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Top 5 Things to Know in The Market on Monday, August 17th

(C) Reuters.

By Geoffrey Smith — China injects more liquidity, pushing oil prices to a five-month high (if only briefly). Political instability in Europe worsens as Belarusian President Alexander Lukashenko invites protestors to kill him if they want new elections, and stocks are set to open higher, shrugging off rumblings about both the November election and the canceling of U.S.-China trade talks. Here’s what you need to know in financial markets on Monday, August 17th.

1. China injects stimulus as recovery falters

China’s stock markets rose after the central bank injected around $100 billion of liquidity into its money market through a 12-month lending facility.

The net addition of liquidity is smaller than the headline number, as around three quarters of the amount will replace loans to commercial banks that are due to be repaid over the next 10 days.

Market participants interpreted the move as a sign that the People’s Bank of China is still prepared to loosen policy further in case the economic rebound falters.

Data published last week showed China’s economy slowing down in July, with industrial production growth slowing and retail sales still down from year-earlier levels.

2. U.S., China scrap potentially embarrasing review of trade deal

Chinese stocks in the U.S. remain under pressure however after President Donald Trump during his press conference on Saturday that he’s “looking into” fresh measures against them. Alibaba ADRs fell 1.2% in premarket trade.

Over the weekend, it emerged that the U.S. and China have postponed talks on reviewing the implementation of their ‘phase 1’ trade deal. Chinese purchases of U.S. products have totaled barely half of what was pledged under January’s deal, due not least to the pandemic, which has, at least temporarily, put Chinese demand for oil, liquefied natural gas and agricultural products on a lower trajectory.

3. Stocks set to open a tad higher; NAHB index due

U.S. stocks are set to open marginally higher, with few clear drivers except – perhaps – relief that the U.S. avoided having to acknowledge the non-observation of the U.S.-China trade deal. That spares the administration from having to follow through on its threats of more economically damaging tariffs ahead of the election in November.

By 6:40 AM ET (1040 GMT), the US 30 Futures contract was up 59 points, or 0.2%, while the US 500 Futures contract was up 0.3% and the US Tech 100 Futures contract was up 0.6%.

At the same time, a closely-tracked indicator of volatility, the VIX futures contract, has fallen to its lowest since the pandemic erupted in March.

Earnings season is winding down, and with 90% of S&P 500 companies having reported, earnings are down on average by 53% from a year-earlier, while sales are down 11%. The figures underscore how much the summer’s rally owes to massive stimulus from the Federal Reserve and federal government. The former in particular has allowed stock analysts to base their valuations on the assumption of nearly-free money far into the future.

The NAHB house price indicator at 10 AM ET is the only major economic data due. Overnight, Japan confirmed a slightly smaller drop in second–quarter GDP than that recorded in Europe and the U.S.

4. Lukashenko talks tough after securing Russian support

Belarusian President Alexander Lukashenko told protesters that they would have to kill him to get new elections, a day after the eastern European country witnessed its largest-ever demonstration demanding his resignation.

Lukashenko’s comments came after a weekend telephone call with Vladimir Putin, president of Belarus’ most powerful ally and biggest creditor. The two sides offered differing versions of the call, with Belarus saying Russia had promised military assistance to keep Lukashenko in power (the Kremlin has recognized him as the legitimate winner of last weekend’s elections). The Kremlin, by contract, merely acknowledged Belarus’ assertion of “external factors” aiming to destabilize the country.

EU foreign ministers, who refused to acknowledge the election results at a meeting on Friday, called another emergency meeting for Wednesday. Poland (WA:GPW) and Russia, two countries that border the country, were two of the worst performing European markets on Monday, losing 0.9% and 0.3% respectively. The dollar rose 1% against the ruble

5. Oil prices drift down from five-month highs

Crude oil prices drifted lower after hitting new post-pandemic highs over the weekend in response to China’s latest stimulus measures.

Prices were supported by signs of a further decline in U.S. drilling, as Baker Hughes‘ U.S. rig count fell by another 4 to a fresh multiyear low of 172.

Offsetting that was another drop in the number of hedge funds willing to bet on higher prices. Net speculative long positions in crude fell by 16,000 contracts last week, according to the CFTC’s data.

By 6:30 AM, U.S. crude futures were down 0.1% at $41.97 a barrel, while the international benchmark Brent was down 0.2% at $44.70 a barrel.

Top 5 Things to Know in The Market on Monday, August 17th