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OPEC+ Meeting, Evergrande Limps on, Tesla Blowout - What's Moving Markets

EconomyOct 04, 2021 12:14
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By Geoffrey Smith -- OPEC meets with Russia as the world cries out for more energy - but is unlikely to speed up its plans to raise output, according to reports. China Evergrande continues to die the death of a thousand cuts. Tesla (NASDAQ:TSLA) posted a record quarter for deliveries, shrugging off the chip shortage that has hamstrung most of its rivals. Stocks are set to open lower as Friday's short-covering rally fades, but Merck stock is still going strong after upbeat news about its Covid-19 pill. And Democrat lawmakers start to inch toward a compromise on key spending bills.  Here's what you need to know in financial markets on Monday, 4th October. 

1. OPEC+ to meet

The Organization of Petroleum Exporting Countries meets with key allies led by Russia to review their output policy for November, an event which may well highlight that the world’s biggest energy problems right now are, for once, not really oil-driven.

Sources quoted by Reuters suggested that the bloc will stick with its existing to raise output, but will not go beyond that because it expects the current market deficit (of over 1 million barrels a day) to swing back to a surplus at the start of next year.

The bloc is raising output in increments of 400,000 barrels a day at the start of each month until the emergency output cuts of 2020 have been fully reversed.  U.S. crude futures edged up over the weekend, more concerned with the current tightness. Brent was up 0.2% at $79.74 a barrel.

2. Evergrande's death of a thousand cuts

Troubled real estate group China Evergrande (HK:3333) reportedly neared another deal to raise cash as it struggles with a heavy timetable of debt repayments.

Trading in Evergrande stock was suspended in Hong Kong pending an announcement, after one local media source said it is preparing to sell a 51% stake in its cash-generative property services unit to rival Hopson  (HK:0754). However, there was no clarity about the structure or price of the deal, nor about whether it would free up any money specifically to repay bondholders.

Evergrande has a $260 million falling due on Monday appears unlikely to meet the obligation, given that it still hasn’t fully paid interest on two bonds that was due over the last couple of weeks.

China’s mainland markets are shut this week for the national week holiday.

3. Stocks set to open lower; Merck rally continues

U.S. stock markets are set to open lower on Monday, suggesting that the Friday rally that followed Merck’s encouraging news on its experimental antiviral pill for treating Covid-19 was largely short-covering at the end of what was still a down week for the three main indices.

By 6:15 AM ET (1015 GMT), Dow Jones futures were down 86 points, or 0.3%, while S&P 500 futures were down in parallel. Nasdaq 100 futures were down 0.5%.

Merck (NYSE:MRK) stock continued to gain in premarket, however, adding another 3.4% to Friday’s 8.4% rise. Joining it in the spotlight later – albeit for less positive reasons – will be 3M (NYSE:MMM), which was served with its biggest compensation demand yet for faulty combat earplugs on Friday.

Factory orders data for August head a thin data calendar.

4. Dems start to inch toward compromise on spending bill

The left wing of the Democratic Party started to backpedal on their demands for a $3.5 trillion, 10-year expansion of the social safety net and energy transition after a shambolic-looking week in Washington.

Senator Bernie Sanders said over the weekend that he was prepared “to accept there is going to have to be give and take" over the bill, after the more moderate Senator Joe Manchin refused to budge on his $1.5 trillion maximum. Krysten Sinema, a fellow moderate, has also said she won’t support the bill as drafted.

House Speaker Nancy Pelosi still aims to tie the spending bill to the $1.2 trillion infrastructure package that enjoys a degree of bipartisan support. President Joe Biden effectively accepted last weekend that a compromise on his signature economic policies would need more time to crystallize.

5. Shortage? What chip shortage?

Tesla emphatically overcame the problem that has dogged the whole of the automotive sector in the third quarter, delivering 241,000 cars between July and September. That’s nearly double deliveries in the same period last year, and ahead of the company’s own guidance. Tesla stock rose 2.6% in premarket in response.

The development comes despite the much-chronicled global shortage of semiconductors, and despite the fact that Tesla’s cars embed many more chips than those of legacy carmakers (a point made by long-time Tesla bull Cathie Wood on Twitter (NYSE:TWTR)).

By contrast, General Motors (NYSE:GM) had said on Friday that production fell 33% in the third quarter. As a result, the difference in scale between the two companies shrunk sharply. For the first time ever, GM produced less than twice what Tesla shipped.

Elsewhere in automotive news, Rivian – the electric van company backed by Amazon (NASDAQ:AMZN) and Ford – filed to go public.

OPEC+ Meeting, Evergrande Limps on, Tesla Blowout - What's Moving Markets

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