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U.S. CPI and Bond Sale, Softbank Windfall, Gas Shortages - What's Moving Markets

EconomyMay 12, 2021 11:55
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By Geoffrey Smith -- U.S. consumer inflation data for April will test market nerves as the stock sell-off extends for another day. Taiwan's stock market crashes as retail investors are wiped out by margin calls. The U.S. takes Xiaomi (HK:1810) (OTC:XIACF) off its blacklist and Softbank (T:9984) (OTC:SFTBY) posts the biggest ever profit by a Japanese company. Gasoline shortages are becoming more widespread as Colonial Pipeline's problems continue. Here's what's moving markets on Wednesday, May 12th.

1. CPI to test market’s nerve ahead of bond auction

The great inflation scare gets a reality check at 8:30 AM ET (1230 GMT), with the publication of the U.S. consumer price index for April.

Never mind that the year-on-year rate is wildly distorted by the collapse of oil prices a year ago, never mind that the Federal Reserve takes its cues from a different measure of inflation that more accurately reflects spending patterns, and that Fed Governor Lael Brainard repeated on Tuesday that the Fed remains 'far from our goals' The market expects the headline annual rate  to rise to 3.6%, which would be its highest since 2008, with a 0.3% rise in prices on the month.

That sets the scene for a 10-year Treasury bond auction later in the day, while there’s a chance of running commentary from the Fed’s Patrick Harker and Raphael Bostic.

2. Xiaomi taken off U.S. blacklist

There are signs of a partial détente in U.S.-China relations. Smartphone maker Xiaomi (OTC:XIACY) was taken off the list of companies designated as controlled by or linked to the Chinese military, reversing an action taken by President Donald Trump.

The blacklisting would normally have led to the delisting of Xiaomi’s shares from U.S. exchanges. The company’s Hong Kong shares rose over 6%, although they are still down by over 30% from their January peak.

However, the corporate battleground in China’s battle with the West remains active. The Global Times again threatened on Wednesday that Beijing can cut Swedish company Ericsson (BS:ERICAs) out of its 5G rollout unless Sweden lifts its restrictions on Huawei’s activity at home. Ericsson stock fell 2.5% in Stockholm.

3. Stocks set to open lower again; Softbank posts windfall profit

U.S. stocks are set to open lower again, attuned to the risk of a nasty inflation surprise that could puncture official complacency about price pressures that are showing up ever more broadly in the economy.

By 6:30 AM ET, Dow Jones futures were down 105 points, or 0.3%, at just over 34,000, while S&P 500 futures were down 0.4% and Nasdaq 100 futures were again underperforming with a decline of 0.6%.

Stocks likely to be in focus later include Electronic Arts (NASDAQ:EA), whose outlook for the full year turned out stronger than street expectations after hours on Tuesday, and Carnival (NYSE:CUK), which said it has pushed back almost all cruise sailings to at least the end of July. Also of note was Softbank, which posted the biggest ever annual profit for a Japanese company overnight thanks to gains on its stake in Coupang and paper gains on its stake in Uber (NYSE:UBER).

4. Taiwan's stock market crash wipes out retail investors

The risks of violent correction from over-extended levels were sharply illustrated by a flash crash in Taiwan that appeared to be triggered by margin calls on retail investors who have piled into the market in recent months.

The Taiwan Weighted stock index fell 4.1% and the Taiex index fell as much as 9.8% intraday, as investors were forced to bale on a market that has profited massively from both the country’s handling of the Covid-19 pandemic, and from U.S.-China rivalry.

Taiwan Semiconductor Manufacturing (NYSE:TSM) stocks was down 2.4% in premarket while Apple (NASDAQ:AAPL) supplier Hon Hai Precision (OTC:HNHPF), also known as FoxConn, ended down 4.7% in Taipei.

5. Oil rises as Colonial woes continue; EIA Inventories eyed

Average U.S. gasoline prices topped $3 a gallon as shortages from the Colonial Pipeline Company began to bite. According to data from GasBuddy, around 20% of gas stations in the Atlanta area are out of gas, with Tennessee also reportedly suffering. Colonial still expects most of its system to be offline until the weekend.

Crude oil prices have bounced overnight, still supported by the draw in U.S. inventories reported by the American Petroleum Institute on Tuesday. Government data are due at 10:30 AM, as usual.  By 6:30, U.S. crude was up 0.9% at $65.85 a barrel, while Brent was up 0.8% at $69.06.

The International Energy Agency will also publish its monthly report on the world oil market.

U.S. CPI and Bond Sale, Softbank Windfall, Gas Shortages - What's Moving Markets

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