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Chinese Bounce, Dems' Spending Impasse; Best Buy - What's Moving Markets

EconomyAug 24, 2021 12:08
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By Geoffrey Smith -- Chinese stock markets bounce as confidence returns and the regulatory onslaught appears to ebb. Oil and industrial commodities follow suit. The Democratic Party still can't decide which spending bill to pass first. Stocks are set to extend gains when they open later. Medtronic (NYSE:MDT), Best Buy and, later, Intuit (NASDAQ:INTU) are all due to report earnings, while Samsung (KS:005930) outlines a big increase in investment in - among other things - new chipmaking capacity. Here's what you need to know in financial markets on Tuesday, 24th August.

1. China bounces

Chinese stocks had their best day this year as bargain-hunters, both local and foreign, snapped up names that have sold off heavily in recent weeks on perceptions that the impact of new regulation may be less drastic than feared.

Sentiment has switched sharply in the Chinese market since the country said it had stopped the community spread of Covid-19 with a month of draconian social distancing measures. The prospect of these being relaxed should restore some confidence in China’s growth dynamic for the rest of the year.

Alibaba (NYSE:BABA) rose 5.0% in premarket, while (NASDAQ:JD), whose strong results on Monday prompted U.S. tech investment guru Cathie Wood to make her first sizeable investment in China in months, was up 9.5%.  JD said on Monday that the impact of new regulation may not be too onerous. 

For the rest, sentiment in China was improved by another complete session without a new regulatory scare.

2. Dems stuck on spending bills

Democratic Party lawmakers hit an impasse in talks over two signature spending bills at the centre of President Joe Biden’s economic agenda.

In talks that dragged on until late in the night on Monday, House Speaker Nancy Pelosi was unable to convince moderate Democrats who have backed a bipartisan $550 billion infrastructure spending bill to drop their insistence on passing that bill before the House takes up a more ambitious $3.5 trillion spending package aimed at bolstering the U.S.’s welfare state.

Of more short-term interest to the economy, new home sales are expected to have stopped a year-long decline in July. Data are due for release at 10 AM ET along with the Richmond Federal Reserve’s local manufacturing survey, on an otherwise light day for data.

3. Stocks set to open higher; Best Buy, Medtronic earnings due

U.S. stock markets are due to open higher later, extending Monday’s gains on the return of confidence to the Chinese economy and financial market.

By 6:20 AM ET (1020 GMT), Dow Jones futures were up 45 points, or 0.1%, while S&P 500 futures were up 0.2% and Nasdaq 100 futures were up 0.3%, a performance pattern that suggests investors are still more comfortable with ‘longer-duration’ technology stocks than with cyclical stocks more exposed to the reopening story and the progress of the pandemic.

The U.S. registered its highest number of new Covid-19 cases since January on Monday, while the seven-day daily average death count crept back above 1,000 for the first time since April.

A modest earnings roster is headed by Medtronic and Best Buy, with Intuit reporting after the closing bell.

4. Samsung responds to chipmakers arms race

Korean technology giant Samsung marked the recent release from prison of top executive Lee Jae-yon with the announcement of a plan to invest $206 billion over the next three years, an increase of one-third from the current three-year period.

The move reflects, in part, heightened competition among chipmakers to bring more capacity online to satisfy exploding demand for semiconductors. The lack of spare capacity has played a key role in the global shortage of chips for many industrial sectors this year, which now threatens to extend beyond the middle of next year, according to the president of Apple (NASDAQ:AAPL) contractor Hon Hai Precision.

Samsung’s plans are likely to include an expansion of its BioLogics division, as well as a decision on a $17 billion foundry slated to be built in the U.S., according to The Wall Street Journal. This will allow it to be more competitive in the segment of making chips designed by third parties.  

5. Oil and iron ore bounce on China optimism; API eyed

Crude oil prices and other industrial commodities extended their rebound on the prospects of a quick return of Chinese demand, now that the authorities have started to declare victory over the latest wave of Covid-19.

By 6:30 AM ET, U.S. crude futures were up 1.2% at $66.64 a barrel, while Brent futures were up 1.6% at $69.45 a barrel. Iron ore prices in Singapore rose 10%, while Tin, Palladium and copper all posted advances too.

The market’s attention later will likely be focused on the American Petroleum Institute’s weekly inventories, with the market looking for a strong draw in crude and gasoline stockpiles as the summer driving season approaches its final peak.

Chinese Bounce, Dems' Spending Impasse; Best Buy - What's Moving Markets

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