2023-12-05 14:19

NEW YORK, Dec 5 (Reuters) - An epic rally in U.S. stocks has sent Wall Street's fear gauge to a post-pandemic low. Options strategists believe market gyrations may stay subdued for some time - potentially smoothing the way for further gains in equities. The Cboe Volatility Index (.VIX), which measures investor demand for protection against stock swings, is hovering just above that low of 12.45 hit late last month, in contrast with a long-term average level of about 20. The move occurred as expectations that the Federal Reserve is done cutting interest rates fueled a rebound in the S&P 500, taking the index to a new closing high for the year. The S&P 500 is up 19% year-to-date, following a 9% gain in November - its best monthly performance since July 2022. A 0.5% decline in the S&P 500 on Monday took the VIX to 13.08. Since the VIX tends to move inversely to stocks, market participants watch it closely as an indicator of investor sentiment and positioning. With momentum firmly on the side of the bulls and investors' risk appetite high, options mavens say volatility is likely to remain subdued for the remainder of the year. "Volatility has really collapsed," said Ilya Feygin, consultant to institutional execution services firm WallachBeth Capital. Feygin believes volatility is likely to remain suppressed until at least to year-end. Among the factors closely watched by market participants are the funds that take their signals from market volatility, selling when volatility picks up and buying when it subsides. As market gyrations have calmed, these volatility-targeting funds have become buyers of U.S. equities, sucking up some $30 billion worth of purchases in the week ended Nov. 30, according to data from Nomura Securities. If stocks average only a 0.5% move daily over the next month, the funds could buy around $21 billion more worth of equities, Nomura strategist Charlie McElligott said, offering upside support for stocks into year-end. Another volatility dampener comes from options dealers, who act as intermediaries between buyers and sellers. These dealers are now net long "gamma" - meaning they have to sell stock futures when markets rally and buy futures when markets sell off in order to square the risk on their books. "Hedging flows associated with this should restrict market movements," Brent Kochuba, founder of options analytic service SpotGamma. History also shows that once volatility expectations become subdued, they can linger at low levels for a while. The VIX took anywhere from three weeks to more than three months to break decidedly above 13 the last five times it fell below that level for more than a couple of days, a Reuters analysis showed. Overall, the VIX has been below 13 for roughly 20% of its three decade history. The calm in markets has rewarded those betting against volatility. The 1x Short VIX Futures ETF , which tracks the Short VIX Futures Index and seeks to provide greater returns as volatility falls, is up 135% for the year, making it the 20th best performing U.S.-listed ETF, according to VettaFi data. Still, some market watchers see a potential warning sign in the recent calm. In November, traders' expectations of S&P 500 30-day implied volatility - which measures expectations for stocks’ gyrations - fell below 30-day realized volatility - or how much stocks were actually moving - by the widest margin since December 2022. The last four times a similar drop happened saw the S&P 500 decline, on average, by 8.5% over the next 31 days, data from Cantor Fitzgerald showed. Eric Johnston, Cantor Fitzgerald’s head of equity derivatives and cross asset, said those drops occurred within the scope of a 250% gain for the S&P 500 in the period, which stretched from 2014 to the present. Nevertheless, hedges bought now would pay well should another market decline materialize, he said. Implied volatility falling below realized volatility, "tends to be the calm before the storm," Johnston said. https://www.reuters.com/markets/us/stock-hungry-volatility-funds-gamma-heavy-options-dealers-could-buoy-us-equities-2023-12-05/

2023-12-05 12:05

Dec 5 (Reuters) - Russian metals giant Nornickel has teamed up with some of its Chinese clients to test new catalysts for the hydrogen industry as it seeks to find a place for palladium in the global green energy transition, its head of product development told Reuters. Palladium prices are down 46% this year, partly on bets on surpluses as battery powered electric vehicles, which do not need the metal, reduce demand from the automotive sector. The use of palladium in catalytic converters to reduce harmful emissions from internal combustion engines currently accounts for 80% of global demand for the metal. Nornickel is performing "wide fundamental research together with Russian and foreign scientists" to replace the eventual loss of autocatalysts with new demand, Dmitry Izotov said on a call with Reuters while he attended the COP28 summit in Dubai. Copper and some other metals are widely expected to benefit from a global move towards more environmentally friendly energy options. Palladium does not yet have a significant role in that future. But Nornickel, which mines 40% of the world's palladium, is trying to change that. The envisaged new products could add 40 metric tons of global demand for palladium by 2030, offsetting a surplus of 10-20 tons owing to the expected reduction in consumption by the automotive industry by the same year, Izotov said. So far, Nornickel and its Chinese partners have been conducting semi-industrial tests of palladium-based catalysts for the hydrogen industry's water electrolysis and fuel cell technology, Izotov said. The tests are due to be completed in the first quarter of 2024. Tests of palladium-based catalysts for the chemicals industry will start in the second quarter while Nornickel itself will focus on development of a palladium-based photocell coverage for the solar power sector. Nornickel is not the only metals miner searching for technologies that would use more of its metal in future. Refiner Heraeus and miner Sibanye Stillwater (SSWJ.J) in November presented a ruthenium-based catalyst to reduce reliance on iridium in hydrogen production. Izotov did not name Nornickel's partners in China, the world's top metals consumer, but said they include producers of electrolysers and fuel cells. https://www.reuters.com/sustainability/climate-energy/nornickel-chinese-partners-seek-place-palladium-energy-transition-2023-12-05/

2023-12-05 11:56

BASF to buy 49% of shares in Vattenfall wind energy project BASF to use its share of output to supply production sites Dec 5 (Reuters) - BASF (BASFn.DE) has struck a deal with Swedish utility Vattenfall to buy into two German offshore wind farms, in the German chemicals giant's latest move to secure fossil-free power and reduce the carbon footprint of its production. The companies said on Tuesday they had signed a memorandum of understanding for BASF to buy 49% of shares in a project that encompasses the North Sea wind farms of Nordlicht 1 and 2. The financial terms was not disclosed. BASF will receive almost half of the electricity produced at the sites and use it to supply its chemical production sites across Europe, in particular in Ludwigshafen, western Germany. Vattenfall will use its share of the fossil-free electricity to supply its German customers, the company said. The deal is expected to be signed in the first half of 2024, with a final investment decision projected the following year. The wind farms are to be fully operational in 2028 and have a combined capacity of 1.6 gigawatts (GW), the companies said. In 2021, BASF invested 1.6 billion euros ($1.7 billion) in 49.5% of Vattenfall's Hollandse Kust Zuid. The Dutch wind park has a capacity of 1.5 GW. The Nordlicht wind farms, north of the German island of Borkum, are expected to reach a combined production of around 6 terawatt hours (TWh) per year once fully operational, equal to the electricity consumption of 1.6 million German households. BASF's share of this output would account for around half of the electricity used by its Ludwigshafen site. However, due to the switch to climate-neutral production processes, the group's electricity needs are set to increase significantly in future. ($1 = 0.9229 euros) https://www.reuters.com/business/energy/basf-vattenfall-partner-up-german-offshore-wind-farms-2023-12-05/

2023-12-05 11:49

RIYADH, Dec 5 (Reuters) - The World Food Programme (WFP) said on Tuesday it had paused general food distribution in north Yemen due to limited funding and disagreement with local authorities over how to focus on the poorest there. Sanaa and northern Yemeni regions are under the control of the Iran-aligned Houthi group, which has been at war since 2014 with a Saudi-backed government that is based in the southern port city of Aden. The fighting has abated over the last two years, easing what the United Nations has described as the world's worst humanitarian crisis. However, millions still rely on direct humanitarian aid. The WFP said the decision was taken in consultation with donors and comes after a year of negotiations and no agreement had been reached to reduce the number of people served to 6.5 million from 9.5 million. Food stocks in the areas under the Houthi administration are almost depleted and resuming food assistance  could take up to  four months  due to disruption of the supply chain, the U.N. agency said in a statement. There was no immediate comment from Houthi officials. The WFP had already reduced rations in Yemen since 2022 due to critical funding gaps and global inflation that followed Russia's invasion of Ukraine. The agency said it would continue other programmes, including nutrition and school feeding programmes to limit the impact of the decision. General food distribution would continue with a focus on the neediest in the areas controlled by the Saudi-backed government, it said. https://www.reuters.com/world/middle-east/world-food-programme-pauses-distribution-north-yemen-funds-limited-2023-12-05/

2023-12-05 11:47

Dec 5 (Reuters) - Exxon Mobil (XOM.N) CEO Darren Woods' first five years at the oil company were marred by missed oil production targets, an investor rebellion and the company's biggest-ever financial loss. Redemption came this year when - aided by a share price pumped up by high oil prices - he clinched a $60 billion deal to buy shale rival Pioneer Natural Resources (PXD.N) to guarantee a steady stream of crude from the United States' most prized shale field. Exxon's stock has underperformed rival Chevron over the course of Woods' tenure as CEO. The company recorded a $22 billion loss in 2020 in the depth of the pandemic. Now, his biggest challenge lies ahead as he executes a strategy to compete for investors demanding high returns and lower greenhouse gas emissions. His plan aims to balance profits from cheaper barrels of oil closer to home, like Guyana's vast offshore oilfields, with a risky multi-billion-dollar promise to create and sell decarbonizing services at margins akin to oil. "We can address the emissions without throwing out all the investments that have been made (in oil)," the CEO told Reuters at the climate summit COP28 on Saturday. "Whatever the demand is, we're competitive. That's the strategy." Woods has set for himself a short four years to deliver on his latest strategy, according to Reuters interviews with Exxon executives, former employees, investors and partners. The executive plans to lay out to investors a new era for Exxon on Wednesday, when he updates the company's capital spending plans and production curve to incorporate his recent goals. That future includes pumping more than 4.4 million barrels of oil per day (bpd) by 2027, a goal that will require new technology to squeeze an extra 700,000 bpd or more from its existing shale wells. He is expected to offer Wall Street an updated budget for addressing methane leaks, and the impact of a waning future for motor fuels and the rise of hydrogen fuels and battery-powered electric vehicles, costly issues with no simple solutions. PAST IS PROLOGUE? Exxon's track record of buying assets at peak levels has frustrated investors. “You grow and you grow, and you grow, and then you sell it to Exxon,” said oil analyst Paul Sankey, from Sankey Research. Woods' latest decision to concentrate future production in two large assets in the Americas contrasts his expansionist vision from five years ago, when Exxon sunk capital into low-margin, high-risk ventures around the world. Among those projects was a $4 billion bet in 2017 with partners on drilling rights offshore Brazil. It was once a top prospect for growth, but Exxon so far has failed to find a drop on its own. Analysts say Woods is implicitly asking the market for the benefit of the doubt on the acquisition of Pioneer and Denbury, a $4.9 billion carbon-pipeline firm Exxon bought to underpin its plans to sell carbon sequestration services to other companies. "That was an easy ask with Guyana. Not so much for shale and (carbon capture and storage). We are not there yet," Sankey said. So far, Woods' plans have turned investors demanding an energy transition strategy into believers - at least on climate. "The path that they're going down is the path that we thought they should go down,” said Chris James, chairman of activist investor Engine No. 1 which led a victorious 2021 proxy fight that attacked Exxon for overspending in oil. Woods deal for Denbury fits into an overall $17 billion bet on decarbonization and hydrogen through 2027. To allay investor worries about declining demand for gasoline and other fuels, he has restructured its downstream units to easily switch to chemical from motor fuels. At the same time, the company plans to have a leading role in the vehicle electrification business. In November, Exxon pledged to become by 2027 a large scale producer of lithium, the raw material used in electric vehicle batteries. MORE OIL VS GREEN AMBITION Exxon's ambitious agenda includes starting up the world's largest hydrogen power plant by 2027. These low-carbon businesses can generate return on investment of between 10% and 20%, Exxon said. "We expect this business to generate solid double-digit returns and we expect to compete for capital inside of the rest of the ExxonMobil portfolio," said Low Carbon Solutions unit President Dan Ammann. Capital spending on low carbon technologies will take about 11% of the company's annualized budget through 2027, or roughly half of what European peers invest. But that is a dramatic difference from as recently as 2.5 years ago, when less than 1% of Exxon's budget was devoted to projects with low emissions. "We can evaluate whether this is a business or not in 2027," said Goldman Sachs analyst Neil Mehta. To prove Woods is right, Exxon would need to generate between $1.7 billion and $3.4 billion in net income from the business by 2027, he said. Woods and Ammann declined to specify a targeted year for delivering the promised profits. RISKY BUSINESS The $17 billion budget for low carbon technologies as the company's total revenue grows next year "will continue to rise", the CEO said. Upon completion, in the first half of 2024, the Pioneer acquisition will add nearly 20% in oil and gas production to Exxon's sales. The investment plan contains risks. Both hydrogen and carbon capture are yet to be regulated, infrastructure is sparse or nonexistent and profitability is uncertain. Returns will also depend on hefty government subsidies. "There is a risk a lot of the hydrogen projects being announced around the country never get to a final investment decision," said GTI consultant Brian Weeks, who also coordinated the HyVelocity hydrogen hub proposal by Exxon and dozens of partners. Exxon's acquisition of Denbury and its 1,300 mile carbon dioxide pipeline network will be linked to a hydrogen facility in Texas and more than 160 offshore blocks in the Gulf of Mexico where Exxon plans to bury carbon dioxide. Spending in low carbon currently is constrained by scarcity of customers willing to sign up for contracts and insufficient regulations, Woods said. Exxon has convinced the largest ammonia maker in the U.S., an industrial gas company and a large steel company to ink long-term contracts for carbon reduction services. The services should be fully paid for only after plants, pipelines and carbon reservoirs are in place. The terms of the contracts, announced earlier this year were not disclosed, offering little visibility for investors. “There is a price to pay when you want to be a pioneer,” said Chris Bohn, finance chief at ammonia maker CF Energies, which was the first company to sign up for Exxon’s Low Carbon Solutions service. https://www.reuters.com/markets/commodities/exxons-ceo-charts-new-era-exxon-an-ambitious-timeline-2023-12-05/

2023-12-05 11:42

LONDON, Dec 5 (Reuters) - The Confederation of British Industry said on Tuesday that Rupert Soames, the chair of medical devices company Smith & Nephew (SN.L), will succeed Brian McBride as the business group's president early next year. The appointment comes as the CBI seeks to put itself on a more stable footing, after an exodus of corporate members earlier this year in the wake of rape and sexual assault allegations which led to a police investigation. Soames, a grandson of Winston Churchill who was previously chief executive at Aggreko and Serco (SRP.L), will take over from McBride early in the new year before facing a confirmation vote at the CBI's annual general meeting in June 2024. "With the CBI back influencing at the highest levels across the UK again, there is no better person to pass the baton to," said McBride, who is also chair of Trainline Plc (TRNT.L). The day-to-day work of the CBI is led by its chief executive, Rain Newton-Smith, who returned to the body in April after chief executive Tony Danker was fired due to concerns about his conduct unrelated to other more serious allegations. Britain's government and main opposition political parties paused high-level engagement with the CBI earlier this year, but finance minister Jeremy Hunt and Labour Party business spokesman Jonathan Reynolds both addressed a CBI conference last month. https://www.reuters.com/world/uk/confederation-british-industry-names-rupert-soames-next-president-2023-12-05/