Finance

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

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

Blinken’s original travel plans for February were disrupted by news of an alleged Chinese spy balloon flying over U.S. airspace.
The trip by Blinken makes him the highest-level American official to visit China since Biden became U.S. president and the first U.S. secretary of state to make the trip in nearly five years.
Blinken is set to have a working dinner later Sunday at the Diaoyutai State Guesthouse with Qin.

US Secretary of State Antony Blinken (L) walks with China’s Foreign Minister Qin Gang (R) ahead of a meeting at the Diaoyutai State Guesthouse in Beijing on June 18, 2023.
Leah Millis | Afp | Getty Images

U.S. Secretary of State Antony Blinken on Sunday met with Chinese Foreign Minister Qin Gang and top diplomat Wang Yi in Beijing on a high-stakes diplomatic mission to cool U.S.-China tensions that have overshadowed geopolitics in recent months.
The trip by Blinken makes him the highest-level American official to visit China since Joe Biden became U.S. president and the first U.S. secretary of state to make the trip in nearly five years.

Blinken’s original travel plans for February were disrupted by news of an alleged Chinese spy balloon flying over U.S. airspace. The U.S. ultimately shot down the alleged spy balloon, and tensions between the world’s two largest economies have since remained tense. Beijing insisted the balloon was an unnamed weather tracker that blew off course.
Blinken is set to have a working dinner later Sunday at the Diaoyutai State Guesthouse with Qin, who was previosuly China’s ambassador to the U.S. Some reports suggest there may also be a meeting with President Xi Jinping on Monday during Blinken’s two-day visit.
Expectations for a significant recovery in the U.S.-China relationship, especially as a result of Blinken’s trip, remain low. State department spokesperson Matthew Miller said in a statement last week that Blinken will discuss the importance of maintaining open lines of communication and will “raise bilateral issues of concern, global and regional matters, and potential cooperation on shared transnational challenges.”
At the annual Shangri-La Dialogue event in Singapore earlier this month, the U.S. defense chief and his Chinese counterpart didn’t have a formal meeting. And more broadly, international travel restrictions during the Covid-19 pandemic limited contact between the U.S. and Chinese governments.
In August, a controversial visit to Taiwan by Nancy Pelosi, then speaker of the U.S. House of Representatives, fueled Beijing’s ire. Beijing considers Taiwan part of its territory, with no right to conduct diplomatic relations on its own. The U.S. recognizes Beijing as the sole legal government of China, while maintaining unofficial relations with the island, a democratically self-governed region.

Read more about China from CNBC Pro

Biden’s visit to Beijing could also possibly pave the way for a November meeting between Biden and his Chinese counterpart Xi — their first since Bali in November, a day before a G-20 summit kicked off.
In late May, the U.S. commerce secretary and her Chinese counterpart met in Washington, D.C. And U.S. Treasury Secretary Janet Yellen is also expected to visit China at an unspecified time.
China’s new ambassador to the U.S., Xie Feng, arrived in the U.S. in late May after a period of about six months with no one in that position. Biden said around the same time that he expected U.S.-China tensions would “begin to thaw very shortly.”
A potential opportunity for Biden and Xi to meet again would be in November, during the Asia-Pacific Economic Cooperation Leaders’ Summit that’s set to be held in San Francisco. More

She’s considered an influencer who uses TikTok, Instagram and YouTube to make financial education fun for young audiences.
Kyla Scanlon, 25, is a former options trader and the founder of Bread, a company that produces videos and skits that go viral.

“I’ll pretend to be [Federal Reserve Chair] Jerome Powell [or] pretend to be different stocks,” Scanlon told CNBC’s “ETF Edge” this week. “That really gets people involved because they’re like, ‘Oh, that’s funny. I can look at that and laugh’ … That really humanizes finance and brings people in in a way they wouldn’t normally expect.”
Her content focuses on helping young people understand how various economic topics affect them.
“When we talk about the Federal Reserve, it’s oftentimes very abstract. Like, they’re raising interest rates, but what does that really mean?” Scanlon said. “People want to know how things impact them directly.”
One of her viral videos is on the prevalence of “doomerism.” She defines it as a pessimistic view of life and the economy focusing on everything that’s going wrong.
“It’s a really enticing philosophy for people to subscribe to because it sort of removes agency from your life,” said Scanlon, who wants to give her audience a greater understanding of the hot-button Wall Street issues including the jobs market, inflation and recent bank failures.

As of late this week, Scanlon has almost 166,000 followers on TikTok, more than 156,000 on Twitter and 28,000 YouTube subscribers.
CORRECTION: This story has been updated to correct Kyla Scanlon’s age.

Disclaimer More

Charles Schwab Corp. is the largest publicly traded brokerage business in the United States with $7.5 trillion of client assets, and is a leading service provider for financial advisors, among the top exchange-traded fund asset managers and one of the biggest banks.
“It would be fair to characterize Charles Schwab as a financial services supermarket,” Michael Wong, director of North American equity research and financial services at Morningstar, told CNBC. “Anything that you want, you can find in Charles Schwab’s platform.”

Over the decades, Charles Schwab helped usher in a low-cost investing revolution while surviving market crashes and fierce competition — even when the game was taken up a notch to zero-fee commissions in 2019. 
“Inherently, this is a scale business. The larger you are, the more efficient you are from an expense perspective,” Alex Fitch, portfolio manager for the Oakmark Select Fund and the Oakmark Equity and Income Fund, which invests in Charles Schwab, told CNBC. “It enables you to cut prices.”
Various facets of Charles Schwab’s business compete against many legacy full-service brokers and investment bankers, including Fidelity, Edward Jones, Interactive Brokers, Stifel, JPMorgan, Morgan Stanley and UBS. And, it has to battle in the financial tech market against companies like Robinhood, Ally Financial and SoFi. 
The melee reached a turning point in 2019 when Charles Schwab announced it was slashing commissions for stock, ETF and options trades to zero, matching the fees offered by Robinhood when it entered the market in 2014.
Quickly, other companies followed suit and cut fees, which damaged TD Ameritrade’s business enough that Charles Schwab ended up acquiring it in a $26 billion all-stock deal less two months later.

Charles Schwab was among the firms that benefited from the growth of retail investing during the coronavirus pandemic, and it’s now facing the consequences of Federal Reserve’s aggressive interest rate hikes. 
That’s because of Charles Schwab’s huge banking business that generates revenue from sweep accounts, which are when the firm uses money leftover in investors’ portfolios and reinvests it in securities, like government bonds, to help turn a profit. 
Charles Schwab told CNBC it was unable to participate in this documentary.
Watch the video above to learn more about how Charles Schwab battled the ever-evolving financial services market – from fees to fintech – and how the reward doesn’t come without the risk.  More

The SEC alleged PIMCO failed to give investors essential information about the use of interest rate swaps and the material effect of the swaps on PIMCO Global StocksPLUS & Income Fund’s dividend.
The agency also claims the company failed to waive about $27 million of advisory fees.

PIMCO headquarters building in Newport Beach, California.
Scott Mlyn | CNBC

The U.S. Securities and Exchange Commission said investment adviser Pacific Investment Management Company will pay $9 million to settle two enforcement actions related to disclosure and procedure violations.
“We are pleased to resolve these matters relating to issues which occurred in two funds more than five years ago, and which PIMCO had fully addressed prior to the SEC’s investigations,” a PIMCO spokesperson said.

The SEC alleged in a statement Friday that PIMCO failed to give investors essential information about PIMCO Global StocksPLUS & Income Fund’s (PGP) use of interest rate swaps and the material effect of the swaps on PGP’s dividend between September 2014 and August 2016.
Additionally, the SEC claims the company failed to waive about $27 million of advisory fees, as required by its agreement with the PIMCO All Asset All Authority Fund, between April 2011 and November 2017.
The SEC also alleged PIMCO did not have adequate written policies and procedures concerning its oversight of advisory fee calculations and related fee waivers until at least 2018. More

Virgin Galactic’s space tourism rocket plane SpaceShipTwo returns after a test flight from Mojave Air and Space Port in Mojave, California, December 13, 2018.
Gene Blevins | Reuters

Check out the companies making headlines in midday trading.
Virgin Galactic — Shares of the space company soared 16.5%. On Thursday, the firm set its first commercial space tourism flight for this month. The company, which was founded by billionaire Richard Branson, completed its final test spaceflight in May.

iRobot — The stock surged 21.2% after U.K. regulators approved Amazon’s $1.7 billion acquisition of the Roomba vacuum cleaner maker. Meanwhile, Amazon inched down about 0.5%.
West Pharmaceutical Services — West Pharmaceutical Services gained 0.6% after Bank of America upgraded the life sciences stock to buy from neutral, saying it will benefit from the rise of drugs targeting weight loss.
Cava Group — Cava Group shares dropped 12.9% during trading Friday, giving back some of its gains from its massive debut Thursday on the New York Stock Exchange. At one point, shares more than doubled in value during Cava’s first day of trading.
SoFi Technologies — The financial technology stock dropped nearly 10% after both Bank of America and Piper Sandler downgraded it to neutral from buy, citing SoFi’s recent run higher. Bank of America said the fundamental aspects of the student loan repayment moratorium expiration is now largely priced in.
Adobe — Shares added 0.9%. On Thursday, the company beat expectations and offered positive guidance when reporting for the fiscal second quarter. Adobe posted $3.91 in adjusted earnings per share on $4.82 billion in revenue, while analysts polled by Refinitiv anticipated earnings of $3.79 per share and $4.77 billion in revenue. Adobe said current-quarter and full-year revenue should come in around where Wall Street expects, while it said adjusted earnings per share in those periods would likely be higher than anticipated.

Nvidia — The chipmaker at one point jumped more than 2% to another record high after Morgan Stanley analyst Joseph Moore switched his top pick to Nvidia from Advanced Micro Devices. The analyst said Nvidia has more immediate upside than other artificial intelligence stock plays. It closed up 0.1%.
Micron Technology — Shares dipped 1.7% after Micron Technology said a China chip ban could hurt the company. “We now believe that approximately half of that China HQ customer revenue, which equates to a low-double-digit percentage of Micron’s worldwide revenue, is now at risk of being impacted,” the company said in a Friday filing with the U.S. Securities and Exchange Commission.
Humana — Humana shares declined 3.9%. The company reaffirmed its full-year insurance segment benefit expense ratio guidance, between 86.3% and 87.3%, though it expects it will be at the top end of this outlook. The company cited higher-than-expected “non-inpatient utilization trends,” including emergency room, outpatient surgeries and dental services as a driver of this forecast.
Truist Financial — Shares fell about 1% after Odeon Capital Group downgraded Truist Financial to hold from buy, according to FactSet.
— CNBC’s Michelle Fox, Alex Harring and Yun Li contributed reporting. More

French prosecutors paid a “visit” to the exchange and later alleged they were being investigated for aggravated money laundering and the unauthorized operation of a digital asset exchange.
Prinçay compared the U.S. actions to a “car crash” and dismissed the looming SEC and CFTC charges as the flapping of a butterfly’s wings.
Binance faces over a dozen charges from the SEC.

Changpeng Zhao, founder and CEO of Binance, waves as he arrives on stage for a panel session on the second day at the VivaTech Conference in Paris, June 16, 2022.
Bloomberg | Bloomberg | Getty Images

PARIS — Days before French police visited Binance’s Paris office, the crypto exchange’s top French executive dismissed concerns about U.S. regulatory charges affecting Binance’s other operations, comparing them with the flapping of a butterfly’s wings.
French prosecutors have opened a probe into “aggravated money-laundering” by the crypto exchange, Le Monde reported Friday, adding in a statement that the company was also being probed over operating an unauthorized exchange.

Just days before the raid, CNBC asked Binance France President David Prinçay if he was concerned about charges from the top two U.S. financial regulators against the exchange.
“I don’t care what happened in the U.S.,” Prinçay retorted, speaking at the Proof of Talk summit in Paris. “We are in Europe, with a French regulator, a European regulator.”
Prinçay insisted Binance.US assets were separated from the international exchange, an assertion also made by the exchange’s legal team. The U.S. Securities and Exchange Commission, which charged Binance last week with 13 securities charges, disagrees, arguing that Binance user funds are at “significant risk” of flight due to founder Changpeng Zhao’s alleged ownership of an interlocking set of Binance-related companies.
Binance France’s chief called the U.S. allegations of commingling a “car crash.”
“The only concerns I have right now is that we look too much at the car crash and not drive,” Prinçay said.

Binance’s founder, Zhao, dismissed the police statement and reporting as “FUD,” claiming it was a “surprise on-site” inspection that was “the norm.”
“We will not comment on the specifics of law enforcement or regulatory investigations except to say that information about our users is held securely and only provided to government officials upon receipt of documented appropriate justification,” the exchange said in another statement.
Prinçay did not immediately respond to a request for comment about the police visit.
Binance faces over a dozen charges from the SEC and a similar slate of allegations from the Commodity Futures Trading Commission. A reported Department of Justice probe is also ongoing into the exchange, according to an SEC complaint. More