Chinese Regulation, IEA Oil Demand, Jobless Claims and PPI – What’s Moving Markets

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By Peter Nurse

Investing.com — More regulation is set to reduce the appeal of Chinese stocks, while investors await more U.S. inflation and employment data with Wall Street at record levels as the earnings season nears a close. The IEA has also downgraded its outlook for oil demand on Covid worries. Here’s what you need to know in financial markets on Thursday, 12th August.

1. China losing its appeal

Investing in China’s stock markets is losing its appeal, at least in the short term, given the unpredictability of the government’s regulatory measures, following its latest crackdowns on the technology, property and education sectors. 

This enhanced regulation is set to continue, as the country’s leadership published a document late Wednesday stating China will soon draft new laws on national security, technology innovation, monopolies and education.

The Shanghai index, which includes the top 10 companies on the Shenzhen Stock Exchange, is around 1% lower over the last month, but the Hang Seng index, which is often easier for foreign investors to interact with, is down close to 6%.

Still, there could be long term advantages if these new regulations end up protecting corporate data and reducing monopolistic practices.

U.S. Treasury Secretary Janet Yellen is said to be weighing a trip to China in the coming months. Such a visit would mark the first face-to-face economic talks with China under the Biden administration.

2. More U.S. inflation and jobless claims data due

The Federal Reserve received a boost Wednesday as U.S. consumer prices for July backed up its view that inflationary pressures would be temporary in nature, as the 0.5% CPI reading registered the largest drop in month-to-month inflation in 15 months.

There is more inflation data due out Thursday, this time from producers at 8:30 AM ET (1230 GMT). Analysts are looking for the headline PPI figure to rise 7.3% in July over last year, unchanged from the previous month, which was the largest annual increase in more than 10 years.

In addition to persistently higher inflation, the Fed is also keeping an eye on the recovery in the labour market, and the weekly initial jobless claims data are also due Thursday.

Initial claims for state unemployment benefits are expected to fall by 10,000 to 375,000 last week, after falling by 14,000 the week before, but this release will be the first after Friday’s stronger than expected nonfarm payrolls number.

3. Stocks remain near record levels

U.S. stocks are set to open largely unchanged, remaining near record levels helped by expectations of more stimulus spending and a cooling of inflationary pressures.

By 5:25 AM ET, Dow Jones futures were up 25 points, or 0.1%, while S&P 500 futures were effectively flat from Wednesday’s close. Nasdaq 100 futures were down 14 points, or 0.1%.

The blue-chip Dow Jones Industrial Average gained 0.6% on Tuesday to close at a new record, while the broad-based S&P 500 rose 0.2% to another closing high. The tech-heavy Nasdaq Composite underperformed, dropping just 0.1%. 

Helping the tone was the news that the Senate passed Wednesday a $3.5 trillion budget blueprint, which opens the way for a massive expansion of federal social spending. This follows on from the agreement of a $1 billion infrastructure bill.

Additionally, the cooling of consumer inflation reduced expectations of an early move by the Federal Reserve to reduce its own hefty monetary stimulus.

4. Corporate earnings continue

The second-quarter earnings season is coming to a close, but there are still some important companies due to report Thursday.

Walt Disney (NYSE:DIS) is the highest profile of these companies, and the entertainment giant is expected to register revenue of $16.76 billion and EPS of 54 cents in the quarter after the close. 

Analysts will also be listening to the management’s outlook on theme parks and for any updates on the progress of its Disney+ streaming business, which has burst onto the scene since the pandemic forced studios to release new films in a less-than-traditional way.

Additionally, Airbnb (NASDAQ:ABNB) is expected to announce a second-quarter loss, with the hospitality sector struggling to come back from the pandemic, while numbers from company DoorDash (NYSE:DASH) will be of interest as the food delivery company positions for life without the mobility restrictions which provided such a tail wind.

5. Crude edges higher; IEA downgrades its demand outlook

Oil prices edged higher despite the International Energy Agency cutting its oil demand outlook for the year on the back of the spread of the Covid-19 delta variant.

By 5:25 AM ET, U.S. crude futures were up 0.5% at $69.56 a barrel, while Brent futures climbed 0.6% at $71.85 a barrel.

The IEA projected demand growth would be half a million barrels per day lower in the second half of the year compared with its estimate last month, “as new Covid-19 restrictions imposed in several major oil consuming countries, particularly in Asia, look set to reduce mobility and oil use.”

OPEC is scheduled to also release its monthly oil market report later Thursday.

Sentiment had been hit Wednesday by U.S. President Joe Biden’s call for the major crude producers to boost output to tackle rising gasoline prices.

The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, is in the process of restoring the record output cut of 10 million barrels per day instigated in the early days of the pandemic. 

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