By Geoffrey Smith
Investing.com -- Bond markets are calmer, waiting to see if they can scare Federal Reserve Chair Jerome Powell into a more accommodating monetary policy. The pound is also steadier, after a not-entirely-convincing statement from the Bank of England vowing to keep inflation down. The U.S. government goes to court against JetBlue and American Airlines, while Twitter and Elon Musk continue to slug it out in their respective courtroom. Suspicious leaks from undersea gas pipelines spark accusations of Russian sabotage and the American Petroleum Institute releases weekly inventories data. Here's what you need to know in financial markets on Tuesday, September 27.
1. Bonds bounce ahead of Powell speech
Global bond markets recovered their nerve a little overnight after Monday’s panicked selloff, but are on tenterhooks ahead of a speech by Federal Reserve Chair Jerome Powell, who’s addressing a conference on digital assets at 07:30 ET (11:30 GMT).
His comments will be parsed for any sign that the rout in bond markets since last week’s Fed meeting has prompted a change of heart about the pace and extent of further interest rate hikes, given that a higher exchange rate and rising bond yields are already tightening financial conditions for U.S. companies considerably.
There are also speeches due from St. Louis Fed President James Bullard, Chicago’s Charles Evans, and San Francisco’s Mary Daly. On the data calendar, the Conference Board will release its monthly consumer confidence survey, while there are also durable goods and house price data due.
2. Sterling steadies but the political damage may already be done
The pound steadied and Gilt yields retraced after a debacle on Monday that forced the Bank of England to issue an emergency statement vowing not to let inflation get out of control.
That’s become a much tougher challenge after a massive fiscal giveaway by the new government, overwhelmingly to higher earners. An opinion poll conducted after the ‘mini-budget’ published on Friday gave the opposition Labour Party a record 17-point lead, suggesting that new Prime Minister Liz Truss and her Treasury chief Kwasi Kwarteng may have misjudged their priorities.
The volatility will put a sharper spotlight than usual on a speech by the Bank of England’s chief economist Huw Pill at 09:35 ET.
3. Stocks set to open with a modest bounce; courtroom action eyed
U.S. stock markets are set to open higher, reversing most of Monday’s losses, but in a holding pattern until Powell’s appearance later.
By 06:20 ET, Dow Jones futures were up 223 points, or 0.8%, while S&P 500 futures were up 1.0%, and Nasdaq 100 futures were up 1.2%. All three benchmark cash indices had lost between 0.6% and 1.1% on Monday, the Dow slipping into the technical definition of a bear market.
Stocks are being supported by a better tone in bonds, where the yield on the benchmark 2-Year and 10-year Treasury notes have fallen back by some 6 basis points to 4.25% and 3.83%, respectively. That’s still an inversion of the yield curve which would normally signify a recession ahead.
Stocks likely to be in focus later include JetBlue (NASDAQ:JBLU) and American Airlines (NASDAQ:AAL), whose alliance comes under scrutiny in court later from the Federal government’s antitrust suit. There’s also ongoing court action between Twitter (NYSE:TWTR) and Elon Musk. Volkswagen (OTC:VWAGY) ADRs are also still in focus amid reports that it will price the IPO of Porsche at the top end of its book-building range.
4. Nord Stream leaks prompt more accusations of Russian dirty tricks
Natural gas prices in Europe rose again after the operator of the Nord Stream pipelines, which run from Russia under the Baltic Sea to Germany, found no less than three leaks on its two separate strands within half a dozen miles of each other.
The pipeline’s operator Nord Stream said the damage was “unprecedented” and added that it’s “impossible now to estimate the timeframe for restoring operations.” Western analysts immediately suspected Russia of causing the damage, which makes the chances of any Russian gas reaching Europe through the pipeline this winter look vanishingly small.
The developments have prompted suspicions of sabotage, following on from earlier incidents in which Russia blamed mechanical failures for cutting its gas shipments to Germany.
5. Oil up a little; API inventories eyed
Crude oil prices bounced a little from their lows after the Nord Stream news, which revived fears that Russia may resort to extreme measures to maximize the economic pressure on Europe ahead of the coming winter.
By 06:30 ET, U.S. crude futures were up 1.9% at $78.14 a barrel, while Brent was down 1.9% at $84.44 a barrel.
The market’s eyes later will be on the American Petroleum Institute’s weekly inventory data at 16:30 ET, where analysts expect another modest rise in crude stocks, which would be the fifth straight weekly rise if confirmed.