Gold, Oil and Gambling–Merger Monday Is Back. What This Says About Recession.

Gold prices are hovering near all-time highs given the recent flight to safety of investors amid banking turmoil and broader economic concerns. Newmont wants to capitalize, scooping up Newcrest’s low-cost, long-life gold assets.

But there’s another carrot. Newmont wants its rival’s copper assets, a metal proving important to the world’s energy transition–used in everything from electric-vehicles to solar panels and wind turbines.

Another commodity–this time oil–was at the center of a separate major deal as pipeline operator
Oneok
said it’s buying its rival
Magellan Midstream Partners
for $18.8 billion. It marks a move into oil for the predominantly natural gas-focused Oneok and would create a pipeline giant.

But it’s not just commodities driving the dealmaking.
NeoGames
agreed to be bought by Australian gaming technology developer
Aristocrat Leisure
for $1.2 billion.

M&A activity and the value of deals typically decline in an economic downturn. While Monday’s dealmaking might point to optimism, that’s not always the case. Sometimes companies do one last cut-price big deal to consolidate because they think the economy is going to fall.

However, the values paid by Newmont and Oneok are hefty premiums which are a positive sign.

—Callum Keown

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Try your hand at this morning’s Barron’s digital jigsaw, which is based on the week’s cover story. For all games, including the daily crossword and sudoku, click here.

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Debt Ceiling Takes Center Stage as Biden Prepares for G-7

Lawmakers head into this week facing another crunchtime on an agreement about the nation’s debt ceiling. Democrats appearing on the Sunday talk show circuit threw cold water on some ideas at President Joe Biden’s disposal, including invoking the 14th Amendment to continue raising debt.

• Sen. Chris Murphy (D., Conn.) told NBC’s Meet the Press using the 14th Amendment, a largely untested legal strategy that hinges on a phrase saying the validity of the nation’s debt should not be questioned, takes the responsibility away from lawmakers. “We should do our job,” he said.

• President Joe Biden said Saturday talks were “moving along” as he and the top four lawmakers in the Senate and the House prepared to meet again at the White House after postponing a Friday meeting. That meeting is now scheduled for Tuesday, NBC reported.

• Deputy Treasury Secretary Wally Adeyemo brushed off a question about invoking the 14th Amendment, telling CNN’s State of the Union on Sunday that the only solution to the current problem is for Congress to raise the limit. An estimated deadline is as early as June 1.

• Treasury Secretary Janet Yellen told The Wall Street Journal at a G-7 meeting Saturday in Japan that there are some signs of agreement. The Congressional Budget Office has said the X-date on which the government runs out of options is possibly mid-June.

What’s Next: Biden is expected to leave Wednesday for the G-7 world leader meeting in Japan despite earlier last week saying he would consider postponing the trip amid the debt ceiling standoff, White House press secretary Karine Jean-Pierre told reporters.

—Liz Moyer

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Turkey’s Erdogan Fails to Clinch Victory. Runoff Election Likely.

After one of the biggest challenges to President Recep Tayyip Erdogan in his two decades at the center of power in Turkey, the country appears set for a runoff election. A first round of polling failed to yield an obvious winner, and both Erdogan and opposition leader Kemal Kilicdaroglu have said they are prepared to accept a runoff.

• Early results showed neither Erdogan or Kilicdaroglu reached the 50% threshold to avoid a runoff with more than 91% of votes counted, The Wall Street Journal reported, citing Monday remarks from the head of Turkey’s election authority that Erdogan won 49.49% of votes with Kilicdaroglu claiming 44.7%.

• Financial markets reacted negatively against uncertainty. Turkish stocks slid and the lira lost ground against the U.S. dollar. The Borsa Istanbul 100 Index shed 3% with the lira dropping 0.4% relative to the greenback, touching a record low.

• Erdogan has dominated Turkish politics since he became prime minister in 2003, later consolidating power in the presidency after a 2017 referendum. A potential leadership shakeup in Turkey, a member of the North Atlantic Treaty Organization that has maintained ties to both Ukraine and Russia, will have important geopolitical implications.

What’s Next: A confirmed runoff election would plunge Turkey into two weeks of renewed campaigning frenzy as Erdogan and Kilicdaroglu vie for a majority. Investors should brace for more volatility in the lira, a commonly traded global currency that has already declined almost 5% against the dollar in 2023.

—Jack Denton

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EV Start-Ups Forecasting Disappointing Targets Despite Demand

Electric vehicle start-ups have been forecasting disappointing manufacturing targets for 2023, citing problems that have nothing to do with demand.
Polestar
has blamed software, while
Fisker
said it took longer than expected to get final certifications required to sell any car.
Rivian
has had trouble accelerating production and securing semiconductors.

• Overall, demand for EVs looks solid. About 260,000 were sold in the U.S. in the first quarter, a record amount led by
  Tesla
  and other makers. Battery-electric vehicle sales also rose year over year in China and Europe.

• Electric vehicles aren’t the only focus.
  Ford
  is still producing 10% fewer vehicles than it would like, but shortages have shifted to general parts from chips, CEO Jim Farley toldBarron’s. Ford is doubling production of electric vehicles and Farley says that demand has exceeded his expectations.

• Farley told Barron’s Roundtable on Fox Business that the company is in “heavy investment mode.” He said they have to design the second generation of EVs differently to remove costs, but the first generation should reach profitability by next year as costs come down.

What’s Next: Tesla’s shareholder meeting is Tuesday. Investors will vote on a shareholder proposal that seeks to identify “key persons” and “succession processes.” Tesla is telling shareholders to vote no, saying it could cause unnecessary competitive harm.

—Al Root, Jack Denton, and Liz Moyer

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Retailer Earnings This Week: Walmart, Target, Home Depot

Consumer prices, for everything from luxury handbags to streaming media subscriptions and fast food, continue to rise as companies demonstrate their brand power, helping them cover the rising costs of labor and raw materials. A wave of retailer earnings this week could show how broad-based the trend is.

• More than halfway through the first-quarter earnings season, companies in the S&P 500 have recorded the first increase in net profit margin after six-straight quarters of sequential declines, The Wall Street Journal reported.

• Walmart
  is expected to report first quarter earnings per share of $1.31 and revenue of $148.7 billion, both falling from the January quarter. Same store sales are expected to rise 5.4% but also be lower than the January pace.

• Target
  is expected to report earnings of $1.77 a share and revenue of $25.3 billion, also both lower than the January quarter. Same store sales are seen rising 0.2% compared with the 3.3% gain in the first quarter 2022, according to FactSet.

• Analysts are forecasting a weak quarter for
  Home Depot
  and
  Lowe’s,
  two home improvement retailers set to report this week. A delayed start to spring weather and a deceleration in spending on home goods are weighing on the stocks.

What’s Next: The Census Bureau reports retail sales data for April on Tuesday. Consumer spending is expected to increase 0.7% month over month, while sales excluding autos are seen rising 0.4%. March had monthly declines of 0.6% and 0.4%, respectively.

—Liz Moyer and Barron’s staff

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Media’s Annual Sales Blitz Hits Snags With Writer Strike

The Hollywood writer’s strike is forcing changes to the television industry’s annual advertising sales blitz.
Netflix
has moved what was a planned in person presentation at its Paris Theater in New York to a virtual presentation out of concern for picketing writers, The Wall Street Journal reported.

• It was supposed to be the first pitch by Netflix to advertisers as it promotes its new ad-supported streaming tier. The Writers Guild of America has said it would put picketers in front of locations in New York where the presentations are happening, The Hollywood Reporter said.

• Other media companies hosting events this week include
  Comcast’s
  NBCUniversal,
  Warner Bros. Discovery,
  the parent of streaming platform HBO Max, CNN and other channels, and
  Walt Disney,
  parent of streaming platform Disney+ and ABC television.

• NBCUniversal is heading into the meetings with a new interim head of advertising after Twitter CEO and owner Elon Musk hired the former ad chief Linda Yaccarino to run the social media site.

• Advertising has been under pressure. Last year the five English language broadcast TV networks secured $9.9 billion in prime time sales commitments, Variety reported. The total “linear” TV sales (which excludes streaming) was up 5.8% to $20.1 billion.

What’s Next: Insider Intelligence expects upfront ad spending will fall by 3.4% to $18.6 billion for the 2023-2024 season, the Journal reported. The research firm cited uncertainty in the economy, falling TV ratings and cord-cutting as part of the reason for the decline.

—Liz Moyer

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I rent a condo for $1,500 in Southern California and work as a server at a steak house earning $55,000 to $60,000 a year. I’m 54 and single and have saved $100,000, and have no debt. Should buy something in California, or just save it for a rainy day? 

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***

—Newsletter edited by Liz Moyer, Brian Swint, Rupert Steiner and Steve Goldstein