Highlights for the morning: oil prices fall, luxury under pressure, Buffett admits failure

Oil prices fell in early trading after OPEC+ agreed another significant production increase for September. A sharp drop in tourist spending in Japan and Europe hit sales of luxury brands. China unexpectedly imposed an interest income tax on government and bank bonds, spurring a sell-off in the debt market. Buffett recognized a $3.8 billion loss on Kraft Heinz, one of his biggest disappointments in decades. On these and other topics - in our review of key events for the morning of August 4.

Oil prices fell after OPEC+ lifted much of its restrictions on production increases, reports CNBC. Brent and WTI crude futures were down about 0.6 percent, but then trimmed the pace of decline. Both grades were already down $2 a barrel on Friday.

On Sunday, OPEC+ countries agreed to increase production by 547 thousand barrels per day since September. Thus, the alliance completely and ahead of schedule canceled the largest supply cut and also introduced an additional quota for the UAE. The total increase will amount to about 2.5 million bpd - about 2.4% of global demand.

It is another move to accelerate supply expansion to regain market share amid concerns over possible disruptions to oil exports from Russia, CNBC noted. The virtual meeting of the eight OPEC+ countries took place amid growing US pressure on India to stop buying Russian oil - as part of Washington's attempts to sway Moscow to negotiate peace with Kiev. Donald Trump has said the agreement should be ready by August 8. 

OPEC+ said the decision to lift restrictions was helped by a "healthy economy and low inventory levels". "With oil prices steady around $70, OPEC+ has reason to feel confident about market fundamentals," Energy Aspects co-founder Amrita Sen said.

A sharp drop in spending on luxury goods by U.S. travelers in Europe and Chinese travelers in Japan is hampering sales in the industry, 

writes Financial Times. Giants such as LVMH, Prada and Moncler recorded a fall in revenue in the second quarter. The industry is already facing the end of a multi-year luxury boom and the impact of new U.S. duties, 

Last year, a spring surge in demand in Japan, driven by an influx of Chinese consumers, supported the market: they bought designer bags and shoes en masse amid a weak yen that fell to its lowest level in more than 30 years. Americans, meanwhile, spent heavily in European boutiques thanks to a strong dollar. This year, those factors have disappeared: the yen is strengthening, the dollar is getting cheaper, and that's depriving the industry of a safety cushion amid sluggish demand in the U.S. and China, two key drivers of luxury growth.

LVMH chief financial officer Cecile Cabanis cited a change in travelers' spending as the main reason for a 9% organic sales drop in the fashion and leather goods division in the second quarter. "American travelers have significantly reduced spending," she told the Financial Times, adding that rising domestic consumption in Asia did not offset LVMH's losses in Japan.

Warren Buffett's Berkshire Hathaway has written down $3.76 billion of the value of its stake in Kraft Heinz, another blow to an investment that has hurt the billionaire holding company's performance in recent years, Bloomberg reports. 

On Saturday, Berkshire lowered the book value of its investment in Kraft Heinz to $8.4 billion - it was worth $17 billion at the end of 2017. The write-down comes after the grocery company did not rule out its split in May. It's a rare setback for Buffett, who played a key role in the merger of Kraft and Heinz about a decade ago, the agency notes.

While the investment is still profitable, the food giant's stock has since fallen 62% while the S&P 500 index has gained 202%. Berkshire's stake in Kraft Heinz is now reported at fair market value at the end of June.

The write-down is an admission that a decade-long investment in Kraft Heinz hasn't worked, noted Reuters. Edward Jones analyst Kyle Sanders called the decision "overdue." "They should have done this years ago," he noted in a Bloomberg statement. Sanders believes the write-down could ease the path to a gradual exit from the stock Berkshire held a 27.4 percent stake in Kraft Heinz as of the end of June. "They seem to be giving themselves more freedom to exit the position if necessary," the analyst said. "This is one of Warren's biggest mistakes in decades. It may be time to move on."

China unexpectedly announced it will resume taxing interest income on bonds issued by the government and financial institutions, prompting investors to rethink their debt-market strategies, writes Bloomberg.

The country's finance ministry said Friday it will start charging value-added tax again from Aug. 8 - bonds issued before that date, including additional offerings of previously issued securities, will be exempt from it.

The new rule is likely to increase the cost of borrowing, especially since income on government bonds has not been subject to VAT since the 1990s. It has also prompted investors to actively buy up already-issued bonds to avoid the tax on new paper, which has lowered yields on older issues. Given the standard VAT rate of 6 percent, "the tax policy change creates additional costs in investing in new bonds and makes older issues more attractive," said Huatai Securities analysts led by Zhang Jiqiang. According to their estimates, the yield spread between old and new securities may grow by 5-10 basis points.

The yield of 30-year government bonds of China decreased on Friday after the decision of the Chinese Ministry of Finance, but by Monday corrected to the level of 1.94%, the agency points out. The yield of 10-year securities remained stable at 1.7% after decreasing by 1 basis point the day before.

The trade agreement reached last month between the U.S. and Japan was a "win-win for both sides," but implementing its terms could prove more challenging than the deal itself, Japanese Prime Minister Shigeru Ishiba said in a speech to parliament, reports Bloomberg. 

The US has agreed to impose a duty of 15% on all imported goods from Japan - earlier the country was threatened with a tariff of 25%. However, the issue with automobile supplies remains unresolved: Washington has not yet implemented the agreed reduction of these duties to 15%, the agency writes.

Japan's chief trade negotiator Ryosei Akazawa acknowledged criticism at the same session that the agreements are not on paper in any way.  "Having written treaties would be helpful," he said, adding that U.S. deals with the EU and South Korea are also not on paper. 

Bloomberg thus draws attention to the scale of uncertainty that continues to surround global trade agreements, even after  the deadline for negotiations was reached and Trump announced new rates.  and it's not just a matter of time before a new rate hike is announced;

- Japan's broad Topix index was down 1.2 percent.

- The benchmark Nikkei 225 fell 1.5 percent.

- In South Korea, the Kospi index added 0.1 percent and the Kosdaq small-company index added 0.5 percent. 

- Australia's S&P/ASX 200 was falling 0.1 percent.

- S&P 500 futures were up 0.3%, Nasdaq 100 futures were up 0.4%, and Dow Jones Industrial Average contracts were up 0.28%.

This article was AI-translated and verified by a human editor