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EU Sanctions, Musk’s Poll, Fed Speakers, ISM – What’s Moving Markets

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By Geoffrey Smith 

Investing.com — The EU ducks the challenge of sanctioning Russian energy again. Elon Musk isn’t looking like a passive shareholder at Twitter (NYSE:TWTR). Stocks are set to open lower ahead of some verbal interventions from the Federal Reserve, and inflation pressures continue to send shockwaves through emerging markets. Here’s what you need to know in financial markets on Tuesday, 5th April.

1. EU avoids the elephant in the room, again

The European Union again shied away from the challenge of imposing meaningful costs on Russia for its invasion of Ukraine, a day after reports of atrocities committed by Russian troops shocked the continent.

Diplomatic sources quoted by various reports indicated that the bloc’s new package of sanctions will still allow oil and natural gas to flow freely, generating nearly $1 billion a day in export revenues for Russia. Instead, the EU will only stop coal imports, as well as ban some 10 billion euros ($11 billion) worth of machinery and other equipment exports from the EU to Russia.

The EU will also ban imports of Russian and Belarusian potash fertilizer, as well as wood, chemicals, concrete and some foodstuffs, worth about $5.5 billion a year. It has also added several more business and political figures to its sanctioned list. However, the package appears to fall well short of proposals on Monday from French President Emmanuel Macron and the EU Council, owing to well-publicized resistance from Germany and Hungary.

2. Elon Musk: A not-so-passive shareholder

Twitter’s new shareholder didn’t stay ‘passive’ for very long. Elon Musk immediately carried out a poll of his 80 million followers on whether to introduce an edit button, a measure that Twitter’s own management has resisted. The poll split around 3:1 in favor, in line with Musk’s own preference.

Musk’s actions carry a thinly-veiled warning to CEO Parag Agrawal about the extent of his influence. However, under SEC rules, he is not allowed to conduct active campaigns for change without disclosing more details about his aims.

Twitter stock had its best-ever day on Monday, rising 27% after the announcement that Musk had taken a 9.2% stake. It ended the day with a valuation of nearly 8 times 2021 sales. The company has lost money for both of the last two years, failing to cash in on the boom in digital advertising as the pandemic receded.

3. Stocks set to open lower: Fed speakers, ISM non-manufacturing eyed

U.S. stocks are set to open lower later, unable to build on Monday’s gains against a backdrop of geopolitical tension in Europe and rising Covid-19 cases in China. Jamie Dimon’s warning to JPMorgan (NYSE:JPM) shareholders at the weekend of potential losses in Russia has also cast a shadow over the imminent start of the quarterly earnings season.

By 6:20 AM ET, Dow Jones futures were down 103 points, or 0.3%, while S&P 500 futures and Nasdaq 100 futures were down in parallel.

The day will be dominated by speeches from various Federal Reserve officials, notably governor Lael Brainard at 10:05 AM ET and New York Fed President John Williams at 2 PM ET. Minneapolis’s Neel Kashkari, widely seen as the most dovish of the regional Fed presidents, is also due to speak at 10 AM ET. The Institute for Supply Management will also release its monthly non-manufacturing index.

4. Emerging market strains 

The strain of inflation continues to be felt around the world, with Peru declaring a state of emergency in its capital after protests against high food and energy costs turned violent.

Sri Lanka’s Finance Minister, meanwhile, resigned just one day after being appointed, unable to face a crisis caused by a crippling debt burden and a collapse in tourism revenues over the last two years.

The pressure from soaring food and energy prices is arguably worst in North Africa, which is dependent on imports of wheat from Russia and Ukraine. Tunisia’s president dissolved parliament on Monday, taking the country back a big step toward one-man rule, in an effort to keep control of a turbulent domestic situation. In Turkey, where President Recep Tayyip Erdogan has already all but established one-man rule, inflation is now running at 61%, according to data released last week.

In developed markets, the Australian dollar shot higher after the Reserve Bank of Australia dropped its pledge to remain ‘patient’ with regard to tightening monetary policy. Goldman Sachs analysts now expect it to start raising interest rates in June.

5. Oil shrugs off China woes; API data due

Crude oil prices rose again, shrugging off concerns about Chinese demand. That’s despite figures showing the impact of Covid-19 lockdowns on the domestic travel sector. The number of people flying at the start of the Qingming festival was down 87% year-on-year, local media reported. Shanghai has meanwhile extended its lockdown indefinitely, keeping 25 million people more or less entirely off the streets.

By 6:30 AM ET, U.S. crude futures were up 1.2% at $104.56 a barrel, while Brent crude was up 1.1% at $108.71 a barrel.

The EU’s new sanctions will arguably make things marginally more difficult for oil exports, by banning Russian ships from European harbors. However, the sanctions appear to be easy to circumvent by re-flagging tankers.

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

A big shift is under way for markets, and old Warren Buffett shareholder letters point to which companies will survive

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