By Geoffrey Smith
Investing.com — Fear of a 75 basis point interest rate hike by the Fed sends bond yields higher and stocks lower. Stagflation fears hit Europe, as the U.K. economy shrinks in April and fears of Eurozone bond market stress increase. Bitcoin falls to an 18-month low after a big crypto lender suspends withdrawals amid a liquidity crisis. And Shanghai and Beijing both struggle to keep free of Covid-19, hitting world oil prices. Here’s what you need to know in financial markets on Monday, 13th June.
1. Fed fear spooks markets, sends yields soaring
U.S. investors thought long and hard about Friday’s inflation report over the weekend, and appear to have come to the conclusion that it’s best to take money off the table before the Federal Reserve’s meeting on Tuesday and Wednesday.
The overshoot in inflation in May, which featured big rises in prices for food and energy but also for rents and – again – airfares and cars, has led to fresh speculation that the Fed may raise its target range for fed funds by 75 basis points, rather than the 50 basis points that has been the consensus view since the Fed’s last meeting.
By 7:10 AM ET (1110 GMT), benchmark yields for U.S. Treasuries were higher along the yield curve, with two-year yields up 16 basis points, 5-year yields up 14 basis points and 10-year yields up 10 basis points, all at new highs for the year.
Dow futures were down 547 points, or 1.7%, while S&P 500 futures were down 2.2% and Nasdaq 100 futures were down 2.9%. Stocks likely to be in focus later include Smith & Wesson (NASDAQ:SWBI), after U.S. Senators agreed on the outlines of a deal on stricter background checks for buyers of some firearms at the weekend, albeit not the handguns that are S&W’s specialty.
2. Celsius Network
Cryptocurrencies sold off sharply and broadly after Celsius Network, one of the world’s biggest crypto lending operations, abruptly halted customer withdrawals at the weekend. It didn’t give any estimate of how long the “pause” in operations would last.
The episode comes only a couple of weeks after the collapse of the Terra-Luna network which, like Celsius, had grown rapidly on the promise of high token-based rewards despite the concerns of regulators about its business model. It’s also a reflection of the pressure on all cryptocurrencies from the rising trend in interest rates worldwide, which is making it more expensive to use traditional fiat currencies to finance investments in crypto.
Authorities ordered mass Covid-19 testing for all residents in 15 of its 16 districts at the weekend, while five districts barred residents from leaving home, casting fresh doubt over the key economic hub’s ability to return to normal after its first big outbreak in two years earlier this spring.
The Chinese capital Beijing has also suffered a setback with its reopening plans, reporting an “explosive” outbreak of cases linked to one particular bar.
Hong Kong also reported its highest number of Covid cases in two months over the weekend but the authorities have not announced any major new restrictions.
Mainland Chinese stock indices, which had rallied hard last week on signs of an improvement of relations between the government and the technology sector, fell by as much as 2.1%, while the Hang Seng index fell 3.4%. The USD/CNH rose 0.3% to 6.7551
4 U.K. GDP falls again; Eurozone bond spreads widen
The U.K. economy shrunk for the second month a row, as April’s sharp rise in energy prices, along with some – arguably less threatening – short-term factors weighed on everything from manufacturing output to services and construction.
The pound weakened against the dollar, on perceptions that the data will make it harder for the Bank of England to raise interest rates to contain inflation, which – as in the U.S. and elsewhere – is running at multi-decade highs. The BoE meets on Thursday, a day after the Fed’s decision.
Fears for the economy weren’t restricted to the U.K. Eurozone bond spreads also widened as investors priced in the likelihood of a sharper slowdown in the single currency area. While spreads – a key barometer of Eurozone breakup risk – are nowhere near the levels they hit a decade ago, analysts have started to worry that in absolute, nominal terms, long-term interest rates are already at levels that may be unsustainable for highly-indebted, low-growth economies such as Italy and Greece.
5 Oil down as growth fears predominate
Crude oil prices fell to their lowest in nearly a week, under pressure from the U.S. inflation news and the news out of China, which cast doubt on the outlook for demand from the world’s biggest importer. That overshadowed ongoing problems in Libya, where the ongoing civil war has taken over 1 million barrels a day of oil offline in the last couple of weeks.
Over the weekend, U.S. gasoline prices had on average topped $5 a gallon nationwide for the first time ever. That’s despite the fact that crude is still more than $20 a barrel below its 2008 peak.
Oil Prices Fall amid Protests in China
Oil prices fell on Monday amid a general decline in investor appetite for risk amid information about the ongoing protests in China against vested restrictions.
The cost of January futures on Brent crude oil on London’s ICE Futures exchange was $81.31 per barrel on Monday, down $2.32 (2.77%) from the close of the previous session. At the close of trading on Friday, those contracts fell $1.71 per barrel to $83.63.
Oil prices decline – what’s going on in the market?
The price of WTI futures for January crude fell by $2.31 (3.03%) to $73.97 per barrel in electronic trading on the New York Mercantile Exchange (NYMEX). By closing of previous trades, the cost of these contracts decreased by $1.66 (2.1%) to $76.28 per barrel. Brent and WTI gained 4.6% and 4.8%, respectively, last week.
According to Bloomberg, protests were held in cities across the country, including the capital Beijing, as well as Shanghai, Xinjiang, and Wuhan, which was originally the epicenter of the COVID-19 spread.
That contributes to a stronger U.S. dollar, which reduces the attractiveness of investments in crude, and also raises the possibility of even more significant tightening of restrictions by Chinese authorities, the agency said.
“The outlook for the oil market remains unfavorable and the events of this weekend in China do not add to the positive,” notes Warren Patterson, who is in charge of commodities strategy at ING Groep NV in Singapore.
According to the forecast of analytical company Kpler, oil demand in China in the fourth quarter will decrease to 15.11 million barrels per day (bpd) compared to 15.82 million bpd a year earlier.
Earlier we reported that Russia will ban the sale of its oil to countries that have imposed a price ceiling.
Oil Russia ban news: Russia will ban the sale of its oil to countries that have imposed a price ceiling
Will Russia sell oil to Europe? The administration of President Vladimir Putin is preparing an order prohibiting Russian companies and any trader from buying Russian oil to sell raw materials to countries and companies that have imposed a price ceiling on Moscow. Bloomberg news agency wrote this, citing a report from sources.
“The Kremlin is preparing a presidential decree banning Russian companies and any traders buying national oil from selling it to anyone who participates in the price ceiling,” the publication wrote.
According to the newspaper’s interlocutors, this would prohibit any mention of the price ceiling in contracts for Russian crude, as well as transferring it to countries that have joined the price ceiling for the natural resource.
In the first half of September, the press service of the US Treasury Department said that the USA, together with its allies from G7 (Great Britain, Germany, Italy, Canada, France and Japan) and the European Union (EU) would impose a ban on marine transportation of Russian oil on December 5 and oil products – on February 5.
Earlier we reported that EU negotiations on limiting the prices of Russian oil reached a deadlock today.
EU talks on restrictions on Russian crude oil prices today stalled
Negotiations between the European Union countries about the “ceiling” of Russian crude oil prices today reached an impasse; Bloomberg reported, according to its sources.
Representatives of the bloc cannot reach an agreement on the ceiling price of Russian oil. According to the agency, the proposed European Commission limit of $65-70 per barrel, Poland and the Baltic countries believe “too generous,” while Greece and Malta, which is actively engaged in transporting fuel, do not want the limit to fall below $ 70. Recall that the Russian response to the oil price cap was negative. The Russian government has officially said that it will only sell oil at market prices.
“We are looking for ways to make this solution work and we are trying to find a common ground to implement it in a perfectly pragmatic and efficient way, while avoiding that it may cause excessive inconvenience to the European Union,” said German Chancellor Olaf Scholz.
Earlier, we reported that the SEC fined Goldman Sachs $4 million for non-compliance with ESG fund principles.
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