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Biden on Taiwan, NAHB Survey, Crypto Slump - What's Moving Markets

By Geoffrey Smith -- U.S. President Joe Biden again warns China that U.S. forces would defend Taiwan in the case of an "unprecedented attack". The U.K. closes its markets as it says goodbye to Queen Elizabeth II. Cryptocurrencies slump as investors lack the stomach for a week of aggressive central bank action, and Volkswagen values its Porsche unit at up to $75 billion. Here's what you need to know in financial markets on Monday, 19th September.

1. Biden-Taiwan

President Joe Biden repeated that U.S. troops would defend Taiwan in the event of an invasion from mainland China, prompting another angry reaction from Beijing.

Biden appeared to leave no room for misunderstanding, giving the same answer twice when pressed. However, the White House again felt the need to issue a separate statement later reiterating that this was Biden’s personal view, rather than official U.S. policy.

Historically, the U.S. has avoided taking a line on that question, while making its support for Taiwan in every other way.

The question of how far the U.S. would risk war with the People’s Republic of China has become increasingly pressing this year as Beijing has ramped up its rhetoric about ‘reunification’ with Taiwan, at the same time as the U.S. has offered substantial military aid to Ukraine to help it defend itself against Russian attacks.

2. Crypto slumps ahead of central bank meetings

Bitcoin fell to its lowest level in three months at the start of a week that is likely to see a substantial tightening of global monetary policy.

Momentum has been ebbing from cryptocurrency since last week’s U.S. August consumer inflation report prompted speculation that the Federal Reserve could raise its key interest rates by 100 basis points later this week, rather than the 75 basis point consensus. Other big hikes are also expected from Sweden, Norway, Switzerland and the Bank of England.

Sentiment hasn’t been helped by the failure of Ethereum’s long-awaited ‘merge’ to result in an immediate pickup in demand for the network’s native token Ether. Ether fell 9.3% overnight to a two-month low of $1,298.62, while Bitcoin fell 7.2% to $18,489.00.

3. Stocks set to extend losses at open; VW sets Porsche valuation range

U.S. stock markets are set to open under the same cloud of depressed risk appetite, extending last week’s declines.

By 06:20 ET (10:20 GMT), Dow Jones futures were down 301 points, or 1.0%, while S&P 500 futures were down by the same amount and Nasdaq 100 futures were down 1.1%. The three benchmark cash indices had lost between 4.8% and 6.7% last week, their worst week in three months.

Stocks likely to be in focus later include AutoZone (NYSE:AZO), which is set to report earnings. Also in focus will be Volkswagen AG ADRs (OTC:VWAGY), after the company announced the price range for the IPO of its Porsche unit. VW is aiming for a valuation of up 75 billion euros ($75 billion) with the spin-off, which it hopes will unlock value and help it finance its transition to electric mobility.

The National Association of Homebuilders' monthly report on the housing market is the only item of note on the data calendar.

4. U.K. buries Queen Elizabeth II

World leaders descended on London for the funeral of Queen Elizabeth II. U.K. markets closed for the day, subduing trade across most of Europe.

The pound continued to trade, however, losing 0.4% to $1.1366, testing the 37-year low that it made on Friday after August’s dismal retail sales data.

The data pushed market participants in the direction of expecting the Bank of England to raise its key rate by only 50 basis points at its rescheduled Monetary Policy Committee meeting later this week. Sterling is also under pressure due to uncertainty over the direction that fiscal policy will take under the new government of Prime Minister Liz Truss.

5. Oil slips on demand concerns

Crude oil prices slipped further below $100 amid concern at the state of the global economy, with expectations of further weakness in China despite the lifting of Covid-19 restrictions in the megacity of Chengdu at the end of last week.

By 06:30 ET, U.S. crude futures were down 1.9% at $83.10 a barrel, while Brent crude was down 1.9% at $87.91 a barrel, testing a seven-month low. There was little support even from a report saying that OPEC and its allies missed their monthly output target by more than 3.5 million barrels last month.

Natural gas prices also continued to slip, as traders took a more optimistic view on Europe’s chances of getting through the winter without Russian gas. Russia’s recent reverses on the battlefield, and the diplomatic pressure on President Vladimir Putin evident in exchanges last week with Xi Jinping and Narendra Modi, have calmed fears about the extent of Moscow’s leverage on energy markets.


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