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Chinese Rate Cut, Aramco Profit, German Gas Levy - What's Moving Markets

By Geoffrey Smith -- China's central bank unexpectedly cuts a key rate as growth slows across the economy. Saudi Aramco (TADAWUL:2222) beats its own record for the world's biggest-ever corporate profit. Germany prepares a new levy on gas bills as the U.K. moves closer to a bigger windfall tax on energy companies, and oil prices fall as Iran suggests a deal on reviving the 2015 nuclear pact is near. The U.S. releases the Empire State Manufacturing index and the NAHB monthly survey on the housing market. Here's what you need to know in financial markets on Monday, 15th August.

1. China cuts rates as economy slows

The People’s Bank of China cut its one-year prime loan rate by 10 basis points in an effort to revive an economy that can’t shake off the effects of Beijing’s Zero Covid policy and the slow-motion train-wreck of its real estate sector.

The PBoC’s action came on the same day as a suite of economic data pointed to a worrying slowdown in the economy, with retail sales, industrial production and investment in fixed assets all falling short of expectations. The decline in house prices accelerated to -0.9% on the year, while youth unemployment hit 19.9%.

Chinese asset markets took the surprise rate cut as a bearish signal, benchmark stock indices falling along with the Chinese yuan. Base metals prices also fell in response, as did the stock prices of the world’s biggest mining groups.

2. Saudi Aramco posts another record-breaking profit

Saudi Aramco (TADAWUL:2222) broke its own record for the world’s biggest quarterly profit, reporting a 90% leap in earnings from a year earlier to $48.4 billion in the three months through June, thanks to soaring prices for crude oil.

The company kept its dividend payout unchanged at a total of $18.75 billion. Over 90% of this will go to the Saudi government, which is using it both to boost growth at home – the IMF sees growth of over 10% this year – and invest abroad. The kingdom’s pension fund has thrown money at everything from Nintendo to U.K. soccer club Newcastle United in the last year.

Aramco warned that it is running short of spare production capacity as global demand recovers after the pandemic – a state of affairs that is likely to be little affected by China’s slowdown in the near term.

3. Stocks set to open lower as China weighs on mood; NAHB survey due

U.S. stock markets are set to open lower, as the prospect of slowing growth in China darkens the outlook for the world economy.

By 06:15 ET (10:15 GMT), Dow Jones futures were down 171 points, or 0.5%, while S&P 500 futures were down by a similar amount and Nasdaq 100 futures were down by a slightly smaller 0.4%.

The New York Federal Reserve’s Empire State Manufacturing index will provide the latest snapshot of activity in the U.S. economy at 08:30 ET, but arguably the more important data will come at 10:00 ET, with the National Association of Home Builders releasing its latest monthly survey.

The earnings calendar is largely void, ahead of the week’s big retail sector releases on Tuesday and Wednesday.

4. Germany to impose natural gas levy; U.K. parties eye bigger windfall tax on energy cos

Germany’s natural gas companies said they will impose a levy of 2.419 euro cents a kilowatt-hour on customers’ bills from October, aiming to curb demand and shore up the finances of a sector that has been devastated by the cutting of Russian gas supplies.

The levy was in the lower half of the 1c-5c range outlined by the German government. The development comes in the same week that Europe’s largest economy braces for another blow, with low water levels in the river Rhine expected to stop barges carrying coal and fuel oil to power stations any further south than Frankfurt.

Elsewhere in Europe, the U.K. opposition called for a bigger windfall tax on energy company profits to stop any further rise in household bills in October. The ruling Conservative Party, its attention fixated on its ongoing leadership contest, is still struggling to articulate how it will protect bill-payers from a looming rise in regulated prices that the Bank of England expects to tip the U.K. into recession.

5. Oil falls as Iran suggests oil deal may be near

Crude oil prices fell sharply after the weak data in China were compounded by positive noises from Iran, signaling that it’s ready to compromise to revive the UN-backed plan on lifting sanctions.

The Islamic Republic will respond to the European Union's "final" text by midnight on Monday, Foreign Minister Hossein Amir-Abdollahian said, albeit he called on the U.S. to show more “flexibility” to restore the 2015 nuclear pact.

By 06:30 ET, U.S. crude futures were down 4.3% at $88.09 a barrel, while Brent crude was down 4.3% at $93.64 a barrel.


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