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    Eli Lilly to acquire Dice Therapeutics for $2.4 billion in autoimmune treatment push

    Eli Lilly struck a $2.4 billion deal to acquire Dice Therapeutics in a bid to bulk up its treatment portfolio for immune-related diseases.
    Eli Lilly will pay $48 per share in cash to buy Dice, representing around a 40% premium to where the San Francisco-based company’s shares closed on Friday.
    Dice is a biopharmaceutical company that uses a proprietary technology platform to develop new oral therapeutic drugs for autoimmune diseases.

    David Ricks, CEO, Eli Lilly
    Scott Mlyn | CNBC

    Eli Lilly on Tuesday said it struck a $2.4 billion deal to acquire Dice Therapeutics in a bid to bulk up its treatment portfolio for immune-related diseases.
    Eli Lilly will pay $48 per share in cash to buy Dice, representing around a 40% premium to where the San Francisco-based company’s shares closed on Friday. The transaction is expected to close in the third quarter of this year.

    “In combination with its novel technology and expertise in drug discovery, DICE’s talented workforce and passion for innovation will enhance our efforts to make life better for people living with devastating autoimmune diseases,” said Patrik Jonsson, Eli Lilly executive vice president, in a press release. 
    Dice is a biopharmaceutical company that uses a proprietary technology platform to develop new oral therapeutic drugs for autoimmune diseases, in which the body’s immune system mistakenly attacks a person’s own cells instead of protecting them.
    Auto-immune diseases can causes pain, fatigue, dizziness, depression and rashes, among other symptoms.
    There are more than 100 known autoimmune diseases, including lupus, rheumatoid arthritis, Crohn’s disease and ulcerative colitis.
    Dice’s lead drug is in a mid-stage trial for an immune-related skin condition called psoriasis. 
    Eli Lilly’s immunology portfolio includes drugs like Taltz, which treats plaque psoriasis, and Olumiant, a treatment for rheumatoid arthritis. Last year, Taltz raked in $2.48 billion, while Olumiant generated $830.5 million in sales. More

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    Stocks making the biggest premarket moves: Alibaba, Dice Therapeutics, Avis and more

    Signage at the Alibaba Group Holding Ltd. offices in Beijing, China, on Tuesday, Jan. 17, 2023.
    Bloomberg | Bloomberg | Getty Images

    Check out the companies making the biggest moves in premarket trading:
    Alibaba — U.S.-listed shares fell 2.3% after the China e-commerce giant announced CEO Daniel Zhang was stepping down and will be replaced by Eddie Wu, one of Alibaba’s co-founders. The move follows the company’s announcement in March it was restructuring its business into six business groups.

    Atmus Filtration Technologies — Shares of the air filtration company rose more than 2% after a slew of analysts initiated coverage with bullish ratings, including JPMorgan. The bank said Atmus trades at a “deep discounted valuation vs. peers, despite >80% of aftermarket mix, while its planned expansion into industrial filtration should bridge the valuation gap vs. direct filtration peers over time.”
    Dice Therapeutics — The biopharmaceutical stock soared 37.7% after Eli Lilly said it was acquiring the company for $48 per share, or about $2.4 billion, in cash.
    Avis Budget — Shares added 3.5% in light volume following an upgrade by Morgan Stanley to overweight from equal weight. Analyst Adam Jonas also upped his price target to $230 from $182, suggesting 12.6% upside. Jonas cited Avis’ proven track record of fleet risk management and lower operating expenses relative to sales.
    Philip Morris International — Shares of the tobacco company rose 1.5% in premarket trading after Citi upgraded Philip Morris to buy from neutral. Investors are undervaluing the growth of smoke free products, according to Citi.
    Warner Bros Discovery — The media and entertainment conglomerate’s stock slid 1% after its movie “The Flash” took in an estimated $55 million during its first three-day weekend, less than the $75 million to $85 million the industry had expected.

    Carnival — Shares moved 1.5% higher in the premarket, building on gains made last week when it was the S&P 500’s best performer. Cruise stocks are soaring this year as the companies recover from the Covid pandemic — the last in the travel industry to do so.
    — CNBC’s Jesse Pound contributed reporting. More

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    Drugmakers aim to strike down Medicare drug-price negotiations at Supreme Court

    Merck, the U.S. Chamber of Commerce and Bristol Myers Squibb have sued the Biden administration over Medicare’s new drug-price negotiations.
    The lawsuits are the opening salvo in a historic and potentially decisive battle over the federal government’s efforts to bring rising drug prices under control.
    Legal experts say the pharmaceutical industry will likely file many more lawsuits this fall, as big drugmakers are ultimately aiming to take their battle to the Supreme Court and strike down the law.

    Chief Executive Officers of pharmaceutical companies testify before the Senate Finance Committee on “Drug Pricing in America: A Prescription for Change, Part II” February 26, 2019 in Washington, DC. From left to right are Richard A. Gonzalez, chairman and CEO of AbbVie Inc; Pascal Soriot, executive director and CEO of AstraZeneca; Giovanni Caforio, chairman of the board and CEO of Bristol-Myers Squibb Co.; Jennifer Taubert, executive vice president and worldwide chairman of Janssen Pharmaceuticals, Johnson & Johnson; Kenneth C. Frazier, chairman and CEO of Merck & Co. Inc.; Albert Bourla, CEO of Pfizer and Olivier Brandicourt, CEO of Sanofi.
    Win Mcnamee | Getty Images News | Getty Images

    The pharmaceutical industry is aiming to strike down Medicare’s historic new powers to slash drug prices for seniors through a Supreme Court ruling, legal experts say.
    Drugmaker Merck, the U.S. Chamber of Commerce and Bristol Myers Squibb filed separate lawsuits within days of each other this month asking federal courts in Washington, D.C., the Southern District of Ohio, and New Jersey to declare the price negotiations unconstitutional under the First and Fifth amendments.

    The lawsuits are the opening salvo in what will go down as a historic and potentially decisive battle over the federal government’s efforts to control rising drug prices.
    The Inflation Reduction Act, passed in a narrow party-line vote last year, gave Medicare the power to negotiate prices for the first time in the program’s nearly 60-year history — a watershed moment that the Democratic Party had long fought for.
    The pharmaceutical industry views the program as posing a major threat to revenue growth and profits. The companies claim the program will stifle future drug development in the U.S.
    Merck fears its blockbuster cancer therapy Keytruda, which generated 35% of the company’s $59 billion in revenue for 2022, will be targeted by the program in the future. The company also worries the federal government will select its Type 2 diabetes drug Januvia, which generated $2.8 billion in revenue in 2022, for negotiations this year.
    Drugmaker Abbvie, a member of the Chamber of Commerce’s Dayton, Ohio, chapter, is defending its blood cancer drug Imbruvica, which generated $4.6 billion in revenue last year, or about 8% of its total sales.

    And Bristol Myers Squibb is trying protect its blood thinner Eliquis, which brought in $11.8 billion in sales last year, or about 25% of the company’s $46 billion total revenue for 2022.
    These are the first lawsuits challenging Medicare’s new powers, but they are unlikely to be the last.
    The big drugmakers’ lobby group, the Pharmaceutical Research and Manufacturers of America, told CNBC in a statement that it supports the claims made in the lawsuits.
    A spokesperson for PhRMA said the organization is also considering litigation against Medicare. PhRMA’s members include other big drugmakers like Eli Lilly, Pfizer and Johnson & Johnson.
    Legal experts and financial analysts who cover the pharmaceutical industry said Merck, the chamber and Bristol Myers Squibb will try to litigate their claims all the way to the high court.
    “These lawsuits were written with the Supreme Court in mind,” said Robin Feldman, an expert on intellectual property and health law at the University of California College of the Law in San Francisco.
    Nicholas Bagley, a former Justice Department attorney, said the high court is the “big fish.” Any decision striking down the Medicare price negotiations would ultimately have to be made by the justices, said Bagley, former chief legal counsel to Michigan Gov. Gretchen Whitmer.
    Chris Meekins, an analyst with Raymond James, noted that the all four attorneys representing Merck previously served as clerks to conservative Supreme Court justices: They clerked for Antonin Scalia, Brett Kavanaugh and Neil Gorsuch.
    “That is noteworthy in that it is clear to us that Merck is ready and willing to take this all the way to the Supreme Court if needed,” Meekins wrote in analyst note.

    Long legal battle ahead

    Merck, the chamber and Bristol Myers Squibb filed their lawsuits ahead of two key deadlines.
    Health and Human Services Secretary Xavier Becerra will publish a list by Sept. 1 of the 10 drugs that Medicare has selected for the negotiations. The drugmakers then have to agree to participate and file manufacturing data to the Centers for Medicare and Medicaid Services the following month.
    The actual price reductions that come out of the negotiations, which conclude in August 2024, won’t take effect until January 2026.
    The companies face severe financial penalties that are several times higher than their drug’s daily revenues if they do not enter the negotiations and comply with the program’s conditions. Drugmakers can avoid the taxes only if they pull their drugs out of Medicare and Medicaid rebate programs.

    Meekins said in his analyst note earlier this month that Merck might try to get the federal courts to block the law before the deadlines.
    But Bagley noted that Merck and the chamber did not file motions for preliminary injunctions to immediately block the law’s implementation. Bristol Myers Squibb did not either. He said the plaintiffs can’t plausibly claim an immediate injury now because the price cuts wouldn’t go into effect until 2026.
    Bagley said the parties could ask for an injunction that is tied to the October deadlines when they sign agreements to participate in the negotiations and start submitting data.
    The odds are that the lawsuits will be a long slog, Bagley said. “Any fight over the proper remedy will come at the end of the case, once the legal merits are finally resolved,” he said.
    The judge assigned to Merck’s case is Randolph Daniel Moss, who was appointed by former President Barack Obama. The chamber’s case is assigned to Judge Thomas M. Rose, who was appointed by former President George W. Bush.
    Bagley said both judges would probably be skeptical of a motion for preliminary injunction tied to the October deadlines, though Rose could perhaps be persuaded to allow it.

    Expect more lawsuits this fall

    Kelly Bagby, vice president of litigation at the AARP Foundation, said more lawsuits will almost certainly come when HHS publishes the list of 10 drugs in September.
    AARP is the influential lobby group that represents people older than age 50. The organization has strongly advocated in favor of Medicare’s new negotiation powers.
    Bagby said pharmaceutical companies whose drugs are selected for negotiation will likely ask federal courts for preliminary injunctions to block the law’s implementation when the list publishes in September.
    The list of drugs subject to negotiation could include Pfizer’s Ibrance, Johnson & Johnson’s Xarelto, Eli Lilly’s Jardiance, Amgen’s Enbrel and AstraZeneca’s Symbicort, among others, according to a March analysis published in the Journal of Managed Care and Specialty Pharmacy.
    Pfizer CEO Albert Bourla told Reuters in May that he expects legal action to be taken against Medicare over the negotiations, though he said it is unclear if the drugmakers will be able to stop the law’s implementation before the 2026 cuts go into effect.

    Eli Lilly, in a statement to CNBC, said the company shares the companies’ concerns and will evaluate the negotiations implementation to “determine any possible actions.”
    Bagby also believes the issue is heading for the Supreme Court. She said the companies will probably scatter their cases around the country — like Merck, the chamber and Bristol Myers Squibb did — in an attempt to get federal appellate courts to issue competing decisions.
    The Merck case in Washington, D.C., district court would move on appeal to the D.C. Circuit Court of Appeals, which has a majority of judges appointed by Democratic presidents.
    The chamber’s case would be appealed to the U.S. Sixth Circuit Court of Appeals, which has a majority of judges appointed by Republican presidents, particularly Donald Trump.
    And Bristol Myers Squibb’s case would head to the U.S. Third Circuit Court of Appeals, which also has a slight majority of judges appointed by Republicans.
    If circuit court decisions on the matter contradict one another, the Supreme Court would step in to decide the issue, Bagby said.
    White House press secretary Karine Jean-Pierre said the Biden administration is confident it will succeed in the courts.
    “There is nothing in the Constitution that prevents Medicare from negotiating lower drug prices,” Jean-Pierre said in a statement.
    And Beccera added that “we’ll vigorously defend the President’s drug price negotiation law, which is already lowering health care costs for seniors and people with disabilities.”
    “The law is on our side,” Becerra said in a statement.

    Patents at the center of the fight

    Feldman, the intellectual property and health law expert, said the success or failure of the pharmaceutical industry’s attempt to take down Medicare’s new powers will hinge to a large degree on whether the courts consider patents a form of private property.
    Merck claims in its complaint that the negotiations violate the Fifth Amendment, which prohibits the government from taking private property for public use without just compensation. Bristol Myers Squibb made an identical argument in its complaint.
    Merck and Bristol Myers Squibb argue that Medicare is taking pharmaceutical companies’ private property — patented drug products — and coercing them to accept a price that is much lower the market value of the medications. The chamber made broader due process claims under the Fifth.

    CNBC Health & Science

    Read CNBC’s latest health coverage:

    Feldman said the Fifth was written with property such as land in mind. Patents differ substantially from land because they are issued by the federal government, she said. And, she noted, drug prices are driven to a significant degree by the value derived from government-issued patents.
    The Supreme Court has not ruled that patents are private property under the Fifth’s “takings clause,” Feldman said, pointing to the 2018 case Oil States Energy Services v. Greene’s Energy Group.
    Justice Clarence Thomas said in his majority opinion in the case that the high court has long recognized patents as a matter involving “public rights,” but the court hasn’t definitively explained the difference between these government-derived public rights and private rights.
    “Applying the takings clause to patents would be like the shot heard round the world — it would be an extraordinary shift and the companies will have a heavy lift to convince the courts that those words apply to patents,” Feldman said. More

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    Blinken says he failed to revive military-to-military talks with China

    U.S. Secretary of State Antony Blinken told reporters Monday that in his meetings in Beijing, he “repeatedly” raised the need for direct communication between the two countries’ militaries.
    “At this moment, China does not agree to move forward with that,” he said, noting the U.S. would keep working toward restoring those communication channels.
    An issue for the Chinese is that the U.S. has sanctioned Li Shangfu, China’s minister of national defense.

    Blinken’s trip to Beijing over the last two days — the secretary’s first under the Biden administration — marked a resumption of high-level U.S.-China government meetings after a tense four-plus months.
    Aly Song | Reuters

    BEIJING — U.S. Secretary of State Antony Blinken said Monday he failed to revive military-to-military talks with China, despite earlier hopes of reopening that communication channel.
    Blinken’s trip to Beijing over the last two days — the secretary’s first under the Biden administration — marked a resumption of high-level U.S.-China government meetings after a tense four-plus months.

    Military communication had dropped off during that time.
    China’s Defense Ministry declined a call with its U.S. counterpart in early February after the discovery of an alleged Chinese spy balloon over U.S. airspace. Both countries’ defense heads attended an annual event in Singapore earlier this month, but they did not have a formal meeting.
    The balloon incident delayed Blinken’s visit to Beijing by more than four months. The secretary arrived Sunday and had meetings with Chinese President Xi Jinping, Director of the Chinese Communist Party’s Central Foreign Affairs Office Wang Yi, and State Councilor and Foreign Minister Qin Gang.
    Blinken told NBC News on Monday that the spy balloon “chapter should be closed.”

    He also told reporters Monday that during the meetings, he “repeatedly” raised the need for direct communication between the two countries’ militaries.

    “I think it’s absolutely vital that we have these kinds of communications, military to military,” Blinken said. “That imperative, I think, was only underscored by recent incidents that we saw in the air and on the seas.”
    “At this moment, China does not agree to move forward with that,” he said, noting the U.S. would keep working toward restoring those communication channels.
    The U.S. shot down the alleged Chinese spy balloon in February. Beijing maintains it was a weather balloon that blew off course.
    Earlier this month, the U.S. Indo-Pacific Command said a China warship came within 150 yards of a U.S. destroyer in the Taiwan Strait.
    Beijing considers Taiwan part of its territory, with no right to independently conduct diplomatic relations. The U.S. recognizes Beijing as the sole government of China but maintains unofficial relations with Taiwan, a democratically self-governed island.

    U.S. sanctions at play

    An issue for the Chinese is that the U.S. has sanctioned Li Shangfu, China’s minister of national defense.
    The U.S. sanctioned Li in 2018 while he was head of China’s Equipment Development Department and oversaw Chinese purchases of Russian combat aircraft and equipment.
    When asked in May whether those sanctions would be lifted, even for negotiation purposes, the U.S. State Department spokesperson said no.
    “You can’t have sanctions on one side” and discussions on the other, said Shen Yamei, director and associate research fellow at state-backed think tank China Institute of International Studies’ department for American studies. That’s according to a CNBC translation of her Mandarin-language remarks.
    She generally described Blinken’s trip to Beijing as a “very good turning point.”
    Shen previously told CNBC that Beijing declined to pick up a military hotline phone call because doing so would be an acknowledgement that the situation was tense — and prompt more extreme U.S. action.
    China frequently didn’t answer the phone — a hotline set up for emergencies.
    Leading up to Blinken’s trip to Beijing, the U.S. State Department said the secretary was set to meet with “senior [People’s Republic of China] officials where he will discuss the importance of maintaining open lines of communication to responsibly manage the U.S.-PRC relationship.”
    On Monday, Blinken said that following his trip, other senior U.S. officials would soon likely visit China, and vice versa.
    He said he thought there was “a positive step” toward responsibly managing the U.S.-China relationship through the discussions of the last few days. More

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    Bank of England’s conundrum deepens as inflation and labor market stay hot

    May’s consumer price index figure will be published Wednesday morning, the day before the Bank’s Monetary Policy Committee (MPC) announces its next move on interest rates.
    Data points since the last meeting have indicated persistent tightness in the labor market and strong underlying inflationary pressures, along with mixed but generally resilient growth momentum.

    A member of the public walks through heavy rain near the Bank of England in May 2023.
    Dan Kitwood | Getty Images News | Getty Images

    LONDON — The Bank of England is “caught between a rock and a hard place” as it prepares for a key monetary policy decision against a backdrop of sticky inflation and a tight labor market, economists say.
    May’s consumer price index figure will be published Wednesday morning, the day before the Bank’s Monetary Policy Committee (MPC) announces its next move on interest rates.

    Data points since the last meeting have indicated persistent tightness in the labor market and strong underlying inflationary pressures, alongside mixed but surprisingly resilient growth momentum.
    Economists therefore now expect the Bank to prolong its tightening cycle and lift interest rates to a higher level than previously anticipated.
    British 2-year government bond yields rose to a 15-year high of 5% on Monday ahead of the expected announcement of yet another 25 basis point rate increase on Thursday.
    Since November 2021, the the central bank has embarked on a series of hikes to take its base rate from 0.1% to 4.5%, and market pricing now suggests it may eventually top out at 5.75%.
    Headline CPI inflation came in at 8.7% year-on-year in April, down from 10.1% in March, but core CPI (which excludes volatile energy, food, alcohol and tobacco prices) increased by 6.8% compared to 6.2% the previous month.

    The Organization for Economic Cooperation and Development projected earlier this month that the U.K. will post annual headline inflation of 6.9% this year, the highest level among all advanced economies.

    Adding to policymakers’ collective headache, labor market data last week came in far stronger than expected. Unemployment defied expectations to fall back to 3.8% while the inactivity rate also fell by 0.4 percentage points.
    Regular pay growth (excluding bonuses) was 7.2% in the three months to the end of April compared to the previous year, also exceeding consensus forecasts. Growth in regular private sector pay, the Bank’s key metric, hit 7.6% year-on-year.
    In terms of economic activity, May PMIs moderated slightly below consensus but remained in expansionary territory, and U.K. gross domestic product unexpectedly contracted by 0.3% month-on-month in March before rebounding partially with 0.2% growth in April.
    Terminal rate forecasts raised
    In a research note Thursday, Goldman Sachs Chief European Economist Sven Jari Stehn said that although some uncertainty remains over Wednesday’s CPI release, there is a “high hurdle” for the Bank of England to deem it necessary to step up its hiking increments to 50 basis points.
    Stehn highlighted that “inflation expectations have remained anchored, recent comments have signalled no appetite for stepping up the pace and the meeting will have no press conference or new projections.”
    “We look for the MPC to retain its modal assessment that underlying inflation pressures will cool as headline inflation declines but acknowledge the firmer recent data and note that risks to the inflation outlook remain skewed significantly to the upside. We also expect the MPC to keep its loose forward guidance unchanged,” Stehn added.
    Goldman Sachs expects the MPC to retain its relatively dovish position given resilient growth, sticky wage pressures and high core inflation, and to continue being pushed into more 25 basis point hikes by stronger-than-expected data, eventually reaching a terminal rate of 5.25% with risks skewed upside.
    BNP Paribas economists also expect a 25 basis point hike on Thursday, as inflation expectations remain lower than they were when the Bank was lifting rates in 50 basis point increments last year.

    The French lender also upgraded its terminal rate forecast to 5.5% in a note last week, from 5% previously, in response to “clear evidence of more persistent inflation.”
    Though the tightening cycle is expected to be longer than higher in order to reel in inflation, BNP Paribas suggested the MPC would be “wary of over-tightening” and will be looking to gauge how rate rises to date affect households, particularly as fixed-rate mortgage renewals roll in through the second and third quarter.
    U.K. mortgage borrowers are being pushed to the brink as rising borrowing costs hit deal renewals and products are pulled from the market.
    Laith Khalaf, head of investment analysis at AJ Bell, said the MPC is “caught between a rock and a hard place” as it chooses between pushing more mortgage borrowers to a cliff edge and allowing inflation to run riot.
    “Current interest rate pricing reflects alarm bells ringing in the market, but some moderation in inflationary pressures over the summer would pour balm on the situation. The Bank of England will also be cognisant of the fact the full force of its tightening to date is still working its way through the economy,” Khalaf said.
    “Having said that, should inflation data remain ugly, the Bank will be under pressure to take action, and so will the Treasury, if it looks like the Prime Minister’s pledge to halve inflation is at risk of falling short.” More

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    Against expectations, oil and gas remain cheap

    In the months after Russia’s invasion of Ukraine any hint of bad news sent energy prices into the stratosphere. When a fire forced an American gas plant to close, strikes clogged French oil terminals, Russia demanded Europe pay for fuel in roubles or the weather looked grimmer than usual, markets went wild. Since January, however, things have been different (see chart). Brent crude, the global oil benchmark, has hovered around $75 a barrel, compared with $120 a year ago; in Europe, gas prices, at €35 ($38) per megawatt-hour (mwh), are 88% below their peak in August. It is not that the news has suddenly become more amenable. The Organisation of the Petroleum Exporting Countries (opec) and its allies have announced swingeing cuts to output. In America the number of oil and gas rigs has fallen for seven weeks in a row, as producers respond to the meagre rewards on offer. Several of Norway’s gas facilities—now vital to Europe—are in prolonged maintenance. The Netherlands is closing the largest gas field in Europe. Yet any uptick in price quickly fades away. What is keeping prices down?Disappointing demand may be part of the answer. In recent months expectations for global economic growth have been slashed. The failure of several banks this spring raised fears of an imminent recession in America. Inflation is battering consumers in Europe. In both places, the full impact of interest-rate rises is still to be felt. Meanwhile, in China, the post-covid rebound is proving much weaker than expected. Anaemic growth, in turn, is dampening demand for fuel. Yet look closer and the demand story does not entirely convince. Despite its disappointing recovery, China consumed 16m barrels per day (b/d) of crude in April, a record. A rebound in trucking, tourism and travel since the grim zero-covid period means more diesel, petrol and jet fuel is being used. In America, a 30% drop in petrol prices compared with a year ago augurs well for the summer driving season. In Asia and Europe, high temperatures are expected to last, creating more demand for gas-fired power generation for cooling. A more convincing explanation can be found on the supply side of the equation. The past two years of high prices have incentivised production outside of opec, which is now coming online. Oil is gushing from the Atlantic basin, through a combination of conventional wells (in Brazil and Guyana) and shale and tar-sands production (in America, Argentina and Canada). Norway is pumping more, too. JPMorgan Chase, a bank, estimates that non-opec output will rise by 2.2m b/d in 2023. In theory, this should be balanced by production cuts announced in April by core opec members (of 1.2m b/d) and Russia (of 500,000 b/d), to which Saudi Arabia added another 1m b/d in June. Yet output in these countries has not fallen by as much as promised—and other opec countries are increasing exports. Venezuela’s are up, thanks to investment by Chevron, an American giant. Iran’s are at their highest since 2018, when America imposed fresh sanctions. Indeed, a fifth of the world’s oil now comes from countries under Western embargoes, selling at a discount and thus helping dampen prices.For gas, the supply situation is trickier: the main Russian pipeline delivering to Europe remains shut. But Freeport lng, a facility which handles a fifth of America’s exports of liquefied natural gas, and was harmed by an explosion last year, is back online. Russia’s other exports to continental Europe continue. Norwegian flows will fully resume in mid-July. Most important, Europe’s existing stocks are vast. The bloc’s storage facilities are 73% full, compared with 53% a year ago, and on track to reach their 90% target before December. Rich Asian countries, such as Japan and South Korea, also have plenty of gas. When inflation was soaring and interest rates remained modest, commodities, notably crude oil, were an attractive hedge against rising prices, pushing up prices as investors flooded in. Now that speculators expect inflation to drop, the appeal has dimmed—just as higher rates make safer assets like cash and bonds more alluring. As a result, speculative net positioning (the balance between long and short bets placed by punters on futures oil markets) has slumped. Higher rates also raise the opportunity cost of holding crude stocks, so physical traders are offloading their stock. The volume in floating storage fell from 80m barrels in January to 65m barrels in April, its lowest since early 2020.Prices could well rise later in the year. The International Energy Agency, an official forecaster, projects that global oil demand will reach a record 102.3m b/d over 2023. Oil supply, too, will hit a record, but the forecaster reckons the market will tip into deficit into the second half of 2023—a view shared by many banks. As winter approaches, competition for lng cargoes between Asia and Europe will intensify. Freight rates for the winter are already rising in anticipation. Still, last year’s nightmare is unlikely to be repeated. Many analysts expect Brent crude to stay close to $80 a barrel and not to reach triple digits. Gas futures markets in Asia and Europe point to a 30% rise from today’s levels by the autumn, rather than anything more extreme. Over the past 12 months commodity markets have adapted. It now takes more than a hint of bad news to send prices rocketing. ■ More

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    ‘The Flash,’ ‘Elemental’ disappoint as ‘Spider-Verse’ continues box office domination

    Warner Bros.’ “The Flash” hauled in an estimated $55 million during its first three-day weekend, a far cry from the $75 million to $85 million industry experts had expected.
    Disney’s animation rut continued with the release of “Elemental,” which is expected to have the second-lowest opening of any wide-released Pixar film in the studio’s history.
    Sony’s “Spider-Man: Across the Spider-Verse” continued to draw in audiences.

    Ezra Miller stars as Barry Allen in Warner Bros.’ “The Flash.”
    Warner Bros. Discovery

    Moviegoers spread the wealth over Father’s Day weekend across a diverse slate of new releases and lingering favorites.
    The mixed results saw disappointing debuts from “The Flash” and “Elemental,” while “Spider-Man: Across the Spider-Verse” continued to attract ticket buyers.

    Warner Bros.’ latest superhero film hauled in just $55 million during its first three-day weekend, a far cry from the $75 million to $85 million industry experts had expected. It also fell short of the $67 million debut of fellow DC film “Black Adam” last October.
    “‘The Flash’ is a victim of numerous factors that stalled buzz for the once highly anticipated film,” said Shawn Robbins, chief analyst at BoxOffice.com.
    Robbins pointed to the ongoing controversy surrounding star Ezra Miller, a lack of consistency in the DC film franchise and a too-narrowly focused marketing campaign that only targeted die-hard fans for the lower-than-expected box office opening.
    “Audiences have shown in recent months and post-‘Endgame’ years that they are being more selective about which comic book films are going to earn their box office dollars,” he said.
    It wasn’t the only film to see a poor audience response over the weekend. Disney’s animation rut continued with the release of “Elemental,” which is expected to have the second-lowest opening of any wide-released Pixar film in the studio’s history. Estimates peg the film’s debut at $29.5 million, just higher than the $29.1 million “Toy Story,” Pixar’s first-ever theatrical release, which opened in 1995.

    “[‘Elemental’s’] middling debut is less surprising,” Robbins said, noting that Pixar is in the middle of rebranding itself following a slew of pandemic-era streaming releases.
    Pixar is also facing steep competition from rival animation studios. Universal’s Illumination and DreamWorks animation arms have dominated the box office with hits like “The Super Mario Bros. Movie,” “Puss in Boots: The Last Wish” and “Minions: The Rise of Gru.”
    And then there is Sony’s “Spider-Man: Across the Spider-Verse,” which has continued to attract audiences since its June 2 debut. The film generated an estimated $27.8 million over the three-day spread and has tallied $489.3 million globally since its June 2 release.
    “Though there were no massive overperformances by the wide-release newcomers, this weekend was distinguished by the sheer number of movies and the wide variety of audience demographics drawn to the multiplex,” said Paul Dergarabedian, senior media analyst at Comscore.
    Paramount’s “Transformers: Rise of the Beasts” added another $20 million domestically, Disney’s “The Little Mermaid” secured another $11.6 million in ticket sales and Marvel’s “Guardians of the Galaxy: Vol. 3” took in another $5 million.
    Across Friday, Saturday and Sunday of the Father’s Day weekend, the domestic box office is expected to tally just under $175 million in receipts. That’s 5% higher than the haul over the same period in 2022 and 28% higher than 2019, according to data from Comscore.
    “Father’s Day weekend, while not boasting a record-smashing breakout hit, was a great one for movie theaters that saw their fortunes rise by virtue of an appealing assortment of films that powered a fantastic overall weekend,” said Dergarabedian.
    Disclosure: Comcast is the parent company of NBCUniversal and CNBC. More

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    in Finance

    China’s economy is on course for a “double dip”

    China prides itself on firm, “unswerving” leadership and stable economic growth. That should make its fortunes easy to predict. But in recent months, the world’s second-biggest economy has been full of surprises, wrong-footing seasoned China-watchers and savvy investors alike.In the first three months of this year, for example, China’s economy grew more quickly than expected, thanks to its surprisingly abrupt exit from the covid-19 pandemic. Then in April and May, the opposite happened: the economy recovered more slowly than hoped. Figures for retail sales, investment and property sales all fell short of expectations. And the unemployment rate among China’s urban youth rose above 20%, the highest since data began to be recorded in 2018. Some economists now think the economy might not grow at all in the second quarter, compared with the first (see chart). By China’s standards that would count as a “double dip”, says Ting Lu of Nomura, a bank.China has also defied a third prediction. It has failed, thankfully, to become an inflationary force in the world economy. Its increased demand for oil this year has not prevented the cost of Brent crude, the global benchmark, from falling by more than 10% from its January peak. Steel and copper have also cheapened. China’s producer prices—those charged at the factory gate—declined by more than 4% in May, compared with a year earlier. And the yuan has weakened. The price Americans pay for imports from China fell by 2% in May, compared with a year earlier, according to America’s Bureau of Labour Statistics.Much of the slowdown can be traced to China’s property market. Earlier in the year it seemed to be recovering from a disastrous spell of defaults, plummeting sales and mortgage boycotts. The government had made it easier for indebted property developers to raise money so that they could complete long-delayed construction projects. And households who refrained from buying last year, when China was subject to sudden lockdowns, returned to the market in the first months of 2023 to make the purchases they had postponed. Some analysts even allowed themselves the luxury of worrying whether the property market might bounce back too strongly, reviving the speculative momentum of the past. But this pent-up demand seems to have petered out. The price of new homes fell in May, compared with the previous month, according to an index of 70 cities weighted by population and seasonally adjusted by Goldman Sachs, a bank. And although property developers are keen again to complete building projects, they are reluctant to start them. Gavekal Dragonomics, a consultancy, calculates that property sales have fallen back to 70% of the level they were at in the same period of 2019, China’s last relatively normal year. Housing starts are only about 40% of their 2019 level (see chart ).How should the government respond? For a worrying few weeks, it was not clear if it would respond at all. Its growth target for this year—around 5%—lacked much ambition. It seemed keen to keep a lid on the debts of local governments, which are often urged to splurge for the sake of growth. The People’s Bank of China (PBOC), the country’s central bank, seemed unperturbed by falling prices. It may have also worried that a cut in interest rates would put too much of a squeeze on banks’ margins, because the interest rate they pay on deposits might not fall as far as the rate they charge on loans. But on June 6th the PBOC asked the country’s biggest lenders to lower their deposit rates, paving the way for the central bank to reduce its policy rate by 0.1 percentage points on June 13th. The cut itself was negligible. But it showed the government was not oblivious to the danger. The interest rate banks charge their “prime” customers is likely to fall next, which will further lower mortgage rates. And a meeting of the State Council, China’s cabinet, on June 16th, dropped hints of further steps to come.(see chart).Robin Xing of Morgan Stanley, a bank, expects further cuts in interest rates. He also thinks restrictions on home purchases in first- and second-tier cities may be relaxed. The country’s “policy banks” may provide more loans for infrastructure. And its local governments may be permitted to issue more bonds. China’s budget suggests it expected land sales to remain steady in 2023. Instead revenues have fallen by about 20% so far this year, compared with the same period of 2022. If that shortfall persisted for the entire year, it would deprive local governments of more than 1trn yuan ($140bn) in revenue, Mr Xing points out. The central government may feel obliged to fill that gap. Will this be enough to fulfil the government’s growth target? Mr Xing thinks so. The slowdown in the second quarter will be no more than a “hiccup”, he argues. Employment in China’s service sector began this year 30m short of where it would have been without the pandemic, Mr Xing calculates. The rebound in “contact-intensive” services, such as restaurants, will restore 16m of those jobs over the next 12 months. (In other North Asian economies, it took two to three quarters for such employment to recover after the initial reopening, he points out.) And when jobs do return, income, confidence and spending will revive.Another 10m of the missing jobs are in industries like e-commerce and education that suffered from a regulatory storm in 2021, intended to curb market abuse, plug regulatory gaps and reassert the party’s prerogatives. China has struck a softer tone towards these companies in recent months. That may embolden some of them to resume hiring, as the economy recovers.Others economists are less optimistic. Xu Gao of Bank of China International argues that further monetary easing will not work. The demand for loans is insensitive to interest rates, now that two of the economy’s biggest borrowers—property developers and local governments—are hamstrung by debt. The authorities cut interest rates more out of resignation than hope. He may be right. But it is odd to assume that monetary easing will not work before it has really been tried. Loan demand is not the only channel through which it can revive the economy. In a thought experiment, Zhang Bin of the Chinese Academy of Social Sciences and his co-authors point out that if the central bank’s policy rate dropped by two percentage points, it would reduce China’s interest payments by 7.1trn yuan, increase the value of the stockmarket by 13.6trn yuan, and lift house prices, bolstering the confidence of homeowners.If monetary easing does not work, the government will have to explore fiscal stimulus. Last year local-government financing vehicles (LGFVs), quasi-commercial entities backed by the state, increased their investment spending to prop up growth. That, however, has left many of them strapped for cash. According to a recent survey of 2,892 of these vehicles by the Rhodium Group, a research firm, only 567 had enough cash on hand to meet their short-term debt obligations. In two cities, Lanzhou, the capital of Gansu province, and Guilin, a southern city famous for its picturesque Karst mountains, interest payments by LGFVs rose to over 100% of the city’s “fiscal capacity” (defined as their fiscal revenues plus net cash flows from their financing vehicles). Their debt mountains are not a pretty picture. If the economy therefore needs a more forceful fiscal push, the central government itself will have to engineer it. In principle, this stimulus could include higher spending on pensions as well as consumer giveaways, such as the tax breaks on electric vehicles that have helped boost car sales. The government could also experiment with high-tech consumer handouts of the kind pioneered by some cities in Zhejiang province during the early days of the pandemic. They distributed millions of coupons through e-wallets, which would, for example, knock 70 yuan off a restaurant meal if the coupon holder spent at least 210 yuan within a week. According to Zhenhua Li of Ant Group Research Institute and his co-authors, these coupons, albeit small, packed a punch. They induced more than 3 yuan of out-of-pocket spending for every 1 yuan of public money. Unfortunately, China’s fiscal authorities still seem to view such handouts as frivolous or profligate. If the government is going to spend or lend, it wants to create a durable asset for its trouble. In practice, any fiscal push is therefore likely to entail more investment in green infrastructure, inter-city transport and other public assets favoured in China’s five-year plan. That would be the utterly unsurprising response to China’s year of surprises. ■ More