By Peter Nurse
Investing.com -- G-7 summit could be overshadowed by EU-U.K. disagreement, Fastly explains the recent global outage and Chinese inflation sets the scene for Thursday’s U.S. consumer prices release. Wall Street waits with bated breath, while crude bounces. Here's what's moving markets on Wednesday, June 9th.
1. EU-U.K. spat precedes G-7 summit
U.S. President Joe Biden departs for Britain on Wednesday on his first trip abroad since taking office, heading to St. Ives in Cornwall for a G-7 summit.
The meeting is likely to be dominated by discussions over the availability of Western coronavirus vaccines, amid differences over how to make more shots available to low-income countries as well as the intellectual property rights for the drug makers.
That said, before Thursday’s get together, officials from Britain and the European Union are set to meet to try and defuse a row over Northern Ireland that threatens to spill over into legal action.
At issue is the working of the Northern Ireland Protocol, part of the Brexit deal that created a trade border in the Irish Sea, in order to prevent goods checks along the Irish land border.
As a consequence, goods reaching Northern Ireland from the U.K. now have to comply with a different set of health and safety checks stipulated by the EU, and supplies of food and medicines to the province have been affected.
A grace period allowing traders in the rest of the U.K. to continue selling certain goods in Northern Ireland is set to expire on June 30, and the U.K. has threatened to delay once more implementing parts of the accord. Another unilaterally-announced grace period is likely to result in legal action by the EU.
U.K. Prime Minister Boris Johnson is likely to mount a firm defense of his position at the meeting, given he’s in power largely on the back of his Brexit stance, after all he negotiated and signed the protocol in dispute.
However, he’s unlikely to receive much help from Biden, with several senior U.S. politicians having previously said that Britain can forget a trade deal if the Brexit pact is broken.
2. Stocks seen flat; Clover Health in spotlight
U.S. stocks are largely unchanged Wednesday, with investors holding off on taking major positions ahead of an important U.S. inflation reading later this week.
By 6:30 AM ET, Dow Jones futures were down 10 points, less than 0.1%, S&P 500 futures were 0.1% higher and Nasdaq 100 futures ticked up 0.1%.
The broad-based S&P 500 and the blue-chip Dow both closed largely unchanged Thursday, while the tech-heavy Nasdaq gained 0.3%, continuing the lack-luster trading seen through most of this month.
Wariness ahead of the release of the latest U.S. inflation numbers on Thursday is limiting activity as investors fret that a strong number will pile pressure on the Federal Reserve to start reining in its very accommodative monetary policy stance.
Economists are expecting May CPI to rise 4.7% from a year earlier, according to Investing.com, a jump from April’s 4.2%, which was the fastest rise since 2008.
In corporate news, the meme stocks frenzy looks set to continue, although a new favorite has emerged. Clover Health (NASDAQ:CLOV) stock traded up over 17% premarket, a day after demand from retail investors sent its stock 86% higher to a record.
The Medicare-backed insurance seller is now to the fore, ahead of the likes of AMC Entertainment (NYSE:AMC) and GameStop (NYSE:GME) which had been previously hyped in forums such as Reddit's WallStreetBets.
That said, GameStop is unlikely to completely forego the spotlight. It reports after the close on Wednesday, and is expected to post a loss on $1.2 billion in revenue. Brown Forman (NYSE:BFb) is also due to release earnings Wednesday, and the maker of Jack Daniels and Chambord is expected to post gains in both sales and profit.
3. Chinese inflation sets the scene
Markets have been on tenterhooks for much of this week ahead of Thursday’s release of the U.S. consumer price index for May. This will be one of the last major pieces of economic data ahead of the upcoming Fed meeting next week and a big number could jolt the central bank into action.
If China’s inflationary backdrop is any guide, the market is holding its breath with just cause.
China's factory gate prices rose at their fastest annual pace in over 12 years in May, driven by surging commodity prices, highlighting the mounting global inflation pressures.
China's PPI increased 9.0% on the year, a sharp jump from the 6.8% increase in April, with the rise driven by significant price increases in crude oil, iron ore and non-ferrous metals.
This surge in producer prices has yet to feed significantly through to China's consumer inflation, with May CPI remaining well below the government’s official 3% target despite the biggest year-on-year increase in eight months.
This means the People's Bank of China is unlikely to worry for now, but the Fed may not be so lucky after Thursday.
4. Fastly blames software bug
It was a software bug that caused Tuesday’s major global internet outage, said Fastly (NYSE:FSLY), the company behind the incident, and it was triggered when one of its customers changed their settings.
"This outage was broad and severe, and we're truly sorry for the impact to our customers and everyone who relies on them," the company said in a blog post authored by Nick Rockwell, its senior engineering and infrastructure executive.
The problem was spotted, diagnosed and corrected in pretty short order, helping Fastly stock recover from losses of around 4% early Tuesday, to close almost 11% higher. The stock is also almost 2% higher premarket Wednesday.
"Incidents like this underline the fragility of the internet and its dependence on a patchwork of fragmented technology. Ironically, this also underlines its inherent strength and how quickly it can recover," Ben Wood, chief analyst at CCS Insight, said, in a Reuters report.
"The fact that an outage like this can grab headlines around the world shows how rare it is."
That may be the case, but it also raises questions about the reliance of the internet on a few infrastructure companies, given the outage affected news providers such as The Guardian and New York Times, as well as British government sites, Reddit and Amazon (NASDAQ:AMZN).
Fastly operates a group of servers strategically placed around the world to help customers move and store content close to their end users quickly and safely.
5. Crude benefits from rising optimism
Crude oil prices pushed higher Wednesday, helped by growing confidence about the outlook of fuel demand as the global economy recovers, particularly the U.S., the largest consumer in the world.
By 6:30 AM ET, U.S. crude was up 0.2% at $70.21 a barrel, after closing Tuesday above the $70 mark for the first time since October 2018. Brent was up 0.2% at $72.39, after earlier reaching $72.83, the highest since May 20, 2019.
On Tuesday, the American Petroleum Institute reported that U.S. crude stocks fell by 2.1 million barrels in the week ended June 4. If confirmed by the U.S. Energy Information Administration later in the day, this would be the third straight weekly decline in inventories as the U.S. driving season kicks into gear.
Additionally, the EIA lifted its forecast for fuel consumption this year in the United States to 1.49 million barrels per day, up from a previous forecast of 1.39 million barrels per day.
The U.S. also lowered travel warnings for several countries, including France, Canada and Germany, making it possible to loosen airline restrictions for trips overseas.
Adding to the positive news for oil prices, doubts have emerged about the likelihood of Iranian oil returning to the global market after U.S. Secretary of State Antony Blinken said on Tuesday that hundreds of U.S. sanctions on Tehran would remain in place even if Iran returned to compliance with a nuclear deal.
That said, it’s debatable how much further these crude prices can rise given they have climbed well over 40% since the start of the year.
“We are of the view that significant further upside is capped by the more than 6MMbbls/d of spare capacity that OPEC+ is holding from the market,” said analysts at ING, in a note. “There will likely be more pressure on the group in the coming months to bring more of this capacity back to the market, particularly if we remain in the current price environment.”