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Powell in Congress, Energy Crisis, Rotation Trades - What's Moving Markets

EconomySep 28, 2021 06:50AM ET
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© Reuters.

By Geoffrey Smith 

Investing.com -- Federal Reserve Chair Jerome Powell will field questions on the economy, the debt ceiling and the trading activities of his subordinates when he testifies in front of Congress. China's central bank tells people not to panic again, and is listened to. The U.K. government does the same, but with less success, as energy prices rocket to new all-time highs all across Europe ( Gazprom (MCX:GAZP) stock also hits a 13-year high, not coincidentally). Stocks are set to open lower as money pours out of tech and into value, while the API will say whether U.S. crude stockpiles managed to recover from three-year lows. OPEC will also refresh its outlook on the world oil market. Here's that you need to know in financial markets on Tuesday, 28th September. 

1. Powell faces some awkward questions

Federal Reserve chairman Jerome Powell heads to Congress to testify on the state of the U.S. economy but, with the start of a tapering of asset purchases looking more and more likely in November, the occasion is likely to be overshadowed by the resignation of two regional Fed presidents on Monday.

Boston Fed President Eric Rosengren and his Dallas Fed counterpart Robert Kaplan both resigned after revelations that they had actively traded single stocks and other financial products actively last year, raising suspicions of a conflict of interest. Rosengren cited health issues in his resignation letter, while Kaplan admitted that the publicity from the disclosures had been damaging.

Powell is also likely to be questioned about the consequences of not lifting the debt ceiling to keep the Federal Government funded. Concerns about this and the increasingly global signs of stress in energy markets pushed 10-Year Treasury bond yields above 1.50% for the first time in two months on Monday.

2. PBoC pledges steady monetary policy as economy shows signs of stress

China’s central bank said it will keep monetary policy ‘normal’ for as long as possible, against a backdrop of mounting speculation that it will have to ease it – possibly with a yuan devaluation – as a result of the ongoing problems in the country’s real estate and financial sectors.

The PBoC injected another 100 billion yuan ($15 billion) net into the money market on Tuesday, keeping money market rates capped and the exchange rate stable at 6.4605 to the dollar.

The country is also in the grip of a widening energy shortage, with utilities across many regions choosing to reduce power generation rather than pay sky-high prices for coal and gas. Goldman Sachs (NYSE:GS) cut its Chinese growth forecast for the year earlier to 7.8% from 8.2%, while Citigroup cut its 2022 forecast to 4.9%. Data for August showed industrial profit growth again slowing in year-on-year terms.

3 Stocks set to open lower on bond nerves

U.S. stock markets are set to open lower again later, with technology stocks set to give up more of this year’s outperformance as value trades come back into fashion.

With bond yields rising as the end to quantitative easing from the Fed looms, the discount rate implicit in stock valuations has to rise, squeezing the value of expected future cash flows from tech companies that are still in a low-profit (or zero-profit) growth phase.

By 6:45 AM ET (1045 GMT), Nasdaq 100 futures were down 1.5%, while S&P 500 futures were down 0.8%. Dow Jones futures were outperforming slightly, down 119 points, or 0.3%.

Stocks likely to be in focus later include Ford (NYSE:F), which announced its first all-new U.S. assembly plant in decades on Monday as part of its pivot to electric vehicles, and vaccine makers, after French giant Sanofi (NASDAQ:SNY) abandoned its efforts to create an mRNA-based Covid-19 vaccine. 

House prices for August are the day's main data release.

4. European energy prices hit new record as ECB refuses to panic

European gas, power and carbon prices all hit fresh all-time highs, with no sign of immediate relief in sight as the continent enters the start of the winter heating season.

Not by accident, shares in Russian gas giant Gazprom (LON:GAZPq) – the only company capable of meaningfully increasing gas shipments to Europe in the short term – rose to a 13-year high, just below the top of their 2008 spike.

The European Central Bank’s annual research meeting kicked off earlier, with Bank of France Governor Francois Villeroy de Galhau repeating that inflation is likely to be back below the ECB’s target of 2% by 2023.  ECB President Christine Lagarde’s speech later will be scanned for any sign that the surge in energy prices is changing that assumption.

In the U.K., meanwhile, people neither kept calm nor carried on, as panic buying of fuel continued to disrupt daily life. Prime Minister Boris Johnson is preparing to dispatch military drivers to the fuel tanker industry.

5. Oil hits $80. API data, OPEC report due. 

Brent crude prices breached $80 a barrel again on concern at the low state of global inventories, coupled with a likely increase in demand as various Covid-19 restrictions are lifted.

Lufthansa said demand for transatlantic flights had more than tripled in the week since the U.S. relaxed its conditions on arrivals from Europe, while Japan said it will lift the state of emergency in a number of prefectures in response to a sharp drop in new Covid-19 cases. Taiwan also said it will lift some restrictions.

U.S. inventory data are due from the American Petroleum Institute at 4:30 PM ET, as usual. Stockpiles hit a three-year low last week, with the Gulf of Mexico energy complex still not best placed to increase output after two damaging hurricanes. 

OPEC will also release its monthly report on the world market.

Powell in Congress, Energy Crisis, Rotation Trades - What's Moving Markets
 

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Comments (8)
Salvador Hernández Sánchez
Salvador Hernández Sánchez Sep 28, 2021 9:23AM ET
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Is time for buy green energy, no more oil , is very volatil
Jurgen Daub
Jurgen Daub Sep 28, 2021 9:19AM ET
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there is a difference between spending and investing, gamblers and speculators don't get this, they only think about the immediate profit at the cost and back of others. they don't care and don't think about the long term benefit of investing.
Ric Tabisola
Ric Tabisola Sep 28, 2021 9:19AM ET
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🤣
Jerry Molnar
Jerry Molnar Sep 28, 2021 9:19AM ET
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So true
mohamed alhajri
mohamed alhajri Sep 28, 2021 8:32AM ET
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Dear congress Pleaae Raise the cieling so we can focus on other things Thank you
Michael Perry
Michael Perry Sep 28, 2021 8:32AM ET
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as President Reagan said, "It's not that we do not tax enough, it is that we spend too much." Any increase in the debt ceiling MUST be matched with no less than an equal amount of spending cuts. Sadly the left side of the aisle is incompetently ignorant or deliberately stupid about doing that.
Jurgen Daub
Jurgen Daub Sep 28, 2021 8:32AM ET
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there is a difference between spending and investing
Anca Negru
Anca Negru Sep 28, 2021 8:31AM ET
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Goldman Sachs: BUY 14.5 eur Price Target for Galp Energia
John Klan
John Klan Sep 28, 2021 7:46AM ET
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Banks and Energy stock's....BUY BUY BUY
Gershom Zvi
Gershom Zvi Sep 28, 2021 7:24AM ET
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Green energy is sticking in the mud
Quant Casper
Quant Casper Sep 28, 2021 7:07AM ET
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No crisis or downplay In Metals.
San Somany
San Somany Sep 28, 2021 7:06AM ET
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What the hell with oil why they made the price up like this ?
JD Samson
JD Samson Sep 28, 2021 7:06AM ET
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wait until the renewables try to run the show. We have an insatiable desire for more energy. If you think its high now, just wait!!
me ish
me ish Sep 28, 2021 7:06AM ET
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governments around the world are massively indebted - the only way they can ever draw down their debts is through inflating the value of their fiat currencies, so they deliberately want a lot of inflation to reduce the value of their debts - one of the best ways of doing that is to lock down the world economy, pour tonnes of new money into the system and then increase the price of energy - bingo - vast amounts of inflation - the only way to reduce government debt - all the while destroying the middle class and manipulating the stock markets for the banks to massively profit from the melt ups and melt downs.
 
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