Russian turmoil, Tesla, German Ifo - what's moving markets

  • Economy News
Russian turmoil, Tesla, German Ifo - what's moving markets
Credit: © Reuters. -- Global markets have taken the short-lived Russian mutiny in their stride, so far, with the oil market, for example, having largely handed back most of the early gains. Tesla is under pressure after another downgrade, this time by Goldman Sachs, while the German economy shows further signs of weakness.

1. Muted market reaction to Russian turmoil

The weekend’s mutiny in Russia by the Wagner Group of mercenaries, led by Yevgeny Prigozhin, appears to have been short-lived, but has still prompted a great deal of confusion over what happens next in one of the world’s major nuclear powers.

The Wagner fighters halted their rapid advance on Moscow late on Saturday, and Prigozhin relocated to Belarus as Russian President Vladimir Putin agreed to a truce mediated by Belarusian President Alexander Lukashenko.

While the situation appears to have calmed for now, it represented possibly the biggest challenge to Putin’s authority in his more than 20 years in charge.

“Obviously this does show a level of unprecedented weakness for President Putin,” said Ian Bremmer, the president of Eurasia Group in an interview on CNBC earlier Monday.

“But at the same time, while Putin was unprecedently tested, there was not a single high-level defection from the Russian military, from the Russian government or among the Russian oligarchs — so anyone that believes that Putin is suddenly is on the brink of leaving power, also needs to recognize that’s not where we are,” he added.

U.S. Secretary of State Antony Blinken suggested the turmoil could take months to play out, but "we've seen more cracks emerge in the Russian facade."

For now, the markets’ reaction has been muted, with oil handing back earlier gains, while USD/RUB rose 0.1% to 84.7668, having earlier climbed to a 15-month high at around the 87 per dollar level.

2. Tesla under pressure after Goldman downgrade

Tesla (NASDAQ: TSLA ), for a long time one of Wall Street’s favorite stocks, is starting to lose some of its allure, admittedly after recording stunning gains so far this year.

Goldman Sachs has downgraded its stance on the EV manufacturer to ‘neutral’ from ‘buy’, following similar moves made by the likes of Morgan Stanley and Barclays last week.

Its stock fell over 1% premarket, but this comes after a rally of over 100% since the start of the year, and 38% in the last month.

Goldman cited this heightened valuation as the main reason for the downgrade, but also highlighted a “difficult pricing environment for new vehicles.”

It wasn’t all bad news though, as “overall we believe our view that Tesla is well positioned for long-term growth, given its leading position in the EV and clean energy markets,” Goldman added.

3. Futures lower; losing week looks likely

U.S. futures traded lower Monday, with investors on edge after last week’s selloff and in the wake of the weekend’s short-lived Russian mutiny.

At 05:00 ET (09:00 GMT), the Dow futures contract had dropped 50 points or 0.2%, S&P 500 futures fell 10 points or 0.2%, and Nasdaq 100 futures dropped 45 points or 0.3%.

The three main equity averages fell last week, breaking multi-week positive runs, as Federal Reserve chair Jerome Powell signaled the likelihood of further interest rate hikes this year.

Investors will get a fresh update on the possible future path of interest rates on Friday with the release of May data on the personal consumption expenditures price index , the Federal Reserve’s preferred inflation gauge.

Ahead of that, there are earnings from the likes of Walgreens Boots Alliance (NASDAQ: WBA ) on Tuesday and Nike (NYSE: NKE ) on Thursday.

4. German economic weakness

German business confidence took a hit this month, worsening for the second consecutive month in June, with the widely watched Ifo business climate index falling to 88.5 in June. This was below the expected 90.7 and the previous month’s 91.5, which in turn was revised lower.

This follows on from last week’s disappointing PMI data, which showed the combination of a slower rise in service sector business activity and a deepening downturn in manufacturing output.

The German economy, the largest in the euro zone, fell into recession in the first quarter of the year, and is also having to cope with inflation proving to be more resilient than most of its neighbors.

Consumer prices for June for the region as a whole are due later this week, and while France, Italy and most notably Spain are expected to show slowing inflation, German prices may have jumped by almost half a percentage point to 6.7%.

This will provide plenty of room for debate when European Central Bank officials, led by President Christine Lagarde, convene in Portugal next week for an annual Sintra retreat.

5. Oil volatile after early Russia-inspired gains

Crude prices handed back most of the early gains Monday as traders attempted to balance the safety of supply from Russia, one of the world's largest producers, with faltering global growth.

By 05:00 ET, U.S. crude futures were 0.1% higher at $69.26 a barrel, while the Brent contract rose 0.2% to $74.17 per barrel.

Markets are pricing a moderately higher probability that domestic volatility in Russia leads to supply disruptions, but any early gains proved short-lived because worries over the strength of demand in the coming months remain.

Both benchmarks fell between 3% and 4% last week on worries that further interest rate hikes by the U.S. Federal Reserve, and other central banks, will hit economic activity at a time when China's economic recovery has also disappointed.

Haitham Al Ghais, the Secretary General of the Organisation of the Petroleum Exporting Countries, attempted to allay some of those demand concerns at a conference in Kuala Lumpur earlier Monday.

“Oil is irreplaceable for the foreseeable future,” he said. “We see global oil demand rising to 110 million barrels a day by 2045,” pushing the world’s energy demand up by 23%.

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