Markets open down on regulatory clampdown in China
We start this week in a risk off mood with Asian shares dropping to a seven-month low as regulatory concerns grow in China. Delta variant continues spreading around the world with some German politicians calling for tough restrictions on unvaccinated people. Bitcoin surges and oil is down this Monday. Attention this week will be on Fed two-day policy meeting, concluding on Wednesday. We shall also see a number or earnings reports, including Tesla, Apple, Alphabet, Amazon and Facebook. German IFO will be published on Monday, US Durable goods on Tuesday, US Advance GDP on Thursday and European CPI and preliminary GDP on Friday.
US Market surged on Friday with all three major indexes hitting record highs as tech stocks posted positive earning results, beating the estimates. Nasdaq set an intraday record on Friday and closed 1% up, Dow Jones closed above 35,000 for the first time and finished the session 0.7% per cent up, while S&P Index rose with 1% gain, also setting another intraday record high. The dollar was down this Monday morning, but remained near its strongest level since early April 20201 against the euro. DXY is trading around 92.87. The focus this week will be on Fed’s meeting with a statement scrutinised for any mention of the timeframe for tapering asset purchase program. Most analysts expect the Fed to give a clearer indication of its plans for scaling back its quantitative easing program at its annual conference in Jackson Hole in August. Aside from the Fed meeting, investors will see an update on the strength of the US economy with a number of data releases this week including new home sales, durable goods orders and consumer confidence, with a highlight on Thursday of the second quarter GDP.
European stocks had a negative handover from Asia this Monday with most indexes trading lower. DAX has lost 0.4%, CAC Futures dropped 0.4% and FTSE 100 futures fell 0.4%. Second quarter GDP data on Friday in Euro Area will give some insight in the strength of the economic recovery form a double dip recession as vaccinations pick up. Inflation figures released the same day are expected to hit the ECB’s 2% target in July. ECB has said inflation may be allowed to temporarily exceed its target. On the latest ECB meeting last week Christine Lagarde said that a fresh wave of coronavirus pandemic poses a risk to economic recovery and longer period of monetary support is needed. Eurusd is trading near the previous low of 1.1752, not seen since April 5.
Asian indexes fell heavily this Monday to the seven-month low, as better than expected US earnings sucked funds out of emerging markets, while concerns grew on related to a technology-sector crackdown in China. Japan’s Nikkei gained 1%, while Hong Kong’s Heng Seng lost almost 3% and Shanghai composite fell over 2%. The shakeout in China’s $120 billion private tutoring sector follows Beijing’s announcement on Friday of new rules barring for-profit tutoring in core school subjects to ease financial pressures on families. The policy change also restricts foreign investment in the sector.
Oil is trading lower this Monday, but little changed despite of the increasing COVD -19 numbers affecting the demand. Brent fell 1.16% to $72.59, while WTI futures lost 1.25% and is trading around $71.17. The latest surge in cases coincide with an expected surge in supply form OPEC plus starting in August. Talks to revive a 2015 nuclear deal that could add Iranian oil back to the market have been postponed till August. US is also considering cracking down on Iranian oil Sales to China. This could all mean a choppy market for next few weeks.