share and Adjusted EBITDA of $1,149, impacted by increasing costs and declining metal prices
Updated full-year guidance of 6.0 million ounces of attributable gold production, CAS of $900 per ounce and AISC of $1,150 per ounce; reaffirmed original guidance of 1.3 million gold equivalent ounces from copper, silver, lead and zinc with updated co-product cost guidance of $750 per GEO of CAS and $1,050 per GEO of AISC**
Updated full-year guidance for development capital spend to $1.1 billion; Provided trends on development capital costs and timeline related to Tanami Expansion 2 and Ahafo North
Declared second quarter dividend of $0.55 per share, consistent with the previous seven quarters***
$1 billion share repurchase program to be used opportunistically in 2022, with $475 million remaining***
Ended the quarter with $4.3 billion of consolidated cash and $7.3 billion of liquidity with a net debt to adjusted EBITDA ratio of 0.3x*
Advancing profitable near-term projects, including Tanami Expansion 2, Ahafo North and Yanacocha Sulfides
Completed acquisition of Sumitomo Corporation’s 5 percent interest in Yanacocha, increasing ownership in Sulfides project to 100 percent
Maintained a clear focus on managing the critical controls that must be in place at all times to prevent fatalities; 155 thousand critical control verifications completed by leaders in the field
Published our 2021 Sustainability Reporting Suite, including our second Annual Climate Report, prepared in accordance with the Task Force for Climate Disclosure (TCFD) framework, detailing the pathway to achieve 2030 carbon emissions reduction targets and 2050 goal
“Newmont delivered a solid second quarter performance, producing 1.5 million gold ounces and generating $514 million in free cash flow. Through our industry-leading portfolio of assets and projects, our proven integrated operating model, our balanced and disciplined approach to capital allocation and our values-driven commitment to our purpose of creating value and improving lives through sustainable and responsible mining, Newmont remains well-positioned to safely manage through the evolving and unprecedented challenges that face our industry and the world at large.”
– Tom Palmer, Newmont President and Chief Executive Officer
Japan slashes fiscal year GDP growth forecast to 2% on global demand slump
Japan’s government slashed its economic growth forecast for this fiscal year largely due to slowing overseas demand, highlighting the impact of Russia’s war in Ukraine, China’s strict COVID-19 lockdowns and a weakening global economy.
The forecast, which serves as a basis for compiling the state budget and the government’s fiscal policy, included much higher wholesale and consumer inflation estimates as surging energy and food costs and a weak yen push up prices.
The world’s third-biggest economy is now expected to expand about 2.0% in price-adjusted real terms in the fiscal year ending in March 2023, according to the Cabinet Office’s projections, presented at the Council on Economic and Fiscal Policy – the government’s top economic panel.
That marked a sharp downgrade from the government’s previous forecast of 3.2% growth released in January. The cut largely stemmed from weaker exports, which the government expects to expand 2.5% compared to 5.5% in the previous assessment.
The government projected 1.1% growth for the following fiscal year starting April 2023.
It released its projections days after the Bank of Japan downgraded expectations for growth for this fiscal year to March 2023 to 2.4% from 2.9% three months ago, and underscored the central bank’s stance to maintain massive stimulus even as several other economies have started to hike rates to curb inflation.
The government forecast overseas demand to subtract real gross domestic product by 0.3 percentage point for the current fiscal year, compared to an expected 0.2 percentage point boost seen previously.
It projected overall consumer inflation, which includes volatile fresh food and energy costs, at 2.6% for this fiscal year compared to 0.9% expected in the previous assessment in January.
Wholesale inflation was estimated at 9.8% for this fiscal year, much higher than 2.0% projected in January, as higher oil and food prices and a weaker yen pushed up raw material cost.
The higher consumer inflation was not expected to weigh greatly on private consumption as stronger spending on services such as travel was seen boosting this fiscal year’s economic growth, a Cabinet Office official said.
For fiscal 2022 and fiscal 2023, the Cabinet Office forecast nominal economic growth of 2.1% and 2.2%, respectively. Higher nominal growth estimates point to government expectations for greater tax revenue.
General Motors Co and Ford Motor Co are about to replay a script they have played out many times before – trying to convince investors they can get through a recession without skidding into the red.
Analysts have been cutting share price targets and profit estimates for the Detroit automakers over the past several weeks, in tandem with downbeat outlooks for the global economy. High energy prices, rising interest rates, inflation, snarled supply chains and stubborn persistence of the COVID virus all bode ill for automaker profits, analysts said.
FORD MOTOR COMPANY
12.85-7.92 (-38.16%)
GENERAL MOTORS COMPANY
34.69-23.94 (-40.84%)
YEAR TO DATE
-38.16%-40.84%
DEC. 30, 2021
JULY 25, 2022
SOURCE: BARCHART
At the same time, some analysts say a recession could be mild, and demand for vehicles could recover more swiftly than in the past. One big difference from past slowdowns is that GM and Ford’s U.S. dealers are not sitting on big inventories of unsold vehicles that would have to be discounted to sell.
“We believe the set-up over a multi-year horizon is skewing more positively,” Bank of America analyst John Murphy wrote in a note, citing lean inventories and pent-up demand from consumers who held off buying as vehicles became scarce and expensive.
Both GM and Ford also have healthy balance sheets, certainly compared to the period leading up to the 2008-2009 financial market crisis that pushed GM into bankruptcy.
GM, which reports results on Tuesday morning, has stuck to its full-year profit guidance, even after disclosing that it had 95,000 vehicles in stock that it could not ship during the second quarter because of missing parts. GM said earlier this month it expects second quarter net income of $1.6 billion to $1.9 billion, below analysts’ expectations of $2.56 billion, as per Refinitiv data.
Ford also kept to its outlook for full-year operating profit of between $11.5 billion and $12.5 billion.
However, Ford is still wrestling with high costs for recalls, and heavy investments to develop more electric vehicles. Bloomberg reported last week that Chief Executive Jim Farley could order that as many as 8,000 jobs be cut from the payroll, largely in operations that support combustion vehicles.
Ford has not commented on the report. But Farley has said several times in recent months that Ford has too many people and is spending too much on quality problems.
