TheChek News Flow

Rise in wholesale prices this year leaves executives warning of hit to consumers

It is not just crude oil that is having a turbulent 2017.

The price of extra virgin olive oil has surged by almost a quarter this year, as drought afflicts production at major producers around the Mediterranean. Output in Greece, Italy, Tunisia and, to a lesser degree, Spain is forecast to fall sharply this year.

“Italy is terrible, Greece is terrible, and Tunisia is terrible. Can you imagine if Spain had also been down sharply?” said Panayotis Karantonis, director of the Athens-based Greek Association of OIiver Oil Processors and Packers.

World production is forecast to fall 14 per cent, with Italian output expected to almost halve in the 12 months to September, according to the International Olive Council. Greece is likely to see a 20 per cent fall, Tunisia by 17 per cent, while production in Spain, known in the industry as the Saudi Arabia of olive oil because of the size of its output, predicted to decline 7 per cent.

The squeeze in supply and the rise in prices have tempered European demand for olive oil, known for its vitamins, nutrients and antioxidants, but demand elsewhere remains robust. Australia, Brazil and China are among the markets where imports are growing rapidly, according to the IOC.

Adverse weather events have been affecting olive oil production in countries on the Mediterranean more frequently, agricultural and weather experts have noted.

”We have had bad weather affecting production three years out of the last five,” said Vito Martielli, a grains and oilseeds analyst at Rabobank, the Dutch bank that is one of the largest lenders to the agribusiness industry.

While the production level is higher than that of 2012 and 2014, when a drought in Spain and pests in Italy were the culprits, the more frequent declines in output and lower inventory levels have left the market more vulnerable to spikes in price. The wholesale prices for extra virgin olive oil have risen above $4,200 a tonne.

Mr Karantonis said that while production in Spain was lower than initially expected, it was still significantly higher than in 2012-13.

The jump in wholesale prices has put upward pressure on what consumers are having to pay. Retail olive oil prices across Europe have risen an average of 26 per cent in the two years to 2016, with those in Spain recording the steepest rise of 36 per cent, according research group IRI.

This year’s advance in wholesale prices has yet to reach supermarket shelves because of a time lag, but industry executives, warn it is likely to happen. “Over the next coming months the prices in the supermarkets in the US and UK will be higher than 2-3 months before,” said Mr Karantonis.

Saudi wealth fund to invest $65bn with foreign asset managers

PIF to back $40bn Blackstone vehicle that aims to upgrade ageing US infrastructure

Saudi Arabia’s sovereign wealth fund plans to invest $65bn with foreign asset managers, underscoring the dramatic transformation under the leadership of Mohammed bin Salman, the country’s powerful deputy crown prince.

Saudi’s Public Investment Fund is to place $20bn with Blackstone, the alternative asset manager, becoming the anchor investor in a new $40bn infrastructure fund that will focus on upgrading US assets.

The PIF at the weekend also finalised plans to commit $45bn to a new $90bn technology investment fund to be managed by SoftBank, the Japanese tech-to-telecoms conglomerate led by Masayoshi Son, its billionaire founder.

The non-binding agreement between Blackstone and the PIF was announced on the eve of the arrival of Donald Trump, US president, in Riyadh on his first foreign trip since his inauguration.

The two sides stated that the terms were not finalised and emphasised that the agreement was the culmination of talks that predated the US president’s election.

“[The PIF] is creating a new infrastructure business with Blackstone that will benefit the PIF, Blackstone and America,” a person close to the Saudi fund said.

When Riyadh completes the initial public offering of Saudi Aramco, scheduled for 2018, it is the PIF that is expected to reap the rewards — with the fund expected to be the depository for a potential $100bn from a 5 per cent sale of the state oil company. 

The PIF was a little known, and largely inactive, holding fund for decades but a sudden burst of dealmaking, and the central role it is being given in the kingdom’s reform plans, have put it on course to become one of the world’s most powerful sovereign wealth funds.

Stephen Schwarzman, chief executive of Blackstone, who also heads Mr Trump’s economic advisory group, has been courting the Saudis for some time, said one person with knowledge of the deal, who added: “With the Saudis, the negotiation never ends.”

Under the arrangement, the PIF will become a passive investor in the new vehicle, while Blackstone will seek to raise at least $20bn from other investors.

“Through the equity in this vehicle and additional debt financing, Blackstone expects to invest in more than $100bn of infrastructure projects, principally in the US,” the two groups said. 

Yasir Al Rumayyan, the PIF’s managing director, said: “This potential investment reflects our positive views around the ambitious infrastructure initiatives being undertaken in the US.”

The announcement was one of several deals — focused on arms and investment valued at between $280bn and $380bn — unveiled, with dozens of US business leaders accompanying Mr Trump in Saudi Arabia.

PIF was advised by M Klein and Company, an advisory firm founded by Michael Klein, a former Citigroup dealmaker.

Call from bankrupt panel maker threatens to have devastating impact on jobs

US solar power businesses are braced for an imminent decision from the country’s International Trade Commission on whether to start a process that could lead to a sharp contraction in the market and thousands of job losses.

The ITC is considering a call from Suniva, a bankrupt Chinese-owned manufacturer of solar cells and panels in the US, for higher tariffs on imported products to stop low-priced foreign competition. The commission is expected to make a decision soon on whether to investigate the company’s complaint. 

The case could be an early test of President Donald Trump’s trade policies and stance on renewable energy. If the tariffs sought by Suniva are imposed, they would sharply increase the price of panels, also known as modules, and the silicon cells used to make them, and it would be harder for solar power to compete against other energy sources. 

The Solar Energy Industries Association, the lobby group, has warned that the tariffs would threaten thousands of jobs in occupations such as designing, installing and managing solar power systems, which account for about 85 per cent of the employment in the sector. 

Abigail Ross Hopper, president of the SEIA, said: “If demand goes down, which we think is a likely outcome [if the administration accedes to Suniva’s request], that will affect employment all across the supply chain, and all across the country.” 

The US solar industry has grown rapidly in recent years, in large part because of the plunging cost of imported photovoltaic modules from countries including China, Malaysia and South Korea, which have made solar an increasingly competitive form of electricity generation. Last year there were about 260,000 people employed in the US solar industry, with only about 38,000 of those in manufacturing. 

Suniva argues that the US industry making cells and modules is “disintegrating”, with 4,800 jobs lost since 2012, over which time the market share taken by US producers has dropped from 21 per cent to 11 per cent. Suniva itself went into Chapter 11 bankruptcy protection in April. 

The company has petitioned for relief under Section 201 of the 1974 Trade Act, which was last used 15 years ago in 2002 to protect the steel industry.

It has called for an initial tariff of 40 cents per watt of capacity on all imported solar cells, and a minimum price for modules of 78 cents per watt, which would roughly double the price of solar modules in the US. 

That tariff would cut the expected market for solar photovoltaic capacity in the US by about 60 per cent over 2018-21, according to IHS Markit, the research group. 

That prospect has horrified businesses that use imported panels, such as rooftop solar providers. David Bywater, chief executive of Vivint Solar, one of the leading US residential solar companies, said he was watching the Suniva case closely. 

“It’s all about jobs,” he said. “If that [case] passes, it will have a really destructive impact on the sector.”

John Berger, chief executive of Sunnova Energy, another rooftop solar company, has written to the ITC arguing that “this proposed action by a small investment firm that made a poor investment decision should not be allowed to hurt American jobs and consumers.” 

The first hurdle for Suniva is persuading the ITC that it is “representative” of its industry, and so justifies a full investigation. A decision on that is expected soon. Once the investigation is launched, it can take up to 150 days from the company’s first complaint. If the ITC determines that imports have caused “serious injury”, or the threat of it, then it will be for Mr Trump to decide what remedies to impose. 

With other companies in the industry generally ranged against Suniva, there is a chance that it will fail at that first hurdle. It accounted for just 20.6 per cent of US silicon solar cell and module production last year, and in a bizarre twist, its own majority shareholder has opposed its action. Shunfeng International, which owns about 63 per cent of Suniva, said in a statement last week that the Section 201 case “is not in the best interests of the global solar industry”. 

One trade lawyer said: “That raises a huge question right away over whether Suniva is really representative.”

Weekly Performance

Dow -0.44% S&P -0.38% Nasdaq -0.61% Russell -1.12% Mexico -0.73% Brazil -8.18% (-11.90% in $) Nikkei -1.47% (+0.40% in $) Hang Seng +0.07% CSI +0.55% Shanghai +0.02% EuroStoxx -1.39% (+1.09% in $) FTSE +0.48% (+1.63% in $) Cac -1.50% (+0.97% in $) Dax -1.03% MIB -0.04% Ibex -0.57% SMI -1.11%

In most cases stock indices opened the week at or near recent all-time highs. A continuing run of decelerating US economic data and the steady beat of headlines coming out of Washington DC were largely offset by a move higher in oil prices. Crude was finding support in solidifying market expectations that OPEC would extend supply cuts through next spring when they meet next week. Volatility remained remarkably low, and stocks remained bid globally, helped in part by a speech from China’s President Xi that illustrated the importance his government intends to put on finding new drivers for growth in the wake of softer April economic data. By mid-week the tone dramatically shifted. Headwinds from Washington freshened on a report former FBI Dir Comey had drafted a memo chronicling a meeting with President Trump where he was asked to drop the investigation into former National Sec Adviser Flynn. Within 24 hours, former FBI Dir Mueller was appointed special counsel to oversee the Russia investigation, while the President repeatedly denied the reports, calling the whole thing a ‘witch hunt.’ Markets finally buckled as investors became increasingly concerned the political fallout could ultimately be fatal for the Republican’s pro-growth agenda. The flight from risk assets sent the VIX +27%, ultimately filling the gap made into the French election. Gold prices rose along with global Treasury bonds, sending yields lower. The US 10-year yield fell just short of the April low of 2.18%. The Dollar index gave back all the post-US election/Trump reflation gains. The move into safe have assets was short lived. Equity markets rebounded Thursday in the wake of better US economic readings and technically driven momentum buying after the significant reversal. Markets largely shrugged off the latest political crisis in Brazil, which brought a spat of elevated volatility to Brazilian assets and word the Trump administration was pushing ahead with the NAFTA renegotiation. Oil prices pressed higher on speculation OPEC was contemplating a scenario of deepening supply cuts, not just extending. WTI crude finished the week above the $50 mark. For the week the Dow, S&P and NASDAQ nearly did a round trip, all falling ~0.5%.

Macro :

- Comey Agrees to Testify Before Senate Committee, Senators Say

- Goldman Slashes Expectations for Tax Cut/Fiscal Policy Change

- Weidmann Says ECB Will Need to Act When Prices Rise: Standard

Keep an eye :

- AIR FP : Boeing, SaudiGulf Airlines to Negotiate Widebody Jet Purchase

- AF FP : Air France to Hire 500 Flight Attendants for Low Cost Unit: JDD

- SPR GY : Immoweb.be founder Rousseaux sells 14.5% stake to Axel Springer ( from 80 to 94.5%), C.Rousseaux Co. founder to retain 5.5%

- BMPS IM : Paschi Recap Cut to EU8.3b Was Discussed: Messaggero

- CSGN VX : Credit Suisse to Issue 72.9m Shares From Scrip Dividend Election

- DAI GY : Mercedes-Benz Recalls 5,818 S-Class Cars on Brake Software

- EDF FP : EU Regulators Said Set to Approve EDF Bid for Areva Unit: Rtrs

- FCA IM : Plans to modify over 100K diesel trucks and SUVs as part of effort to resolve allegations that it installed software to cheat emissions standards

- INTU LN : Mall owner Intu faces FTSE 100 relegation on retail woes, Retail property owners are being hit by pessimism over the fortunes of their tenants FT

- LMT US : Saudi Arabia Agrees on Deal to Assemble 150 Lockheed Helicopters

- MC FP : LVMH’s Biver Says Must Give Responsibility to Others: SamW

- NOKIA FH : Nokia to Continue Making Acquisitions, Chairman Tells YLE

- RBOS GY : Bosch May Have to Cut Jobs If Diesel Crisis Worsens: Stuttgarter

- 9984 JP : SoftBank, Saudi Sovereign Fund to Start $100b Tech Fund: WSJ

- THIRD ENERGY : Third Energy Said to Seek to Raise Up to GBP250m in IPO: Times

- VOW3 GY : Audi Reaches Agreement to Solve Dispute With China Dealers

- VOW3 GY : Bavaria’s Seehofer Wants Incentives for Diesel Cars: Spiegel

Roland Yearwood, 50, from Alabama, perished at an altitude of about 8,400 meters (27,500 feet) in an area called "death zone" which is known for thin air, Murari Sharma of the Everest Parivas trekking company that sponsored his climb said.

"We have confirmation of his death but no other details are known," Sharma told Reuters in Kathmandu. "It is also unclear if he was on his way up or down from the summit," he said.

Yearwood was part of a 16-member team led by American climber Dan Mazur that is climbing the normal Southeast Ridge route from the Nepali side of the mountain.

Yearwood's death comes a day after 26-year-old Indian climber Ravi Kumar went missing in the same area during his descent from the peak.

Kumar got separated from his guide near a place called Balcony on Saturday, Thupden Sherpa of the Arun Treks and Expedition company that sponsored Kumar's team said in Kathmandu on Sunday.

"Three sherpa rescuers have been sent to search for Kumar," Thupden said, adding the climber had been out of contact.

On April 30, a famed Swiss climber fell to his death near Mount Everest during preparations to climb the world's highest mountain, while an 85-year-old Nepali man died at the base camp earlier this month while trying to set a record for the oldest climber.

Nepal has cleared 371 mountaineers to climb Mount Everest during the current season ending this month.

MIT researchers develop a drone system that can do a camera operator’s job

The next step in virtual directing

Shooting professional quality video with a drone is not an easy task, and often requires multiple human operators. Researchers at MIT’s Computer Science and Artificial Intelligence Laboratory (CSAIL) think they’ve found a way to take humans out of the operation part of the equation altogether. The team teased a system this week that they plan to unveil at a conference later this month in which filmmakers can set certain parameters and then let the drone do all the work.

The group calls the system “real-time motion planning for aerial videography,” and it lets a director define basic parameters of a shot, like how tight or how wide the frame should be, or the position of the subject within that frame. They can also change those settings on the fly and the drone will adjust how it’s filming accordingly. And, of course, the drone can dynamically avoid obstacles.

The researchers say that a director using their system would be able to weigh certain variables differently so the drone knows what to prioritize in a shot, too. From the MIT release:

Unless the actors are extremely well-choreographed, the distances between them, the orientations of their bodies, and their distance from obstacles will vary, making it impossible to meet all constraints simultaneously. But the user can specify how the different factors should be weighed against each other. Preserving the actors’ relative locations onscreen, for instance, might be more important than maintaining a precise distance, or vice versa. The user can also assign a weight to minimize occlusion, ensuring that one actor doesn’t end up blocking another from the camera.

It’s a cool idea that’s both reminiscent and seemingly a natural extension of the virtual camera work that directors like James Cameron helped pioneer and others (like Gareth Edwards and Lucasfilm) have been using ever since. It’s definitely not ready for that kind of work, judging from CSAIL’s video. But it’s another important wrinkle in the way new hardware and software is changing filmmaking, big or small.

UK and European regulators approved Amazon’s trademark request

Amazon could be looking to expand its cashier-free grocery stores to the UK and Europe in the future. The company recently filed several trademark applications related to its Go stores with the UK’s Intellectual Property Office and its European Union equivalent.

The company filed applications to trademark four slogans: “No Lines, No Checkout. (No, Seriously),” “No Queue, No Checkout. (No, Seriously),” “Every Queue is a Defect,” and “Every Line is a Defect.” The slogans are similar to one used by the company when it first announced its Go stores last December. At the time, there were reports that the company intended to open around 2000 stores, although Amazon denied those plans. We’ve reached out to Amazon for comment, and will update if we hear back.

Amazon’s Go stores are designed for customers to walk in, take what they want, and leave, all without having to go through a checkout line. Customers scan their Amazon account when they enter, and the store tracks what items they pick up, charging them when they leave. The stores reportedly will only require six to ten employees per location.

Amazon still has a ways to go before it expands its stores into foreign markets, however. The first store was reportedly supposed to open in March, but technical problems have apparently pushed that back: the stores reportedly break down if there’s more than 20 people inside, while there are also issues with tracking products put back in the wrong place.

According to Bloomberg, UK grocery chains such as Tesco and Sainsbury are concerned about Amazon’s potential entry into local markets, especially as they face competition from discount grocers such as Aldi and Lidl. Last year, Amazon launched delivery service Amazon Fresh in parts of London.

* T-Mobile (TMUS): During Q1, Glenview Capital, Paulson & Co, Third Point, and Lone Pine Capital all established stakes in this wireless service company. Now that the FCC spectrum auction and quiet period are over, the thought is that merger activity might pick up in the telecom sector. A new Republication administration and antitrust approach has companies and investors weighing if industry consolidation will be allowed. TMUS has a few options. They can either continue taking market share as they have as an independent company, they can try to merge with Sprint (S), or they could potentially be a takeover target for other companies looking to break into the industry (such as cable companies or tech firms).

* Humana (HUM): Omega Advisors, Pennant Capital, Bridger Management, and Lone Pine Capital all acquired shares of this health insurer during Q1. There’s been a lot of uncertainty in the sector given that many of these companies tried to merge, were sued by the Department of Justice to block the mergers, and now face Obamacare’s uncertain future and a potential Republican program replacement. There’s a lot of moving pieces here. That said, HUM shares have slowly churned higher thus far in 2017.

* Conduent (CDNT): This company was spun-off from Xerox (XRX) recently. While some funds received shares due to their XRX ownership (like Greenlight Capital and Icahn Capital), others bought in once the company started trading independently (such as Pennant Capital).

* Formula One (FWONK): During Q1, Liberty Media (former ticker LMCK) acquired automotive racing franchise Formula 1. As part of the transaction, they issued shares at $25 per share and many hedge funds took part in this offering, including Coatue Management, SPO Advisory, and Viking Global. After the transaction closed, the ticker symbol switched to FWONK to designate the new Formula 1 assets the company holds. Former media titan Chase Carey has been given the CEO role in an effort to expand the global brand further.

>>> Consensus Increased Positions

* Shire (SHPG): This stock lands on this list for the second consecutive quarter. This time around Omega Advisors, Bridger Capital, and Maverick Capital were out accumulating more shares. As mentioned last quarter, SHPG has been listed by a few sellside firms as a ‘best idea for 2017.’

* TransDigm Group (TDG): This stock would have been a consensus ‘new buy’ as well if you included all the hedge funds that bought that aren’t tracked in the newsletter. During Q1, funds such as Blue Ridge Capital, Pennant Capital, and Tiger Global added to their positions. A short seller issued a report that highlighted the company’s pricing practices and status as almost a monopoly in some of the end markets it sells to. The aerospace company is basically run like a private equity style roll-up that acquires other aerospace companies that sell replacement parts. TDG shares were quite volatile in the quarter and tons of hedge funds jumped on the opportunity.

* Time Warner (TWX): Hedge funds like Paulson & Co, Farallon Capital, and Third Point all added to their TWX stakes. Two of those funds are merger arbitrage focused firms and TWX certainly fits the bill as it is being acquired by AT&T (T), pending regulatory review. At first, there was some skepticism that this deal would go through given that Donald Trump talked negatively about the deal on the campaign trail. However, nowadays analyst sentiment seems to be that the deal is likely to pass given that it is a vertical integration rather than a horizontal one.

* Rice Energy (RICE): During the first quarter, hedge funds such as Third Point, Lone Pine, and Viking Global all added to their existing positions.

* Ambarella (AMBA): Blue Ridge Capital, Coatue Management, and Maverick Capital all liquidated their positions in this stock during the first quarter.

* Williams Companies (WMB): Funds that sold WMB stakes in Q1 include Lone Pine Capital and Omega Advisors.

* Southwestern Energy (SWN): This is another energy stock that hedge funds including Third Point and Blue Ridge Capital dumped during the first quarter.

* 21st Century Fox (FOXA): Shares of this media company were exited by the likes of Berkshire Hathaway and SPO Advisory.

* Charter Communications (CHTR): Believe it or not, this is the fifth straight quarter CHTR positions have been trimmed by various managers. The company has been well on its way to integrating the acquisitions of Time Warner Cable and Bright House and it’s now the second largest cable player in the US. The stock is up 80% over the past year and the funds that have been selling are trimming their positions by 10-20% for the most part to lock-in some profits and for risk management purposes most likely, as position sizes have swelled due to the share gains. Funds that trimmed their stakes in Q1 include Bridger Capital, Glenview Capital, Farallon Capital, Hound Partners, Third Point, Blue Ridge Capital, Tiger Global, and SPO Advisory.

* Alphabet (GOOG): This is the second consecutive quarter this stock appears on this list. Hedge funds that reduced their exposure to Google’s parent company during the first quarter included Paulson & Co, Tiger Management, Tiger Global, Farallon Capital, Coatue Management, Appaloosa Management, and Viking Global.

* Fleetcor Technologies (FLT): Maverick Capital, Hound Partners, Pennant Capital, Farallon Capital, Tiger Global, and Lone Pine Capital all reduced their position sizes in FLT. This has been a longstanding position for many of these firms as the company has executed on its roll-up strategy in the payments industry.

* Allergan (AGN): Hedge funds such as Bridger Capital, Omega Advisors, Farallon Capital, Baupost Group, Appaloosa, and Paulson & Co all trimmed their stakes in this company that is the combined entity of two previously popular hedge fund stocks: Actavis and Allergan.