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China Energy Crisis, Dollar Strength, Oil Inventories - What's Moving Markets

EconomySep 29, 2021 12:14
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By Geoffrey Smith -- U.S. stocks are set for a rebound after their worst day in months. The dollar eases - but only a bit - from 10-month highs, while Treasury yields stabilize above 1.50%, as the political theater continues in Washington. Fed Chair Jerome Powell sits down for a chat with counterparts from the ECB, Bank of England and Bank of Japan, and oil prices drop from three-month highs after a surprise rise in U.S. stockpiles. Here's what you need to know in financial markets on Wednesday, 29th September. 

1. China falls, Europe bounces

Chinese stock markets fell but Europe’s bounced after a fresh rise in bond yields triggered the biggest one-day fall in months for U.S.

China’s benchmark equity indices fell as much as 1.8% on growing concerns that power rationing will hit economic output toward the end of the year. Generators are curtailing power output because they can’t make a profit selling at regulated prices when coal and gas prices are going through the roof. The news that the $1.5 billion sale of an equity investment by China Evergrande won't free up any funds for bondholders was also taken badly, raising fears of heavy losses for creditors who aren't politically prioritized.

Europe’s markets were in better shape, as local wholesale energy prices eased. The broader rotation back into value stocks and financials also helped most national indices rise over 1%.

2. Dollar eases from highs as debt ceiling drama continues

The dollar eased off a 10-month high as Treasury bond yields stabilized, against a backdrop of what continues to be mainly performative theater in Washington over the debt ceiling and the various spending bills being pushed through Congress.

By 6:15 AM ET (1015 GMT), the dollar index that measures the greenback against a basket of six advanced economy currencies was at 93.808, only marginally below the high of 93.905 that it posted on Tuesday.

Congress has just two days to break the impasse on funding the federal government, before having to shut down some of its operations. Treasury Secretary Janet Yellen warned on Tuesday that the Treasury would run out of cash on Oct. 18 – still leaving plenty of time for preening and grandstanding by lawmakers on both sides of the aisle.

3. Stocks set for corrective bounce; Micron's guidance disappoints

U.S. stock markets are set to open higher later, clawing back around one-third of what they lost in Tuesday’s rout. With the data calendar largely bare and no earnings of note due except Cintas (NASDAQ:CTAS), the void is once again likely to be filled by the voices of politicians and central bankers.

By 6:15 AM ET, Dow Jones futures were up 214 points, or 0.6%, after the DJIA itself lost 1.6% on Tuesday. S&P 500 futures were up 0.8%, recovering from a 2% drop in the previous session, while Nasdaq 100 futures were up 1.1%. The growth-heavy Nasdaq had borne the brunt of yesterday’s selling, losing 2.8%.

Stocks likely to be in focus later include chipmaker Micron (NASDAQ:MU), whose guidance disappointed after the closing bell on Tuesday even though both sales and earnings came marginally above expectations.

4. Powell to join central bank fireside chat; European inflation pressure rise

Federal Reserve Chairman Jerome Powell will speak at 1145 AM ET at an event hosted by the European Central Bank, alongside ECB President Christine Lagarde, Bank of England Governor Andrew Bailey and Bank of Japan Governor Haruhiko Kuroda

The two ‘Anglo-Saxon’ countries’ central bankers have both signalled a likely shift to tightening monetary policy in the near term, while Lagarde and Kuroda are still keeping the stimulus pedal firmly to the floor.  That’s despite signs that the squeeze in energy prices is harder and longer than the ECB planned.

Data released earlier Wednesday showed German import prices rising over 16% on the year after another larger-than-expected monthly rise in August, while Italian producer price inflation hit 11.6%, its highest in over 25 years. Spain’s CPI also hit its highest in over 13 years.

5. U.S. stockpile rise takes steam out of oil rally; EIA data eyed

Crude oil prices eased from (in the case of Brent) three-year highs, after a surprise increase in U.S. inventories last week. The American Petroleum Institute said crude stockpiles rose by 4.2 million barrels, ending a sequence of nine straight weekly drops with their biggest weekly rise since April.

The figures may or may not be corroborated by U.S. government inventory data which is due at 10:30 AM ET as usual.

Despite the API data, analysts at Goldman Sachs (NYSE:GS) argue that global stocks are still falling by an average of 4.5 million barrels a day because supply isn’t keeping up with demand as other economies around the world recover. They forecast a price of $90/barrel by year-end.

U.S. crude futures were down 0.8% at $74.72 a barrel.

China Energy Crisis, Dollar Strength, Oil Inventories - What's Moving Markets

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