By Geoffrey Smith
Investing.com -- Risk assets around the world tumbled as Covid-19 reached the Chinese capital of Beijing, hitting all local markets hard and adding to fears of stagflation further afield. Palm oil rose 7% as the world's largest producer, Indonesia, imposed an export ban to stop domestic prices rising. U.S. stocks are set to extend Friday's losses, with Twitter (NYSE:TWTR) not unduly moved by news that its board had met with Elon Musk to discuss his bid at the weekend. Emmanuel Macron handily beat far-right challenger Marine Le Pen to win a second term as President of France, while German business confidence avoids a second straight monthly drop. Here's what you need to know in financial markets on Monday, 25th April.
1. Panic buying in Beijing triggers panic selling everywhere else
Chinese assets tumbled, dragging down European stocks and global prices for oil and industrial metals, as the wave of Omicron-variant Covid-19 reached the capital city, Beijing.
Newswires reported panic buying of foodstuffs and other essentials as the city’s 21 million inhabitants braced for a lockdown similar to that which has roiled Shanghai and other major centers in recent weeks.
The Shanghai Shenzhen CSI 300 index fell over 6% and the Hang Seng 3.7%, while Iron ore futures fell over 10% as traders fretted about the possible closure of the region’s steel mills. The offshore Chinese yuan lost nearly 1% to its lowest in just under two years, having also come under pressure from a separate direction: the People’s Bank of China has reportedly authorized banks to loosen lending conditions to a raft of troubled developers, whose mountain of unsold properties has grown as Covid lockdowns have gummed up the housing market still further.
2. Twitter board softens on Musk stance
The board of Twitter has started discussions with Tesla (NASDAQ:TSLA) CEO Elon Musk about a possible sale, according to various reports. If confirmed, that would represent an abrupt reversal by the social media company after it adopted a poison-pill defense to block Musk’s unwelcome $43 billion bid.
Musk had last week announced that he had secured funding for his bid, making it harder for Twitter’s board to dismiss it out of hand. The Wall Street Journal and others reported that the two sides had met on Sunday and were making progress, although there were few details available.
Twitter (NYSE:TWTR) stock rose 1.2% in premarket trading but was still nearly 9% below Musk’s offer price of $54.20, which he has said is his “best and final” proposal. The discount reflects ongoing skepticism that the bid will succeed.
3. Stocks set to open lower; Philips plunges after earnings miss; Coke earnings eyed
U.S. stocks are set to open sharply lower later, as the weekend news of China confirms the market in the pessimistic mindset it had shown on Friday.
By 6:10 AM ET (1010 GMT), Dow Jones futures were down 265 points, or 0.8%, while S&P 500 futures and Nasdaq 100 futures were down in parallel. The three benchmark cash indices had all lost between 2.5% and 2.8% on Friday, the worst and broadest one-day selloff this year, largely on fears of aggressive interest rate hikes from the Federal Reserve to rein in galloping inflation.
Stocks likely to be in focus later include Coca-Cola (NYSE:KO) and Activision Blizzard (NASDAQ:ATVI), whose quarterly results are due. Overnight, Dutch-based medical technology group Philips saw its stock plunge 11% to a six-year low after it expanded a ventilator recall, while Swiss-based pharma giant Roche (SIX:RO) fell after its core first-quarter profit fell by one-third. Roche also fell after warning of a slowdown in Covid test kit sales. Nissan (OTC:NSANY) ADRs will also be in focus after reports that Renault (EPA:RENA) may unload part of its stake in order to finance its own investments.
4. Macron wins re-election, thanks to retirees; Ifo index stabilizes
Emmanuel Macron became the first French president to win re-election in two decades, comfortably seeing off far-right challenger Marine Le Pen by 59%-41% in a head-to-head run-off on Sunday.
The margin was wider than had seemed likely two weeks ago after the first round of voting and gave a modest degree of support to the euro and Eurozone government bonds – albeit that was lost in the more negative news coming out of the U.S. and China.
Le Pen’s performance still represents a sharp improvement on the same run-off five years ago, which she lost by a margin of 66%-34%. Notably, every age bracket under the age of 60 broke for her.
Elsewhere in Europe, German business confidence stabilized at a low level in April, according to the Ifo Business Climate index. The survey was stronger than expected, but Ifo still warned of fresh supply chain pressures down the line due to China’s Covid issues and the war in Ukraine.
5. Oil tumbles on China demand fears; Dallas Fed survey due; Palm oil surges
Crude oil prices fell sharply as the prospect of lockdowns in Beijing threatened to make an even bigger hole in Chinese demand. Bloomberg had reported on Friday that China’s demand was already running at an average 1.2 million barrels a day less than March due to the restrictions in Shanghai – which remain largely in place more than three weeks since their introduction.
By 6:20 AM ET, U.S. crude futures were down 4.1% at $97.88 a barrel, while Brent futures were down 3.9% at $102.02 a barrel.
Prices got a modicum of support from reports of a fire on Russia’s largest Europe-facing oil export pipeline, after an explosion at some of its fuel storage tanks near the Ukrainian border.
The Dallas Federal Reserve’s monthly business survey may shed light later on the outlook for U.S. output after a full month of prices staying above $100. Other commodities also continue to show signs of tension, with Palm Oil Futures in Kuala Lumpur rising 7% in response to the decision on Friday by Indonesia (by far the world’s largest exporter) to ban exports in an effort to keep domestic prices low. Soybean oil, a substitute for some uses of palm oil, rose as much as 1.9% in Chicago to near all-time highs.