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China Energy Crisis, Dollar Strength, Oil Inventories


© Reuters.

By Geoffrey Smith — U.S. stocks are set for a rebound after their worst day in months. As Washington continues its political drama, the dollar falls – but not much – from their 10-month peak. However, Treasury yields remain above 1.50%. Jerome Powell, Fed chair, meets with colleagues from Bank of England, Bank of Japan and ECB. After a surprising rise in U.S. stockpiles, oil prices plummet from three-month highs. What you should know on Wednesday 29th September in the financial markets 

1. China falls, Europe bounces

Chinese stock markets fell but Europe’s bounced after a fresh rise in bond yields triggered the biggest one-day fall in months for U.S.

China’s benchmark equity indices fell as much as 1.8% on growing concerns that power rationing will hit economic output toward the end of the year. Generators are curtailing power output because they can’t make a profit selling at regulated prices when coal and gas prices are going through the roof.

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Europe’s markets were in better shape, as local wholesale energy prices eased. National indices rose more than 1% due to a wider rotation into financials and value stocks.

2. Dollar eases from highs as debt ceiling drama continues

The dollar eased off a 10-month high as Treasury bond yields stabilized, against a backdrop of what continues to be mainly performative theater in Washington over the debt ceiling and the various spending bills being pushed through Congress.

By 6:15 AM ET (1015 GMT), the that measures the greenback against a basket of six advanced economy currencies was at 93.808, only marginally below the high of 93.905 that it posted on Tuesday.

Congress only has two days left to resolve the funding impasse and before some operations are shut down. Treasury Secretary Janet Yellen warned on Tuesday that the Treasury would run out of cash on Oct. 18 – still leaving plenty of time for preening and grandstanding by lawmakers on both sides of the aisle.

3. Stocks set for corrective bounce; Micron (NASDAQ:) guidance disappoints

U.S. stock markets are set to open higher later, clawing back around one-third of what they lost in Tuesday’s rout. The data calendar is largely empty and there are no earnings due other than Cintas(NASDAQ:), so politicians and central banks will likely fill the gap.

By 6:15 AM ET, were up 214 points, or 0.6%, after the DJIA itself lost 1.6% on Tuesday. were up 0.8%, recovering from a 2% drop in the previous session, while were up 1.1%. The growth-heavy Nasdaq had borne the brunt of yesterday’s selling, losing 2.8%.

Micron (chipmaker) is likely to come under scrutiny later. Despite sales and earnings coming in slightly above estimates, Micron’s guidance was disappointing after Tuesday’s closing bell.

4. Powell to join central bank fireside chat; European inflation pressure rise

Federal Reserve Chairman Jerome Powell will speak at 1145 AM ET at an event hosted by the European Central Bank, alongside ECB President Christine Lagarde, Bank of England Governor Andrew Bailey and Bank of Japan Governor Haruhiko Kuroda. 

The two ‘Anglo-Saxon’ countries’ central bankers have both signalled a likely shift to tightening monetary policy in the near term, while Lagarde and Kuroda are still keeping the stimulus pedal firmly on the floor.  That’s despite signs that the squeeze in energy prices is harder and longer than the ECB planned.

The data released Wednesday earlier showed that German import prices rose by more than 16% in the past year, following another large-than-expected increase in August. Meanwhile, producer price inflation in Italy reached 11.6%. This is its highest level in 25 years. Spain’s CPI also hit its highest in over 13 years.

5. U.S. stockpile rise takes steam out of oil rally; EIA data eyed

Crude oil prices eased from (in the case of ) three-year highs, after a surprise increase in U.S. inventories last week. American Petroleum Institute reported that crude stockpiles rose by 2.25 million barrels. It ended a string of nine weekly drops and their highest weekly growth since April.

U.S. inventory data due at 10:30 am ET may confirm these figures.

Despite the API data, analysts at Goldman Sachs (NYSE:) argue that global stocks are still falling by an average of 4.5 million barrels a day because supply isn’t keeping up with demand as other economies around the world recover. The analysts forecast that the price would be $90/barrel at year’s end.

Futures declined 0.8% to $74.72/barrel.