Chips Act, Alibaba Heads to HK, Oil Spikes - What's Moving Markets

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Chips Act, Alibaba Heads to HK, Oil Spikes - What's Moving Markets
Credit: © Reuters.

By Geoffrey Smith -- Micron unveils a $40 billion plan to bring its chip manufacturing back to the U.S. as President Joe Biden prepares to sign the Chips and Science Act into law. Alibaba is heading the other way, as Hong Kong approves its plans to move its primary listing back from the U.S. Travel names continue to churn out strong quarterly reports as the tourism boom's momentum stays strong. Stocks are becalmed ahead of Wednesday's CPI report, and oil spikes on a report that Ukraine is blocking shipments of Russian crude to central Europe. Here's what you need to know in financial markets on Tuesday, 9th August.

1. Biden set to sign Chips Act, as Micron lays out $40 billion reshoring plan

Chipmaker Micron (NASDAQ: MU ) announced a plan to invest $40 billion by the end of the decade to grow its manufacturing base in the U.S., leaning heavily on the government subsidies outlined in the recently passed Chips and Science Act, which President Joe Biden is due to sign into law on Tuesday.

The reshoring of manufacturing capacity reflects, among other things, national security concerns, given the deterioration in U.S.-Chinese relations over recent years, illustrated starkly by China’s reaction to House Speaker Nancy Pelosi’s visit to Taiwan last week. Most of Micron’s manufacturing capacity is located in Greater China and Japan.

The announcement comes amid growing concern at a looming glut in chip supply, after a pandemic-fueled surge in demand for appliances, computer gaming, and cryptocurrency. Rival Nvidia (NASDAQ: NVDA ) sharply cut its forecasts on Monday, citing weakness in gaming in particular.

2. Alibaba heads to Hong Kong

Deglobalization goes both ways.

Hong Kong approved Alibaba’s (NYSE: BABA ) plans to transfer its primary market listing to the Hong Kong Stock Exchange, a decision that makes for a neat counterpoint to Micron’s repatriation of its manufacturing capacity.

In more practical terms, the move will make it easier for mainland Chinese investors to get access to the stock through the ‘stock connect’ program that links the Hong Kong and mainland exchanges. Whether that will be enough to offset the more restricted access that non-Chinese investors may face in future is open to question.

The move is likely to take place before the year-end, according to various reports.

Elsewhere in China, Tesla’s Shanghai factory saw its production drop by two-thirds in July from a month earlier, although that was due to scheduled maintenance rather than any expression of U.S.-China tension.

3. Stocks becalmed ahead of CPI; Small businesses bemoan inflation

U.S. stock markets are set to open flat later, with Wednesday’s release of the July consumer price inflation report casting a long shadow ahead of it.

Hopes for a peak in the CPI have grown, with market participants leaping on tentative evidence of a drop in consumer expectations for inflation in the New York Fed’s latest survey that was released on Monday. However, prices have repeatedly risen by more than expected in recent months. Inflation was the top concern reported by small businesses in the monthly NFIB report just released.

By 6:20 AM ET (1020 GMT), Dow Jones futures were unchanged, while S&P 500 futures were down 0.1%, and Nasdaq 100 futures were down 0.4%.

In addition to chipmakers, other stocks likely to be in focus later include International Flavors & Fragrances (NYSE: IFF ) and News Corp (NASDAQ: NWSA ) after their strong earnings beat late on Monday. Emerson (NYSE: EMR ), Sysco (NYSE: SYY ), TransDigm (NYSE: TDG ), and Ralph Lauren (NYSE: RL ) all report early, while Wynn Resorts (NASDAQ: WYNN ) reports after the close.

4. Travel is still the strongest sector in this earnings season

The global travel sector remains a standout in the current earnings season, with duty-free giant Dufry (SIX: DUFN ) and InterContinental Hotels Group (NYSE: IHG ) both reporting sharp rebounds in business overnight. IHG – the owner of Crowne Plaza and Holiday Inn, still fell, however, after failing to match the blistering performance of rivals Hilton (NYSE: HLT ) and Marriott.

Both companies noted that revenue had exceeded 2019 levels in North America, with Europe lagging a little (pressure for an EU ban on Russian tourists is growing) and China lagging a lot, due to its zero-COVID policy. Neither predicted any meaningful slowdown in demand in the near future.

Norwegian Cruise Line (NYSE: NCLH ) is due to continue the theme with its report earnings later.

5. Oil spikes on Ukraine report

Crude oil prices recovered on perceptions that the abrupt recent selloff has gone far enough in the near term.

The market was also settled by headlines suggesting that Ukraine’s pipeline operator UkrTransNafta has stopped pumping Russian oil across the country’s territory to customers in central Europe, in what would be an unexpected escalation of the energy conflict between Russia and its European neighbors.

The headlines would suggest that Ukrainian frustration at continued European purchases of Russian fuel – which it says helps finance the war – has boiled over. The move comes a day after the Biden administration approved a further $1 billion in military aid for Ukraine.

The American Petroleum Institute releases its weekly inventory data at 4:30 PM ET, as usual.

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