Bond Rout Lifts Dollar, Apple Output Plans, Gas Sabotage- What's Moving Markets

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Bond Rout Lifts Dollar, Apple Output Plans, Gas Sabotage- What's Moving Markets
Credit: © Reuters.

By Geoffrey Smith -- The dollar continued its advance, driving the euro to a 20-year low and the offshore yuan to an all-time low. Fed Chair Jerome Powell gets another chance to reassure or terrify markets further after passing up his opportunity on Tuesday. Sterling fell, before reversing, as the authorities were stung into intervention by a sharply-worded rebuke of the government's tax cut plans. Apple stock fell in premarket on a report that it's scrapping a planned increase in iPhone production this year due to weak demand. Biogen has a new Alzheimer's drug that appears to work better than its last one. And the Kremlin is shocked - shocked! - by suggestions that it would sabotage its own gas pipelines, on the same day that it prepared to stop shipping any gas to Europe at all. U.S. government oil inventories are due, after a sharp rise in stockpiles reported on Tuesday by the private sector. Here's what you need to know in financial markets on Wednesday, 28th September.

1. Rising U.S. yields drives dollar to new highs; Powell speech eyed 

The dollar surged to a new high as the pressure of rising U.S. interest rates on the world economy continued to mount.

The yield on the 10-Year Treasury note has topped 4% for the first time since 2010, pulled up by the short end of the bond market where the 2-Year note now yields 4.25%, reflecting expectations that the Federal Reserve may not be able to cut interest rates significantly until 2024.

Federal Reserve Chair Jerome Powell is again set to speak later, starting at 10:15  ET (14:15 GMT), and will probably overshadow his colleagues Raphael Bostic and James Bullard, who are due to speak earlier.

Notable casualties on the foreign exchange crosses included the euro , which sank to a new 20-year low of 0.9538, the offshore yuan , which fell to a new all-time low, and sterling , which wilted again after the International Monetary Fund blasted the new U.K. government’s unfunded tax giveaway. It recovered later as the Bank of England said it will intervene to ensure orderly conditions in the bond market.

2. Apple, suppliers tumble on news of canceled production increase

Apple (NASDAQ: AAPL ) stock fell 3.7% after Bloomberg reported that it has scrapped plans to increase iPhone production this year, after an expected surge in demand failed to materialize. Reports earlier this year suggested the company was expecting to make 6 million more units of its flagship iPhone 14.

The world’s bellwether consumer durable product is bumping up against the constraints of tightened budgets, casting doubt on Apple’s ability to push through a significant shift upward in average sales prices.

Stocks of component suppliers to the iPhone, such as Qualcomm (NASDAQ: QCOM ) and STMicroelectronics (NYSE: STM ) also fell in premarket.

3. Stocks set to open mixed;  Biogen's new Alzheimer's drug cushions Apple disappointment

Stocks are set to open mixed again after a similar day on Tuesday, with the ongoing rout in bonds and the news from Apple both weighing heavily on sentiment.

By 06:20 ET, Dow Jones futures were up a modest 44 points, or 0.1%, while S&P 500 futures were flat and Nasdaq 100 futures were down 0.4%, with the Apple news in particular hurting the chipmaking and broader technology sector.

One stock sharply bucking the trend is Biogen Inc (NASDAQ: BIIB ) after the first significant clinical trial results of its latest Alzheimer’s drug showed it significantly slowed the disease’s progression. The news offers Biogen a chance of redemption after the controversial approval of its last Alzheimer’s drug Aduhelm. 

4. Kremlin pushes back against reports of pipeline sabotage, but Moscow prepares further cuts

The Kremlin dismissed as “stupid” suggestions that Russia was behind the apparent sabotaging of the Nord Stream gas pipelines earlier this week, which effectively ended any chance of a resumption of direct gas shipments to Germany, as well as creating a lethal hazard to shipping and a massive release of the most powerful greenhouse gas into the earth’s atmosphere.

Swedish and Danish seismologists identified two separate explosions each equivalent to 100 kilograms of dynamite, leading their respective governments to conclude that the pipes were deliberately attacked. Both have blamed Russia for the incident.

European natural gas prices have surged this week due not only to that attack, but also to Gazprom’s announcement on Tuesday that it may stop paying Ukraine for transit of its gas, all but ending shipments of gas to the EU as the key winter heating season starts.

5. Oil hits new 2022 low on inventory build; EIA data due

Crude oil prices fell to a new 2022 low before rebounding to be up a little by 06:30 ET, as the market priced in demand destruction from the global economic slowdown, as well as higher political risk premiums in response to signs of increasing desperation in the Russian government’s use of its energy resources as an economic weapon.

By 6:30, U.S. crude futures were up 0.8% at $79.09 a barrel, while Brent crude was up 0.7% at $85.48 a barrel.

The U.S. government is due to release its weekly inventory data at 10:30 ET as usual. The American Petroleum Institute’s numbers had shown a shock 4 million barrel build in stockpiles, suggesting that U.S. demand is slowing more sharply than expected.

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