By Geoffrey Smith
Investing.com — Risk-off sentiment pervades global markets as Jerome Powell nails on a 50 basis point rate hike in May. The dollar surges against the pound and the yuan, in particular, as rate hike bets intensify. Oil prices tumble on growing fears about the impact of China’s Zero-COVID policy on national demand. Russia signals it intends to completely dismember Ukraine. Gap stock tumbles after a profit warning and AB InBev is also struggling after confirming a $1 billion hit from exiting its Russia business. Verizon, Amex, and Schlumberger head the list of quarterly reports due. Here’s what you need to know in financial markets on Friday, 22nd April.
1. Dollar, bond yields rise after Powell comments
The dollar surged again overnight and benchmark 10-year bond yields flirted with the 3% level after Federal Reserve Chair Jerome Powell all but confirmed that the central bank will raise its key rate by 50 basis points at its May meeting.
Powell had called the U.S. labor market “unsustainably hot” in comments on the sidelines of the IMF’s spring meeting on Thursday, endorsing the assessment given by many other senior Fed officials in the last couple of weeks.
By 6:15 AM ET, the 10-year U.S. Treasury yield had eased off to trade at 2.94%, down from an overnight high of 2.97%. The 2-Year yield, more sensitive to short-term interest rate expectations, had risen as high as 2.77% and only eased off marginally to 2.76%.
In foreign exchange markets, the dollar index rose 0.4%, while the greenback also surged against the offshore Chinese yuan, which is on course for its worst week since 2015 as the country grapples with a pandemic-driven slowdown.
2. Russia aims at conquest of southern Ukraine
Russia’s armed forces intend to conquer all of southern Ukraine, creating a contiguous zone of control stretching all the way to Ukraine’s border with Moldova, according to a briefing by senior military officials.
The plans would deny Ukraine control of any of its ports, cutting access to world markets for its key agricultural and industrial exports. They contrast sharply with President Vladimir Putin’s assertions before his invasion that he didn’t plan any occupation of Ukraine and are a conspicuous expansion of Russia’s war aims from only a week ago when it said it wanted to concentrate on ‘liberating’ the Donbas region of eastern Ukraine.
Separately, a pro-Kremlin news site posted, then withdrew, a report citing a closed Defense Ministry briefing that Russia had lost over 20,000 soldiers killed and missing in action since its invasion in February.
3. Stocks set to open lower; Gap slumps; Verizon, Amex earnings due
U.S. stocks are set to open in downbeat mood again later, extending Thursday’s heavy losses on the prospect of an aggressive tightening of U.S. monetary policy, even as signs start to emerge of the economy slowing down.
By 6:20 AM ET, Dow Jones futures were down 140 points, or 0.4%, while S&P 500 futures were down 0.3% and Nasdaq 100 futures were down in parallel. All three major cash indices had fallen by over 1% on Thursday, with the Nasdaq Composite falling 2.1%.
Stocks likely to be in focus later include Gap (NYSE:GPS), which slumped 13.5% in premarket after lowering its forecasts for the current quarter, and AB InBev (EBR:ABI), which said it will take a hit of $1.1 billion as it writes down the 24% stake it holds in a Russian joint venture. Also in focus will be Walt Disney (NYSE:DIS), after lawmakers in Florida voted to end its special tax status in the state.
Companies set to report earnings include Verizon (NYSE:VZ), American Express (NYSE:AXP), Newmont Goldcorp (NYSE:NEM) and Schlumberger (NYSE:SLB), while German software maker SAP (NYSE:SAP) fell short overnight with its quarterly figures, which also included a hit from a hasty Russian exit.
4. Services rescue Eurozone economy in April; U.K. retail sales plunge
The Eurozone economy held up better than expected in April, as a reopening service sector compensated for a manufacturing sector laboring ever more under the weight of supply chain disruptions, sky-high energy costs and the other knock-on effects of war in Ukraine.
S&P Global’s Eurozone composite purchasing managers’ index rose to 55.8 in April, indicating that the post-COVID expansion is still safe in the short term.
In the U.K., meanwhile, retail sales slumped in March and consumer confidence in April fell to its lowest since the depths of the 2008-9 financial crisis, against a backdrop of higher fuel prices and a 30-year high in inflation. The pound fell over 1% to $1.2887.
5. Oil falls as COVID hits China demand; rig count eyed
Oil prices fell some 2% overnight as fresh evidence emerged of the sharp drop in Chinese demand due to COVID-19 lockdowns which continue to plague the country.
Bloomberg reported that the country’s oil demand has fallen by around 1.2 million barrels a day in April, with demand for diesel, jet fuel, and gasoline falling by around 20% from year-earlier levels. Gasoline demand in eastern China, the country’s economic heart, has fallen some 40% this month, the agency quoted unnamed industry officials as saying.
By 6:30 AM ET, U.S. crude futures were down 2% at $101.72 a barrel, while Brent was down 1.6% at $106.58 a barrel.
The Baker Hughes rig count and the CFTC’s positioning data round off the week later, as usual.