Wall Street Hunts for More AI Gold After Nvidia's Soaring Rally

Stocks

Summary:

Money managers are scrambling to cash in on the stock market's interest in artificial intelligence...

Money managers are scrambling to cash in on the stock market's interest in artificial intelligence, as a stunning rally by Nvidia sparks a search for other companies that are capitalizing on the technology.

Shares of Nvidia — whose chips are the gold standard in the AI industry — are up about 60% this year after tripling in 2023. The run has pushed its market value to roughly US$2 trillion, making it the third-largest US company by market cap after Microsoft and Apple.

It has also spurred Wall Street to search for other AI-focused companies in hopes of catching outsized moves. Whether investors are looking at the broader chip industry or betting on firms elsewhere in the value chain, they agree on one thing: AI is here to stay.

“It's not a fad," said Francisco Bido, senior portfolio manager for F/m Investments' Large Cap Focused Fund. "There are too many ... cases where companies can make really good use of the technology to enhance both their top and bottom lines."

Excitement over AI helped power the Nasdaq Composite Index to a record high on Thursday, while the S&P 500 also marked its latest record. The indexes are both up about 7% this year.

Further signs of the growing fixation on AI have been easy to spot. Mentions of AI on conference calls reached a new high in the fourth quarter, Goldman Sachs said recently. The bank's analysts have estimated artificial intelligence technology could add 1.5 percentage points to US productivity growth if there is widespread adoption over the next decade.

A Morgan Stanley survey of chief information officers suggests 2024 is "a Year of Investment for AI," the bank said in a note this week, with CIOs naming AI/machine learning as their top priority for the first time.

Bido's fund retains a large holding in Nvidia, but has branched out into other AI plays, including rival chipmaker Advanced Micro Devices and MongoDB, whose database products could be in high demand as AI is poised to change data infrastructure needs.

Those stocks have risen sharply, although less dramatically, than Nvidia and some other AI plays that have recently captured the market's attention. AMD shares are up 30% year-to-date, for example, while Mongo's have risen 9%, though the shares of both companies doubled last year.

By contrast, shares of server component supplier Super Micro Computer and chip designer ARM Holding have jumped about 200% and 90%, respectively, in 2024. SMCI's shares tripled in 2023.

Ivana Delevska, founder and chief investment officer of Spear Invest, said Nvidia has remained the biggest holding in its Spear Alpha ETF. But the exchange-traded fund has also sought to capitalize on growing cybersecurity needs related to AI by owning shares of Zscaler, a cybersecurity specialist. The fund's position in Snowflake, meanwhile, seeks to take advantage of data infrastructure demands.

Of course, the risks of playing the often-volatile stocks of AI-related companies remain despite the technology's higher profile. Shares of Snowflake, for example, fell 18% on Thursday after the company projected annual revenue below Wall Street estimates and disclosed the unexpected retirement its CEO.

Baker Avenue Wealth Management trimmed its Nvidia holding as the stock has climbed so that it does not occupy too large a position in client portfolios, said King Lip, the firm's chief strategist.

But the firm recently started building a position in Taiwan Semiconductor, a key supplier to Nvidia.

"If you still want artificial intelligence exposure but are perhaps a little skittish about Nvidia's stock price, I think Taiwan Semi is kind of a no brainer," Lip said.

Que Nguyen, chief investment officer of equities at Research Affiliates, is looking for reasonably valued semiconductor companies that could stand to benefit from AI. Among them are Lam Research Corp, which supplies equipment to the semiconductor industry, and Micron Technology, which makes memory chips and data storage.

Lam Research shares are up about 20% so far this year, while Micron is up 6%.

“Large language models are not just processing, you need to have storage," Nguyen said.

Of course, many investors are happy sticking with big Nvidia positions.

The Martin Currie US Unconstrained Fund has nearly 10% of its assets — the maximum the fund allows for one stock — in Nvidia, said portfolio manager Zehrid Osmani. He believes the company will maintain competitive advantages as it spends more heavily than rivals on research and development.

"We have high conviction in the name, and that's expressed through high position size," Osmani said.

Source: Reuters

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Thomas

Energy

Energy companies are ramping up exploration activities in Southeast Asia to boost natural gas output and meet long-term demand growth, drawn by recent discoveries and improved investment policies, company executives and analysts said.

Malaysia and Indonesia have recently seen successful upstream discoveries, including a major discovery by Mubadala Energy in the South Andaman Block, following years of underinvestment in the sector since the 2015 oil price crash.

As economic and population growth will spur continued gas demand growth in the region, which is expected to peak before 2040, "there is an important window of opportunity for investments in gas and LNG (liquefied natural gas)," said Stefano Raciti, Mubadala Energy's chief operating officer at an industry conference in Kuala Lumpur this week.

"In Southeast Asia, we believe this means continuing investing in exploration and expanding in gas production," he added.

Mubadala is working on expanding output at its Pegaga gas field in Malaysia where two energy majors will be involved for the first time through recent acquisitions.

France's TotalEnergies announced last month it bought a 50 per cent stake in Malaysian-headquartered SapuraOMV and Chevron is acquiring Hess which has assets in Malaysia.

Separately, Indonesia's Pertamina and Malaysia's Petronas acquired Shell's 35 per cent stake in the Inpex-operated Masela natural gas block.

In January, Malaysian state energy firm Petronas awarded production sharing contracts for six exploration blocks under a 2023 bidding round, and launched a fresh bid round this year for the exploration of ten blocks and clusters to potential investors.

Indonesia also plans to offer more oil and gas blocks in North Sumatra basin this year following a major discovery by Mubadala Energy in South Andaman Block and is reviewing its fiscal regime to attract investments for unconventional resources.

"In the last two to three years, Indonesia and Malaysia have witnessed a good size of discoveries, which added on to the momentum overall. That pushes for more interest in exploration," said Rystad Energy analyst Prateek Pandey.

Malaysia will likely drill around 30 exploration wells this year and 35 wells in 2025, up from 8 in 2021, he said, while Indonesia will see around 40 wells this year, versus 20 wells during the COVID pandemic.

While the number of exploration wells in Indonesia will slightly decrease in the second half of the decade, Malaysia's will be consistent through to 2028 due to successful bidding rounds seen in the last three to four years, added Pandey.

Increased flexibility in production sharing contracts and better fiscal terms have also attracted more investments into the region. Indonesia said in September it had made improvements in its oil and gas terms allowing contractors to have equity shares of over 50 per cent in some new blocks.

"As an investor coming from outside of the country, we need to have certainty in terms of investment policies and regulation in upstream activities. And we see that happening for the last five years," said Yuzaini Yusoff, Indonesia country head for Malaysia's national upstream company Petronas Carigali.

"For upstream, we are focusing on expansion in exploration... Eastern Indonesia is where a lot of unexplored basins are situated at."

Source: CNA

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Samantha Luan

Central Bank

Economic

Forex

Yen reverses some of yesterday's gains after cautious comments from BoJ Governor Kazuo Ueda, which highlighted that Japan is "not there yet" to reach the long-sought-after sustainable inflation rate of 2%. Ueda's perspective starkly contrasted with the more hawkish tones of Board Member Hajime Takata, who has advocated for beginning discussions on exiting the ultra-loose monetary policy.

While Governor Ueda's role naturally predisposes him to a more guarded stance, his optimistic comments on the ongoing wage negotiations inject a positive note into inflation outlook, potentially signaling confidence in domestic economic strengthening.

At the same time, the rally in Japanese stock continue to look unstoppable. Nikkei makes more records highs today, and it's now tantalizingly close to 40k psychological milestone. sentiment.

In the wider currency market, Yen maintains its position as the week's strongest contender, closely followed by the robust Dollar. On the other end of the spectrum, commodity currencies are facing headwinds, getting scant support from the less-than-stellar PMI data from China. New Zealand Dollar, in particular, lags as the weakest, with the Australian and Canadian Dollars also underperforming.

Euro stands out as the third strongest currency, showing resilience and outpacing both Sterling and Swiss Franc, as market participants await CPI flash data from Eurozone for further direction.

Technically, GBP/CHF would be an interesting one to watch today. Near term consolidation from 1.1182 has possibly completed with three waves to 1.1114, just ahead of short term rising channel support. Firm break of 1.1182 would confirm this bullish case, and resume whole rise from 1.0634. Next target will be 61.8% projection of 1.0893 to 1.1182 from 1.1114 at 1.1293. The move could be accompanied by break of 0.8884 resistance in USD/CHF on broad-based Swiss Franc selloff. Markets Respond to BoJ’s Dual Tone, Yen Pares Gains While Nikkei Soars_1

Markets Respond to BoJ’s Dual Tone, Yen Pares Gains While Nikkei Soars_1

In Asia, at the time of writing, Nikkei is up 1.92%. Hong Kong HSI is up 024%. China Shanghai SSE is up 0.04%. Singapore Strait Times is down -0.09%. Japan 10-year JGB yield is up 0.0030 at 0.717. Overnight, DOW rose 0.12%. S&P 500 rose 0.52%. NASDAQ rose 0.90%. 10-year yield fell -0.022 to 4.252.

BoJ's Ueda stays cautious on achieving sustainable inflation

Bank of Japan Governor Kazuo Ueda reiterated that Japan has not yet achieved sustainable 2% inflation. "I don't think we are there yet," he said after G20 finance ministers' meeting.

A significant focus for BoJ in the near term will be the outcome of upcoming annual wage negotiations between companies and unions. Ueda pointed out the importance of these negotiations in determining the potential for a positive wage-inflation cycle in Japan.

"We need to confirm whether a positive wage-inflation cycle would kick off and strengthen," he noted, acknowledging the rising demands from unions for pay increases exceeding last year's and the apparent willingness among many firms to comply.

However, Ueda also stressed the need for a comprehensive review of the collective results of these wage negotiations, alongside other economic data, to gauge whether wages and inflation will sustainably rise in tandem.

Japan's PMI manufacturing finalized at 47.2, worst since Aug 2020

Japan's PMI Manufacturing was finalized at 47.2 in February, down from January's 48.0. This marks the ninth consecutive month of contraction, presenting the most significant downturn since August 2020.

According to S&P Global, the decline was characterized by sharper falls in both output and new orders. Additionally, the sector experienced the most substantial decline in employment seen in over three years, indicating that the downturn is having a tangible impact on workforce. Furthermore, rate of increase in output prices slowed to the lowest level since June 2011, suggesting that price pressures are easing amid weakened demand.

China's NBS PMI manufacturing falls slightly to 49.1, Caixin manufacturing rises to 50.9

China's manufacturing sector continued its contraction for the fifth consecutive month in February, with official NBS PMI decreasing slightly from 49.2 to 49.1, matched expectations.

New orders subindex remained steady at 49, indicating stagnant demand. New export orders fell further from 47.2 to 46.3, reflecting ongoing pressures on the export front.

NBS PMI Non-Manufacturing rose from 50.7 to 51.4 , surpassing the anticipated 50.8. PMI Composite remained unchanged at 50.9.

In parallel, Caixin PMI Manufacturing, which focuses more on small and medium-sized enterprises, edged up from 50.8 to 50.9 , slightly above expectations of 50.7.

Caixin noted sustained increase in output and new orders, with firms expressing improved business optimism for the second consecutive month. Additionally, input cost inflation declined to a seven-month low, while selling prices fell.

RBNZ's Orr: Restrictive policy to stay, expects normalization next year

RBNZ Governor Adrian Orr affirmed today that the economy is "evolving as anticipated", with inflation expectations declined. However, he reiterated inflation "is still too high".

The governor emphasized the necessity of maintaining a restrictive monetary policy stance "for some time." He added that he expects to "begin normalizing policy in 2025."

Fed's Williams sees rate cut this year, stresses lack of urgency

New York Fed President John William reiterated that he expected rate cuts to start this year, but emphasized there is "no sense of urgency to do that".

"I think that makes sense with inflation coming down, the economy being in better balance, that we're going to move interest rates back to more normal levels," he said at an event overnight.

Williams noted that monetary policy is "in good place", and the focus now is to gain confidence that inflation is on track to 2% target.

Fed's Mester: Inflation fight continues, yet three rate cuts still expected in 2024

Cleveland Fed President Loretta Mester remains steadfast in her view that inflation is on track to Fed's target, despite a month-over-month jump in the preferred inflation gauge.

Nevertheless, "it does show you there is a little more work for the Fed to do," Mester said in a Yahoo Finance interview overnight.

Mester reiterated her December forecast of three rate cuts in 2024, suggesting that this remains a plausible scenario if the economy progresses as she expects. "Right now that feels about right to me if the economy evolves as I anticipate it will," she stated.

Fed's Goolsbee optimistic about US economy's golden path in 2024

Chicago Fed President Austan Goolsbee, at an even overnight, highlighted the scope for the US economy to maintain what he terms the "golden path," a scenario where inflation falls in conjunction with sustained labor market strength and economic growth. This balance, he notes, is historically rare but remains a viable outcome for the current year.

Goolsbee's confidence stems from anticipated improvements in supply chain efficiency and labor supply impacts, which he believes will bolster this optimistic economic scenario.

"I still feel like there is supply benefit coming through the system on both the supply chain, and the impact of labor supply," Goolsbee remarked.

Fed's Daly sees greenshoots yet rate cuts await clearer signals

San Francisco Fed President Mary Daly highlighted the shift towards a more data-dependent approach, a move away from extensive forward guidance. She underscored the importance of being "methodical" in decision-making, emphasizing Fed's intention to "hold on just right" without being locked into predefined commitments.

In a Bloomberg TV interview overnight, Daly articulated the need for "a collage of evidence" to confirm a sustainable downward trend in inflation, relying not just on published economic statistics but also on insights from business contacts. Although she acknowledged the emergence of positive signs, or "green shoots," in the economy, she cautioned, "we're not there yet," indicating that more evidence is needed to confirm that inflation is on a consistent decline.

Furthermore, Daly discussed the implications of adjusting the nominal interest rate as inflation begins to ease. She argued for the necessity of reducing interest rates in a timely manner to prevent overly tightening monetary policy that could inadvertently trigger an economic downturn.

Looking ahead

Eurozone CPI flash is the main focus in European session. Eurozone unemployment rate, PMI manufacturing final; Swiss retail sales and PMI manufacturing; UK PMI manufacturing final will also be released.

Later in the day, US ISM manufacturing is the main focus while Canada will also release PMI manufacturing.

USD/JPY Daily Outlook

USD/JPY rebounded strongly after brief dip to 149.20 and intraday remains neutral for now. On the upside, decisive break of 150.87 will resume whole rally from 140.25 to retest 151.89/93 key resistance zone. On the other hand, considering bearish divergence condition in 4H MACD, firm break of 149.20 will confirm short term topping at 150.87. Deeper fall would be seen to channel support (now at 148.29), even as a corrective move. Markets Respond to BoJ’s Dual Tone, Yen Pares Gains While Nikkei Soars_2

Markets Respond to BoJ’s Dual Tone, Yen Pares Gains While Nikkei Soars_2

In the bigger picture, rise from 140.25 is seen as resuming the trend from 127.20 (2023 low). Decisive break of 151.89/.93 resistance zone will confirm this bullish case and target 61.8% projection of 127.20 to 151.89 from 140.25 at 155.50. However, break of 148.79 resistance turned support will delay this bullish case, and extend the corrective pattern from 151.89 with another falling leg. Markets Respond to BoJ’s Dual Tone, Yen Pares Gains While Nikkei Soars_3

Markets Respond to BoJ’s Dual Tone, Yen Pares Gains While Nikkei Soars_3

Source: ActionForex

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Westpac

Economic

In Australia, the Monthly CPI Indicator fell 0.3% in January, leaving the annual rate unchanged at 3.4%yr. Goods prices – which constitute the bulk of the new information at this point in the quarter – reportedly fell 0.2% in the month, marking three monthly declines in this category since October. The main driver of the softness in headline inflation, however, was the often-volatile holiday travel and electricity prices. Highlighting the effectiveness of Government rebates in limiting the pass-through of energy inflation to households, electricity prices would have been up 15.3%yr sans rebates versus 0.8%yr. Based on the partial information presented in this update, risks to our Q1 CPI forecast of 0.7% (3.4%yr) look balanced. Next month will provide an update on more services components.

While the disinflationary process will offer more support for households in time, the consumer is currently in a fragile state. In January, retail sales rose 1.1%; but, given weakness in prior months, annual growth is just 1.4%yr, well below the rate of inflation and population growth. The interplay between employment, wage and price growth will be critical for spending over the coming year. Perceptions of wealth and comfort with the liabilities held against housing assets are also critical. For a deep-dive into the prospects for Australia’s housing market and its implications for sentiment, see our latest Housing Pulse.

In the lead-up to next week’s Q4 GDP report, the ABS also released two partial indicators of investment this week. Construction activity lifted 0.7% in Q4, in line with expectations. The easing in the growth pace is consistent with a maturing cycle, as the impetus from pandemic-era disruptions and supportive policy measures, which drove the initial ‘jump’ in project starts, fades. The detail continues to highlight a strong contribution from public works (+4.9%), centred on infrastructure projects. Momentum in the private sector is a stark contrast (–1.0%) due to broad-based weakness in new dwelling construction and renovations, partially offset by continued gains in non-residential building work.

The Q4 Capex survey subsequently reported a 0.8% lift in capital expenditure. While an upside surprise relative to our expectations for the quarter, momentum was clearly lost from H1 2023 to H2 2023. Equipment spending, which feeds into GDP, fell 0.1%, while building and structures rose 1.5%. On spending intentions, the fifth estimate for 2023/24 CAPEX plans remained optimistic, up around 12% compared to the fifth estimate a year ago. In our view, that implies a 10% rise in nominal CAPEX spending over the financial year – though given the strength of inflation in the sector, this likely equates to flat real spending over 2023/24.

Factoring in this partial information and the significant decline in hours worked, we have revised down our Q4 GDP forecast and now anticipate a flat result for the quarter. Our Q4 GDP preview is available at Westpac IQ. Taking a longer-term view, Chief Economist Luci Ellis’ essay this week investigates the lingering effects of the pandemic and evolving structural dynamics for activity and inflation.

Over in the US, the PCE deflator was as expected in January, prices rising 0.3%. Durable goods prices’ contribution was effectively nil in the month, while a further decline in energy prices saw non-durable goods subtract from headline inflation. For both headline and core, revisions to the December outcome (revised down from 0.2% to 0.1%) further eased the path for annual inflation, now 2.4% and 2.8% respectively from 2.6% and 2.9% in December. Overall, PCE inflation remains on track to reach target around mid-year.

The PCE release also reported that consumer incomes jumped 1.0%mth in January. However, this upside surprise was the result of a one-off lift in government transfers, 2.6%mth. Disposable personal income, which nets out taxes and transfers, instead grew 0.3%mth, in line with H2 2023. Real consumer spending meanwhile edged down 0.1%mth driven by a 1.1% decline in goods consumption as services remained robust. From a year ago, spending is now up only 2.1%, a below-trend rate. A low savings rate and soft real income growth point to sub-par momentum hence.

In Asia, Japan’s CPI eased to 2.2%yr in January driven by declining energy prices and easing food prices. Government subsidies alongside easing import prices (Japan imports most of its food) are aiding inflation’s deceleration. The Tokyo CPI, which is released weeks prior to the National CPI, tends to be a good predictor of the National result. However, the gap between the two series has grown in recent months, suggesting a degree of stickiness is emerging outside the capital. As incomes tend to be lower outside capital cities, persistence in inflation there is likely to have a disproportionate effect on spending.

Finally, to the just-released February China NBS PMIs. Both the manufacturing and services variants were broadly in line with expectations and the January outcomes, at 49.1 and 51.4 respectively. For manufacturing, output was down slightly, but new orders and employment were unchanged. Employment was also unchanged for services. Lunar New Year anecdotes point to more consumers being willing to spend; but to see this trend sustained and per capita consumption lift, incomes need to be on a steady uptrend. A little forward-looking optimism over household wealth wouldn’t hurt either. How investment and production begin the new Lunar Year will be of great significance

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FastBull Featured

Remarks of Officials

Mary Daly, the San Francisco Fed President, gave an interview with Bloomberg Television's Wall Street Week on February 29 and the main points were as follows:

There are no imminent risks to the labor market, consumer spending, and economic growth. We are ready to lower interest rates as needed. But given the current state of the economy, including the labor market, consumer spending, and economic growth, a rate cut is not urgent.

Fed officials will not wait for inflation to fall to 2% before cutting interest rates, as doing so could lead to an unnecessary recession. With falling inflation, a decline in nominal interest rates is appropriate to ensure that we are not stepping up our tightening.

The confidence in the declining housing inflation is growing, as there are no signs of such price increases accelerating.

We are looking for "a range of evidence" that inflation is persistently coming down, both from the released economic data and conversations with business contacts. The Fed's move depends on data, indicating that there will be less forward guidance on policy. This practice is taken because they want to be more methodical in their judgment. All we have to do is stick with it and then make adjustments instead of making commitments in advance.

Atlanta Fed President Raphael Bostic also spoke on the same day, saying that recent inflation data suggests that the journey for the Fed to achieve its 2% target will be bumpy. Inflation has not yet reached its target, so it is too early to declare a victory. Overall, however, inflation is still on the decline. Inflation has come down more than I expected. If things go the way expected, it may be appropriate for the Fed to start the rate cut over the summer.

Austan Goolsbee, Chicago Fed President, said in his speech on the 29th that I worried about external shocks the most. There are "real factors" that suggest the declined inflation in 2023 is due to the repair of supply chains. We should be cautious about the argument that supply chain issues have been resolved, and should not expect more gains in 2024.

Caution should be exercised when extrapolating future scenarios based on January PCE inflation data. As supply chains normalize, we are likely to see a further slowdown in inflation. However, we should not over-interpret the monthly inflation readings.

The economic growth trend is good, and it will take time to normalize.

The growth of productivity may not be sustainable, but we will try to monitor this. If substantial productivity growth continues, it will have implications for monetary policy. Then, the range of risks that the Fed needs to consider will become more complex.

Interest rates are quite restrictive. Currently, the market is also restrictive. The question now is how long we want this restrictive environment maintained. Because if we maintain a rather restrictive environment, we will eventually have to consider its impact on employment. There are risks in betting that the Fed will not deliver on its promises.

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Owen Li

Commodity

Economic

A refinery on Oman's eastern coast, which required $9 billion investment to build, has been resilient against recent disruption in the Red Sea and may even benefit from the situation as global competition is affected.

The Duqm refinery, also known as OQ8, is a joint venture between Kuwait Petroleum International and Oman's state-run energy company OQ.

The refinery, which opened this month, has a production capacity of 230,000 barrels per day, serving markets in East Africa and the Indian subcontinent.

Duqm is "well positioned" to capitalise on the unrest in the Red Sea, said chief executive David Bird, as shipments of refined products from competitive sources in West Africa and Europe grapple with longer travel times around Africa.

"We have been resilient to it as a result of our unique location and the markets we're serving," Mr. Bird said.

Many of the refinery's products are shipped to markets in India, Pakistan and Sri Lanka, while also drawing high demand in Kenya and Tanzania.

Major shippers and operators have suspended operations in the Red Sea – a vital maritime route – following attacks on commercial shipping lines by Yemen's Houthi rebels. About 12 per cent of seaborne oil trade and 8 per cent of liquefied natural gas passes through the Bab Al Mandeb.

However, OQ8 is not "immune" to the effects it has had on global shipping markets, the company's chief said.

"It impacts every aspect of our business … our trade is not bilateral. There are insurers, charter parties [and] ship owners, so it impacts our business," Mr. Bird said.

"No matter where you are in the world, insurance rates go up."

Wood Mackenzie data shows 8.5 million bpd of crude oil and refined products use the Red Sea.

However, violence at Bab Al Mandeb is leading to more than 20 per cent of oil tanker trade diverting via the Cape of Good Hope, the energy consultancy said in a research note this month.

"With more than two weeks added to voyage times, freight rates have naturally increased, along with European refined product cracks," Wood Mackenzie said.

"The domino effect of this change to trade flows is likely to affect the global refining sector for some time to come."

Duqm, which recently completed its 100th delivery of refined products, produces liquefied petroleum gas (LPG), naphtha, diesel, kerosene jet fuel, petroleum coke and sulphur.

The second phase of the project involves the production of petrochemicals, a key area of focus for Gulf oil producers in recent years.

In 2022, Saudi Basic Industries Corporation, better known as Sabic, signed an agreement with OQ and Kuwait Petroleum International to set up a petrochemical complex in the sultanate.

The project, which includes a steam cracker and a natural gas liquids extraction plant, will use feedstock from the Duqm refinery.

Saudi Arabia, Oman and Kuwait have conducted a new feasibility study on a petrochemical opportunity that is "slightly different" from what was planned initially and would be "much more resilient", Mr. Bird said.

Duqm may gradually increase its capacity, while exploring the creation of new products such as bitumen bunkering fuel, military fuels, reformate and gasoline, Mr. Bird said.

"We are deep in feasibility of some options but before we go and ask for more investor cash, we have to show that we're competitive and a safe custodian of those funds," he said.

"We have to earn our right to grow."

The refinery is "re-evaluating" initial strategic decisions, including the possibility of refining different grades of crude oil apart from those supplied by its shareholders, Mr. Bird said. "We're a marginal business so any option is on the table to enhance our financial resilience."

However, he added such a decision would not be made "right now".

Mr. Bird's remarks come as ageing plants are being shut down in the US, the country with the world's largest oil refinery capacity.

The costs associated with maintenance, regulatory compliance and fuel-specification upgrades are making these assets increasingly expensive to run, Mr. Bird said.

As a result, many of the ageing refineries are up for sale at "pennies on the dollar", he added.

"I think there will be another wave of supply destruction in developed markets and that will be positive news [for Duqm] … independent of whatever outlook we have on demand," Mr. Bird said.

Source: The National News

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FastBull Featured

Remarks of Officials

On February 29, local time, Cleveland Fed President Loretta J. Mester said in an interview that the latest Fed preferred inflation metric (PCE) has risen on a month-to-month basis, which doesn't actually change my view on inflation. That is, inflation will continue to decline toward the 2% target over time.

I think we are currently in a very favorable position in terms of the balance between monetary policy and the economy.

Inflation is unlikely to fall back as quickly as it did last year when supply chain improvements and labor force growth curbed price increases.

If inflation expectations continue to fall over the next year, then I think we are in a favorable position to consider easing the current restrictive levels. If the economy develops as I expect it to, I think three rate cuts would be appropriate.

Looking ahead, monetary policy remains restrictive, demand is expected to cool, and economic growth will not be as strong this year as it was last year. Employment growth is also expected to slow, which is something we need to see to assess whether the economy is developing as expected.

Given the current solid economic growth and the health of the labor market, the Fed will continue to be patient on the issue of rate cuts.

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