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North American Morning Briefing: Stock Futures Drop Ahead of Pelosi's Taiwan Trip

MARKET WRAPS

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Johnson Redbook Retail Sales Index; Federal Reserve Bank of Chicago President Charles Evans hosts on-the-record conversation on the economy; 2Q Housing Vacancies; June Job Openings & Labor Turnover Survey; SEC Small Business Advisory Committee; Federal Reserve Bank of New York's Q2 Household Debt and Credit Report; Washington Post Live 'The Path Forward' virtual event with Federal Reserve Bank of Cleveland President Loretta Mester; July Domestic Auto Industry Sales; API Weekly Statistical Bulletin; Federal Reserve Bank of St. Louis President James Bullard speaks at Money Marketeers event; Canada Manufacturing PMI.

Opening Call:

Stock futures were lower on Tuesday ahead of House Speaker Nancy Pelosi's planned visit to Taiwan despite stern warnings from China.

Investor sentiment has weakened ahead of Mrs. Pelosi's expected visit to Taiwan on Tuesday as part of her tour of Asia--a historic visit that has raised geopolitical tensions amid warnings from China.

The world's second-largest economy considers the island part of its territory and has plans for reunification, and cautioned that its armed forces "will not sit idly by" in the case of Pelosi's visit.

"Nancy Pelosi's visit to Taiwan today for meetings tomorrow could be the main event," said Jim Reid, a strategist at Deutsche Bank.

"She's scheduled to land tonight local time which will be midmorning U.S. time. She'll be the highest ranking U.S. politician to visit in 25 years. Expect some reaction from the Chinese and markets to be nervous."

Asian and European markets were down. The Shanghai Composite Index and Hong Kong's Hang Seng both fell more than 3% in early trading before recouping some losses.

Forex:

The DXY dollar index rose Tuesday as heightened tensions between the U.S. and China over Mrs. Pelosi's mooted Taiwan visit boosted safe-haven currencies.

"Should this mark a material deterioration in U.S.-China relationships, expect some shockwaves to be felt across the FX market," ING said.

The dollar, the yen and franc should be the main beneficiaries, while the Chinese yuan and China-sensitive and risk-sensitive currencies, including the Australian dollar and New Zealand dollar could weaken, the Dutch bank said.

Energy:

Oil prices moved lower on Tuesday. "Soft Chinese PMI data, fully recovered Libyan oil production, indications of resumed Iranian nuclear talks, and increased US/China tension with the potential Pelosi visit to Taiwan have pushed oil prices lower," DNB Markets said.

All eyes will be on the OPEC meeting set for Wednesday, which will likely dictate prices for the rest of the week, it said.

Metals:

Metals fell in early trade, with Asian markets unsettled ahead of Nancy Pelosi's planned visit to Taiwan.

"The media is just unsightly with continued aggravation in the world of politics as Pelosi looks determined to head for Taiwan and onshore equities all being down," Marex said.

Some defense firms rallied but most metals firms were downbeat over the visit, it said.

   
 
 
   
 
 

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August 02, 2022 06:14 ET (10:14 GMT)

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