– The outlook for the global economy has ‘darkened significantly’ in recent months, the head of the IMF has warned, and the world faces an increasing risk of recession in the next 12 months, The Guardian reported. The commodity price shock from the war in Ukraine had exacerbated the cost-of-living crisis for hundreds of millions of people, Kristalina Georgieva said on Wednesday – a situation that was ‘only getting worse’. Inflation was also higher than expected, she said in an IMF blogpost that came on the same day as the latest figures showed that prices in the US rose at a 40-year high of 9.1 percent in June. The paper said economists and investors now think the US Federal Reserve could hike interest rates by a historic 1 percent when its board meets in two weeks’ time.
– Reuters (paywall) reported that Shell is considering boosting shareholder returns beyond the current target of 30 percent of cash on the back of bumper profits from soaring energy prices, while the extra cash will also help it shift more swiftly towards renewables and low-carbon energy. Europe's largest oil and gas company, as well as rivals including BP, have seen profits surge this year following two years of declining revenues due to the pandemic.
CEO Ben van Beurden and Shell’s board have reportedly been deliberating for months over what to do with the unexpected profit bonanza that began with the recovery from the pandemic and which was then spurred on by Russia's invasion of Ukraine. ‘We have to look after our shareholders because I think our shares are very significantly underpriced, and therefore giving back more to shareholders to help that part of the equation is going to be very important,’ van Beurden told Reuters on the sidelines of the Aurora Spring Forum in Oxford, UK.
– Levi Strauss & Co is adjusting its financial targets more frequently, setting them every six months instead of annually as it faces an uncertain economic outlook, reported The Wall Street Journal (paywall). The San Francisco-based denim maker switched to a six-month financial planning cycle last year after pandemic-driven changes to the economy demonstrated a need for midyear updates, according to CFO Harmit Singh. The company’s half-year plan includes forecasts for revenue and profit, as well as cash conversion, showing the speed at which a business sells inventory or collects payments.
The more frequent forecasting cadence is helping Levi Strauss prepare for a potential economic slowdown, new phases of the pandemic and any unforeseen geopolitical events, Singh said. ‘The reason it’s important is because you don’t have a real line of sight in the future. Things are so uncertain,’ he said, adding that he intends to submit his plan for the second half of the year this week.
– In the week that CNN reported that Twitter had launched its widely-expected lawsuit looking to force Elon Musk to complete his $44 bn deal to buy the social media giant, the WSJ reported that the SEC had questioned the Tesla founder over whether he promptly disclosed his intention to terminate the deal. The regulator published a letter, dated June 2, that it had sent to Musk asking why he did not update a disclosure filing over an earlier tweet suggesting the deal was in jeopardy. In the tweet in question, published on May 17, Musk stated that the deal ‘cannot move forward’ until the company is clearer about how many of its accounts are fake.
– JPMorgan Chase and Morgan Stanley ‘cast a pall’ over Wall Street after reporting a bigger-than-expected decline in second-quarter profits that signaled the end of the industry’s pandemic-era earnings boom, reported the Financial Times (paywall). Wall Street banks raked in record fees during the coronavirus pandemic by working on a flood of M&As, public listings and Spacs (special purpose acquisition companies), said the paper. But the pipeline of business, in particular the flow of initial public offerings, has slowed markedly since the start of the year as investors have shied away from Spacs and money-losing start-ups. This is the first earnings miss from either JPMorgan or Morgan Stanley since the start of 2020.
– Hedge funds are increasingly turning their attention to digital assets, after witnessing ‘a cryptocurrency bloodbath’ in the second quarter, said Institutional Investor. Thirty-two percent of hedge fund managers think that digital assets will offer the largest alpha-generating opportunity over the next three years, topping equities (18 percent) and fixed income (15 percent), reported the publication, citing data from the latest report from quantitative technologies provider SigTech. Almost a quarter (23 percent) of hedge fund managers plan to dramatically increase their allocations to digital assets, while 60 percent plan to increase slightly.
– In other hedge fund news, the FT reported that hedge funds have cut back positions in some markets they fear could suddenly become difficult to transact in, following the London Metal Exchange’s (LME) decision to void thousands of nickel trades. The LME’s move in March to cancel eight hours’ worth of trades has reportedly pushed a number of hedge funds to reassess the risk they face across their portfolios from human interference upending their positions.
Examples of where hedge funds have shifted their positions include Rotterdam-based quantitative hedge fund Transtrend, which trades global futures markets and manages $6.5 bn in assets, which told the paper that it had decided to stop trading on the LME – a decision that has led to it running smaller positions in metals than it would otherwise have held. Paris-based quant firm Capital Fund Management (CFM), which manages $10 bn in assets, has started using ‘radical scenarios’ to stress test its portfolios following the LME trading suspension. The FT reported that CFM stopped trading Japanese government bonds a couple of months ago, ‘because of the Bank of Japan’s dominance in that market’. It also temporarily stopped taking positions on European natural gas, although it has since resumed trading.
– The US Financial Industry Regulatory Authority (Finra) is looking to step up market surveillance by introducing trade reporting requirements for certain over-the-counter (OTC) options trades, according to Investment Executive, which reported that Finra has launched a consultation on a new daily trade reporting requirement for OTC securities options that are essentially identical to listed options.
The self-regulatory organization said its analysis has found that a ‘significant amount’ of options trading involves trading in OTC options with the same terms as listed options, yet the regulator doesn’t have data on the OTC trading activity. To address this regulatory gap, Finra is proposing to require firms to report OTC securities options trades, including index options, that meet certain criteria.
– In its first public statements about HSBC since it called for a potential break-up of the biggest of Hong Kong’s currency-issuing banks, insurer Ping An Insurance Group has called for ‘debate about the future of the bank,’ according to the South China Morning Post. The Shenzhen-based company, which is HSBC’s biggest shareholder with a reportedly 9.2 percent of shares, has privately approached HSBC’s board of directors about spinning off the bank’s Asia business for a separate listing in Hong Kong, according to various media reports.