By Geoffrey Smith
Investing.com -- Global markets tumble and U.S. stocks are set to extend losses after the Federal Reserve's latest minutes suggested it will start reducing its bond purchases this year. Jobless claims are due to provide further evidence of "substantial progress" (or not) toward the Fed's employment goals. The world's two biggest auto groups see chip-related disruptions continuing, while a new study supports the scientific case for vaccine booster shots. And in China, the country's biggest investor avoided collapse by accepting a state-led bailout. Here's what you need to know in financial markets on Thursday, 19th August.
1. Global markets fall after Fed minutes point to early tapering
Global stock markets tumbled, taking industrial commodities with them, as the prospect of an early tapering of asset purchases by the Federal Reserve triggered a sharp repricing of risk worldwide.
The dollar index, which tracks the greenback against a basket of six developed market currencies, rose to its highest since November, while crude oil prices fell to their lowest in May. The biggest carnage was reserved for Iron ore, which fell 12% in Singapore as China cut its steel output targets in an effort to reduce carbon emissions. Other base metals also tumbled.
U.S. stock markets are set to extend Wednesday’s losses when they open later. By 6:15 AM ET (1015 GMT), Dow Jones futures were down 214 points, or 0.6%, while S&P 500 futures were down 0.5% and Nasdaq 100 futures were down 0.4%
2. Jobless claims to show 'substantial' progress?
The market nerves will add extra spice to the release of U.S. jobless claims numbers at 8:30 AM ET. Initial claims are expected to have fallen to a new post-pandemic low of 363,000 from 375,000 last week.
The numbers are the most up-to-the-minute data from the labor market, which has been the Fed’s chief cause for concern in recent months – at least until the banner employment report for July, when nonfarm payrolls leaped by nearly 1 million.
The Fed’s minutes, released late on Wednesday, suggested that a majority of policymakers thought enough progress had been made in restoring employment to start reducing the rate of bond purchases as early as this year.
3. Study boosts booster shot, while WHO continues to rail against them
A major U.K. study showed that the effectiveness of Covid-19 vaccines in stopping disease fades more quickly than thought, strengthening the scientific case for the booster shots being planned by governments in the U.S. and U.K.
The study, led by Oxford University, found that the efficacy of the Pfizer/BioNTech vaccine fell by half within four months of the second shot being administered. The AstraZeneca (NASDAQ:AZN) vaccine’s protection degraded at a slightly slower rate.
The World Health Organization remains adamantly opposed to plans for booster shorts, saying that it’s more important to get vaccines to parts of the world where initial vaccination rates are still low.
4. Auto giants face further chip disruption
The impact of the latest wave of the pandemic was evident in a report that said Toyota will be forced to cut its production to 40% below planned levels in September. Toyota has extensive operations in Thailand, where the spread of the virus has exploded in the last two months, forcing many factories to suspend production.
According to a report by Nikkei, the world’s biggest automotive group is also struggling with chip shortages, a negative surprise given that the company – long seen as the best supply chain manager in the sector – had largely escaped the problems of chip availability in the first half.
In Europe, meanwhile, Volkswagen (DE:VOWG_p) said it too expected chip availability to remain volatile in the next few months. Toyota stock fell over 4% in local trading, while VW’s preferred stock fell 1.9%.
The flip side of the chip shortage was also evident in Nvidia’s earnings, released late on Wednesday. The company said it expects to raise the prices for its gaming chips in particular, thanks to rapid growth in online gaming.
5. Chinese state bails out distressed debt investor Huarong
The excessive debts of Chinese companies are slowly but surely finding their way onto the state’s balance sheet.
Huarong, the country’s largest investor in distressed debt, announced on Thursday that it will accept a bailout by a handful of largely state-owned institutions including CITIC and China Life. The news coincided with the delayed publication of a record loss for 2020.
The capital injection removes the threat of a damaging high-profile default from the local bond market, which remains plagued by fears that any number of highly-leveraged companies – especially in the real estate sector – could go under.
Huarong’s former chairman Lai Xiaomin was executed for financial crimes in January.