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China growth, Tesla in Mexico, Arconic buyout talks - what's moving markets

Published 01-03-2023, 05:58 pm
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By Geoffrey Smith 

Investing.com -- China's economy grew at the fastest rate in eight months in February, gaining momentum after the end of COVID-19-related lockdowns, according to new business surveys. Tesla is expected to confirm plans for a $5 billion plant in Mexico. Arconic surges after reports of talks with private equity giant Apollo and maybe others over a possible buyout. The pound weakens and the euro rises after contrasting messages from top central bankers, and oil comes off a one-week high after fresh signs of weaker demand in the U.S. Here's what you need to know in financial markets on Wednesday, 1st March.

1. Chinese assets, metals rise as China PMIs show reopening bounce; ISM PMI due

The yuan rallied by 1% after key business surveys showed the Chinese economy expanded at its fastest pace in eight months in February.

Both the official and the Caixin manufacturing purchasing managers indices rose markedly from January to be well above the 50 level that typically indicates growth. The official manufacturing PMI, which largely tracks the bigger, state-owned enterprises, hit its highest level in more than a decade.

The news gave a boost to industrial metals prices, which rose by between 1-2%.

The numbers came on the same day that the U.S. Institute for Supply Management publishes its manufacturing PMI for February, which is expected to show U.S. activity contracting, albeit by less than in January.

2. Tesla set to outline plans for first Mexican plant

Tesla (NASDAQ:TSLA) is set to unveil plans for its first factory in Mexico as part of a big Investor Day presentation.

Mexico's leftist President Andrés Manuel López Obrador indicated at a news conference on Tuesday that the two sides had settled differences over the company's plans for a plant at Monterrey in northern Mexico, which centered around Tesla's intensive use of water in a region that doesn’t have much of the stuff.

Analysts expect the investment volume to be around $5B. The burden for Tesla will (yet again) be reduced by U.S. federal government subsidies, this time under the Inflation Reduction Act, whose provisions extend to the U.S.'s southern neighbor.

Elsewhere in the auto industry, Rivian (NASDAQ:RIVN) stock fell over 9% in premarket after the EV maker reported another big loss and fell short of expectations for its fourth quarter sales. General Motors (NYSE:GM), meanwhile, is reportedly set to cut another 500 executive jobs as part of its ongoing cost-cutting.

3. Stocks set to open higher; Arconic surges on buyout talk

U.S. stock markets are set to open modestly higher after edging lower on Tuesday in response to another set of generally weak U.S. economic data.

By 06:30 ET, Dow Jones futures were up 68 points or 0.2%, while S&P 500 futures were up 0.3% and Nasdaq 100 futures were up 0.6%.

Tesla aside, stocks likely to be in focus later include Monster Beverage (NASDAQ:MNST), whose earnings fell short of expectations late on Tuesday, and Arconic (NYSE:ARNC), which rose sharply on Tuesday after The Wall Street Journal reported is in talks to sell itself to Apollo Global Management (NYSE:APO). The news adds to signs of a thawing of the M&A market, which was frozen late last year as banks struggled to offload large amounts of unsold buyout debt.

4. Pound sags, euro firm as Bailey and Nagel send mixed messages on further rate hikes

The pound fell after Bank of England Governor Andrew Bailey appeared to play down expectations of more aggressive interest rate increases later this year. As with the euro and dollar, some better-than-expected economic data at the start of the year – including strong consumer credit data for January published earlier Wednesday - have prompted a repricing of interest rate expectations for the sterling.

However, Bailey said in a speech that "nothing is decided" despite acknowledging ongoing issues with labor market tightness – and despite figures released on Tuesday that showed food prices rose over 17% on the year in January.

In Germany, Bundesbank chief Joachim Nagel was decidedly less nuanced, saying it would be a serious mistake to stop the European Central Bank's rate hike cycle too early. Preliminary data showed German inflation again coming in above expectations in February, while unemployment rose by less than forecast.

5. Oil dips on another big rise in U.S. inventories

Crude oil prices were broadly lower, with another big build in U.S. inventories prevailing over the supportive effect of the Chinese PMI data.

American Petroleum Institute data late on Tuesday showed another 6.2 million rise in U.S. crude stocks last week, well above expectations and skewing the market toward an upside surprise when the government publishes its data at 10:30 ET.

Analysts noted that the Chinese reopening story has been broadly priced in, by contrast.

By 06:45 ET, U.S. crude futures were down 0.9% at $76.33 a barrel, while Brent crude was down 0.6% at $82.91 a barrel.

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