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Balloon pops, Newmont, Storage M&A, rate fears - what's moving markets

Published 2023-02-06, 07:22 a/m
© Reuters.

By Geoffrey Smith -- The US's shooting down of a Chinese surveillance balloon on the weekend triggers an angry response and generates a reality check for Chinese assets. The Eurozone's retail sales in December were awful, but German factory orders picked up, bolstering hopes that the economy may be close to turning a corner. The US stocks are set to open lower, still under pressure from a jobs report on Friday that dented hopes for a quick 'pivot' to interest rate cuts by the Federal Reserve. There's bid speculation in the air, with gold mining and storage, two unlikely candidates for attention. And oil prices continue to bump along at one-month lows on concerns about the global demand outlook. Here's what you need to know in financial markets on Monday, 6th February.

1. One less red balloon goes by

Chinese stocks weakened as the US’s decision to shoot down a Chinese surveillance balloon triggered a loud and angry response from Beijing. Benchmark indices lost between 0.8% and 2.0%, correcting after a bullish start to the year.

The balloon’s flight over Montana, the state of several US strategic missile sites, had already caused a planned meeting between Secretary of State Antony Blinken and President Xi Jinping to be canceled.

Coming less than a week after reports that the US is looking at tightening restrictions on Chinese telecoms giant Huawei, the incident has revived awareness of the risk to markets of a fresh deterioration in US-Chinese relations.

2. German orders offer hope after weak end to the year in the Eurozone

There were mixed updates from the Eurozone, with retail sales falling more than expected in December and confirming the picture of a weak end to last year.

More forward-looking data were more encouraging: German factory orders, a key indicator of future trends in Europe’s manufacturing heart, posted their strongest gain in a year, bolstering hopes that the alarming slowdown seen last year is bottoming out.

The euro has softened markedly since the European Central Bank’s latest press conference last week when President Christine Lagarde’s guidance of further interest rate hikes was taken with more skepticism than usual. Lagarde is due to speak at 13:00 ET (18:00 GMT), while Bank of England Chief Economist Huw Pill may also draw some interest with a speech an hour earlier.

3. Stocks set to open lower as retailers, games publishers prepare to update 

The US stock markets are set to open the week lower, with participants still revising their outlook for US interest rates after Friday’s stronger-than-expected labor market report. The blowout headline number of 517,000 nonfarm job gains arguably overstated the strength of the labor market but, nonetheless, dented hopes of an early ‘pivot’ to rate cuts by the Federal Reserve later this year.

By 06:45 ET, Dow Jones futures were down 221 points or 0.7%, while S&P 500 futures were down 0.8%, and Nasdaq 100 futures were down 1.1%. The three main cash indices had fallen by between 0.4% and 1.6% on Friday, with tech stocks – whose value is especially sensitive to interest rate assumptions - underperforming sharply.

Earnings have a consumer-flavored theme to start the week, with Tyson Foods (NYSE:TSN) and Loews (NYSE:L) getting the ball rolling early, followed by Activision Blizzard (NASDAQ:ATVI) and Take-Two Interactive (NASDAQ:TTWO) after the bell. Mall owner Simon Property (NYSE:SPG) is also due to update later.

4. Newmont, storage companies breathe life into M&A market

M&A activity is threatening to push earnings out of the limelight at the start of trading, however.

Newmont (NYSE:NEM), the world’s biggest gold miner, has offered $17 billion to buy Australian-based Newcrest, a deal that the latter’s institutional shareholders appear to find too low. Newmont stock fell 5.7% on the news.

That deal comes at a time when bullion prices are riding high again, supported by hopes of a turn in the US interest rate cycle.

Elsewhere, Public Storage (NYSE:PSA) made a hostile $11B bid for rival Life Storage (NYSE:LSI), after having an earlier bid rejected. Life Storage rose 13% in premarket.

In smaller deals, Angry Birds developer Rovio (HE:ROVIO) said it will after all talk to Israeli-based Playtika (NASDAQ:PLTK) about a possible sale. Rovio stock rose 13% in Helsinki. Playtika ADRs were still to trade in premarket.

5. Oil bumps along at one-month lows; Turkey closes pipeline down after earthquake

Crude oil prices were stuck around their lowest level in a month as bets on a strong rebound in Chinese demand were trimmed. Signs of a slowdown in US drilling activity – notably, the seventh fall in Baker Hughes’ rig count in nine weeks – appear not to have fully compensated for sharp rises in US inventories last week.

New European and US sanctions on Russian exports of refined products come into force this week but aren’t expected to have any immediate impact on crude prices.

By 06:45 ET, US crude prices were up 0.3% at $73.64 a barrel, while Brent crude was up 0.6% at $80.42 a barrel.

Earlier, Turkish pipeline operator Botas said it had closed down the Baku-Tbilisi-Ceyhan pipeline as a precaution after a massive earthquake that killed hundreds in Turkey and Syria. No damage to the pipeline was discovered.

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