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Musk's Twitter Deal on Hold, Crypto Rally, China Slows - What's Moving Markets

Economy May 13, 2022 12:30
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By Geoffrey Smith -- Elon Musk put his Twitter (NYSE:TWTR) bid on hold, ostensibly due to due diligence reasons. Financing problems may also be behind the announcement. Crypto rebounds as Tether withstands a bout of intense demand for redemptions. Stocks and risk assets in general are also set to open higher, but are still on course for a losing week. New data show the scale of China's economic slowdown in April, and G7 ministers meet to discuss raising the pressure on Russia. Here's what you need to know in financial markets on Friday, 13th May.

1. Crypto rebound

Cryptocurrencies rallied violently as the panic triggered by the collapse of algorithmic stablecoin TerraUSD and its associated LUNA token faded.

Confidence returned as the world’s largest stablecoin network Tether successfully negotiated a period of intense demand for redemptions as crypto holders rushed to convert their assets back into dollars or other fiat currency. In contrast to TerraUSD, Tether is backed by real assets, over 40% of which is highly-liquid and risk-free Treasury bills.

Tether returned to trading around its 1:1 peg with the dollar in early dealings in Europe. Bitcoin surged by as much as 13% before paring its gains to be up 8.6% at $30,409 as of 6:15 AM ET. It’s still down around 16% on the week, however, after a rough few days for risk assets in general. 

TerraUSD's network tried to resume trading overnight but quickly shut down again.

2. Musk puts Twitter deal on hold

Elon Musk said his bid for Twitter is “temporarily on hold”. The Tesla (NASDAQ:TSLA) CEO said that the move was a response to a filing by Twitter on Thursday that claimed fewer than 5% of the accounts on its network are spam bots or vehicles for fake news. Musk has indicated he thinks the proportion is much higher and has made their removal one of his top priorities.

However, the arithmetic behind Musk’s leveraged buyout offer had become more complicated as the value of his Tesla shares has fallen some 16% in the last week. They’re now nearly 30% of this year’s high. Musk was set to borrow some $12 billion against his shareholding through a margin loan under the original terms of the deal.

Twitter stock fell over 20% premarket in response to the news, while Tesla stock rose 4.8% as the risk of a significant equity overhang faded.  

3. Stocks set to open higher on short-covering; chipmakers in focus after price hike report

U.S. stocks are set to open higher later, with some short-covering overdue at the end of a volatile week. Sentiment improved toward the end of the day already on Thursday, as Federal Reserve Chair Jerome Powell again pushed back against the idea of raising key interest rates by 75 basis points at the central bank’s next policy meeting.

By 6:20 AM ET, Dow Jones futures were up 216 points, or 0.7%, while S&P 500 futures were up 1.0% and Nasdaq 100 futures were up 1.6%. That would still leave them on course for losses of between 2.8% and 4.2% this week.

Stocks likely to be in focus later include chipmakers, after Bloomberg reported that industry leader Samsung (KS:005930) is looking to put prices for its semiconductors up by 20%, while Duolingo (NASDAQ:DUOL) stock is bouncing 17% in premarket after its quarterly update.

Also due to report Friday are Jessica Alba’s Honest Company (NASDAQ:HNST), while Honda (NYSE:HMC) ADRs were up 3.9%, after the Japanese auto giant put out better-than-expected earnings - even if it cut its guidance at the same time.

4. Chinese loan growth slows sharply

China's credit growth slowed sharply in April under the impact of spreading lockdowns to stop the spread of COVID-19. These affected nearly 400 million people during the month, according to some estimates, including the key economic hub of Shanghai, much of which remains under severe restrictions. 

New loans fell to 645 billion yuan from over 3.1 billion yuan in March, while the broader credit aggregate known as Total Social Financing also collapsed to its slowest growth since the start of the pandemic. The data underline the scale of the slowdown in China, where surveys indicate that both manufacturing and services activity fell in April. 

The lockdowns are doing nothing to help the balance sheets of the country's beleaguered real estate developers: Shimao Property (HK:0813), one of the largest, said its contracted sales in April were down 76% from a year earlier, a stark illustration of how the sector's ability to service its debt load is deteriorating.

5. Oil rises further amid fears of Russian output hit; Baker Hughes rig count due

Crude oil prices extended Thursday’s gains as G7 foreign ministers met to coordinate raising the diplomatic and economic pressure on Russia to abandon its faltering invasion of Ukraine.

By 6:30 AM ET, U.S. crude futures were up 1.7% at $017.99 a barrel, while Brent futures were up 1.8% at $109.36 a barrel.

The International Energy Agency estimated on Thursday that Russian oil output could fall to some 1.6 million barrels a day below its pre-war level by June, due to the difficulties of rearranging the large part of its oil export trade due to western sanctions.

Baker Hughes’ rig count and the CFTC’s net positioning data are due later.

Musk's Twitter Deal on Hold, Crypto Rally, China Slows - What's Moving Markets

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