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Chinese Rout, More Russia Sanctions, Fed Meeting Starts – What’s Moving Markets

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By Geoffrey Smith — China’s stock market continues to tank on fears of a Covid-driven slowdown and political pressure from the U.S. on Beijing. China again refused to condemn Russia’s invasion of Ukraine after seven hours of ‘intense’ talks with U.S. officials on Monday. Russian bombardments intensify, and European data show growing evidence of stagflation. The Fed’s two-day policy meeting starts, and oil is back under $100 a barrel as OPEC prepares to put out its monthly report. Here’s what you need to know in financial markets on Tuesday, 15th March.

1 Russian bombardment intensifies after inconclusive talks

Russia’s air and artillery bombardment of Ukrainian cities intensified after a day of intense diplomacy that ultimately yielded little. Chinese officials repeated that they want to avoid Western sanctions but again refused to condemn Russia’s invasion.

Russian attacks have meanwhile spread to western Ukraine, while at least two of its drones have violated the airspace of NATO members Poland and Romania.  

The European Union extended its sanctions list late on Thursday and also imposed a ban on exports of luxury goods to Russia. That led the stock prices in that sector to underperform on what was in any case a bad morning for European stocks, marked by a bad miss on the key German ZEW sentiment indicator and another overshoot in French inflation.

2. U.S. PPI due as Fed meeting starts; U.K. jobs data keep rate hike on track

Inflation is on the radar later in the U.S. too, as February’s producer price inflation data are released. Analysts expect a 0.9% rise on the month, taking the annual rate up to 10.0% – a sombre backdrop for the start of the Federal Reserve’s two-day policy meeting.

The Fed is widely expected to raise the target for the fed funds rate by 25 basis points, its first rate hike since 2018. A more aggressive hike of 50 basis points is seen as less likely, following hints from Fed Chair Jerome Powell at his Congressional testimony a couple of weeks back. The sharp drop in oil prices in the last couple of days may have ended what little risk there was of such an eventuality.

In the U.K. too, economic data continued to support the case for what would be a third straight interest rate rise when the Bank of England meets later this week. The jobless rate fell below its pre-pandemic level in February, while average earnings growth accelerated well above expectations.

3. Stocks set to open lower  

U.S. stock markets are set to open mostly lower later, under pressure from weakness in both Europe and China (see below).

By 6:15 AM ET, Dow Jones futures were down 81 points, or 0.3%, while S&P 500 futures were down 0.2% and Nasdaq 100 futures were effectively unchanged. That reverses the pattern of Monday, when the tech-heavy Nasdaq underperformed.

In addition to the PPI, the New York Empire State Manufacturing survey is also due, while Dole heads a sparse earnings calendar.

Other stocks likely to be in focus include Nielsen (NYSE:NLSN), after reports that it’s in talks to sell itself to a consortium including Elliott Management.

4. Chinese stock rout deepens; Covid wave overtakes strong data

China’s stock rout deepened, as investors continued to flee from a growing number of risks.

Talks between U.S. and Chinese officials on Monday did little to banish fears that China could get drawn into the web of western sanctions as a result of its continued support for Russia’s invasion of Ukraine, while authorities have now locked down over 45 million people in two big industrial hubs at opposite ends of the country to stop the spread of Covid-19.

Technology stocks remain particularly stressed: the Hang Seng TECH index lost another 11% on Tuesday and has now unwound all of its pandemic-era gains. Other benchmark cash indices lost between 2% and 5%.

That all happened despite data showing that both industrial production and retail sales were ahead of expectations in February. The data have been somewhat overtaken by events in the meantime. The yuan weakened to a two-month low.

5. Oil back under $100 on China slowdown fears; API inventories, OPEC monthly report due

Crude oil prices fell below $100 a barrel for the first time this month, and spikes in other commodities also continued to unwind on fears of a Chinese economic slowdown due to its problems containing the coronavirus.  Such fears are outweighing fresh signs of geopolitical tension, with agents suspected of having links to Iran having launched the biggest-ever cyberattack on Israel late on Monday.

By 6:25 AM ET, U.S. crude futures were down 5.9% at $96.97, while Brent was still holding just above the $100 level at $100.70, down 5.8%.

The U.S.-based American Petroleum Institute will release its weekly inventory assessment at 4:30 PM ET, while the Organization of Petroleum Exporting Countries will release its monthly report on the global oil market. It’s expected to repeat the bloc’s messaging that there is no physical shortfall of supplies (despite failing to meet its own production targets in recent months).

Chinese Rout, More Russia Sanctions, Fed Meeting Starts – What’s Moving Markets

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