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Huawei’s research and development company, Santa Clara, Calif.-based Futurewei Technologies, was blocked this week from shipping telecommunications equipment and software manufactured stateside. The Commerce Department called the equipment a security risk.

It’s part of a multipronged effort “to ratchet up the pressure on China,” said Tom Kellermann, chief cybersecurity officer of cybersecurity company Carbon Black and a former top cybersecurity official for The World Bank. “[The U.S. government’s] belief is that the entirety of the Huawei supply chain is compromised.”

Huawei has excelled in the production of telecommunications equipment, including equipment meant to provide 5G functionality. But pervasive intelligence concerns, which Huawei has long argued are politically motivated, have led to bans in several countries of Huawei’s telecom and 5G equipment, including the U.S., Japan, India and Australia.

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A Morgan Stanley reading on the economy collapses by the most ever



A worker builds a Ford Expedition SUV as it goes through the assembly line at the Ford Kentucky Truck Plant in Louisville, Kentucky.

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A reading of the economy from Morgan Stanley is signaling “June gloom.”

Morgan Stanley’s Business Conditions Index, which captures turning points in the economy, fell by 32 points in June, to a level of 13 from a level of 45 in May. This drop is the largest one-month decline on record and the lowest level since December 2008 during the financial crisis, according to the firm.

“The decline shows a sharp deterioration in sentiment this month that was broad-based across sectors,’ economist Ellen Zentner said in a note to clients. “Fundamental indicators point to a broad softening of activity, but analysts did not widely attribute the weakening to trade policy.”

Fears of a possible economic slowdown were raised last week after a much worse than expected jobs report. The economy added just 75,000 jobs in May, according to the Labor Department last Friday. A report on Thursday showed a spike in jobless claims last week. Manufacturing activity last month grew at the slowest pace in two years.

Worries about a trade deal getting passed between the U.S. and China weighed on stock markets in May. Perversely, that weak sentiment actually boosted stocks this month because traders are hoping the Federal Reserve will cut interest rates. But some investors are starting to worry the economy could fall into an outright recession.

June’s conditions index reading showed notable declines in hiring, hiring plans, capex plans, and business conditions exceptions, Morgan Stanley said..

The manufacturing subindex business conditions fell sharply to zero, “a decline that was likely exaggerated by the recent turn lower in oil prices, while marking the lowest level for the subindex on record,” Zentner said.

The services subindex also fell to 18 from 35.

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Tanker attacks reignite oil fear premium, prices could spike to $80



Oil prices have been crushed by worries about weaker demand and a slowing global economy, but the market could begin to price in greater geopolitical risks if there are more attacks like the one on two oil tankers in the Gulf of Oman on Thursday.

But even as analysts say oil could rise on Mideast tensions, they also say it could fall back to the bottom of a wide range — between about $50 and $80 for Brent, if the trade war fears dim the economic outlook for the buyers of oil.

“I wouldn’t say we’re at a tripwire yet, but we’re getting there,” said John Kilduff, partner with Again Capital. Kilduff said oil was headed to $50 until the news of the attack. There have also been forecasts that if the situation in the Middle East intensifies, the price of crude could touch $100.

After losing 4% on worries of oversupply Wednesday, crude futures bounced back 2% Thursday on reports the tankers sustained significant fire damage. It was unclear who attacked the ships, the second such attack in just about a month, near the entrance to the Strait of Hormuz, the world’s busiest oil shipping lanes. West Texas Intermediate crude futures were trading at $56.25 per barrel, and Brent crude futures for May were at $61.13.

“You’re in the $60s or $80s. If it’s all about trade wars, the economy is tanking,” said Helima Croft, head of global commodities strategy at RBC. “That’s the binary nature of this market.” She said a major geopolitical incident could drive the price of Brent as high as $80, especially if trade worries dissipate.

A good meeting between President Donald Trump and Chinese President Xi Jinping at the G-20 later in the month could also be a positive for oil, if it points toward a trade agreement, she said.

“I think the oil traders don’t know how to deal with Iran risk, but they do know how to conceptualize a trade war destroying demand. They can’t distinguish in the Middle East between what is noise and what is the brink of a shooting war,” she said. “The summer is going to be this: What war is going to dominate the market? A trade war or a shooting war?”

U.S. Secretary of State Mike Pompeo said Iran was behind Thursday’s attack and other attacks in the region. The two ships are the Kokuka Courageous, a chemical tanker that was loaded in Saudi Arabia and was enroute to Singapore, and the Front Altair. The Front Altair was carrying a cargo of naptha, a petrochemical feedstock, from the Persian Gulf to Japan.

The geopolitical premium has also become less of a factor in the market, since U.S. oil production has become such a dominant force on the global market. The U.S. is now the world’s largest oil producer, with output of 12.3 million barrels a day last week, about 1.5 million barrels a day more than this time last year.

“The supply in the U.S. has become a firewall against geopolitical events,” said Kilduff.

But analysts say the market has been ignoring the potential for more attacks on Middle East oil assets, even as the U.S. sanctions bite into Iran’s economy and limit its ability to sell oil. Even so, Brent is down about 18% since the end of April.

“It is a factor that the market sell-off has ignored,” said Ed Morse, Citigroup’s global head of commodities research. “The world is fairly fragile, and we could see a higher probability of a drop in production generated by political events, rather than by economic tightness, and it could be Iran. It could be Iraq. It could be Libya. It could be Nigeria. It could be Venezuela.”

Morse said these are among the factors that could drive oil higher this summer and into the fall. He also said sentiment will matter and negative news on the trade war could weigh on the market.

“[Brent] oil is more likely to hit $75 before it hits $50,” said Morse, noting a move much higher could require better economic data. He said Brent prices should be more sensitive to geopolitical worries than WTI, which reflects the U.S. market, and that’s also where inventories are visibly building in weekly government data. The gap between the price of Brent and WTI could continue to widen temporarily.

There have been a number of other attacks recently, including a missile attack Wednesday that struck the arrivals hall of an airport in southwestern Saudi Arabia, injuring 26 people. Houthi rebels were said to be behind that attack and others. Last month, a drone attacked a Saudi oil pipeline, temporarily putting it out of commission. The Houthis, said to be backed by Iran, have been fighting Saudi Arabia in Yemen, after driving out the Yemeni government in 2015.

“We’re going to get more of these … as long as we have crippling sanctions in place that they believe are intended to cause economic collapse and regime change. They’re not going to back down. I think it’s going to be a hot summer,” said Croft.

Croft said it will be important to see if European leaders are able to work with Tehran to find a way to lessen the impact of U.S. sanctions and keep it from abandoning the nuclear deal it struck with the U.S. and five other countries. The Trump administration dropped out of the agreement, calling it one-sided, and reinstated sanctions on Iran last year.

Iran has threatened to walk away if there’s no resolution by July 7. It could then return to enriching uranium, at levels closer to weapons grade.

“The question is will it be a nuclear summer?” said Croft.

The incident occurred as Japanese Prime Minister Shinzo Abe was in Tehran, conducting talks in an effort to cool tensions between Iran and the U.S.

“Abe is in Tehran trying to get an off-ramp, and a Japanese tanker is struck. To me, at the minimum it shows the challenges of trying to reach a diplomatic solution, as long as the United States is pushing coercive diplomacy,” said Croft.

Morse said the supply outside of the U.S. is tight. He said the world market is particularly low on the heavy grade of crude produced by both Iran and Venezuela, both under U.S. sanctions. More than 1 million barrels of Iranian oil has been removed from the market by U.S. sanctions.

“There are two discrepancies. One is the discrepancy between the physical side and demand, and there’s a discrepancy between the U.S. side and the rest of the world,” he said. The U.S. has added 53 million barrels more to commercial storage than at this time last year.

“Meanwhile, on the sidelines OPEC plus has decided not to put more oil on the market,” Morse said. OPEC, plus Russia, is expected to retain its agreement to hold back production.

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Facebook dumped from S&P ESG Index of socially responsible companies



Amid ongoing controversy over its use of its users private information, Facebook has been kicked out of an index tracking companies that abide behind socially responsible practices.

S&P Dow Jones Indices announced Thursday that the social network no longer will be part of the S&P 500 ESG Index. The gauge follows companies that S&P says engage in responsible environmental, social and governance practices, a growing part of the market as investors seek out more ethical ways to put their money to work. Companies grouped as ESG-compliant have total assets of $11.6 trillion, according to an estimate from the Forum for Sustainable and Responsible Investment.

For Facebook, the decision is part of an ongoing saga that has seen it come under fire for weak oversight of how its user data is sold to advertisers. Investors and political leaders have called for the company to break up, an insistence its founder, Mark Zuckerberg, has rejected.

In making the move, S&P cited the privacy concerns that lowered Facebook’s total score used in deciding which companies will be included in the ESG Index. While Facebook received a high score in environmental issues — 82 out of a possible 100, not unusual for a tech company — its social and governance scores were much lower at 22 and 6 respectively.

S&P weights the latter two categories more heavily when it comes to tech firms.

“The specific issues resulting in these scores had to do with various privacy concerns, including a lack of transparency as to why Facebook collects and shares certain user information,” Reid Steadman, global head of ESG at S&P, said in a blog post on the company site. “These events have created uncertainty about Facebook’s diligence regarding privacy protection, and the effectiveness of the company risk management processes and how the company enforces them. These issues caused the company to lag behind its peers in terms of ESG performance.”

The company’s score has dropped consistently over the past several years.

Facebook officials did not reply to a request for comment.

Steadman noted that the index’s composition is “reasonably fluid,” meaning that there’s always opportunity to regain standing and get back in. But he also said that Facebook has work to do.

“As Facebook’s peers raise the bar in their ESG performance, Facebook will need to do even more to rejoin the ranks of the S&P 500 ESG Index,” he said.

The index is up about 14% year to date,  nearly in line with the performance of the broader S&P 500. Its leading constituents in terms of size include Microsoft, Apple, Johnson & Johnson, JP Morgan Chase and Amazon.

In addition to cutting Facebook, the index also dropped Wells Fargo, Oracle and IBM.

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