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King Dollar, Twitter Sues Musk, China COVID Spread - What's Moving Markets

By Geoffrey Smith -- The dollar surges to a new 20-year high, supported by Friday's jobs report. Twitter hires a crack legal team to squeeze a $1 billion break fee out of Elon Musk after he abandoned his $44 billion takeover offer. Stocks are set to open lower, bracing for another big rate hike from the Federal Reserve. Europe meanwhile, is bracing for a total cut-off of Russian gas supplies. And oil is down ahead of Joe Biden's visit to Saudi Arabia. Here's what you need to know in financial markets on Monday, July 11.

1. King Dollar

The dollar hit a fresh 20-year high, pushing the euro down as far as $1.01 and sending the yen as low as 137.26 as Friday’s solid U.S. jobs report underlined the yawning gap in interest rate differentials between the developed world’s three main currency areas.

Elections in Japan at the weekend appeared to confirm the country’s current economic policy course, suggesting that the yen’s weakness hasn’t led to the ruling Liberal Democratic Party losing votes. The LDP was, however, buoyed by sympathy votes after the assassination of former Prime Minister Shinzo Abe at a campaign rally on Friday.

By 06:30 AM ET (1030 GMT), the dollar index that measures the greenback against a basket of six major developed economy currencies was up 0.6% at 107.46.

New York Federal Reserve President John Williams is due to speak at 02:00 PM ET.

2. Twitter seeks $1 billion as Musk walks from takeover bid

Twitter (NYSE:TWTR) hired a crack team of lawyers to set about claiming its $1 billion break fee from Elon Musk, after the Tesla (NASDAQ:TSLA) CEO officially revoked his $44 billion offer for the social media company.

Whether that break fee gets paid will be down to the issue of spam bots. Musk, who had earlier waived his right to due diligence and only raised the issue of fake accounts after struggling to raise the money for the acquisition, has argued that Twitter’s user numbers are vastly inflated. Twitter claims it has sent Musk the best information it can without violating the terms of its user agreements.

Twitter stock was down 7% in premarket as it shed its implicit takeover premium, but Tesla stock failed to benefit, falling 0.3% having rallied hard last week in anticipation of the removal of a potentially massive stock overhang. Morgan Stanley (NYSE:MS), which had stood to gain the most in fees from a completed deal, was down in line with the broader market.

3. Stocks set to open lower on rate hike, COVID caution

U.S. stock markets are set to open lower later, with investors once again having reflected over the weekend that taking money off the table is the best course of action. That’s despite the fact that the market held up reasonably well on Friday after a jobs report that cemented expectations of another 75-basis point interest rate hike later this month.

By 06:15 AM ET, Dow Jones futures were down 121 points, or 0.4%, while S&P 500 futures were down 0.5%, and Nasdaq 100 futures were down 0.7%.

Caution was the watchword, after news of another rising wave of COVID-19 cases in China and anxiety about the fate of European gas supplies as Russia takes the Nord Stream pipeline down for scheduled maintenance.

4. China's COVID-19 lockdowns spread; Shanghai detects new variant

The number of Chinese living under COVID-19-related restrictions rose to over 114 million, according to Nomura, as a fresh wave of cases led to a combination of lockdown and mass-testing. The island of Macau has closed its casinos for a week – in one case, locking the house with 500 gamblers still trapped inside – while the city of Xi’an, with 13 million inhabitants, has also locked down for the week.

Most importantly for world markets, Shanghai city authorities said at the weekend they had identified a new sub-variant of the now-dominant BA.5 Omicron strain, and that the risk of transmission in the city was high. Most of its districts are being subjected to three days of mass testing this week.

China remains the one major economy worldwide without a serious inflation problem, consumer prices staying unchanged in June, leading the annual rate to tick up to a modest 2.5%. Annual producer price inflation, more important for the world economy, fell to 6.1% from 6.4%.

5. Oil falls ahead of Biden's Saudi visit

Crude oil prices came under pressure again amid the broader risk-off sentiment coursing through China and Europe. That comes ahead of U.S. President Joe Biden’s visit to Saudi Arabia this week, where he is expected to press for an increase in oil production from the Desert Kingdom.

How much Biden will be able to offer in return, with regard to arms sales and diplomatic cover for Saudi Arabia’s war in Yemen, is unclear, his administration having rather boxed itself in with a hard line on human rights over the killing of a dissident Saudi journalist.

By 06:30 AM ET, U.S. crude futures were down 2.4% at $102.33, while Brent was down 1.8% at $105.09 a barrel.

European natural gas futures were broadly flat, after Canada called Russia’s bluff in allowing the return of compression equipment to the Nord Stream pipeline. That will make it harder for Russia to claim any technical explanation for its supply cuts once the line’s scheduled maintenance is complete in 10 days.


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