By Geoffrey Smith
Investing.com — President Joe Biden annoys China by pledging to defend Taiwan with military force. The euro rises and the dollar retreats further as Christine Lagarde all but nails on 50 basis points of rate hikes from the ECB by September. Stocks are set to open higher, with Broadcom’s bid for VMware taking the spotlight. Zoom Video reports after the bell. And Ukraine’s president urges the first Davos gathering in two years to seize over $500 billion of Russia’s foreign assets to pay for his country’s reconstruction. Here’s what you need to know in financial markets on Monday, 23rd May.
1. Biden’s gaffe on Taiwan angers Beijing
U.S. President Joe Biden said the U.S. military would intervene to defend Taiwan in the event of an attack from mainland China.
“Yes – it’s a commitment we made,” Biden told a press conference during a visit to Japan, adding that unilateral attempts by Beijing to retake the island would result in a situation similar to that in Ukraine.
White House officials subsequently walked back the comments, saying the U.S.’s policy toward Taiwan “hasn’t changed” and that it stuck by its existing ‘One China’ policy.
However, that wasn’t enough for Chinese officials, who said Biden was “playing with fire.” Foreign Minister Wang Yi warned that: “No one should underestimate the strong determination, firm will, and powerful capabilities of the Chinese people.”
2. Lagarde flags summer rate hikes, bashes crypto
European Central Bank President Christine Lagarde all but pre-announced a half-point rise in the ECB’s key rates, saying in a blog post that it’s “very likely” the ECB will end its negative rate policy by the end of the third quarter. She also implied the ECB would announce at its June meeting an end to net asset purchases as of the start of July.
The euro rose to its highest in three weeks on the announcement, forcing the dollar into a deeper retracement of the gains it made when the U.S. appeared to be the only major advanced economy to be tightening monetary policy.
Lagarde repeated the ECB’s caution about choking off a recovery already under strain from high energy prices and the broader instability caused by Russia’s war in Ukraine. She had some relief on the economic outlook as business confidence in the Eurozone’s largest economy, Germany, improved surprisingly sharply in May.
Lagarde had also made waves on Sunday with an interview saying that she thought cryptocurrency was “worthless”, “based on nothing” and needed tighter regulation.
3. Stocks set to open higher after seven weeks of losses
U.S. stock markets are set to open higher later, giving President the benefit of the doubt that he didn’t mean to dramatically escalate tensions with China.
Biden had told the same press conference that he is considering lifting some of the tariffs imposed on Chinese exports by his predecessor Donald Trump.
By 6:20 AM ET, Dow Jones futures were up 189 points, or 0.6%, while the S&P 500 futures contract was up 0.7% and Nasdaq 100 futures were up 0.5%. The three major cash indices had all lost between 2.5% and 3% last week, their seventh straight week of losses.
Stocks likely to be in focus later include chipmaker Broadcom (NASDAQ:AVGO) and cloud services provider VMware (NYSE:VMW), which reportedly may announce a merger agreement as early as this morning. Zoom Video heads a thin earnings roster after the close.
4. Zelensky urges Davos to seize Russian assets to pay for Ukraine’s reconstruction
The World Economic Forum is back after a two-year hiatus. The snow may have disappeared from Davos – as have the Russians – but there is still no shortage of the Great and Good finding their ways on private jets to the luxury resort to preach to the rest of the world about climate change and social exclusion.
The forum opened on a solemn note, however, with Ukrainian President Volodymyr Zelensky (speaking via video link) urging the audience to consider seizing $500 billion of Russian assets held overseas to pay for Ukraine’s reconstruction.
He noted that “only diplomacy” can end the current war – a subtle shift away from the harsher rhetoric he has used about the need to expel Russian forces from Ukrainian territory. That may or may not be related to the surrender of Ukraine’s last soldiers defending Mariupol, which has freed up thousands of Russian troops for other parts of their offensive.
5. Oil pushes higher as Saudi stands by beleaguered new friend
Crude oil prices pushed higher after Saudi Arabia’s oil minister Prince Abdulaziz stood firmly by the so-called OPEC+ production agreement, resisting pressure from its traditional allies in the West to isolate Russia.
OPEC has stuck by its practice of fixing monthly production quotas despite the increasing evidence that Russia is unable to increase its output, due to western sanctions. That and problems in other exporting nations had led to OPEC+ undershooting its production target by over 2 million barrels a day in April.
By 6:40 AM ET, U.S. crude futures were up 1.1% at $111.44 a barrel, while Brent crude was up 1.1% at $111.17 a barrel.