By Geoffrey Smith
Investing.com — Crude oil prices hit a seven-year high as OPEC’s meeting ends in disarray. Didi Global stock falls 20% after China’s cyberspace regulator has its app pulled from stores across the country. The ISM’s non-manufacturing survey is due, while German data suggests the chip shortage is hitting the auto sector hard. And REvil, the group behind the latest big ransomware attack, demands $70 million in order to go away. Here’s what you need to know in financial markets on Tuesday, July 6th.
1. Oil hits new highs on OPEC disarray
Crude oil prices rose to their highest since 2014, after resistance from the United Arab Emirates scuppered a Saudi-Russian proposal for a further gradual increase in production by the world’s largest exporters.
The lack of an agreement means that the so-called OPEC+ bloc will keep production at current levels in August, despite rising demand from a recovering global economy. However, higher prices also bring the risk that individual countries break with the agreement and raise output unilaterally, triggering another price war. Analysts at Goldman Sachs said in a note to clients on Tuesday that they consider this scenario unlikely.
Front-month futures contracts have risen more sharply than longer-dated ones so far on Tuesday, suggesting that the market expects extra barrels to find their way to the market one way or the other in time.
2. Didi, Kanzhun plunge after China cracks down
Didi Global (NYSE:DIDI) shares fell over 20% in premarket trading in a delayed reaction to the move by Chinese authorities at the weekend to stop it gaining any new customers, ostensibly out of concern about its collection of users’ personal data.
The Wall Street Journal reported late on Monday that Chinese regulators had “suggested” to Didi that they delay its IPO while it addressed their concerns. However, in the absence of a formal ban and under pressure from early investors to let them cash out, the company went ahead with its plans.
The regulators’ action doesn’t stop Didi’s ride-hailing service being used in China by its existing clients, but the risk of an escalated conflict with regulators is likely to weigh on the share price until it is conclusively addressed. Elsewhere in premarket, ADRs in online recruitment company Kanzhun (NASDAQ:BZ) also fell over 10% after it warned that its BOSS Zhipin app was being subjected to similar restrictions as Didi’s app.
3. Stocks flat; ISM non-manufacturing eyed
U.S. stock markets are set to reopen after the Independence Day weekend in muted tone, with one eye on the release later in the week of the minutes from the Federal Reserve’s last policy meeting.
Stocks likely to be in focus include the oil and gas sector, with the key question being whether U.S. shale oil producers will be able to respond to the spike in crude prices by raising their own production. Anecdotal reports, and surveys such as those by the Dallas Federal Reserve, have suggested that the sector has struggled to attract fresh money in recent months and may struggle to cash in.
At 10 AM ET, the Institute of Supply Management will release its non-manufacturing survey for June.
4. German factory orders show chip pressure on auto sector
Overnight signals from the global economy have been mixed: the Australian central bank said it will reduce the pace of asset purchases, citing the robust economic recovery. It still doesn’t expect to raise its key rate before 2024, however.
In Germany, meanwhile, factory orders in May fell by over 3%, largely due to weakness in the auto sector. The numbers were a sign that the global chip shortage is finally making itself felt in reduced sales and production levels. Separately, Nissan (OTC:NSANY) and Honda (T:7267) both reported that their sales in China fell by between 16% and 18% in June.
There was better news from the U.K., where Prime Minister Boris Johnson recommitted to ending all remaining Covid-19 restrictions on July 19, despite a wave of new cases, principally caused by the delta variant of the virus. With over half of adult Britons fully vaccinated, the wave of new cases has not resulted – at least so far – in a sharp rise in hospital admissions.
5. Paying the danegeld, Kaseya remix
The hacking group REvil demanded a total of $70 million from the companies it disrupted in a widespread ransomware attack just before the weekend.
The attack, which exploited weaknesses in software provided by the Kaseya company, was the latest in a series of increasingly brazen episodes that have crippled the Colonial Pipeline Company and meat producer JBS.
The REvil group is believed to be based in Russia, whose president Vladimir Putin only recently discussed the issue of cyberattacks with U.S. President Joe Biden. Shares in U.S. cybersecurity companies were mixed in premarket, with FireEye (NASDAQ:FEYE) stock up 1.8% but Crowdstrike (NASDAQ:CRWD) down 0.2%.
Oil at 7-Year High on OPEC Disarray, Didi Tumbles, ISM – What’s Moving Markets