Chinese President Xi Jinping and EU leaders are expected to hold a video call as tensions flare. Saudi Arabia insists the OPEC+ must extend its production agreement, despite pushback from the United Arab Emirates. China orders Didi’s removal from app stores. The delta variant continues to create havoc globally. Here’s what you need to know.
Chinese President Xi Jinping, German Chancellor Angela Merkel and French President Emmanuel Macron are expected to hold a video call this week, according to people with knowledge of the matter. The agenda isn’t yet known. The talks will be closely dissected as the EU and China’s once-cordial relations turn tense over a stalled trade deal and human-rights sanctions. Macron is said to be keen to promote the interests of Airbus and to press Xi on easing China’s travel restrictions on EU citizens, especially businesspeople.
Asian stocks look set for a steady start after U.S. shares climbed further on speculation the Federal Reserve has room to continue providing substantial stimulus support. The S&P 500 reached a record for a seventh straight day on Friday after a jobs report signaled that U.S. recovery is gaining steam, but not at a pace that would prompt the central bank to taper stimulus quickly. Trading in the U.S. dollar may be subdued with American markets closed for Independence Day. Investors are also awaiting Fed minutes later this week for clues on its policy outlook.
Oil remains in the spotlight over an OPEC+ dispute that has cast doubt on a deal that could ease a surge in prices. Saudi Arabia insisted on Sunday night that OPEC+ must extend its production agreement to the end of next year, sticking to a plan that has drawn strong opposition from the United Arab Emirates. “We have to extend,” Saudi Energy Minister Prince Abdulaziz bin Salman said in a Bloomberg TV interview. In an indication of the seriousness of the diplomatic standoff, Prince Abdulaziz implied that Abu Dhabi was isolated within the OPEC+ alliance. “It’s the whole group versus one country. I’m sad but that’s the reality of the day,” he said. The UAE, demanding better terms for itself, on Friday blocked an OPEC+ deal that cartel leaders Russia and Saudi Arabia hashed out to increase output. Abu Dhabi is forcing allies into a difficult position: accept its requests or risk unraveling the alliance.
China’s cyberspace regulator ordered app stores to remove Didi, dealing a major blow to the ride-hailing giant just days after launching one of the largest U.S. IPOs of the past decade. The Cyberspace Administration of China cited violations stemming from Didi’s collection and usage of personal data. The unusually swift decision came two days after the regulator said it was conducting a cybersecurity review of the firm. In effect, the largest app stores in China, operated by the likes of Apple, Huawei and Xiaomi, are required to strike off Didi. But the current half billion or so users can continue to order rides and other services as long as they downloaded the app before Sunday’s order.
As the more contagious delta variant spreads, new fault lines are forming for developing nations and their currencies. The economic squeeze from tighter restrictions may heighten pressure on their central banks to remain accommodative, and could deepen the divide between emerging and developed markets. Only a few developing nations — Chile, China, Israel, the UAE and Central Eastern European countries — have vaccinated close to half of their populations, the level seen as needed to curb the strain’s transmission. South Korea reversed a decision to relax mask rules after a spike in infections, driven by people in their 20s and 30s and the variant. Meanwhile in England, anti-virus rules, including a mask requirement, will become “matters of personal choice” when curbs are lifted this month. Still, outbreaks in Europe could cut short a revival in air travel.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours:
And finally, here’s what Cormac’s interested in today
With gains in June sticking to the seasonal script for global stocks, July should be more of the same if historical patterns hold. The MSCI AC World Index has risen 1.9% this month on average over the last 10 years and volatility — as measured by the VIX Index — has retreated, according to data compiled by Bloomberg.
But the data also show bulls don’t have much time to get comfy. Price swings come roaring back in August and stocks retreat. The VIX’s average jump that month is about 19% over the last decade. Of course, the move is exaggerated somewhat by the volatility gauge’s more than doubling during the August 2015 China selloff/flash crash, but only in terms of magnitude not in direction.
And while seasonality is rightly criticised regarding stock moves, there is a bit more logic to it in terms of volatility. Trading activity does dry up in the summer months so prices tend to swing more in the thin liquidity.
Cormac Mullen is a Cross-Asset reporter and editor for Bloomberg News in Tokyo.
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