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  • Why UK supermarkets are rationing fruit and vegetables | CNN Business

    Why UK supermarkets are rationing fruit and vegetables | CNN Business

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    London
    CNN
     — 

    Major UK supermarkets have started rationing the sale of some staple fruits and salad vegetables, blaming poor weather that has depressed production in Spain and north Africa.

    Tesco

    (TSCDF)
    , the UK’s biggest supermarket, confirmed to CNN Wednesday that it had temporarily capped the number of packs of tomatoes, peppers and cucumbers to three per customer.

    Asda told CNN that it was temporarily limiting purchases of some items to three packs per customer. These include tomatoes, peppers, cucumbers and lettuce.

    “Like other supermarkets, we are experiencing sourcing challenges on some products that are grown in southern Spain and north Africa,” an Asda spokesperson said.

    Morrisons told CNN that it had imposed a cap of two packs per customer on tomatoes, peppers, cucumbers and lettuce. Aldi, a German discount grocery chain, announced Wednesday that it would also introduce a limit of three packs per person on peppers, cucumbers and tomatoes in its UK stores.

    Asda, Morrisons and Aldi are Britain’s third-, fourth- and fifth-biggest supermarket chains respectively, according to market share data from Kantar.

    Sainsbury’s

    (JSAIY)
    , the United Kingdom’s second-largest food retailer, told CNN it had no plans to ration the sale of fruit and vegetables.

    The rationing is another knock for British shoppers already grappling with record grocery price rises, which have inflamed the worst cost-of-living crisis in decades.

    In the four weeks to January 22, food price inflation hit 16.7%, according to Kantar. That’s its highest level since the data company started tracking the indicator in 2008.

    “The more we face shortages, the more it will drive food inflation,” Minette Batters, president of the National Farmers’ Union (NFU), which represents more than 46,000 farming and growing businesses, told the BBC Wednesday.

    A spokesperson for the UK’s Department for Environment, Food and Rural Affairs (Defra) said in a statement: “We understand public concerns around the supply of fresh vegetables. However, the UK has a highly resilient food supply chain and is well-equipped to deal with disruption.”

    So what explains the empty shelves?

    Asda and Morrisons pointed the finger at poor weather in key growing regions as the main driver of the shortages.

    Andrew Woods, a sub-editor at Mintec, a commodities data company, told CNN that hotter-than-average weather in Spain and Morocco last fall, combined with a cold snap over the past two weeks, had hit production.

    The tomato crop in southern Spain is 20% smaller than a year ago, he said.

    The poorer harvests are problematic for UK retailers, reliant as they are on imports to fill their stocks at this time of year.

    According to the British Retail Consortium (BRC), a trade group, UK supermarkets import 95% of their tomatoes and 90% of their lettuce in December, and typically import the same proportions in March.

    James Bailey, executive director of supermarket Waitrose, told LBC radio Monday that snow and hail in Spain, as well as hail in parts of north Africa, had “wip[ed] out a large proportion” of key crops.

    The high-end supermarket chain told CNN that it was “monitoring the situation” but had no plans to introduce rationing.

    “Give it about [two weeks] and the other growing seasons in other parts of the world will have caught up and we should be able to get that supply back in,” Bailey added.

    The BRC also says it expects the current disruption to last a few weeks before home-grown produce arrives to fill the gaps on UK store shelves.

    “Supermarkets are adept at managing supply chain issues and are working with farmers to ensure that customers are able to access a wide range of fresh produce,” Andrew Opie, the BRC’s director of food and sustainability, told CNN.

    High input costs have contributed to the shortages of fruit and vegetables, the NFU says, as well as reduced production across the farming sector more broadly.

    “Labor shortages and soaring energy prices are hitting the poultry industry, already reeling from avian influenza, as well as horticultural businesses and pig farms,” Batters said in a speech Tuesday.

    The price of natural gas — a key input for nitrogen-based fertilizers — shot up following Russia’s invasion of Ukraine last year. Though gas prices have fallen back in recent weeks, they are still triple their historical average, while fertilizer costs are up 169% since 2019, Batters noted.

    Empty fruit and vegetable shelves at an Asda store in London on February 21, 2023.

    According to the NFU, the production of tomatoes and cucumbers is expected to fall to the lowest levels since the union started keeping records in 1985, on the back of crippling input costs.

    Woods at Mintec said processing and storing vegetables, such as tomatoes, was “energy intensive.”

    Europe, too, has wrestled with many of the same problems in recent months.

    “Across Europe, supplies [of tomatoes] are reportedly tight, and growers continue to grapple with higher fertilizer, energy and labor costs,” Mintec said in a note.

    Yet, currently, there are few indications — in media reports or on social media — that retailers in other countries are rationing sales.

    But Defra said in its statement Wednesday that “similar disruption is also being seen in other countries,” and that it was helping UK growers by expanding a visa scheme for seasonal workers to fill labor gaps.

    UK supermarkets have not cited Brexit as a reason for the supply crunch. But the NFU and some campaign groups argue that it has worsened labor shortages.

    Direct subsidy payments to UK farmers from the European Union are being phased out, which has increased uncertainty for farmers, Batters said in her speech. The United Kingdom plans to fully implement its own subsidy scheme by 2024.

    — Julia Horowitz contributed reporting.

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  • Russia’s economy is hurting despite Putin’s bluster | CNN Business

    Russia’s economy is hurting despite Putin’s bluster | CNN Business

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    London
    CNN
     — 

    When Russia launched its full-scale invasion of Ukraine one year ago, Western countries hit back with unprecedented sanctions to punish Moscow and pile pressure on President Vladimir Putin. The aim: to deal an economic blow so severe that Putin would reconsider his brutal war.

    Russia’s economy did weaken as a result. But it also showed surprising resilience. As demand for Russian oil fell in Europe, Moscow redirected its barrels to Asia. The country’s central bank staved off a currency crisis with aggressive capital controls and interest rate hikes. Military expenditure supported the industrial sector, while the scramble to replace Western equipment and technology lifted investment.

    “The Russian economy and system of government have turned out to be much stronger than the West believed,” Putin said in a speech to Russia’s parliament Tuesday.

    Yet cracks are starting to show and they will widen over the next 12 months. The European Union — which spent more than $100 billion on Russian fossil fuels in 2021 — has made huge strides in phasing out purchases. The bloc, which dramatically reduced its dependence on Russian natural gas last year, officially banned most imports of Russian crude oil by sea in December. It enacted a similar block on refined oil products this month.

    Those measures are already straining Russia’s finances as it struggles to find replacement customers. The government reported a budget deficit of about 1,761 billion rubles ($23.5 billion) for January. Expenditure jumped 59% year-over-year, while revenue plunged 35%. Deputy Prime Minister Alexander Novak announced that Russia would cut oil production by about 5% starting in March.

    “The era of windfall profits from the oil and gas market for Russia is over,” Janis Kluge, an expert on Russia’s economy at the German Institute for International and Security Affairs, told CNN.

    Meanwhile, the ruble has slumped to its weakest level against the US dollar since last April. The currency’s weakness has contributed to high inflation. And most businesses say they can’t conceive of growing right now given high levels of economic uncertainty, according to a recent survey by a Russian think tank.

    These dynamics place the country’s economy on a trajectory of decline. And they will force Putin to choose between ramping up military spending and investing in social goods like housing and education — a decision that could have consequences both for the war and the Russian public’s support of it.

    “This year could really be the key test,” said Timothy Ash, an associate fellow in the Russia and Eurasia program at Chatham House, a think tank.

    In a bid to bring Russia to heel for its aggression, Western countries have used their sway over the global financial system, unveiling more than 11,300 sanctions since the invasion and freezing some $300 billion of the country’s foreign reserves. At the same time, more than 1,000 companies, ranging from BP

    (BP)
    to McDonald’s

    (MCD)
    and Starbucks

    (SBUX)
    , have exited or curtailed operations in the country, citing opposition to the war and new logistical challenges.

    Russia’s economic output duly contracted by 2.1% last year, according to a preliminary estimate from the government. But the hit was more limited than forecasters initially expected. When sanctions were first imposed, some economists predicted a contraction of 10% or 15%.

    One reason for Russia’s unexpected pluck was its push toward self-sufficiency following Putin’s annexation of Crimea from Ukraine in 2014. Through a policy known as “Fortress Russia,” the government boosted domestic food production and policymakers forced banks to build up their reserves. That created a degree of “durability,” said Ash at Chatham House.

    The swift intervention of Russia’s central bank, which jacked up interest rates to 20% after the invasion and implemented currency controls to buttress the ruble, was also a stabilizing force. So was the need for factories to increase production of military goods and replace items that had been imported from the West.

    But the greatest support came from high energy prices and the world’s continued thirst for oil and other commodities.

    Russia, the world’s second-largest exporter of crude, was able to send barrels that would have gone to Europe to countries like China and India. The European Union, which imported an average of 3.3 million barrels of Russian crude and oil products per day in 2021, was also still buying 2.3 million barrels per day as of November, according to the International Energy Agency (IEA).

    “It’s a question of natural resources,” Sergey Aleksashenko, Russia’s former deputy minister of finance, said at an event last month hosted by the Center for Strategic and International Studies, a think tank. That meant the economy experienced a decline, but “not a collapse,” he added.

    In fact, Russia’s average monthly oil export revenues rose by 24% last year to $18.1 billion, according to the IEA. Yet a repeat performance is unlikely, presaging increasingly tough decisions for Putin.

    The price of a barrel of Urals crude, Russia’s main blend, fell to an average of $49.50 in January after Europe’s oil embargo — as well as a Group of Seven price cap — took effect. By comparison, the global benchmark stood around $82. That suggests that customers like India and China, seeing a smaller pool of interested buyers, are negotiating greater discounts. Russia’s 2023 budget is based on a Urals price of more than $70 per barrel.

    Finding new buyers for processed oil products, which are also subject to new embargoes and price caps, won’t be easy either. China and India have their own network of refineries and prefer to buy crude, noted Ben McWilliams, an energy consultant at Bruegel.

    Meanwhile, gas exports to Europe have plunged since Russia shut its Nord Stream 1 pipeline.

    A motorcyclist rides past an oil depot in New Delhi, India, on Sunday, June 12, 2022.

    Russia’s government relied on the oil and gas sector for 45% of its budget in 2021. As it plans to maximize defense spending, lower revenues inevitably mean trade-offs. Spending plans for 2023 finalized in December involved a decrease in expenditure on housing and health care, as well as a category that includes public infrastructure.

    “Whatever energy resources are obtained, they’ll be spent on military needs,” said Gulnaz Sharafutdinova, acting director of the Russia Institute at King’s College London.

    The International Monetary Fund still expects Russia’s economy to expand by 0.3% this year and 2.1% the next. Yet any outlook is contingent on what happens in Ukraine.

    “Whether the economy shrinks or expands in 2023 will be determined by developments in the war,” Tatiana Orlova, an economist at Oxford Economics, wrote in a note to clients on Tuesday. Shortages of workers tied to military conscription and emigration pose a key risk, she noted.

    The impact of Western sanctions is poised to develop into a crisis over time. Bloomberg Economics estimates that Putin’s war in Ukraine will slash $190 billion off Russia’s gross domestic product by 2026 compared with the country’s prewar path.

    Sectors that rely on imports have been particularly vulnerable. Domestic car makers such as Avtovaz, which manufactures the iconic Ladas, have struggled with shortages of key components and materials.

    A man talks on his phone near a closed H&M store on December 15, 2022 in Moscow, Russia.

    Russia’s auto industry was already weakened after companies such as Volkswagen

    (VLKAF)
    , Renault

    (RNLSY)
    , Ford

    (F)
    and Nissan

    (NSANF)
    halted production and began to sell their local assets last year. Chinese firms have stepped up their presence, part of a broader trend. Even so, sales of new cars dropped 63% year-over-year in January, according to the Association of European Businesses.

    Across sectors, firms are struggling to plan for the future. A survey of more than 1,000 Russian businesses by the Stolypin Institute of Economic Growth in November found that almost half plan to maintain production over the next one to two years and aren’t thinking about growth. The group said this contributed to a high risk of “long-term stagnation of the Russian economy.”

    Given Putin’s ideological commitment to subsuming Ukraine, he’s unlikely to back down, according to Sharafutdinova at King’s College London. But his war chest “is likely, inevitably, to diminish,” she added.

    Prioritizing military spending will also come at a social cost, with a “slow and creeping” erosion of living standards, she added.

    “In normal times, we might have said that the population would protest against that,” Sharafutdinova said. “But of course, these are not normal times.”

    — Clare Sebastian and Olesya Dmitracova contributed reporting.

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  • China’s capital offers $6 monthly handout to offset inflation. The public says it’s not nearly enough | CNN Business

    China’s capital offers $6 monthly handout to offset inflation. The public says it’s not nearly enough | CNN Business

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    Hong Kong
    CNN
     — 

    Beijing will give out a $6 monthly cash subsidy to low-income residents to cushion the impact of rising food prices, a move that has unexpectedly angered many online who say the amount is far too low.

    The announcement from the city government comes as food inflation accelerated in China after policymakers scrapped their zero-Covid strategy in December and eased monetary policy further to fuel economic recovery.

    Last week, protests by retirees broke out in the cities of Wuhan and Dalian over cuts to their medical care benefits, highlighting the growing risk of unrest over livelihood issues as China’s economy struggles to regain its footing after being drained by pandemic policies.

    The demonstrations were the latest outburst of public discontent since mass protests against Covid curbs gripped the country late last year. The recent protests underscored the financial pressure on local governments, after three years of the zero-Covid policy strained their coffers and a property market slump severely eroded their income.

    According to the Beijing Municipal Commission of Development and Reform, the city’s economic regulator, more than 300,000 people on low incomes will each receive a cash payment of 40 yuan (about $6) per month. The first payment will be given out later this month and it’s unclear for how long they will continue.

    “In January, food prices in Beijing rose by 6.6%, meeting the conditions for starting the price-linked subsidy program,” the state-run Beijing Daily newspaper quoted an official from the commission as saying in a Friday report.

    “[We will] try to do a good job in ensuring the basic livelihood of the needy people … and continuously enhance the people’s sense of gain, happiness and security.”

    China launched a low-income subsidy program in 2011 to offer cash handouts to the needy when the consumer price index or food prices hit certain thresholds. Each city or region sets its own standard as living costs vary across the country.

    The news of Beijing’s latest handout was not well received by the public, who took to social media to complain about the high cost of living in the city.

    “40 yuan? Are you serious? [When] the low-income people take the subway to collect the money and then they return, they lose 8 yuan,” said one comment on Weibo.

    “Is it like an insult? [The amount] just subsidizes a bowl of noodles,” another Weibo user said.

    Some people criticized the country’s weak social welfare system, while others blasted the government’s move to write off billions of debt to other countries.

    “Can’t we question the move? Do you think the current welfare system in our country is good? Can it meet the needs of people?” one said.

    China’s consumer inflation accelerated in January, as the CPI rose 2.1% from a year earlier. Although the headline figure remains relatively low compared to other countries, food prices jumped 6.2%, with pork and fruit prices rising the most.

    In Beijing, food prices outpaced the national level. Vegetable prices soared 24% last month.

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  • Russia to cut oil output by 5% as sanctions bite | CNN Business

    Russia to cut oil output by 5% as sanctions bite | CNN Business

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    London
    CNN
     — 

    Russia will cut crude oil production by half a million barrels per day starting in March, a little over two months after the world’s major economies imposed a price cap on the country’s seaborne exports.

    “We will not sell oil to those who directly or indirectly adhere to the principles of the price ceiling,” Russian Deputy Prime Minister Alexander Novak said in a statement. “In relation to this, Russia will voluntarily reduce production by 500,000 barrels per day in March. This will contribute to the restoration of market relations.”

    The cut is equivalent to about 5% of Russian oil output.

    Futures prices for Brent crude, the global benchmark, jumped 2.7% Friday to $86 a barrel as traders anticipated a tightening in global supply. US oil gained 1% to trade at $79 a barrel.

    In June last year, the European Union agreed to phase out all seaborne imports of Russian crude oil within the following six months as part of unprecedented Western sanctions aimed at reducing Moscow’s ability to fund its war in Ukraine.

    In a move aimed at further tightening the screws, G7 countries and the European Union agreed in December to cap the price at which Western brokers, insurers and shippers can trade Russia’s seaborne oil for markets elsewhere at $60 a barrel. Earlier this month, EU countries also banned imports of Russia’s diesel and refined oil imports.

    Novak warned that the crude oil price cap could lead to “a decrease in investment in the oil sector and, accordingly, an oil shortage.”

    Neil Crosby, a senior analyst at oil data firm OilX, told CNN that a 500,000 barrel-a-day cut is not the “worst-case scenario” and is still a smaller hit to Russian production than most analysts were expecting last year.

    “But it sets a precedent for further cuts ahead if necessary or desired by Russian authorities,” Crosby said, adding that Moscow could be anticipating difficulty in finding enough demand for its crude.

    Russian Urals crude traded at a discount to Brent crude of $28 a barrel on Friday. Over the past few months, India and China have snapped up cheap oil from Moscow, just as the EU — once Russia’s biggest customer for crude — has ended all imports.

    “Russia currently has a limited pool of buyers for its crudes and has likely found a ceiling to its export sales in the near term, primarily to China and India,” said Alan Gelder, vice president of refining, chemicals and oil markets at Wood Mackenzie.

    According to Reuters, Russia took the decision to reduce its output without consulting the OPEC+ group of producers, which includes Saudi Arabia. OPEC+ decided in October to cut output by 2 million barrels per day and has not adjusted that stance since.

    A potential drop in global oil supply could come at a tricky time. China’s swift reopening of its economy in December after almost three years of strict coronavirus restrictions has pushed up estimates for global oil demand.

    Last month, the International Energy Agency said it expected global demand to surge by 1.9 million barrels per day to reach an all-time high of 101.7 million barrels per day, with China accounting for nearly half of the increase.

    Western sanctions — added to the grinding cost of war — are weighing on Russia’s economy. The country’s budget deficit ballooned to $45 billion last year, or 2.3% of its gross domestic product.

    But Russia’s central bank held its main interest rate at 7.5% Friday, saying that economic activity was better than expected and that inflation was likely to come down this year.

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  • Here’s what keeps Jerome Powell up at night and interest rates high | CNN Business

    Here’s what keeps Jerome Powell up at night and interest rates high | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    Federal Reserve Chairman Jerome Powell threw markets into a tizzy on Tuesday as he spoke about the economy alongside his former boss, Carlyle Group co-founder David Rubenstein, at the Economic Club of Washington.

    Stocks struggled for direction as investors tried to get a read on Powell’s economic outlook, attitude towards inflation and on future interest rate hikes. Wall Street cheered as the Fed chair said the disinflationary process has begun, then soured when he said the road to reaching 2% inflation will be “bumpy” and “long” with more rate hikes ahead.

    Markets soared to new highs, before quickly falling to session lows and then recovering to close the day in the green.

    “Powell doesn’t want to play games with financial markets,” said EY Parthenon chief economist Gregory Daco after the conversation. But at the same time, he said Powell wanted to communicate that the Fed’s “base case was not for inflation to come down as quickly and painlessly as some market participants appear to expect.”

    Here’s why Powell thinks bringing down prices will be more difficult than investors anticipate.

    Structural changes in the labor market: The US economy added an astonishing 517,000 jobs in January, blowing economists’ expectations out of the water. The unemployment rate fell to 3.4% from 3.5%, hitting a level not seen since May 1969.

    The current labor market imbalance is a reflection of the pandemic’s lasting effect on the US economy and on labor supply, said Powell on Tuesday in answer to a question about the report. “The labor market is extraordinarily strong,” he said. Demand exceeds supply by 5 million people, and the labor force participation rate has declined. “It feels almost more structural than cyclical.”

    “If we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more,” he said.

    Core services inflation: Powell noted that he’s seeing disinflation in the goods sector and expects to soon see declining inflation in housing. But prices remain stubborn for services. Service-sector inflation, which is more sensitive to a strong labor market, is up 7.5% from the year prior through the end of 2022, and has not abated, he said.

    “That sector is not showing any disinflation yet,” Powell said. “There has been an expectation that [higher prices] will go away quickly and painlessly and I don’t think that’s at all guaranteed.”

    Geopolitical uncertainties: Powell also cited concerns that the reopening of China’s economy after the sudden end of Covid-Zero restrictions, plus uncertainty about Russia’s war on Ukraine could also affect the inflation path in ways that remain unclear.

    The labor market is strong, but tech layoffs keep coming. There were around  50,000 tech jobs cut in January, and the trend has continued into February.

    Video conferencing service Zoom is one of the latest to announce layoffs. The company said Tuesday that it’s cutting 1,300 jobs or 15% of its workforce. 

    Zoom CEO Eric Yuan said in a blog post on Tuesday that Zoom ramped up employment  quickly due to increased demand during the pandemic. The company grew three times in size within 24 months, he said and now it must  adapt to changing demand for its services.

    “The uncertainty of the global economy, and its effect on our customers, means we need to take a hard — yet important — look inward to reset ourselves so we can weather the economic environment, deliver for our customers and achieve Zoom’s long-term vision,” he wrote.

    Yuan added that he plans to lower his own salary by 98% and forgo his 2023 bonus. Shares of Zoom closed nearly 10% higher on Tuesday. 

    The announcement comes just one day after Dell said it would lay off more than 6,500 employees.

    Amazon

    (AMZN)
    , Microsoft

    (MSFT)
    , Google and other tech giants have also recently announced plans to cut thousands of workers as the companies adapt to shifting pandemic demand and fears of a looming recession.

    Neel Kashkari, president of the Federal Reserve Bank of Minneapolis told CNN that he is starting to think that the US economy could avoid a recession and achieve a so-called soft landing.

    It’s hard to have a recession when the job market is still so robust, he told CNN’s Poppy Harlow on Tuesday on CNN This Morning.

    Still, “we have more work to do,” Kashkari told Harlow, adding that the labor market is “too hot” and that is a key reason why it is “harder to bring inflation back down.”

    Although many investors are starting to think the Fed may pause after just two more similarly small hikes, to a level of around 5%, Kashkari said he believes the Fed may have to raise rates further. Kashkari has a vote this year on the Federal Open Market Committee, the Fed’s interest-rate setting group.

    It’s a good time to be in the oil business. BP’s annual profit more than doubled last year to an all-time high of nearly $28 billion.

    The British energy company said in a statement that underlying replacement cost profit rose to $27.7 billion in 2022 from $12.8 billion the previous year. The metric is a key indicator of oil companies’ profitability.

    BP

    (BP)
    also unveiled a further $2.75 billion in share buybacks and hiked its dividend for the fourth quarter by around 10% to 6.61 cents per share.

    BP’s shares rose 6% in Tuesday trading following the news. Over the past 12 months, its shares have soared 24%.

    The earnings are the latest in a string of record-setting results by the world’s biggest energy companies, which have enjoyed bumper profits off the back of skyrocketing oil and gas prices.

    Last week, another energy major Shell reported a record profit of almost $40 billion for 2022, more than double what it raked in the previous year after oil and gas prices jumped following Russia’s invasion of Ukraine.

    On Wednesday it was TotalEnergie

    (TTFNF)
    s turn. The French company posted annual profit of $36.2 billion for 2022, double the previous year’s earnings.

    Disney has found itself in the middle of a culture war battle that could end up transferring Disney World’s governance to a board appointed by Florida Gov. Ron DeSantis. And that may be the least of Disney’s problems, writes my colleague Chris Isidore.

    The company faces a media industry in turmoil, plunging cable subscriptions, a still-recovering box office, massive streaming losses, activist shareholders, possible reorganization and layoffs and growing labor disputes with employees. That’s a lot for CEO Bob Iger to handle.

    Iger, who retired as CEO in 2020 only to be brought back in November, has been mostly quiet about his plans for the company since his return. That ends at 4:30 p.m. ET Wednesday when he is set to begin an earnings call with Wall Street investors.

    Click here to read more about what to look for on what is certain to be a closely-followed call.

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  • BP’s annual profit more than doubles to $28 billion | CNN Business

    BP’s annual profit more than doubles to $28 billion | CNN Business

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    Hong Kong
    CNN
     — 

    BP’s annual profit more than doubled last year to nearly $28 billion, extending a record run of earnings for the world’s oil majors that is adding to calls for higher taxes on the windfall gains.

    The British energy giant said in a statement that underlying replacement cost profit rose to $27.7 billion for 2022, compared with $12.8 billion the previous year. The metric is a key indicator of oil companies’ profitability.

    BP

    (BP)
    also announced on Tuesday a further $2.75 billion in share buybacks and hiked its dividend for the fourth quarter by around 10% to 6.61 cents per share.

    The earnings are the latest in a series of record-setting results by the world’s biggest energy companies, which have enjoyed bumper profits off the back of soaring oil and gas prices.

    Last week, Shell

    (RDSA)
    reported a record profit of almost $40 billion for 2022, more than double what it raked in the previous year after oil and gas prices soared following Russia’s invasion of Ukraine.

    — This is a developing story and will be updated.

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  • Shell profits double to record $40 billion | CNN Business

    Shell profits double to record $40 billion | CNN Business

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    Hong Kong/London
    CNN
     — 

    Shell made a record profit of almost $40 billion in 2022, more than double what it raked in the previous year after oil and gas prices soared following Russia’s invasion of Ukraine.

    Europe’s largest oil company by revenue reported adjusted full-year earnings of $39.9 billion on Thursday — more than double the $19.3 billion it posted in 2021 — driven by a strong performance in its gas trading business. The company’s stock was up 1.7% in London.

    The company reported $9.8 billion in profit in the fourth quarter. Just over 40% of Shell’s full-year earnings came from its integrated gas business, which includes liquified natural gas trading operations.

    Shell CEO Wael Sawan said the results “demonstrate the strength of Shell’s differentiated portfolio, as well as our capacity to deliver vital energy to our customers in a volatile world.”

    The earnings are the latest in a series of record-setting results by the world’s biggest energy companies, which have enjoyed bumper profits off the back of soaring oil and gas prices.

    ExxonMobil this week posted record full-year earnings of $59.1 billion. Last month, Chevron

    (CVX)
    reported a record full-year profit of $36.5 billion.

    That has led to renewed calls for higher taxation. Governments in the European Union and the United Kingdom have already imposed windfall taxes on oil company profits, with the proceeds used to help households struggling with rising energy bills.

    Shell said it expected to pay an additional $2.3 billion in tax related to the EU windfall tax and the UK energy profits levy. The company paid $13 billion in tax globally in 2022.

    Shell

    (RDSA)
    also announced another $4 billion share buyback program and confirmed it would lift its dividend per share by 15% for the fourth quarter.

    This is a developing story and will be updated.

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  • Biden administration takes another step toward advancing a controversial oil drilling project in Alaska | CNN Politics

    Biden administration takes another step toward advancing a controversial oil drilling project in Alaska | CNN Politics

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    CNN
     — 

    The Interior Department’s Bureau of Land Management on Wednesday advanced the controversial Willow oil drilling project on Alaska’s North Slope, releasing the final environmental impact statement before the project can be approved.

    The ConocoPhillips proposed Willow drilling plan is a massive and decadeslong project that the state’s bipartisan Congressional delegation says will create much-needed jobs for Alaskans and boost domestic energy production in the US.

    But environmental groups fear the impact of the planet-warming carbon pollution from the hundreds of millions of barrels of oil it would produce – and say it will deal a significant blow to President Joe Biden’s ambitious climate agenda.

    The final environmental report from the Bureau of Land Management recommends a slightly smaller version of what ConocoPhillips originally proposed, putting the number of drilling sites at three instead of five. The Department of Interior is also recommending other measures to try to lower the pollution of the project, and recommending a smaller footprint of gravel roads and pipelines.

    In a statement, the Interior Department said it “has substantial concerns about the Willow project and the preferred alternative as presented in the final SEIS, including direct and indirect greenhouse gas emissions and impacts to wildlife and Alaska Native subsistence.”

    The Biden administration now has 30 days to issue a final decision on the project, after which drilling could begin. In its statement, Interior said it could select a different alternative on the project, including taking no action or further reducing the number of drill sites.

    ConocoPhillips and members of the Alaska Congressional delegation have been pushing the administration to finalize the project by the end of February to take advantage of cold and icy conditions needed to drill in the Arctic. If the company misses that window, it could push the project’s start date to next year.

    Erec Isaacson, president of ConocoPhillips Alaska, said in a statement that nearly five years of regulatory review should conclude “without delay.” Isaacson added the project is “ready to begin construction immediately” after Interior’s final decision is issued.

    According to the Interior Department’s own estimation, the project would produce 629 million barrels of oil over the course of 30 years and would release around 278 million metric tons of planet-warming carbon emissions. Climate groups say that’s equivalent to what 76 coal-fired power plants produce every year.

    “The world and the country can’t afford to develop that oil,” said Jeremy Lieb, a senior attorney for environmental law firm Earthjustice. Lieb and other advocates are concerned that Willow may be the start of a future drilling boom in the area.

    “Willow is just the start based on what industry has planned,” Lieb said. “The total estimate for the amount of oil that could be accessible in the region around Willow is 7 or 8 billion barrels.”

    For the Willow project, ConocoPhillips is proposing five drilling sites on federal land in Alaska’s North Slope, and the project would include a processing facility, pipelines to transport oil, gravel roads, at least one airstrip and a gravel mine site.

    The project – and the public comment process leading up to it – has also received heavy criticism from the nearby Alaska Native village of Nuiqsut, which some villagers evacuated last year during a gas leak in a ConocoPhillips project in the area. Nuiqsut officials recently released a letter calling the Bureau of Land Management’s public input process “disappointing and inadequate,” criticizing both the Trump and Biden administration’s timeline.

    The bureau’s “engagement with us is consistently focused on how to allow projects to go forward; how to permit the continuous expansion and concentration of oil and gas activity on our traditional lands,” Nuiqsut officials wrote in their letter.

    Alaska’s entire Congressional delegation – including newly elected Rep. Mary Peltola, a Democrat – have urged the White House and Interior to approve the project, saying it would be a huge boost to state’s economy.

    Sen. Lisa Murkowski, in particular, has been urging the White House and Biden personally to greenlight Willow, she told CNN.

    “I’ve been pretty persistent on this,” she told CNN in an interview this summer. “Let’s just say, any conversation I’ve ever had with the White House, anyone close to the White House, I’ve brought up the subject of Willow.”

    As gas prices spiked last summer, Murkowski, Sen. Joe Manchin of West Virginia, a Democrat, and other Senate Republicans tightened the pressure on Biden to approve a major domestic oil drilling project. Environmental advocates, meanwhile, argued the project will not bring US gas prices down any time soon, as the infrastructure will take years to build.

    “When you think about those things that should be teed up and ready to go, this is one where in my view there’s really no excuse for why we should see further delay,” Murkowski said. “This is something that’s been in the works that’s gone through so much process, across multiple administrations.”

    This story has been updated with more information.

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  • ExxonMobil earnings more than double to annual record | CNN Business

    ExxonMobil earnings more than double to annual record | CNN Business

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    New York
    CNN Business
     — 

    ExxonMobil’s earnings slowed from a peak earlier in the year but the oil giant still reached a full-year record profit more than double what it reported a year ago.

    The company earned adjusted income of $14 billion in the quarter, down from the record $18.7 billion it earned in the third quarter, but it was up from $8.8 billion in the fourth quarter of 2021. That was also better than the forecast from analysts surveyed by Refinitiv.

    The solid fourth quarter lifted full-year earnings to $59.1 billion from $23 billion in 2021, and well above the previous record net income of $45.2 billion it reported for 2008, the year that saw the record high for oil and US gasoline prices before the records set last year.

    The company was helped by soaring oil prices following Russia’s invasion of Ukraine nearly a year ago. But oil prices have been coming down from the peak reached in June, and are now down to pre-invasion levels.

    Oil companies such as ExxonMobil have faced criticism from the White House and some members of Congress for taking much of the profit and using it to repurchase shares and increase dividend, rather than increase production.

    CEO Darren Woods defended the company’s investments in production, saying the company’s North American refineries had their greatest output ever, and that it had its highest global refinery production since 2012.

    “Our results clearly benefited from a favorable market,” said Woods. “But, to take full advantage of the undersupplied market our work began years ago, well before the pandemic when we chose to invest counter-cyclically. We leaned in when others leaned out, bucking conventional wisdom. We continued with these investments through the pandemic and into today.”

    Still, the company returned $29.8 billion to shareholders during the year, with about half of it coming through dividends and half through share repurchases.

    That compares to $22.4 billion in spending on exploration and other capital spending. It also reported a $22.8 billion, or 336%, increase in cash on hand, ending the year with $29.6 billion in cash on its balance sheet. And it repaid $7 billion in debt.

    The full-year results come to an average of $1,874 of profit for every second during the course of the year. Since it takes about two minutes to pump 20 gallons of gas, that means that in the time it takes to fill a nearly empty tank of a full-size SUV or pickup, ExxonMobil earned about $225,000, on average.

    Shares of ExxonMobil were slightly lower in premarket trading initially after the report, perhaps on investor disappointment that no new share repurchase program was announced. But shares were slightly higher in morning trading after the open.

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  • Here’s why you should always wait for the earnings call | CNN Business

    Here’s why you should always wait for the earnings call | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    Investors are pretty bad at living in the moment. We’re currently in the thick of fourth quarter earnings reports, but traders don’t seem to care about how companies fared during the final months of 2022. They’re more focused on what’s going to happen in the future.

    Case-in-point: Earnings calls, where top execs pontificate about their economic outlook, have been moving markets more than earnings-per-share and revenue reports.

    What’s happening: The mantra on Wall Street has become, as Ritholtz Wealth Management CEO Josh Brown puts it, “ignore the numbers, wait for the call.”

    Microsoft reported great fourth quarter earnings last Tuesday that beat Wall Street’s expectations, but the stock dropped 4% the next day. That’s because CEO Satya Nadella got on an earnings call with investors and warned of a slowdown in the company’s cloud business and software sales. His negative outlook came just as the company announced it was letting go of 10,000 employees, further spooking investors. 

    Other tech companies are following suit — while things are fine for the time being, they’re reporting that the future is foggy.

    IBM stock sank 4.5% last Thursday even as the tech titan beat Wall Street’s Q4 expectations. The reason for the drop might be because Jim Kavanaugh, IBM’s finance chief, warned on the conference call that it would be wise to expect the company’s total 2023 revenue growth to be on the low end. IBM also announced layoffs – the company said it plans to cut around 3,900 jobs or 1.5% of its total workforce. 

    The economic environment is rapidly changing. CEOs on earnings calls are talking more about recession than inflation now, according to an analysis by Purpose Investments.

    Wall Street is also beginning to fear an economic downturn more than painful rate hikes and as a result investors are putting more weight on CEO and CFO forecasts.

    And they’re looking bleak. As of Friday, 19 companies in the S&P 500 had issued forward earnings-per-share guidance for the first quarter of 2023, according to FactSet data. Of these 19 companies, 17, or 89%, issued negative guidance. That’s well above the 5-year average of 59%.

    “My best guess is that cautious tones on conference calls will be the norm, not the exception,” wrote Brown in a recent post. These slowdowns have been partially factored into stock prices, he said, “but not necessarily in full.”

    The upside: Market reaction appears to go both ways. American Express missed on earnings last week but said that credit card spending was hitting new records and that the future looks bright. The stock shot up more than 10%. 

    Prices at the pump typically fall during the coldest months as wintry weather keeps Americans off the roads. But something unusual is happening this year, reports my colleague Matt Egan. Gas prices are rocketing higher.

    The national average for regular gas jumped to $3.51 a gallon on Friday and remained there through the weekend, according to AAA. Although that’s a far cry from the record of $5.02 a gallon last June, gas prices have increased by 12 cents in the past week and 41 cents in the past month.

    All told, the national average has climbed by more than 9% since the end of last year – the biggest increase to start a year since 2009, according to Bespoke Investment Group.

    Why are gas prices jumping? It’s not because of demand, which remains weak, even for this time of the year. Instead, the problem is supply.

    The extreme weather in much of the United States near the end of last year caused a series of outages at the refineries that produce the gasoline, jet fuel and diesel that keep the economy humming. US refineries are operating at just 86% of capacity, down from the mid-90% range at the start of December, according to Bespoke.

    Beyond the refinery problems, oil prices have crept higher, helping to drive prices at the pump northward. US oil prices have jumped about 16% since December partially due to expectations of higher worldwide demand as China relaxes its Covid-19 policies and also because oil markets are no longer receiving massive injections of emergency barrels from the Strategic Petroleum Reserve.

    What’s next: Expect more pain at the pump. Patrick De Haan, head of petroleum analysis at GasBuddy, worries the typical springtime jump in prices will be pulled forward.

    “Instead of $4 a gallon happening in May, it could happen as early as March,” De Haan told CNN. “There is more upside risk than downside risk.”

    A return of $4 gas would be painful to drivers and could dent consumer confidence. Moreover, pain at the pump would complicate the inflation picture as the Federal Reserve debates whether to slow its interest rate hiking campaign.

    Goldman Sachs had a rough time in 2022, and the investment bank’s CEO, David Solomon, is being punished for it. Well, kind of. 

    The investment banking giant said in a Securities and Exchange Commission filing Friday that Solomon received $25 million in annual compensation last year. While that is still a very large amount of money, it’s down nearly 30% from the $35 million that Solomon raked in during 2021, reports my colleague Paul R. La Monica

    Solomon’s $2 million annual salary is unchanged. But the company said that his “annual variable compensation,” paid in a mix of performance-based restricted stock units and cash, was well below 2021 levels.

    Goldman Sachs (GS) shares fell more than 10% in 2022. The company also  reported a 16% drop in revenue in the fourth quarter and profit plunge of 66% earlier this month, mainly due to the lack of merger activity and initial public offerings.

    Maybe Solomon can make that extra $10 million with payouts from his burgeoning DJ career

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  • Chevron earnings soar to a record | CNN Business

    Chevron earnings soar to a record | CNN Business

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    New York
    CNN
     — 

    Chevron reported a record full-year profit of $36.5 billion, buoyed by high oil prices.

    Adjusted earnings for the year more than doubled from the $15.6 billion Chevron earned in 2021 and up 36% from its previous record profit set in 2011.

    The oil company’s fourth-quarter earnings came in at $7.9 billion, up 61% from a year earlier but less than the record quarterly income of $11.4 billion it reported for the second quarter.

    The fourth quarter earnings per share of $4.09 fell short of the forecast of $4.38 a share from analysts surveyed by Refinitiv. But revenue in the quarter of $56.5 billion topped forecasts by nearly $2 billion and was up 17% from a year earlier.

    Full-year revenue of $246.3 billion was up 52% from 2021.

    Shares of Chevron

    (CVX)
    were down slightly more than 1% in premarket trading.

    Ahead of Friday’s report Chevron, the nation’s second largest oil company, behind only ExxonMobil, had announced it was hiking its dividend by 6% along with a massive $75 billion share repurchase plan. The decision brought criticism from those who said oil companies should be investing their money in producing more oil and gasoline to increase supply and drive down prices for inflation-weary drivers.

    “For a company that claimed not too long ago that it was ‘working hard’ to increase oil production, handing out $75 billion to executives and wealthy shareholders sure is an odd way to show it,” said Abdullah Hasan, assistant press secretary at the White House, in a tweet Wednesday evening after the share repurchase was announced.

    Chevron said Friday its investments in operations increased by more than 75% from 2021, and annual US production increased to the equivalent of 1.2 million barrels of oil a day.

    The amount it spent on capital spending and exploration in 2022 was $12.3 billion, up 43% compared with $8.6 billion spent in 2021, but only slightly more than the $11 billion it spent on dividends or the $11.3 billion on share repurchases during the year.

    The record profit came primarily from the soaring oil prices during the year, not its increased production.

    Chevron and other major oil companies all benefited from the spike in oil and gasoline prices during 2022, in the wake of Russia’s invasion of Ukraine. While Russia, one of the world’s leading oil exporters, sent relatively little oil to the United States, sanctions placed on Russia following the invasion roiled global commodity prices which set the price of oil.

    Futures for a barrel of Brent crude oil, the global benchmark, hit a record of $123.58 close in early June, up more than 50% from six months earlier ahead of the war, and the average price of a gallon of regular gas in the United States broke the $5 mark a week later to reach a record $5.03.

    But oil and gas prices have fallen substantially since then. Brent closed Thursday at $87.47, slightly below the year-earlier level, while the average price of a gallon of regular gas stands at $3.51 a gallon, only slightly higher from the $3.35 average of a year ago.

    But prices have started to rise once again, partly because Covid lockdown rules in China have been lifted. Traders believe that’s a bullish sign for global demand for oil and gasoline. Refinery problems caused by winter weather are also pushing prices higher.

    The average US price of a gallon of regular gasoline is up nearly 12 cents in just the last week and up 41 cents, or 13%, in the last month. Brent oil is up 12% in the last three weeks.

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  • Egg prices exploded 60% higher last year. These food prices surged too | CNN Business

    Egg prices exploded 60% higher last year. These food prices surged too | CNN Business

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    Minneapolis
    CNN
     — 

    Eggs, milk, butter, flour … if you were making pancakes last year, it would have cost you. Food prices surged in 2022.

    Grocery prices remain stubbornly high (and nearly double the rate of overall inflation) at 11.8% year over year, according to data released Thursday by the Bureau of Labor Statistics.

    Blame Russia, the weather, disease and a host of other factors.

    “Even though we’re seeing inflationary pressures ease, we still have a war in Ukraine,” said Tom Bailey, senior consumer foods analyst with Rabobank. “Fertilizer costs have improved, but they still remain very high. Energy costs have improved, but they still remain relatively high. Labor costs still remain a problem — and the list goes on.”

    Weather and disease are heavily affecting certain products’ prices, too – and none have been more rotten than egg prices: They’re up 59.9% year over year, a rate not seen since 1973, when high feed costs, shortages and price freezes caused certain agricultural products to soar in price. Since early last year, a deadly avian flu has devastated poultry flocks, especially turkeys and egg-laying hens. That was compounded by increasing demand and higher input costs, such as feed.

    As a result, people like Jim Quinn are shelling out upwards of $6 and $7 for a dozen eggs.

    Quinn has run daytime eatery The Hungry Monkey Café in Newport, Rhode Island, with his wife, Kate, since 2009. As a breakfast and lunch joint, it leans heavily on eggs for the majority of dishes on its menu — and especially for the 15-egg King Kong omelet novelty food challenge at the restaurant.

    Even though eggs and seemingly every other ingredient have risen in price during the past year, Quinn and The Hungry Monkey have chosen to eat the cost.

    “I’m trying to hold the line on the prices without having to increase them,” Quinn said. “It makes it extremely challenging for a mom-and-pop [business].”

    He added: “We’re just trying to stay alive and hope that things will come down.”

    But there’s good news on the horizon. The cost of food is still hard to swallow, but the latest Consumer Price Index shows that those price increases — by and large — are at least growing at slower rates.

    In December, “food at home” prices increased 0.2% from the month before. That’s the smallest monthly increase since March 2021.

    The expectations are for food price increases to continue to moderate, Bailey said.

    “I suspect over the next 12 months we will see improvements in supply, improvements in the conditions that have been challenging across most of our food categories,” he said, “and we’ll finally start to see prices, at least upstream, really starting to come off. And then maybe it’s 2024 where we could eventually see some deflation for food.”

    Here’s a look at how prices are trending across certain food categories in December, according to BLS data:

    Eggs: +59.9% annually; +11.1% from November

    Butter and margarine: +35.3% annually; +1.7% from November

    Lettuce: +24.9% annually; +4% from November

    Flour and prepared flour mixes: +23.4% annually; -1% from November

    Canned fruits and vegetables: +18.4% annually; +0.3% from November

    Bread: +15.9% annually; +0.2% from November

    Cereals and cereal products: +15.6% annually; -0.3% from November

    Coffee: +14.3% annually; +0% from November

    Milk: +12.5% annually; -1% from November

    Chicken: +10.9% annually; -0.6% from November

    Baby food: +10.7% annually; -0.2% from November

    Fresh fruits: +3.4% annually; -1.9% from November

    Uncooked ground beef: +0.7% annually; -0.1% from November

    Bacon and related products: -3.7% annually; -2.9% from November

    Uncooked beef steaks: -5.4% annually; +0.9% from November

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  • What got really expensive this year, and what got cheaper | CNN Business

    What got really expensive this year, and what got cheaper | CNN Business

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    New York
    CNN
     — 

    It’s been a tough year for US consumers, who battled decades-high inflation for the majority of the year and even saw gas prices hit $5 in June.

    The latest inflation data, not adjusted for seasonal swings, shows price hikes have now slowed to 7.1% for the year through November, after hitting a pandemic-era peak of 9.1% in June, according to the Bureau of Labor Statistics.

    From November 1 to December 24, shoppers still had to dig deep for gifts, with retail sales jumping 7.6%, unadjusted for inflation, compared to the same period last year, according to the Mastercard Spending Pulse, which tracks retail sales, excluding automotive sales. Holiday meals were also more expensive, and food prices outpaced inflation throughout the year.

    But while some items saw massive double-digit increases in 2022, others were a deal. Here’s how prices changed this year.

    Consumer demand for big-ticket electronics has fallen recently, leading stores to discount.

    In the year through November, several major electronics got cheaper: Smartphone prices plunged 23.4%, TV prices dropped 17% and computers got 4.4% less expensive.

    The price of major appliances fell 1%.

    Earlier in the year, chains like Best Buy and Walmart stocked up on merchandise, preparing for supply chain shortages and what they projected to be robust consumer demand. But their plans were derailed by inflation and slumping consumer confidence.

    Plus, many consumers had already made large purchases or upgrades while stuck at home early in the pandemic.

    Overall inflation outpaced the increase in apparel and other items.

    Apparel prices rose, but slowly. Clothing increased 3.6%, while footwear rose 2.3%. Sporting goods increased 2.7% and toys 0.6%.

    The increases made these items a relative bargain, as they were all outpaced by overall inflation.

    “In toys, sporting goods, apparel, categories like that, prices have come down more aggressively,” Walmart CEO Doug McMillon said in an interview on CNBC in December. “We’re still inflated but we’re not inflated nearly as much as we are in the other categories.”

    Here, again, many retailers misjudged consumer demand and so had excess inventory pile up. To clear out merchandise and entice shoppers to buy, stores ramped up promotions. This kept prices in check.

    Airfare prices spiked as demand roared back.

    This year, demand for air travel roared back after falling to an all-time low in 2020. Plane ticket prices jumped 36% annually in the year through November.

    In March, Delta president Glen Hauenstein called the spike in demand “unprecedented,” adding “I have never seen … demand turn on so quickly as it has after Omicron,” the Covid-19 variant that caused cases to spike last winter.

    Many airlines reported record revenue in April, May and June thanks to high airfares and full planes as travelers returned in full force two years into the pandemic.

    On the ground, travel got more expensive, as well. Gasoline prices were up 10.1% for the year, but are now off their record highs. Volatility in gas prices was largely due to Russia’s invasion of Ukraine and geopolitical maneuvers that used oil supply as a tool.

    Still, the national average could still climb back above the $4-a-gallon threshold as soon as May, according to GasBuddy projections shared with CNN.

    GasBuddy, an app that tracks fuel prices, doesn’t anticipate another year of extreme volatility, however.

    Food inflation was higher than overall inflation in the year through November.

    In the year through November, food got 10.6% more expensive, outpacing overall inflation.

    In that period, several individual grocery items got even pricier for a variety of reasons.

    Egg prices shot up a massive 49.1%, due to a supply shortage caused by a deadly avian flu, coupled with high demand.

    Margarine got 47.4% pricier because of price swings in the vegetable oil market caused largely by the war in Ukraine, while butter got 27% more expensive after a contraction in the global milk supply.

    Another staple, flour, got 24.9% more expensive due to the war in Ukraine’s impact on the global grain market and high transportation costs in the United States. Even lettuce saw a 19.8% increase, due to crop disease in California.

    Overall, grocery prices jumped 12% in the period, with many consumers accepting the higher prices as thriftier alternatives to restaurant meals, which also grew more expensive, though at a slower clip. Food away from home became 8.5% more expensive in 2022, with many restaurants hiking up menu prices in order to mitigate their own higher input costs.

    — CNN’s Matt Egan and Chris Isidore contributed to this report.

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  • Gas prices had a wild ride this year, making 2023 tough to predict | CNN Business

    Gas prices had a wild ride this year, making 2023 tough to predict | CNN Business

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    New York
    CNN
     — 

    US drivers have never seen a year quite like 2022.

    Wild price swings at the gas pump throughout the year make predicting prices for 2023 even more difficult.

    Russia’s invasion of Ukraine and the sanctions that it sparked on Russian oil sent the price of crude soaring in February at the beginning of the conflict. And even though relatively little Russian crude oil was ever exported to US refineries, the fact that oil prices are set on global commodity markets meant that US drivers were not spared a spike in gas prices.

    Prices were far more volatile throughout 2022 than they were in other recent years, both during and before the pandemic roiled oil markets.

    By June, the average US gas price crossed $5 a gallon for the first time ever, hitting a record $5.02 on June 14. But after that came a prolonged slide in gas prices, prompted by a number of factors, including the release of oil from the US Strategic Petroleum Reserve, concerns about the possibility of a recession in both the US and global economies, and a surge in Covid cases that caused renewed lockdowns in Asia. By the end of the year, the national average price of a gallon of regular gas had fallen to just over $3, well below the pre-invasion price, back to the average price of late summer of 2021.

    But there was not the same level of relief for the price of diesel. Diesel prices fell 20% from their peak in June, only about half the decline for gasoline during the same period. And while gasoline is cheaper than it was a year ago, diesel remains close to the pre-2022 record price set in 2008. Greater demand for North American diesel by Europe in the wake of the war in Ukraine kept diesel prices so high.

    While relatively few US drivers use diesel for their private cars, it is still the fuel used by most heavy trucks, so it had an impact on the average American’s wallet. Most trucking companies charge a fuel surcharge to their customers when diesel prices increase. Because virtually all goods purchased by Americans are on a truck at some point before those purchases, that was a factor driving inflation higher.

    The wild swings in oil and gasoline prices were a major factor in battered consumer confidence during the year. But those swings were not felt evenly across the nation and throughout the year. Many of the western states faced much higher gas prices because of more limited refining capacity. But there were a number of refinery accidents throughout the year that caused spikes in other regions as well. So, everyone saw wide swings in prices, though not always at the same time.

    There is also the wide variation in gas taxes, from 68 cents a gallon in California to only 15 cents a gallon in Alaska. Some states temporarily halted their state gas taxes during the year in the face of high prices.

    But the difference in average income in the different states meant that drivers in some of the states with relatively low prices had to work almost as many hours to buy 15 gallons of gas as those drivers in high-priced states.

    For example, in Mississippi, where the hourly average wage in November was $24.52, according to the Labor Department, it took 1 hour and 41 minutes of work to earn enough to pay for 15 gallons at $2.75 a gallon at year’s end. In California, where the average price of regular was $4.38 a gallon, or about 60% more than in Mississippi, the average hourly wage of $37.61 meant that they only had to work four more minutes to buy those 15 gallons.

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  • Oil and Turkish stocks were 2022 market winners. Russia funds and crypto tanked | CNN Business

    Oil and Turkish stocks were 2022 market winners. Russia funds and crypto tanked | CNN Business

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    New York
    CNN
     — 

    Oil stocks skyrocketed in 2022, so it’s no surprise funds that track the energy sector were Wall Street winners this year. But the top fund of the year is a surprising one: It invests in a variety of companies based in Turkey.

    The iShares MSCI Turkey exchange-traded fund had more than doubled as of December 19, according to data from Morningstar Direct. The fund has big stakes in Turkish financial giant Akbank, Istanbul-based retailer Bim and the parent company of Turkish Airlines.

    Turkey has been hit hard by inflation, like the rest of the world, and its currency, the lira, has plummeted against the US dollar and other leading global currencies.

    So why the big gains?

    Turkey’s stock market thrived because the country is doing something most others aren’t: Its central bank has been slashing interest rates to prop up consumer spending. Turkish President Recep Tayyip Erdogan wants to keep rates super low. He has even fired several central bankers in the past few years who refused to lower rates.

    The Turkish economy has slowed recently as unemployment has risen, but the instability has not hurt Turkish stocks. The iShares Turkey ETF has also had a lift from higher energy prices, as refinery Tüpraş is a top holding.

    Other US and international oil funds and ETFs were also at the top of Morningstar Direct’s list. (Morningstar Direct provided CNN Business with a ranking of the best and worst mutual funds and ETFs for 2022, excluding so-called leveraged funds that make outsized bets on stock market indexes.)

    The United States 12 Month Natural Gas

    (UNL)
    , Energy Select Sector SPDR

    (XLE)
    and several oil/energy funds run by top investing firms like Fidelity, Vanguard and BlackRock’s

    (BLK)
    iShares are all up between 50% and 80% for the year.

    In this rocky year for stocks, there were significantly more losers than winners in the mutual fund and ETF world in 2022. The SPDR S&P 500 ETF

    (SPY)
    and Invesco QQQ

    (QQQ)
    , which track the S&P 500 and Nasdaq 100, were down 19% and 31% respectively.

    But no funds were hit harder than ETFs with exposure to Russia.

    Most funds with investments in top Russian companies either liquidated or halted trading following Vladimir Putin’s decision to invade Ukraine in late February, an act that essentially forced the United States, Europe and rest of the Western world to cut ties with Moscow and Russian businesses.

    Investments in Russia ETFs from iShares, VanEck and Voya were pretty much wiped out.

    The carnage in cryptocurrencies also hit several funds hard. Bitcoin prices were plunging even before the collapse of former crypto unicorn FTX. But the stunning demise of Sam Bankman-Fried’s company sent further shock waves throughout the industry.

    Funds from Osprey, Grayscale, VanEck (again), Global X, Bitwise, First Trust, Invesco and many other institutional investment firms all tumbled more than 70% in 2022.

    Other once-trendy funds were also hit hard this year.

    Several of the Ark ETFs run by Cathie Wood, which had significant exposure to Tesla

    (TSLA)
    , Coinbase, Zoom

    (ZM)
    , Roku

    (ROKU)
    and other momentum tech stocks that have dropped precipitously in 2022, were among the biggest fund losers.

    Numerous funds focusing on cannabis stocks also, ahem, went to pot this year. Cannabis ETFs from AdvisorShares, Global X and Amplify all plunged more than 60%. Even though more states are legalizing recreational and medicinal weed, intense competition in the business is making it difficult for cannabis companies to generate profits.

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  • ‘Life or death.’ As Britons buckle under the cost of living crisis, many resort to ‘warm banks’ for heat this winter | CNN

    ‘Life or death.’ As Britons buckle under the cost of living crisis, many resort to ‘warm banks’ for heat this winter | CNN

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    London
    CNN
     — 

    In a community center in central London, a young child plays in a makeshift area as her caregiver rocks her stroller and chats to a friend.

    The Oasis Centre in Waterloo sits in a four-story building that has a warm, inviting feeling, with plush chairs and lots of potted plants.

    But it’s not your regular high street hangout. This is a haven for families and local people to escape the bitter squeeze of Britain’s cost-of-living crisis – if only for the afternoon.

    Thousands of warm banks have opened their doors across the UK this winter, as household budgets are squeezed even further by spiking energy bills and inflation reaches a 40-year high, leaving many scrambling to pay for basic necessities. There are more than 3,000 registered organizations running warm banks in Britain, according to the Warm Welcome Campaign, an initiative that signposts community-led responses to the cost-of-living crisis.

    “A lot of people are struggling,” Charlotte, a community and families worker at the center, tells CNN. Her full name is not being disclosed for privacy reasons.

    “We haven’t even really got to the peak of the living crisis yet,” the 33-year-old mother-of-four adds. “No one should be choosing whether to put food on the table or to put the heating on.”

    The hub is funded by donations from individuals and local businesses, as well as grant incomes from charitable trusts.

    The cost of living has risen sharply since early 2021, according to data from the UK government. From October 2021 to October 2022, domestic gas and electricity prices increased by 129% and 66% respectively, the same research found.

    The average annual energy bill surged 96% from last autumn to £2,500 (roughly $3,000), with the UK government intervening to cap the unit cost of gas and electricity bills at that level until April 2023. However, the total amount consumers pay for their energy depends on their consumption habits, where they live, how they pay for energy and what type of meter they use, according to the UK’s regulator, Ofgem.

    A welcoming sign outside the Oasis Centre, an open to all communal area which acts as a 'warm bank', in London, on December 12.

    Charlotte, who works at and uses the warm space in Waterloo, says she limits her gas and electricity use in her flat. Instead of turning on the heating in the evening, she and her partner sit under quilts and use hot water bottles to stay warm, she says.

    She also anticipates her household energy costs increasing over Christmas, as her children, who are between 4 and 17 years old, spend more time at home during the school holidays. At the moment, Charlotte spends most days at the hub and said this habit will continue over the holidays to help alleviate her costs at home.

    Grace Richardson is an adult services manager at Future Projects in Norwich, in eastern England, an organization that offers health, housing and financial support to residents. She says her team started planning over the summer to provide a warm space in the organization’s Baseline Centre, located in an area with significant poverty.

    “This winter in particular, it’s extremely important that we’re offering a space that people can turn everything off at home and they can save money,” she tells CNN.

    “We’ve got people here working full time and they cannot make ends meet. That’s where the real difference is.”

    From young parents to pensioners to students in their 20s, Richardson says that people from all walks of life use the warm space, with about 25 attending each day. The warm bank, where staff serve meals, is subsidized by grant funding from the local council and private or corporate foundations, as well as donations from individuals.

    The café space at Future Projects' Baseline Centre in Norwich. The Centre, which serves as a community space, is currently undergoing renovation.

    Michael John Edward Easter, 57, says the service at the Baseline Centre has been a lifeline for him this winter.

    Easter, who has lymphedema in both legs and arthritis in one knee, is unable to work. Speaking to CNN earlier this month, he said he’d turned the heating on in his one-bedroom flat just twice so far this year to avoid spiking energy costs and compensate for a 50% increase in his weekly supermarket bill.

    He says he “was in a mess” when he first reached out to the Baseline Centre in January for welfare advice, as he was dealing with mobility challenges and craved a sense of community.

    “I was so ashamed and embarrassed, but I had to cry out for help,” he says. “I needed help and I just didn’t know where to turn to. If I’m totally honest, I’m very lonely.”

    Richardson suggests the need for warm banks is a result of government inaction.

    “I think that it highlights just how far removed our government is right now from the reality of real life. I think it screams … the divide between us and them, it’s only getting wider,” she says. “We keep referring to this as a cost of living crisis, as though it’s a period of time we’re going to go through and we will come out the other side. Will we? It’s life or death.”

    Energy prices have soared across Europe since fall 2021, driven in part by Russia’s war in Ukraine. But UK energy prices rose more sharply than in comparable economies such as France and Italy, analysts told CNN Business this summer.

    In November, UK Prime Minister Rishi Sunak and Finance Minister Jeremy Hunt announced higher taxes and reduced public spending in an effort to heave the country out of a recession forecast to last just over a year and shrink its economy by just over 2%, according to the Office for Budget Responsibility. The UK is the only G7 economy that remains smaller than it was before the coronavirus pandemic, according to the Office for National Statistics.

    Snow-covered roofs on terraced houses in Aldershot, UK, on December 12. UK power prices jumped to record levels just as a lengthy spell of freezing temperatures caused a surge in demand.

    The UK government also announced an Energy Bill Support Scheme worth £400 per eligible household, which will partially subsidize domestic energy bills from winter 2022 to 2023, as well as providing extra financial support to help pensioners pay their heating costs this winter under the Winter Fuel Payment scheme.

    In December more than one million households with prepayment meters did not redeem their monthly energy support vouchers – included in the government’s Energy Bill Support Scheme – the BBC reported.

    But Michael Marmot, a lead researcher in epidemiology and health inequalities, says years of austerity, paltry government support, cuts to spending on social welfare and infrastructure, and a lack of regulation in the UK’s energy market have plunged millions into fuel poverty.

    “Poverty has been building up over the last dozen years and getting worse,” says Marmot, director of University College London’s Institute of Health Equity.

    “We look the worst in G7 countries, we’re the only one in terms of recovery … that hasn’t gone back to where we were pre-pandemic. This is mismanagement on a colossal scale.”

    An estimated 3.69 million households in the UK were in fuel poverty as of December 2020 compared with 6.99 million households in December 2022, Simon Francis, who coordinates the End Fuel Poverty Coalition, told CNN.

    This figure is set to steadily increase, with more than three-quarters of UK households – 53 million people – forecast to be in fuel poverty by the new year, according to research by the University of York in northern England.

    The human rights organization Save the Children has distributed 2,344 direct grants to low-income families in the UK in the past year, the Guardian reported. The head of the charity also called on the government to provide more support for families, as it predicts acute financial hardship for millions in January.

    “What do you want a well-functioning society to do? At the minimum, people should be able to eat, to feed their families, have a safe dwelling … and a safe dwelling includes one that’s warm enough,” Marmot adds.

    Flyers advertising the warm spaces service alongside complimentary refreshments for visitors, at the Ashburton Hall community hub, operated by Greenwich Leisure Ltd., in Croydon, UK, on December 15.

    Susan Aitken, leader of Glasgow City Council in Scotland, says warm banks are “not a solution” to the cost of living crisis but rather “an emergency service.” The council has established more than 30 warm banks across the city in spaces including church halls, libraries, sports venues and cafes, and that number is expected to increase, according to Aitken. The service runs on council budgets and charitable donations.

    “The solution is for people to be able to stay in their own homes,” she says.

    “It’s bad enough that food banks have become a permanent fixture of communities across the UK now. To have places that people have to go to because they can’t afford to heat their own home is an absolute indictment (of government policy).”

    CNN has reached out to the UK government for comment, but it did not respond.

    Back at the Oasis Centre, locals show up for anything from knitting circles to after-school clubs offering free hot meals.

    Steve Chalke, the hub’s founder, says about 200 people use the facility daily for warmth. He says that he does not advertise the service as a warm bank because it is “dehumanizing.” Instead, he coordinates community-led events that are held in warm venues across the city.

    “The idea is to not inquire and to not ask,” he says. “It’s stigmatizing and it’s traumatizing, you know, so you end up feeling a non-person. So we want to take away that stigma in every way we can.”

    Steve Chalke, founder of the Oasis Centre, at the hub in Waterloo, London, on December 1.

    Francis, the End Fuel Poverty Coalition coordinator, says one of the most significant challenges to curbing fuel poverty is removing the taboo that people may feel when asking for support.

    “I think one of the problems with fuel poverty … is it is quite a hidden form of poverty. People kind of … try and cover it up and try and get by,” he says. “We’re not going to know the full extent of the pain that people are suffering this winter, because there will be ways that people will disguise what it is that they’re doing.”

    The mental health costs of fuel poverty are far-reaching, according to a 2020 report from the UCL Institute of Health Equity. The report said that young people living in cold homes are seven times more likely to have symptoms of poor mental health compared with those living in warm homes.

    “There’s surprisingly lots of people that do have work, but yet it’s not enough to keep afloat, at least without needing some help,” says Bintu Tijani, a mother-of-four who goes to the Oasis Centre at least three times a week to warm up. “It’s having a significant impact on people’s wellbeing, mental health and wellbeing.”

    Looking ahead to Christmas and the New Year, Francis says he is also concerned about the strain that treatment needed for medical conditions exacerbated or caused by cold weather will have on Britain’s National Health Service (NHS).

    “We’re still calling for the government to realize that if it doesn’t take action to support those who are the most vulnerable … it is going to see a huge increase in the number of people turning up at the NHS’ door to seek help because of the fact that they are now living in a cold, damp home and it is making them sick,” he says.

    Britain’s NHS is already under pressure amid staff shortages, historic nurses’ strikes over poor pay and working conditions, and a backlog of treatments resulting from the coronavirus pandemic.

    Aitken, the councilor in Glasgow, believes this Christmas will “be a pretty miserable time” for many.

    “A Christmas where you have to ration how long you can put your heating on in your home is not a good Christmas for anyone.”

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  • Biden begins to refill Strategic Petroleum Reserve, while Keystone Pipeline leak prompts new emergency exchange | CNN Business

    Biden begins to refill Strategic Petroleum Reserve, while Keystone Pipeline leak prompts new emergency exchange | CNN Business

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    New York
    CNN
     — 

    The Biden administration announced plans Friday to provide nearly 2 million barrels of oil to refineries through an emergency exchange and simultaneously begin efforts to replenish the Strategic Petroleum Reserve early next year.

    The new emergency exchange is aimed at addressing “potential supply disruptions” caused by the shutdown of the Keystone Pipeline due to a leak earlier this month, the Energy Department said. Part of that key pipeline remains shuttered and no timeline has been issued for a full reopening.

    Emergency exchanges allow oil refineries to borrow oil from the SPR for a short period due to supply disruptions such as hurricanes or pipeline outages. Unlike with emergency sales such as the record-setting release of 180 million barrels announced in March, this oil must be returned.

    In this case, the Energy Department agreed to provide 1.2 million barrels of oil from the SPR to ExxonMobil and 600,000 barrels to Phillips 66.

    At the same time, the Biden administration is beginning plans to repurchase crude oil for the SPR for the first time since that unprecedented release earlier this year.

    The Energy Department is planning to solicit bids to repurchase up to 3 million barrels of oil for the SPR to be delivered in February, the senior administration official said. The repurchase will pilot a new approach to buy back the oil at a fixed price, the official said.

    “Small but a signal that pledges to refill are credible,” former Obama energy official Jason Bordoff said on Twitter in response to the new steps.

    The senior administration official conceded it will take months or even years to refill the SPR, whose stockpiles are at the lowest level in 38 years.

    Comprised of underground salt caverns in Texas and Louisiana, the SPR is the world’s largest supply of emergency crude oil. It has been used during times of war and natural disaster to ease supply crunches.

    The move to begin to refill the SPR — and to lock in a price — comes as oil prices have plunged to one-year lows amid recession fears.

    “This repurchase is an opportunity to secure a good deal for American taxpayers by repurchasing oil at a lower price than the $96 per barrel average price it was sold for, as well as to strengthen energy security,” the Energy Department said in a statement.

    The administration announced in October that it planned to repurchase oil for the SPR when prices are at or below roughly $67-$72 a barrel. Officials said at the time such a move would help boost demand and provide the oil industry with an incentive to keep pumping even during times of stress.

    Oil prices dropped nearly 4% on Friday morning to as low as $73.33 a barrel. Oil trimmed its losses after the Energy Department announced the SPR moves, with crude recently trading down 1.5% to $75 a barrel.

    Prices are currently in a “very useful” range to begin the process of refilling the SPR, the senior administration official said.

    Officials stressed that the efforts to refill the SPR won’t prevent future emergency releases in the future, if necessary.

    “The SPR remains ready to respond to energy security needs today. We will be prepared and as nimble as we can to make sure the SPR is doing everything it can on behalf of energy security and American consumers,” the senior administration official said.

    The Energy Department also took a bit of a victory lap for the decision to release 180 million barrels of oil following Russia’s invasion of Ukraine.

    Noting that gas prices are now at 15-month lows, the senior administration official said that historic release “helped provide some breathing room for American families at the pump,” the official said.

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  • Why we think we’re in a recession when the data says otherwise | CNN Business

    Why we think we’re in a recession when the data says otherwise | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN Business
     — 

    It seems like you can’t go anywhere these days without colliding headfirst into another ominous prediction of imminent recession. CEOs, portfolio managers, politicians, news pundits, second cousins and even Cardi B are sounding the alarm: Hear ye! Hear ye! Economic downturn awaits all who dare enter 2023!

    But those predictions contradict the slew of positive economic data we’ve seen: The job market is healthy, wages are growing, Americans are spending and GDP is strong. Business is also good: Companies are largely beating revenue expectations and reporting positive earnings results.

    The Federal Reserve’s regimen of painful interest rate hikes meant to tame persistent inflation could certainly cool the economy — as could events in Eastern Europe and China — but the economy has been able to successfully endure nearly a year of hikes and war in Ukraine with barely a dent.

    It’s possible that recession chatter is just that. Chatter.

    What’s happening: No one would ever accuse investors of shying away from their emotions: Passions run high on trading floors where feelings are often as valid as facts and fear and greed can sometimes run the show. Economists, on the other hand, are a data-dependent, stoic bunch. The US economy is not Wall Street, and market downturns are not recessions — but sometimes they get jumbled together in the public eye and their borders become hazy.

    That appears to be the case: The Fed’s attempts to tamp down sky-high inflation are having an outsized impact on markets — the S&P 500 is down about 18% so far this year but there has so far been little impact on the US economy as a whole.

    This week, a number of top executives warned of an economic slowdown in 2023. CEOs from Goldman Sachs, JPMorgan, General Motors, Walmart, United and Union Pacific all said they were making plans for less-profitable times ahead. But hidden behind those “CEO PREDICTS RECESSION” headlines lies a lot of uncertainty.

    Rising interest rates and geopolitical chaos are pointing towards storm clouds on the horizon, JPMorgan CEO Jamie Dimon told CNBC on Tuesday: “When you look out forward, those things may well derail the economy and cause this mild-to-hard recession that people are worried about.” When pressed to predict what was coming, he deflected. “It could be a hurricane. We simply don’t know,” he said. What was left unsaid was that sunny days are also a possibility.

    Feedback loop: United Airlines CEO Scott Kirby also told CNBC on Tuesday that “we’re probably going to have a mild recession induced by the Fed.” He then went on to say that demand in his industry is higher than ever and United entered the fourth quarter with profit margins near all-time highs. He doesn’t see any indication of a slowdown on the horizon, either.

    So why does he think a recession is coming? “If I didn’t watch CNBC in the morning, the word ‘recession’ wouldn’t be in my vocabulary,” he said. “You just can’t see it in our data.”

    It’s almost as though Kirby predicted recession was imminent because other prominent voices predicted that recession was imminent. And it’s possible that we’re all stuck in a feedback loop that amplifies unjustified fear.

    Prophecies are often self-fulfilling. If CEOs believe recession is coming, they preemptively batten down the hatches — and that means less spending and more layoffs, which in turn can trigger an economic downturn.

    Goldman CEO David Solomon said Tuesday that the bank may soon terminate staff and exercise caution with its financial resources due to the mounting economic uncertainty. Morgan Stanley will reportedly slash its workforce by about 1,600 people, roughly 2% of the total.

    The upside: Some parts of Wall Street seem to be avoiding the recession fervor. ​​A recent study by Goldman Sachs found that smart money is betting on a soft landing. Money managers have been favoring industrial and commodity stocks that are sensitive to economic downturns. Stocks that act as a buffer during economic downturns like consumer staples and utilities have fallen out of favor at investment funds with assets totaling almost $5 trillion, Goldman strategists found.

    “Current sector tilts are consistent with positioning for a soft landing,” they wrote.

    Oil prices have tumbled to their lowest level since Christmas as worries about the health of the economy weigh on crude, overshadowing concerns about new restrictions imposed on Russian energy, reports my colleague Matt Egan.

    Brent crude, the world benchmark, lost nearly 3% on Thursday to around $77.45 a barrel.

    The oil selloff comes after the West hit Russia with new restrictions that, so far at least, do not appear to be derailing global energy markets.

    The European Union on Monday imposed a ban on seaborne oil imports from Russia, while the West placed a $60 cap on Russian oil. Both moves are designed to hurt Russia’s ability to finance its war in Ukraine, without hurting consumers by causing Moscow to slash oil production.

    “Russia oil is still on the market. As of now, it appears Russia is willing to play ball,” said Robert Yawger, vice president of oil futures at Mizuho Securities.

    The tame reaction from energy markets is a welcome gift for Americans heading on long drives this holiday season, as prices at the gas pump are expected to continue their recent plunge.

    US oil this week hit its lowest level since December 23, 2021, before recovering a little on Thursday to trade up 2% at $73.60 a barrel. That leaves oil down by 43% since briefly topping $130 a barrel in March amid fears about Russia’s invasion of Ukraine.

    The national average price for regular gasoline dipped by three cents to $3.33 a gallon on Thursday, according to AAA. Gas prices have dropped 14 cents in the past week and 47 cents in a month. The national average is a cent lower than a year ago when they averaged $3.34 a gallon.

    Britain is bracing for further disruption from strikes heading into the Christmas period, as ambulance drivers and nurses join rail operators and postal workers in the worst wave of walkouts the country has endured for at least a decade, reports my colleague Hanna Ziady.

    More than 20,000 ambulance workers, including paramedics and call handlers, are expected to strike on December 21 in a dispute over pay, according to statements from labor unions GMB, Unison and Unite.

    The strike will involve just under half of all ambulance drivers in England, Wales and Northern Ireland, although unions have said they will cover life-threatening emergencies during the walkouts. More than 10,000 ambulance workers represented by the GMB Union will strike again on December 28.

    Strikes have swept the United Kingdom this year, as workers grapple with a cost-of-living crisis and stagnating wages. Consumer prices rose by 11.1% in the year to October, a 41-year high. Once inflation is taken into account, average wages fell by the biggest drop on record earlier this year, and were still declining in the June-September period.

    According to The Times newspaper, one million UK workers are set to strike in December and January. Data from the Office for National Statistics shows Britain has already lost at least 741,000 days to strike action this year, putting it on track for its worst year of labor disputes in at least a decade.

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  • When China and Saudi Arabia meet, nothing matters more than oil | CNN Business

    When China and Saudi Arabia meet, nothing matters more than oil | CNN Business

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    Hong Kong
    CNN Business
     — 

    Chinese President Xi Jinping is visiting Saudi Arabia this week for the first time in nearly seven years, during which he is expected to sign billions of dollars of deals with the world’s largest oil exporter and meet leaders from across the Middle East.

    The visit is a sign that China and the Gulf region are deepening their economic relations at a time when US-Saudi ties have crumbled over OPEC’s decision to slash crude oil supply. As Xi wrote in an article published in Saudi media, the trip was intended to strengthen China’s relations with the Arab world.

    China is Saudi Arabia’s biggest trading partner and a source of growing investment. It’s also the world’s biggest buyer of oil. Saudi Arabia is China’s largest trading partner in the Middle East and the top global supplier of crude oil.

    “Energy cooperation will be at the center of all discussions between the Saudi-Chinese leadership,” said Ayham Kamel, head of Eurasia Group’s Middle East and North Africa research team. “There is great recognition of the need to build a framework to ensure that this interdependence is accommodated politically, especially given the scope of energy transition in the West.”

    Governments around the world have committed to drastically cutting carbon emissions over the coming decades. Countries such as Canada and Germany have doubled down on renewable energy investments to expedite their transition to net-zero economies.

    The United States has significantly increased domestic oil and gas output since the 2000s, while accelerating its transition to clean energy.

    The Russian invasion of Ukraine in February has triggered a global energy crisis that has left all countries racing to shore up supplies. And the West has further scrambled the oil markets by slapping an embargo and price cap on the world’s second biggest exporter of crude.

    Energy security has also increasingly become a key priority for China, which is facing significant challenges of its own.

    Last year, bilateral trade between Saudi Arabia and China hit $87.3 billion, up 30% from 2020, according to Chinese customs figures.

    Much of the trade was focused on oil. China’s crude imports from Saudi Arabia stood at $43.9 billion in 2021, accounting for 77% of its total goods imports from the kingdom. That amount also makes up more than a quarter of Saudi Arabia’s total crude exports.

    “Stability of energy supplies, in terms of both prices and quantities, is a key priority for Xi Jinping as the Chinese economy remains heavily reliant on oil and natural gas imports,” said Eswar Prasad, a professor of trade policy at Cornell University.

    The world’s second largest economy is heavily reliant on foreign oil and gas. 72% of its oil consumption was imported last year, according to official figures. 44% of natural gas demand was also from overseas.

    At the 20th Party Congress in October, Xi stressed that ensuring energy security was a key priority. The comments came after a spate of severe power shortages and soaring global energy prices following Russia’s invasion of Ukraine.

    As the West shunned Russian crude in the months that followed the invasion, China took advantage of Moscow’s desperate search for new buyers. Between May and July, Russia was China’s No. 1 oil supplier, until Saudi Arabia regained the top spot in August.

    “Diversity is a key ingredient for China’s long-term energy security because it cannot afford to put all of its eggs in one basket and turn itself into a captive of another power’s energy and geostrategic interests,” said Ahmed Aboudouh, a nonresident fellow with the Middle East Programs at the Atlantic Council, a research institute based in DC.

    “Although Russia is a source of cheaper supply chains, nobody can guarantee, with utmost certainty, that the China and Russia relationship will continue to shore up 50 years from now,” Aboudouh said.

    The Saudi Press Agency cited Saudi energy minister Prince Abdulaziz bin Salman as saying Wednesday that the kingdom would remain China’s “credible and reliable partner in this field.”

    Saudi Arabia also has strong motivations to deepen energy ties with China, according to Gal Luft, co-director of the Institute for the Analysis of Global Security.

    “The Saudis are concerned about losing market share in China in the face of a tsunami of heavily discounted Russian and Iranian crude,” he said. “Their goal is to ensure China remains a loyal customer even when the competitors offer [a] cheaper product.”

    Oil prices have fallen back to where they were before the Ukraine war on fears of a sharp global economic slowdown. The extent to which the Chinese economy can pick up pace next year will have a huge bearing on how bad that slump will be.

    Beyond security of supply, Saudi Arabia could offer Beijing another prize with bigger geopolitical ramifications.

    Riyadh has been in talks with Beijing to price some of its oil sales to China in the Chinese currency, the yuan, rather than the US dollar, according to a Wall Street Journal report. Such a deal could be a boost to Beijing’s ambitions to expand the Chinese currency’s global influence.

    It would also hurt the long-standing agreement between Saudi Arabia and the United States that requires Saudi Arabia to sell its oil only for US dollars and to hold its reserves partly in US Treasuries, all in return for US security guarantees. The “petrodollar system” has helped preserve the dollar’s status as the top global reserve currency and payment medium for oil and other commodities.

    Although Beijing and Riyadh never confirmed the reported talks, analysts said it was logical that the two sides would be exploring the possibility.

    “In the near future, Saudi Arabia could sell some of its oil and receive revenues in Chinese yuan, which makes economic sense as China is the kingdom’s top trading partner,” said Naser Al Tamimi, senior associate research fellow at ISPI, an Italian think tank on international affairs.

    Some believe it’s already happening, but that neither China nor the Saudis want to highlight it publicly.

    “They know too well how sensitive this issue [is] for the United States,” said Luft. “Both parties are overexposed to the US currency and there is no reason for them to continue to conduct their bilateral trade in a third party’s currency, especially when this third party is no longer a friend of either.”

    Xi’s visit could mark another step “in the erosion of the dollar’s status” as reserve currency, he added.

    Nonetheless, there are limits to the growing ties between Riyadh and Beijing.

    “The Biden administration’s approach to the Middle East has concerned the Saudis, and they see a growing relationship with China as a hedge against potential US abandonment and a tool for leverage in negotiations with the United States,” said Jon B. Alterman, director of the Middle East Program at the Center for Strategic and International Studies, a Washington DC-based think tank.

    The Biden administration has reoriented its policy priorities with a focus on countering China. At the same time, it has indicated its intention to downsize its own presence in the Middle East, sparking worries among allies there that the United States may not be as committed to the region as it used to be.

    “All that being said, Chinese-Saudi ties pale in both depth and complexity to Saudi-US ties,” Alterman said. “The Chinese remain a novelty to most Saudis, and they are additive. The United States is foundational to how Saudis see the world, and how they have seen it for 75 years.”

    Despite the possibility of shifting to yuan transactions, it’s too early to say Saudi Arabia would ditch the dollar in pricing its oil sales, analysts said.

    Eurasia Group’s Kamal believes it’s “highly unlikely” that Saudi Arabia would take such a step, unless there is an implosion on the US-Saudi relationship.

    “In essence there could be discussion on pricing of barrels to China in yuan, but this would be limited in size and probably only correspond to bilateral trade volumes,” he said.

    Prasad from Cornell University said countries like China, Russia, and Saudi Arabia are all eager to reduce their dependence on the dollar for oil contracts and other cross-border transactions.

    “However, in the absence of serious alternatives and with few international investors willing to place their trust in these countries’ financial markets and their governments, the dollar’s dominant role in global finance is hardly under serious threat,” he said.

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  • US trade deficit edged up to $78.2 billion in October | CNN Business

    US trade deficit edged up to $78.2 billion in October | CNN Business

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    New York
    CNN Business
     — 

    The US trade gap edged only slightly higher in October than the month before, to $78.2 billion.

    The latest reading was up just 5.4%, less than half the pace of increase from the revised September reading, when the trade deficit jumped by 12.7% to $74.1 billion.

    A strong dollar and weaker global demand weighed on exports both months. A strong dollar makes US goods more expensive to foreign buyers and it also makes imports more affordable for US buyers. But economic slowdowns in overseas markets also hit US exports in the most recent readings.

    The latest report shows exports fell 0.7% in October compared to the month before, and are down nearly 2% from the record exports set in August. Most of the drop was in the export of goods, rather than services, which fell 4.4% compared to August.

    Oil prices have come down since earlier this year, according to data released in the report. The average price of crude oil imports in the month was $82.05 a barrel, down 5.7% from September, and down 21.7% from the peak in June.

    But the United States now exports more petroleum products, by dollars, than it imports. So a lower price of crude no longer helps the trade deficit the way it might have done in the past, when crude and petroleum product imports vastly exceeded exports.

    The deficit in the movement of goods between the United States and China narrowed significantly in the latest report, falling 22.6% to $28.9 billion from $37.3 billion, one factor in the smaller trade gap increase.

    Although most of that narrowing was due to a 31.3% jump in the export of US goods to China, compared to September, a 9.5% decline in US imports of Chinese goods was also a factor in the smaller trade deficit between the two countries.

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