Europe Quotes “Elements” of U.S.’s Inflation Reduction Act Instigating a Trade War

U.S. equity futures were on the back foot, with S&P 500 and Nasdaq Composite contracts down about 0.5% as of 2:30 p.m. CET. The dollar remained near session lows, boosting most G10 currencies. On the macro side, at 9:45 a.m., we’ll get figures for S&P Global’s PMI of U.S. services. In a quarter of an hour, data on U.S. factory orders and durable goods will be published, along with ISM’s measure of services.

Corporatewise, facing weaker demand in China, Tesla (TSLA) plans to reduce production at its Shanghai plant by possibly 20% in December. The cuts could kick in this week after the company reviewed the performance of the U.S. domestic market, but reportedly the output could be refueled if demand picks up. It marks the first volunteer cut in output by the China Gigafactory, which also faces competition from BYD and Guangzhou Automobile. Tesla saw weaker deliveries in October.

Commoditywise, the news out of China also gave a little push to crude prices, which had been lagging in part because of concerns of lower demand from the nation of 1.4 billion. The direction of crude oil is growing even more uncertain after OPEC+ decided on Sunday to keep its oil production quotas unchanged. The group concluded there were just too many variables to alter its policy at the moment, such as the G7 oil price cap, recession worries and China easing its zero-Covid policy that has battered its fuel demand. China's Xi Jinping will also head to Saudi Arabia this Thursday to meet Saudi Crown Prince Mohammed bin Salman, which could be another pivotal moment for global energy markets (the two economies represent the world's biggest oil importer and exporter). WTI crude futures traded above $82 on Monday afternoon, while Brent crude almost touched $88/bbl. Oil prices also got some support from OPEC+, which said it would stick with its plan to cut production, even as the G-7 slapped a $60-a-barrel price cap on Russian oil.

Growing troubles of Apple supplier Foxconn's (FXCOF) iPhone factory in China’s Zhengzhou drew attention as it became unclear how many of the 300,000 employees at “iPhone City” were involved in the riots, but Apple has flagged “lower iPhone 14 Pro and iPhone 14 Pro Max shipments” due to prior curbs at the complex, which included dormitory accommodations and is responsible for around 80% of global iPhone output. Besides iPhone assembly, so many Apple components are made in China, with some estimating that 95% of total iPhone supply still comes from the world’s biggest factory.

European stocks opened predominantly lower, but have turned mixed in the afternoon trading. At 2:20 p.m. CET, while Germany’s DAX Index and France’s CAC 40 Index retreated by 0.59% and 0.63%, respectively, U.K.’s FTSE 100 Index gained ground by 0.25%. The head of the European Parliament's trade committee said that elements of Inflation Reduction Act would mean that the EU needs to file a complaint at the World Trade Organization. It's not only about luring investors away from Europe, but also shutting out European companies that could benefit from the tax breaks and subsidies that are only available for U.S.-based businesses. Some even think that things could quickly turn into a trade war if things cannot be resolved diplomatically.

Elsewhere, the major Asia-Pacific markets closed today’s session on a mixed tone, with the easing Covid-19 curbs in China, on one hand, but nervous mood globally exacerbated on Friday in conjunction with the enacted oil price cap and not-so-rosy job report. Nevertheless, Hong Kong’s Hang Seng Index skyrocketed 4.51% and China’s Shanghai Composite Index advanced 1.76%. Sentiment on other regional markets was mixed.

Meanwhile, in China, Beijing and Shenzhen suggested they would relax a rule that required negative Covid tests before travel. That, in turn, boosted Chinese stocks. Morgan Stanley analysts also upgraded its rating for Chinese equities, saying a “path towards reopening is finally set, likely bumpy but with no turning back.

As per a recent report by eMarketer, e-commerce sales across Southeast Asian nations are projected to increase to around $90 billion this year, up from last year’s $16 billion. By 2023, regional e-commerce will be expected to surpass $100 billion. Southeast Asia may see the most prominent growth —20.6% — compared to other regions, which are predicted to grow only moderately. The report further showed that only 4 countries in the world will experience the fastest retail e-commerce sales growth, and one of them is Indonesia. The nation’s retail e-commerce industry is expected to grow by 23%.