Inflation, Infrastructure Bill’s Passage, Evergrande – What’s Moving Markets

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© Reuters

By Peter Nurse

Investing.com — The U.S. monthly consumer inflation release is set to add to the ongoing tapering debate, while the infrastructure bill passes through the Senate. Chinese property developer Evergrande looks to sell assets to ease its debt pile, while stocks and crude trade in narrow ranges. Here’s what you need to know in financial markets on Wednesday, 11th August.

1. U.S. CPI to add to tapering debate  

Attention Wednesday will focus on the inflation portion of the Federal Reserve’s dual mandate, with the consumer price index for July likely to prompt investors to update their bets on when the Fed will begin scaling back its extraordinary monetary stimulus.

The data is due out from the Bureau of Labor Statistics at 8:30 AM ET (1230 GMT), and analysts are looking for a gain in the headline figure of 5.3% over last year, marginally lower than June’s 5.4%, which was the biggest monthly gain since August 2008.

Core inflation, which excludes food and energy prices, is expected to have climbed 4.3% in July from a year ago against the 4.5% jump in June, which was the quickest pace of increase since September 1991.

Fed Chair Jerome Powell has consistently said the elevated inflation numbers will turn out to be transitory as the economy fully reopens, but another high release is likely to add spice to the tapering debate.

2. Stocks seen just lower; eBay reports late

U.S. stocks are set to open marginally lower, falling back from record highs ahead of key inflation data and as the second-quarter earnings season continues.

By 5:10 AM ET, Dow Jones futures were largely flat, while S&P 500 futures were down 6 points, or 0.1%, and Nasdaq 100 futures dropped 40 points, or 0.3%.

The blue chip Dow Jones Industrial Average gained just over 160 points, or 0.5%, on Tuesday, while the broad-based S&P 500 advanced 0.1%, both closing at record highs. The tech heavy Nasdaq Composite slid 0.5%, registering its second negative session in the last three. 

There are more corporate results due Wednesday, with the likes of Wendy’s (NASDAQ:WEN) and Canada Goose (NYSE:GOOS) set to report before the opening bell, while Lordstown Motors (NASDAQ:RIDE) and eBay (NASDAQ:EBAY) are the highlights after the close.

Fubotv (NYSE:FUBO) is also likely to be in the spotlight Wednesday after the streaming service reported strong revenue figures after the previous session’s close, while retailer Poshmark (NASDAQ:POSH) disappointed.

This has been a strong earnings season so far, with around 90% of the S&P 500 companies that reported quarterly results beating expectations. 

3. Infrastructure winners

After much debate, the U.S. Senate passed the $1 trillion infrastructure package, and it now heads to the House of Representatives for approval. This could result in the nation’s biggest investment in decades in roads, bridges, airports and waterways.

Additionally, the Senate also approved the framework for the Democrats $3.5 trillion spending plan, that could result in additional funds for climate initiatives, paid leave, child care, education and health care, admittedly without Republican support.

The knowledge of this infrastructure investment has prompted investors to move into infrastructure plays such as the iShares U.S. Infrastructure ETF (NYSE:IFRA), which has seen positive inflows for five of the last six weeks, including a record $51 million for the week that ended July 7, according to Lipper data.

The S&P U.S. Real Estate REIT Index is also up around 25% so far this year, while the S&P 500’s materials and industrial sectors have both gained around 18% year-to-date. 

4. Evergrande plans to sell assets

The Chinese property developer Evergrande Group (OTC:EGRNY) is in talks to sell certain assets, potentially easing its hefty debt load and reducing the need to drastically restructure.

The group announced after hours Tuesday that it was in talks with “several independent third-party investors” who are looking to purchase stakes in the property firm’s electric vehicle start-up and property services units. 

Evergrande’s stock, listed in Hong Kong, jumped as much as 12% Wednesday, and its dollar bonds also gained, although they remain at distressed levels.

Rating agency S&P downgraded Evergrande to CCC from B- last week, estimating that it has over $37 billion of bills and trade payables from contractors to settle over the next 12 months, of which just under a half are due within 2021.

5. Crude stabilizes ahead of EIA inventories data

Oil prices stabilized Wednesday, with traders having to balance the Covid-induced restrictions in China, the second largest consumer of oil in the world, with signs of strong demand in the U.S., the largest consumer.

By 5:10 AM ET, U.S. crude futures were down 0.2% at $68.17 a barrel, while Brent futures dropped 0.1% at $70.56 a barrel.

Crude has been hit hard of late by the arrival of the fast-spreading delta variant of the Covid-19 virus to Asia, and China in particular, which has raised concerns about the short-term demand outlook.

Bloomberg reported Wednesday that several Asian refiners have already asked for less oil from Saudi Arabia for next month.

However, industry data from the American Petroleum Institute showed U.S. crude oil and gasoline inventories fell last week, by 816,00 barrels and 1.1 million barrels respectively, while the U.S. Energy Information Administration raised its forecast for fuel demand in 2021 and said consumption in May through July was higher than expected.

Investors will look to the release of the weekly official figures from the EIA later Wednesday for confirmation of this healthy U.S. demand.

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