China Power Edict, Weak Start to October, PCE Prices – What’s Moving Markets

imageEconomy6 hours ago (Oct 01, 2021 12:06)

© Reuters.

By Geoffrey Smith — China’s power sector is told by Beijing to keep the lights on ‘at all costs’. The House of Representatives shelves its plans for an infrastructure vote after resistance from progressive Democrats. Stocks are set to start October on a weak note, despite buoyant earnings from investment bank Jefferies (NYSE:JEF). Personal income and spending data for August are due, as is the ISM manufacturing survey and the personal consumer expenditures price index for August. And oil prices stall as hopes that OPEC may open the taps a bit more widely next month. Here’s what you need to know in financial markets on Friday, 1st October.

1. “At all costs”

The Chinese government ordered the country’s utilities to ensure stable energy deliveries “at all costs”, effectively giving them the green light to ramp up the bidding war in the global natural gas market.

European gas futures spiked to hit 100 euros a megawatt-hour before retreating, but spot levels are still around the oil price equivalent of $200 a barrel.

Beijing’s action, which comes at a time when more than half the country’s regions are rationing power, relieves the pressure on energy-intensive industrial users who have had to curtail output in recent weeks. However, without adjustment to regulated prices, the energy sector faces severe financial losses which may require them to be recapitalized by the state at a future date.

2. House postpones infrastructure vote again

The U.S. House of Representatives put off a vote on the $1.2 trillion infrastructure bill proposed by a bipartisan group after the left wing of the Democratic Party in the House dug in its heels.  

Congressmen and -women refused to support it unless their $3.5 trillion broader spending package on expanding the social safety net and funding the energy transition is advanced at the same time.

However, the spectre of a government shutdown was banished, at least for a few weeks as President Joe Biden signed a bill extending federal funding through December. 

3. Stocks set to extend losses; Jefferies rides M&A boom

October is set to start the way September ended in the stock market – full of fears about monetary tightening, a squeeze on incomes from rising energy prices, and an economic slowdown. The news out of China, while alleviating the threat of product shortages out of that country, has seemingly done little to change that.

By 6:15 AM ET (1015 GMT), Dow Jones futures were down 140 points, or 0.4%, while the S&P 500 futures contract was also down 0.4% and Nasdaq 100 futures were down 0.3%. The three contracts are on course for losses of between 3.7% and 5% this week.

Stocks likely to be in focus later include investment banks, after Jefferies – often seen as a bellwether for the sector – reported a strong quarter driven by record level of merger and acquisition activity. The stock was up 1.2% in premarket, but rivals Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) were unable to reap any benefit, both falling over 1%.

4. PCE prices, personal income and spending data due

With the market in fragile mood, there could be better days for an update on the Federal Reserve’s preferred measure of inflation, the personal consumer expenditures basket.

The monthly dynamic is expected to have weakened modestly in August, with core prices rising only 0.2% from 0.3% in July. However the annual rate is expected to stick at 3.6%. Personal income and spending data are also due at 8:30 AM ET.

Those data will be followed at 10 AM ET by the final update from the University of Michigan’s consumer sentiment index for September. That’s published at the same time as the Institute for Supply Management’s purchasing manager index for September, at the end of a week when Chinese and European PMIs have shown a clear slowdown in activity.

5 Crude stalls as OPEC hopes rise.

Crude oil prices again failed to make any further headway, as the view gained strength that the Organization of Petroleum Exporting Countries may increase supplies by more than the pre-agreed 400,000 barrels a month in November, when it meets with key allies next week.

By 6:25 AM ET, U.S. crude prices were down 0.8% at $74.44 a barrel, while Brent futures were down 0.6% at $77.88 a barrel.

Baker Hughes weekly oil rig count data later will give some indication of whether U.S. shale drillers are able to meet the increase in global demand for energy. The rig count hit its highest level since April 2020 last week, one of many indicators and asset prices that is reverting to the mean after the outsize swings of the last 20 months.

CFTC data on speculative net positioning are also due.

China Power Edict, Weak Start to October, PCE Prices – What’s Moving Markets


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