Investing

Morning Blast: Russian Rebellion Whimpers to a Close, OPEC Looks to Expand, Lucid's Deal With Aston Martin

Paul Ausick

Published: June 26, 2023 7:44 am

Premarket action on Monday had the three major U.S. indexes trading lower. The Dow Jones industrials were down 0.05%, the S&P 500 down 0.13%, and the Nasdaq 0.19% lower.

What looked like an inevitable confrontation between Vladimir Putin and Yevgeny Prigozhin ended with a whimper, not a bang, after Prigozhin called a halt on his march to Moscow and made a sharp left turn into Belarus. The only widely accepted takeaways from the weekend’s bloodless rebellion in Russia appear to be that the country is a failed state, that Putin’s regime has been weakened and that nobody knows what happens next. Russia also owns the world’s largest nuclear arsenal.

Prigozhin’s withdrawal from Ukraine does appear to be good news for Ukrainians, but the reality may be somewhat less good. The Ukrainians’ spring counteroffensive has been plagued by minefields left behind by the Russians, and what Russian troops remain in Ukraine are solidly dug in. The sudden departure of Prigozhin’s reported 25,000-strong mercenary army changes none of that.

Early premarket trading in U.S. markets was on the downside, but more muted than might have been expected. West Texas Intermediate (WTI) crude oil traded up slightly, but still below $70 a barrel, and Brent crude traded below $75 a barrel. Russian crude (Urals) traded up by less than 1% at around $56 a barrel, according to Oilprice.com.

A tiny South American nation made big news a few years ago when Exxon Mobil Corp. (NYSE: XOM) announced a major discovery offshore of Guyana. So far, Exxon and its partners have announced a total of 11 billion barrels, with production now more than 360,000 barrels a day, on its way to a goal of 1 million barrels by 2028.

Now, The Wall Street Journal is reporting, OPEC has come knocking with an invitation for Guyana to join the cartel. So far, without much luck.

It seems that Guyana has read the tea leaves and seen that peak demand for crude oil is now in the rear-view mirror, and the country wants to produce as much crude as it can as fast as it can before demand dries up completely. The country’s vice president, Bharrat Jagdeo, told The Wall Street Journal, “Right now, the idea is to get as much of these resources out of the ground as quickly as possible given that we are not sure of the window we have in the future.”

OPEC and OPEC+ have different views. They prefer to reduce production in order to keep prices high. For Guyana, any price is higher than the zero it made from oil just a few years ago. It is not impossible that OPEC would make an offer that Guyana would find hard to refuse. Something like paying the small country (population about 805,000–smaller than South Dakota) not to produce to its full capacity.

Shares of luxury EV maker Lucid Group Inc. (NASDAQ: LCID) got a lift Monday morning after the company announced that it reached a deal with 100+-year-old British automaker Aston Martin to supply technology to the maker of James Bond’s DB 5 in exchange for $232 million in cash and stock. Essentially, the deal increases Saudi Arabia’s Public Investment Fund’s (PIF’s) stake in Aston Martin. The PIF owns about 49% of Lucid and 18% of Aston Martin, according to Bloomberg. Lucid’s stake in the British carmaker is now 3.7%.

Here is a look at how U.S. markets fared last Friday.

All 11 market sectors closed lower on Friday. Consumer cyclicals, technology and real estate (all down 1.10%) posted the day’s biggest losses. Communication services (−0.25%) and health care (−0.32%) had the day’s smallest losses. The Dow closed down 0.65%, the S&P 500 down 0.77% and the Nasdaq down 1.01% on Friday.

Two-year Treasuries dropped by six basis points to end Friday at 4.71%, and 10-year notes also slipped by six basis points to 3.74%. In Monday’s premarket, two-year notes were trading at around 4.70% and 10-year notes at about 3.69%.

The Federal Reserve is expected to release the results of its 2023 bank stress tests after U.S. markets close on Wednesday. Reuters has a good summary of what the Fed was testing for this year. More interesting, perhaps, is whether the Fed will require smaller banks to submit to the tests after the failures at Silicon Valley Bank, Signature Bank and First Republic, none of which was large enough to have to complete the test.

Friday brings the Bureau of Economic Analysis’s monthly report on personal consumption and expenditures (PCE).