By Geoffrey Smith
Investing.com -- Bond markets calm down and stock markets consolidate after a rough two days of adjustment to the Federal Reserve's latest thinking about tightening monetary policy. China is set to ease monetary policy, however, as its economy slips into contraction due to the spread of COVID-19. Samsung and Mercedes-Benz show the two sides of an ongoing shortage of silicon chips worldwide, while oil prices consolidate below $100 after more bearish inventory data from the U.S. and Shell says its exit from Russia will cost a cool $5 billion. Here's what you need to know in financial markets on Thursday, 7th April.
1. Bonds calm after hawkish Fed minutes; jobless claims due
A measure of calm returned to bonds as the market adjusted to the likelihood of one of more half-point rate increases by the Federal Reserve in the coming months.
The minutes from the Fed’s latest meeting in March, released on Wednesday, had indicated that only the uncertainty created by Russia’s invasion of Ukraine had kept it from hiking the fed funds rate by 50 basis points, and had also shown concern at perceptions that the central bank was “behind the curve” in tackling inflation.
The yield on the benchmark 10-Year Treasury was down 3 basis points at 2.58% by 6:10 AM ET (1010 GMT), while the 2-Year yield – more sensitive to expectations for official short-term rates – was down 6 basis points at 2.43%.
The week’s barrage of Fed speakers continues Thursday with interventions from New York’s John Williams, Chicago’s Charles Evans and Atlanta's Raphael Bostic. Treasury Secretary and former Fed chair Janet Yellen will also speak at 10:30 AM ET. The week’s initial jobless claims data are expected to show layoffs still running at historically low levels around 200,000
2. China signals imminent monetary easing
The rest of the world may be tightening monetary policy, but China is about to loosen it. The State Council said in a statement that it will use monetary policy at an “appropriate time” to support an economy that slipped into contraction mode in March, according to three business surveys released earlier this week.
The Council said that risks to the economy have “intensified” and “exceeded expectations” in some areas.
The announcement comes as residents in Shanghai, locked down since last week for mass COVID-19 testing, begin to run out of fresh food, according to reports from people in the city. The city posted a record 20,000 new infections on Wednesday, despite the draconian measures.
3. Stocks set to open a little higher; Buffett spends again
U.S. stocks are set to open marginally higher after two straight days of losses caused by fears of tighter monetary policy and an intensification of the disruptions to the global economy by Russia’s war in Ukraine.
By 6:20 AM ET, Dow Jones futures were up 17 points, or less than 0.1%, while S&P 500 futures were up 0.3% and Nasdaq 100 futures were up 0.5%. The Nasdaq Composite had lost over 2% again on Wednesday, while the Dow and S&P had lost 0.4% and 1.0% respectively.
Stocks likely to be in focus later include HP (NYSE:HPQ), which rose 10% in premarket after Warren Buffett’s Berkshire Hathaway (NYSE:BRKa) disclosed it had bought a $4.2 billion stake in the company. Also in focus will be Facebook owner Meta Platforms (NASDAQ:FB), which is reportedly working on a plan to introduce virtual coins, tokens, and lending services to its apps. That comes after its plans to launch a global stablecoin were scuppered by regulators.
4. Two sides of the ongoing global chip shortage
The ongoing global shortage of semiconductors was in evidence in overnight disclosures in Asia and Europe.
Samsung (KS:005930), one of the world’s biggest chipmakers, said its operating profit in the three months through March will be around $11.6 billion, higher than widely expected and its best quarter for four years. That’s due largely to strong demand not only for its chips but also its smartphones.
By contrast, Mercedes-Benz (DE:MBGn) said its deliveries fell 16% year-on-year due to a shortage of chips that forced it to concentrate on higher-margin products. Its deliveries of battery-powered vehicles rose 210%, while deliveries of all BEVs and hybrids together rose 67%. It had sent over 5,600 employees in Brazil on leave due to chip shortages earlier this week.
China’s Geely (HK:0175), meanwhile, eked out a gain of only 1% in deliveries year-on-year.
5. Oil consolidates after bearish inventory data; Shell takes a hit from Russia exit
Crude oil prices consolidated below $100 a barrel as U.S. government data confirmed a rise in crude and distillate stockpiles last week.
China’s lockdown continued to make themselves felt on global demand: data show average flight movements in China at their lowest since the very depths of the initial COVID-19 panic in Wuhan two years ago.
In corporate news, Shell (LON:RDSa) predicted a post-tax hit to earnings of as much as $5 billion from its exit from Russia, but said adjusted earnings will still look good due to the surge in crude prices that has boosted its trading operations.
By 6:30 AM ET, U.S. crude futures were up 1.8% at $97.91 a barrel, while Brent was up 1.7% at $102.82 a barrel.