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ECB Hits Bonds; Biden Tariff Cut, Shimao Misses Payment - What's Moving Markets

Economy Jul 04, 2022 06:47AM ET
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© Reuters

By Geoffrey Smith 

Investing.com -- It's Independence Day in the U.S., and all domestic markets are closed, leaving the field open to Asia and Europe. Bonds are under pressure after a report saying that the ECB intends to end a hidden subsidy for the banking sector, while the leaders of Germany and Italy both hold crisis talks as they struggle to contain the economic fallout of the war with Russia. Russia completed the conquest of the last major city in the region of Luhansk at the weekend, bringing it a step closer realizing one of its most consistent war aims, control of the Donbas region. Elsewhere, base metals fell after Chinese real estate developer Shimao missed a payment on a $1 billion bond, and President Joe Biden may cut tariffs on Chinese imports this week. Here's what you need to know in financial markets on Monday, 4th July.

1. Eurozone bonds, bank stocks slump on ECB report

Eurozone bonds and bank stocks slumped after the Financial Times reported that the European Central Bank intends to end a long-running subsidy for the sector that has allowed banks to pad their profits simply by parking their excess liquidity at the central bank.

Yields on benchmark 10-year Eurozone government bonds rose by between 8 and 12 basis points, while bank stocks fell by as much as 3.8% on a morning when European stock markets were broadly higher.

Peripheral Eurozone assets came under the most selling pressure, reflecting the fact that countries such as Italy and Spain use the ECB’s facilities more proportionately than those in northern Europe. Italy’s markets came under particular pressure after a report saying that Prime Minister Mario Draghi would hold crisis talks with the Five Star Movement leader Giuseppe Conte later, in an effort to keep the party in a coalition that is fraying over the economic cost of supporting Ukraine.

2. Germany posts first trade deficit in 31 years

Those economic costs were in full view again as Germany posted its first monthly trade deficit in over 30 years in May, due to a 28% annual rise in its import bill. Exports also suffered as supply chain constraints and soaring energy prices constrained key manufacturing sectors such as autos and chemicals.

German Chancellor Olaf Scholz is also holding crisis talks over the state of the economy later Monday with representatives from trade unions and employers’ federations. The head of the trade union movement warned at the weekend that entire industries such as glassmaking and chemicals could be destroyed if the sharp rise in energy prices is sustained.

3. Biden eyes tariff cut this week - WSJ

U.S. President Joe Biden may announce the lifting of some Trump-era tariffs on Chinese imports as early as this week, The Wall Street Journal reported on Monday, citing people familiar with Biden’s thinking.

The tariffs, which have been criticized as “a drag” on the U.S. economy by Treasury Secretary Janet Yellen, are keeping prices for some imports higher than would otherwise be the case, and lifting them would take some of the heat out of goods price inflation. However, it would also expose Biden’s administration to charges of being weak on China, making the electoral benefits of any such measures doubtful.

Biden elsewhere found himself embroiled in a fresh row with Amazon (NASDAQ:AMZN) founder Jeff Bezos, who criticized his appeal to gasoline retailers to cut their prices. Bezos accused Biden of a “deep misunderstanding of basic market dynamics.”

4. Iron ore falls as Chinese real estate group Shimao misses bond payment

Chinese stocks advanced but industrial commodities came under pressure after real estate developer Shimao became the latest in the sector to miss a payment on its international debt.

The missed payment is an uncomfortable reminder that the country’s real estate debt problems remain far from solved and that the central bank has so far resisted the temptation to cut interest rates aggressively to allow the sector to try to borrow its way out of trouble, as it has in the past.

September iron ore futures on the Dalian Commodity Exchange fell as much as 6.3% to 716 yuan a ton, extending their losses to a third straight session, and touching their lowest in over a week, on the read across to demand for steel.

5. Oil drifts; Italy eyes extension to fuel tax holiday

Crude oil prices drifted in the absence of U.S. participants over the holiday weekend. Biden’s appeal to gas station operators wasn’t able to do much to U.S. retail gas prices which, at an average of over $4.80 a gallon, are still close to record highs.

By 6:35 AM ET, U.S. crude was down 0.3% at $108.07 a barrel, while Brent was down 0.2% at $111.40.

The market remains focused on the risk of recession and a sharp drop in demand toward the end of the year. However, governments are still trying to sustain demand where they can by cutting duties, Italy becoming the latest to eye an extension of its current gas tax holiday.

ECB Hits Bonds; Biden Tariff Cut, Shimao Misses Payment - What's Moving Markets
 

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Comments (15)
Jay Garrelts
Jay Garrelts Jul 05, 2022 12:09AM ET
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Thanks Trump and Biden for 8 trillion dollar robbery and inflation Trump in two months created more money than since the signing of the constitution
First Last
First Last Jul 05, 2022 12:09AM ET
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Putin & Putin-praising Trump deserve the credit for inflation.
Co Gonz
Co Gonz Jul 05, 2022 12:09AM ET
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First Last so anyones fault except whos in office now.. it’s called the output gap.. look it up and you’ll learn something about econ
Co Gonz
Co Gonz Jul 05, 2022 12:09AM ET
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When trump threw money into the economy it was needed as per the output gap.. biden kept creating trillions and economists warned it would be bad, so he fired them and replaced with activists
First Last
First Last Jul 05, 2022 12:09AM ET
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Co Gonz   Trump was extremely incompetent, but the US was able to chug along under a good economy and competent people in his admin inherited from Obama.  That the US had put a fool in charge became glaringly apparent under the pandemic.  His rejection/politicizing of medical science and injection of himself into the matter exacerbated the pandemic's harm and necessitated MORE stimulus.
Lake Lot
Lake Lot Jul 04, 2022 8:06PM ET
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The trumpster would have buddied with Putin to stop this criminal war . Can Bidden’s kid fix stuff .
Nils Hullmann
Nils Hullmann Jul 04, 2022 2:25PM ET
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putinflation putinflation putinflation...hmmm wait 7.5% CPI in Jan (Before War) now 8.6% so how is putin responsible for Inflation ?...guess dem voter arent so smart after all
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First Last
First Last Jul 04, 2022 2:25PM ET
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Rod Quasney   If you read my posts, you would know Nils' 1.1% is too low because inflation was around 5.5% in early 2021 before Russian aggression spiked it up.
Co Gonz
Co Gonz Jul 04, 2022 2:25PM ET
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First Last demand didn’t stop though.. you could still buy everything online.. if you’re going to break the problem down do it by sector, product.. demand didn’t hit near pre pandemic levels either
Co Gonz
Co Gonz Jul 04, 2022 2:25PM ET
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First Last note that inflation rose when biden signed that trillion dollar deal in.. when economists said output is only 300 billion and trillions will cause inflation to sky rocket
Todd Carlisle
Todd Carlisle Jul 04, 2022 2:25PM ET
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So trump signs 2 stimulus bills, totaling over a trillion.. but those had no effect on inflation right.. it's Biden's?
First Last
First Last Jul 04, 2022 2:25PM ET
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Co Gonz  "demand didn’t hit near pre pandemic levels" --  Retail sales rose ABOVE pre-pandemic levels around mid-2020.  And yes, when I said " inflation rose on re-opening" of economies", the American Rescue Plan was another contributor to inflation by increasing demand.  But the Plan kept a lot of businesses from failing; businesses not failing kept supply up and inflation down.  My guess is the Plan affected the demand side more than the supply side.
Rod Quasney
Rod Quasney Jul 04, 2022 2:16PM ET
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Biden within 2 years will not only be impeached for his and Hunter's business dealings with China. He will be charged with treason.
Brad Albright
Brad Albright Jul 04, 2022 2:16PM ET
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Qnuttery.
Co Gonz
Co Gonz Jul 04, 2022 2:16PM ET
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I agree. Politicians never get arrested
Abdelhamid Mahamat idriss
Abdelhamid Mahamat idriss Jul 04, 2022 12:06PM ET
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thank you so much
Dave Jones
Dave Jones Jul 04, 2022 11:56AM ET
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I blame Trump.
Nicholas Heuermann
Nicholas Heuermann Jul 04, 2022 11:56AM ET
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yawn......
John Kartsounis
John Kartsounis Jul 04, 2022 10:53AM ET
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"Crisis" economics is the new normal thanks to MMT proponents and the central banksters who are the real culprits. The old saying, " There is no free lunch" comes to mind! Time to hold the real culprits accountable.
First Last
First Last Jul 04, 2022 10:53AM ET
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The CCP caused the covid crisis and the Kremlin caused the current inflation/war crisis.  Republicans used to call this kind of countries "axis of evil".  Not they support them over their own country.
Dimitar Dimitrov
Dimitar Dimitrov Jul 04, 2022 10:53AM ET
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Most European politicians were on "subsidies" from Putin. Some even moved to work in Russian energy corporations. What else to expect but a recession. The EU fortress is impregnable unless someone with enough power and greed for money opens a door from inside.
Co Gonz
Co Gonz Jul 04, 2022 10:53AM ET
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First Last should study econ.. inflation is caused by terrible fiscal and monetary policy..
First Last
First Last Jul 04, 2022 10:53AM ET
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Co Gonz   Inflation can also be caused by war.
John Kartsounis
John Kartsounis Jul 04, 2022 10:53AM ET
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"Crisis" economics is the new normal thanks to MMT proponents and the central banksters who are the real culprits. The old saying, " There is no free lunch" comes to mind! Time to hold the real culprits accountable.
Kerry Ditto
Kerry Ditto Jul 04, 2022 10:21AM ET
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biden speech around 5 pm today could include tariff cut announcement. maybe the Friday rally was a warming up indication
Kerry Ditto
Kerry Ditto Jul 04, 2022 10:03AM ET
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the tariff cut announceme would push global stock sharply higher like 5% on the day, triggering massive stock market rallies around the globe.
 
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