European Energy, ISM Non-Manufacturing, Yuan Low – What’s Moving Markets

World energy prices come under pressure as the European Union gets serious about reducing demand and fixing its energy market shortcomings. The Institute for Supply Management releases its August report for the services sector. Stocks are set to open with a bounce, but there’s no respite for Bed Bath & Beyond. CVS agrees to buy Signa for $8 billion. And China cuts reserve requirement, tries to reduce the pressure on the yuan, but the currency still hits a two-year low against the dollar. Here’s what you need to know in financial markets on Tuesday, 6th September.

1. Energy prices ease as EU prepares emergency measures

European wholesale energy prices eased amid signs that the European Union will embrace coordinated measures to cut demand and cap prices to counter Russia’s latest cut in gas supplies.

Ahead of a key meeting of Energy Ministers on Friday, French President Emmanuel Macron said he wants to cut French energy consumption by 10% this winter, aiming to avoid mandatory blackouts. He also gave his blessing to a 65 billion euro ($64 billion) German energy package that aims to redistribute the windfall profits generated by high wholesale prices. Similar measures now look likely to be approved by the 27-country bloc on Friday.

Elsewhere, the drop in prices supported the pound, where new Prime Minister Liz Truss is also reportedly set to announce a major support package to deal with energy costs.

2. ISM non-manufacturing survey due

The Institute for Supply Management releases its non-manufacturing survey for August, a few days after its closely watched manufacturing survey suggested that the sector remains in pretty robust health.

Services account for much more of U.S. GDP than manufacturing, so Tuesday’s release is, arguably, of more direct importance to markets, at least in so far as it says more about the strength of final demand from consumers.

Analysts expect the main index to have fallen from 56.7 to 55.1 – a level that is still consistent with a decent rate of growth.

Overnight, German factory orders fell again, for the fifth month out of the latest six.

3. Stocks set for a bounce at open; CVS clinches Signify deal

U.S. stock markets are set to open higher after the long weekend, in delayed recovery from the negative shock late on Friday when Russia shut down the Nord Stream gas pipeline.

By 06:25 ET (10:25 GMT), Dow Jones futures were up 263 points, or 0.8%, while S&P 500 futures were up 1.0%, and Nasdaq 100 futures were up 1.1%. That more or less wipes out Friday’s losses in the respective cash indices completely.

Stocks likely to be in focus later include Bed Bath & Beyond (NASDAQ:BBBY) after the apparent suicide of its chief financial officer at the weekend, amid a host of unresolved problems around the retailer’s finances. Also in focus will be CVS (NYSE:CVS) after it struck a deal to buy online health care provider Signify (NYSE:SGFY) for around $8 billion, paying up to beat reported rival interest from Amazon (NASDAQ:AMZN). In Europe, meanwhile, Volkswagen (ETR:VOWG_p) stock rose after the board confirmed plans to float a stake in its Porsche unit.

4. Yuan hits two-year low as China cuts reserve requirement

The Chinese yuan fell to its lowest in two years against the dollar, as the People’s Bank of China cut the reserve requirement on banks’ foreign exchange deposits by 200 basis points as of September 15th.

When it takes effect, the move will free up an estimated $19 billion in dollar liquidity for the local money market, easing the depreciation pressure on the yuan.

In the more immediate term, the measure is the latest illustration of the strains on China’s economy coming from slowing export demand, an ongoing real estate crisis, and another spate of COVID-19-related lockdowns. The megacity of Chengdu said overnight it will extend its lockdown until at least Wednesday.

Elsewhere overnight, the Reserve Bank of Australia raised its key rate by another 50 basis points, despite signs of the economy weakening. The Aussie dollar weakened 0.3%.

5. Oil falls as market shrugs off OPEC+ quota cut

Crude oil prices fell in line, as the prospect of weaker Chinese growth and European measures to reduce energy demand outweighed any bullish sentiment generated by Monday’s token output cut for October by the OPEC+ group.

OPEC and its partners, chiefly Russia, will reverse the 100,000 barrel a day increase to their production plans they had agreed only a month earlier. However, given that actual output is currently some 2.9 million barrels below target, it’s not clear what effect the quota cut will have.

The market is still digesting the implications of plans announced by the G-7 on Friday to impose a price cap on Russian oil exports.

By 06:35 ET, U.S. crude futures were down 0.7% at $86.29 a barrel, while Brent was down 3.2% at $92.69 a barrel.