Twitter Deal is off?

Investors sought draw a line under the worst first half of the year for stocks in more than 50 years and start off the second half on the front foot. The blue-chip S&P 500 and technology focussed Nasdaq indices gained 0.8% and 2.0% respectively.

Most other global markets also got off to a positive start but Chinese stocks were notable outliers and fell on the threat of renewed Covid lockdowns in the world’s second largest economy.

Non-essential businesses were shuttered once again last week in Xi’an, home to 13 million residents in China’s northwest, to try to break the transmission of the highly contagious BA.5 Omicron subvariant. Similar restrictions are currently in place across 10 other cities as authorities remain steadfastly committed to President Xi Jinping’s zero-covid policy.

A relatively quiet time for corporate news during the Independence Day holiday shortened trading week was broken on Friday when Elon Musk announced he was withdrawing his $44 billion offer to buy Twitter.

Musk blamed the social media group for refusing to fully disclose information on the true number of fake and spam accounts on the platform which his lawyers argue constitutes a material breach of the purchase agreement.

Twitter hit back immediately, pledging to pursue legal action against Tesla’s billionaire chief executive to enforce the deal agreed in April. An acrimonious battle lies ahead, a risk which markets have been pricing in for some time. Twitter shares have traded at around a 30% discount to the agreed $54 per share purchase price since May and fell another 10% after the latest news broke.

Patchy economic data over the last few months has reinforced fears that economies are heading into recession. However, the monthly US nonfarm payrolls report released on Friday provided some optimism that the outlook might not be so bad across the Atlantic.

More than 370,000 new jobs were added in June according to the report, exceeding consensus forecasts by more than 100,000. Average hourly earnings increased 5.1% and the unemployment rate remained at an historically low 3.6%.

The robust labour market is likely to encourage the Federal Reserve to keep raising interest rates at a brisk pace to curb inflationary pressures and widening interest rate differentials versus other G7 economies is providing strong support to the US Dollar.

The Dollar is just a hairbreadth away from reaching parity versus the Euro for the first time in 20 years. In stark contrast to the Fed, the European Central Bank is not expected to end its negative interest rate policy until September, despite record high Eurozone inflation, reflecting the more fragile state of the region’s economy.

The gloomier economic outlook closer to home weighed on energy and commodity prices last week. Brent crude fell 6%, its sharpest fall since March, to $107 a barrel, more than $20 below its peak in March.

Markets are not only pricing in lower demand for energy but the possibility that oil producers will relent to pressure from European and US leaders to increase supply. President Biden will visit Saudi Arabia later this month for the first time to try to repair relations with the kingdom and he is expected to use his meeting with Crown Prince Mohammed bin Salman as an opportunity to exert more pressure. Saudi Arabia is largest oil producer with the Opec+ cartel, producing more than 10 million barrels a day.

(Cover Image Source: Alexander Shatov)