Biden’s plan to release oil fails to impress. The winners and losers from a year of ranking Covid Resilience. A controversial defense against takeovers is gaining unexpected fans. Here’s what you need to know today.
President Joe Biden announced plans to release 50 million barrels of crude from U.S. strategic reserves, with China, Japan, India, South Korea and the U.K. contributing to the effort. Oil prices gained after an initial dip, with the volume less than the market expected. Much of the released crude will need to be returned by the refiners who buy it, leaving traders anticipating tighter balances. A large portion of the barrels from the U.S. will likely be exported to China and India. And Biden’s plan could backfire as it widens the gap between U.S. crude and Brent futures. The market is now watching for a possible counterpunch from OPEC+, which would need to give up two months of output increases to offset the move. Here’s why consumers looking for relief may not see lower gasoline prices for months yet, if at all.
Asian stocks looked set for a steady start after a mixed Wall Street session and a further climb in Treasury yields as traders weighed the prospect of tighter monetary policy to curb inflation. A plunge in high-priced software and internet stocks is setting off a quick exodus among speculators. Meme stocks including GameStop tumbled, suffering the worst day since March, as investors bailed out of riskier assets in favor of value-oriented firms. Bitcoin trades like a risk asset again, with its correlation to stocks near the highest reading of the year.
China pulled back on progress toward meeting its U.S. trade deal targets. The country bought $9.5 billion of manufactured, agricultural and energy products in October, bringing total purchases to $210.4 billion, or about 56% of the two-year target set to be fulfilled by the end of this year. Beijing said it will aim to diversify import sources. Meanwhile, Chinese dealmaking in Europe fell sharply in the last two years, according to a European Commission report that shows some European governments are still slow to roll out more screening of foreign deals and investments.
Hong Kong jailed a student activist for three years and seven months after he pleaded guilty to secession and money laundering. Tony Chung had faced up to seven years in prison for publishing "seditious" messages on social media and holding local-independence events. The judge said that while the defendant lacked concrete plans to split up China, the intention was sufficient. Meanwhile, China has called on people to stop “hyping” the case of tennis star Peng Shuai.
One of the corporate world’s most controversial takeover defenses is winning some unexpected fans. The poison pill, which dilutes the ownership of hostile acquirers, has long been criticized as a tool to keep bad management teams in place and deny existing shareholders the right to profit from buyouts. But a takeover battle in Japan is now spurring endorsements for the tactic by corporate governance experts and influential proxy advisers, and even making some activist investors consider giving it support.
What We’ve Been Reading
What’s caught our eye over the past 24 hours:
And finally, here’s what Tracy’s interested in today
Things are kind of weird in emerging market currencies right now. In China, where the central bank is moving toward a path of easing, the yuan has remained stubbornly strong against the dollar. In Brazil, where the central bank has hiked 575 basis points in 2021, the real is down about 6% against the greenback this year. The same is true of other emerging markets in hiking mode. Hungary hiked 150bps and yet the forint is down 10% (and just reached a record low overnight). Something similar goes for Russia, where despite a hawkish central bank and higher energy prices, the ruble has remained relatively flat this year.
Jon Turek at Cheap Convexity points out that the common thread in all of these is of course the Federal Reserve, now widely expected to begin hiking interest rates next year. As he puts it, the distribution of risks for the U.S. central bank is now firmly on the inflation/hiking side. You’re either going to get the hikes currently telegraphed, or you might get the ones that haven't been. Or as he puts it: “The Fed’s distribution of outcomes next year is either dovish hikes or hawkish hikes and that is a tricky backdrop for EM central banks. As my friend MacroKurd likes to say, when U.S. rates rise, things break. That is always true for EM.”
You can follow Tracy Alloway on Twitter at @ tracyalloway.
— With assistance by Tracy Alloway
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