NATO support
President Biden will depart for Lithuania on Monday night for the North Atlantic Treaty Organization’s annual summit. The stop in Vilnius is part of a broader solidarity mission this week that seeks to shore up support for Ukraine as its counter-offensive against Russia gets underway. Tensions continue to escalate in the war, with NATO member Poland moving over 1,000 troops to the east of the country on Saturday amid concerns about the presence of Wagner Group fighters in neighboring Belarus.
Quote: “I don’t think there is unanimity in NATO about whether or not to bring Ukraine into the NATO family now, at this moment, in the middle of a war,” President Biden said in an interview with CNN. “NATO is a process that takes some time to meet all the qualifications, from democratization to a whole range of other issues. In the meantime, one of the things I indicated the U.S. would be ready to provide – while the process is going on – is security, weaponry and the capacity for them to defend themselves.”
Biden also commented on his decision to approve cluster munitions for Ukraine, in part due to the fact that the U.S. “was low” on 155mm howitzer shells – after providing more than 1.5M of the artillery rounds to Kyiv. Many nations that have funneled weapons to Ukraine are also finding that their stocks are running low, such as Stinger and Javelin anti-aircraft and anti-tank missiles produced by Raytheon (RTX) and Lockheed Martin (LMT). It could take years for defense contractors to meet the shortfall, especially with less than a quarter of NATO countries meeting their obligations to spend at least 2% of their GDP on defense spending by 2025.
Outlook: Ukrainian President Volodymyr Zelenskyy has been invited to the summit in Vilnius scheduled for Tuesday and Wednesday. Pledges of military and financial support are expected to be announced at – or soon after – the gathering, while a coalition of allies might detail training for Ukrainian pilots in Lockheed-built F-16 aircraft. Another wildcard at the meeting is the full approval of Sweden into the alliance, which may hinge on the supply of upgraded U.S. fighter jets to Turkey and commitments by Stockholm to contain supporters of what Ankara deems terrorist entities. Reversing a historic policy of non-alignment, Finland was the latest member accepted into NATO this past April, bringing the military alliance to 31 members. (3 comments)
Military alliances
With an eye on defense and weapon stocks, should Ukraine become a member of NATO?
· Membership should be extended immediately
· Only after the war comes to an end with Russia
· Not a good idea (whether now, or in the future)
· Too early to tell (let’s see how things play out)
Take the survey and share your thoughts in the WSB comments section.
Black gold
American crude oil production is on track to set a record this year, keeping energy prices stable and blunting the efforts of Saudi Arabia and other oil exporters to drive them higher. While OPEC and its allies cut production this year, increased output in countries outside of the group is making up for the difference. Half of the new crude is coming from the U.S., where companies including ConocoPhillips (COP) and Devon Energy (DVN) delivered strong Q1 production amid efforts to improve efficiency. Investing Group Leader HFIR believes oil is asymmetrically positioned to the upside as “U.S. oil demand is starting to fire on all cylinders, and U.S. shale oil production is peaking.” (318 comments)
End in sight
Investors are expressing optimism that China’s crackdown on the technology sector is nearing its end after the PBOC imposed fines on Ant Group and Tencent (OTCPK:TCEHY). Ant Group, in which Alibaba (BABA) owns a 33% stake, was slapped with a $985M fine, while Tencent was handed a ~$410M penalty. This frees up Ant Group to potentially explore a public listing again, close to three years after China blocked what would have been the world’s largest IPO. “We believe the fines indicate that the rectification of large fintech platforms has come to an end,” said JPMorgan’s Alex Yao.
M&A delay
New U.S. guidelines proposed for regulators to review mergers and acquisitions have the potential to add months to a deal review. It’s possible that “on the margins,” the proposed rules could potentially curtail M&A,” Kara Kuritz, who previously served as the HSR Act specialist at the DOJ’s antitrust division, told Seeking Alpha. The industry has “already seen a decline due to volatility in the markets with interest rate increases and a Biden administration that has been aggressive in its antitrust efforts, suing in an attempt to block several high profile transactions, including Microsoft’s (MSFT) planned $69B purchase of Activision (ATVI) and Amgen’s (AMGN) $28B purchase of Horizon Therapeutics (HZNP). “Any time the transaction costs of doing a deal increase, that cost increase has a chilling effect,” said Kuritz. (33 comments)
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