First an Energy Crisis. Now El Niño?

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0:33Zoran Mamdani leaves his mark on New York's congressional delegation, boosting his standing as a Democratic kingmaker. Plus, President Trump threatens big oil with a DOJ probe over prices at the pump. And we'll look at how El Nino could be the global economy's next big test. We already had expected rising food prices. Now that we have an extra layer of very volatile weather, high temperatures, drought, that's going to just exacerbate the stress on farmers, on the agricultural sector. It's Wednesday, June 24th. I'm Luke Varkas for The Wall Street Journal, and here is the AM edition of What's News, the top headlines and business stories moving your world today.

1:18We begin in New York, where three congressional candidates backed by New York City Mayor Zoran Mamdani have prevailed in primary races over more mainstream Democratic opponents. In a sign of the powerful anti-incumbent wave playing out this year, 32-year-old community organizer and Democratic socialist Daria Lisa Avila-Chevalier defeated Representative Adriano Espiot, the chairman of the Hispanic Congressional Caucus. Despite him making history just a decade ago by becoming the first formerly undocumented immigrant to be elected to Congress, Avila-Chevalier used her victory speech last night, heard here courtesy of Spectrum News, to cast him as out of touch.

1:58Doing nothing about the affordability crisis and looking the other way while the real estate corporations that funded his campaign raised our rents and priced us out of the community that we love. In a fourth closely watched House primary, Assemblyman Micah Lasher defeated a crowded field that included Jack Schlossberg, a grandson of President John F. Kennedy. And in South Carolina, Alan Wilson coasted to victory in a Republican primary runoff to be the state's next governor. President Trump had initially backed Wilson's opponent, but hedged his bets in the waning days of the campaign and endorsed both candidates.

2:35Back in Washington, Congress has passed its most ambitious housing legislation since the 1980s, aiming to ease federal regulations and boost home construction. President Trump is expected to sign the bill into law as soon as today. However, developers are responding with a shrug, noting that the bipartisan package lacks new funding and cannot alter the local zoning laws that block development. And for more on the housing bill, check out the latest episode of Your Money Briefing, where journal reporters Rebecca Pachotto and Paul Kiernan join What's News host Alex Osula to explain what the bill means for Americans.

3:09We've left a link to that in our show notes.

3:14Heading overseas, a heat wave that's descended over much of Europe this week is peaking today, leading to widespread school closures, travel disruptions, and a surge in heat-related deaths. London, Brussels, and Frankfurt will see temps in the mid-90s today, while Paris and Madrid are set to breach 100. And while those numbers may not faze U.S. listeners, consider that 9 in 10 Americans have air conditioning compared to roughly 1 in 20 Brits, something U.N. Secretary General Antonio Guterres noted during remarks at a Gothic event space in London yesterday. This city and far beyond are experiencing the hottest day of the year with higher temperatures to come.

3:57London isn't just calling, it's cooking. Around the world, climate disasters are becoming more frequent, more destructive and more costly. Last year's European heat waves cost the continent an estimated 43 billion euros. And according to research from Allianz, the current trajectory of intensifying heat waves could sap European economies of between 5 and 7 percent of their GDP by the end of the decade.

4:27President Trump is criticizing oil companies for not lowering gasoline prices in line with a recent pullback in crude. Posting on TrueSocial, the president said that customers are being gouged and that he's instructed the DOJ to immediately start looking into the situation. However, as markets editor Alex Frango says, the logic of the probe misses the reality of how gasoline prices work. What you put in your gas tank is not oil. It's gasoline. So it has to go from the oil well through a pipeline to a refinery. It has to get refined. It has to get in another pipeline and get to your gas station.

5:03So there's just a time element for the price to trickle through. The other thing is all the gas station owners, when the prices were going way up, their profit margins got squeezed massively. And then they had to go out and buy much more expensive gasoline. They're sitting on that inventory. They're eating through it. They're not going to lower prices while they're still selling the gas that they paid higher prices for. So that's why it takes time for the prices to drop. But, you know, we've been through this many, many, many times, and politicians are often very frustrated at the way the market works, but the market does work.

5:41And the lower prices you see that get quoted on the news every evening, they will eventually get to the gas pump. And as Alex explained, while the Strait of Hormuz may have reopened, it'll take time for tankers and their cargos to get through the waterway. What's happening on the ground is ships are starting to move, but it's slow. It's not an uncorking and a massive parade of ships. It's more of a trickle or a faster trickle now than a few weeks ago, but it'll take time. The main shipping channel is still, there are concerns about there being mines there. So authorities are trying to get ships through much narrower channels.

6:16And so there just, there isn't the capacity to get the, you know, 100 ships a day that we're going in and out of there. We're still in the tens of ships. So that also will mean that it'll take longer for the global oil markets to fully adjust and get back to where they were before the war. The International Maritime Organization said yesterday it would begin evacuating the over 11 ,000 seafarers still stranded in and around the Strait of Hormuz, though it didn't set a timeline for the mission. Chinese e-commerce giant Alibaba has filed a lawsuit against the U.S. Department of Defense in a bid to get its name struck off the Pentagon's list of blacklisted companies.

6:55Earlier this month, the Pentagon added about two dozen companies to its list of Chinese businesses that it said are aiding China's military, including Alibaba and Baidu, limiting their ability to operate in the U.S. Alibaba has denied any links to the Chinese military, while the Pentagon said it doesn't comment on ongoing litigation. And we're exclusively reporting that Tesla competitor Agility Robotics is set to go public in a deal that values the startup at about$2.5 billion. Agility's flagship humanoid robot is known as Digit, which can automate tasks including moving and stacking heavy containers.

7:31The company's products are used in some Amazon warehouses by the car parts maker Scheffler and in Toyota manufacturing facilities in Canada. Agility is set to merge with dealmaker Michael Klein's special purpose acquisition company. Churchill Capital. Coming up with Asia still dealing with the economic fallout of the Iran War, we'll check in with HSBC's chief Asia economist about how hotter than usual weather could impact the region and the U.S. That's after the break.

8:06What's driving the markets this week? What's on investors' minds as they look ahead? Find out on The Markets Podcast from Goldman Sachs. A breakdown of market moves and macro signals in 10 minutes or less. The Markets Podcast from Goldman Sachs. Listen now.

8:35A new El Nino weather cycle is underway. the National Oceanic and Atmospheric Administration made that announcement earlier this month, predicting that the Pacific warming pattern was likely to intensify this fall and had a more than 60 % chance of becoming very strong. In the northern U.S., that could mean a warmer-than-usual winter, while the southern U.S. sees stormier and wetter weather. But as HSBC chief Asia economist Frederick Newman is here to discuss, those effects could pale in comparison to the impact felt in Asia later this year, where economic costs could exceed those seen during this year's energy price shock.

9:12Fred, unpack that conclusion for us, that Asia essentially could be in for a double whammy here. Well, that's right. So the Iran war, or the war that we saw in the Middle East that closed Australia from Moosa also meant that really there was a shortage of fertilizer. The Middle East is a big supply of fertilizer, particularly to Asian economies.

9:33And fertilizer was very hard for farmers to get their hands on. And what this means is that for the coming harvest season in the fall, we already had expected rising food prices because there wasn't just enough fertilizer to go around. Now that we have an extra layer of very volatile weather, high temperatures, drought, less lack of rain, for example, that's going to just exacerbate distress on farmers, on the agricultural sector. And therefore, yes, we have not just the El Nino weather pattern, but really the implications are being exacerbated by the effects of the war that we saw in the Middle East and the closure of the Strait of Hormuz.

10:13And Fred, if you could just clarify for us where we would be expecting the sort of knock-on effects of this agricultural slowdown to be most pronounced. So one key economy is India. India obviously has a population of 1.5 billion people. about 45 % of the agricultural land is still being irrigated just by rainfall. And that means if you have lack of rain, then you have drought conditions, plus you have very high temperatures. And that's not only important for India, but India is also an important exporter of rice, for example, of sugar, of many commodities. And so if there is agricultural stress in India, it not only pushes up food price in India, but even affects countries that are importing food from India, such as in Southeast Asia, or even the Middle East itself, parts of Africa.

11:04So that radiates really out from India to other economies. And that's, Fred, not a hypothetical risk that those exports could be drastically affected. It's not a hypothetical risk. We saw in the past that the Indian government restricted exports of certain goods just to keep prices domestically and supplies domestically ample. And this year already, the Indian government actually put export restraints on sugar because they're worried about a lack of sugar domestically. And so they stopped exporting. The export ban lasts for another few months at least. And that already is then putting upward pressure on global sugar prices because India is an important supplier to the global market.

11:45We obviously spoke about Asian energy supplies during the midpoint of the Iran war when we were seeing oil and gas supplies severely disrupted. And now it sounds like we're potentially looking at shocks to hydropower and the ripple effect of a potential lack of rain. That's right. So we're seeing, of course, declines in fossil fuel prices like oil and gas, because hopefully the Strait of Hormuz will remain open. But at the same time, weather patterns like El Niño can put stress on hydropower. And if you have an economy like Vietnam, for example, but a quarter of the electricity is generated by hydropower, that is water that's kept behind dams, that kind of runs turbines.

12:27And if you have a lack of rainfall, then you have less hydropower generation. And therefore, we have one energy crisis being replaced by potentially another energy crisis. One was just fossil fuel based, the other one is hydropower based, and that's all because of weather. And finally, Fred, just some other things that jumped out to us about your report is one, that these impacts aren't just national or regional, but can be truly global. And two, that the macroeconomic impact of these El Nino events seems to be rising with each successive one of these cycles. Just tell us a bit more about the risks inherent in that.

12:59Well, the risk is that you're having these adverse weather events that put stress on infrastructure, leads to more volatile prices, and that ultimately reduces economic growth. It also means that we need to spend more money to protect ourselves, and that means less money for other types of investment. So overall, it really has risk of slowing down economic growth and raising prices at the same time, particularly for food, which is, of course, a necessity for millions and millions of people. The price of nickel, of copper could be impacted by this if you have lack of water for mining operations, for example.

13:36So the effects are multifold. In general, it just forces, I think, governments to think harder about resilience. Even though it's costly, you could argue that in the long term that could make economies better off because it just strengthens the underlying infrastructure against any type of shock. But ultimately, in the short term, these events can be quite disruptive. Frederick Newman is HSBC's chief Asia economist. Fred, thank you so much for being with us on What's News. Thank you for having me. And that's it for What's News for this Wednesday morning. Today's show was produced by Daniel Bach and Hattie Moyer.

14:12Our supervising producer is Sandra Killhoff. And I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. And until then, thanks for listening.

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