Nikkei weakens over Taiwan tensions

US House Speaker Pelosi is reportedly on track to visit Taiwan later today despite Chinese warnings. The White House has not confirmed or denied the trip, letting markets fall into a speculative frenzy about what China’s response would be.

Nikkei was late to digest the risk-off environment but plunged 1.30% lower as haven flows went into the Japanese yen. The S&P500 ended 0.35% lower, with DJIA and Nasdaq nearly unchanged, but red. The descent is set to continue unless the trip is cancelled or Pelosi ends her travels without visiting Taiwan.

Key Factors for Today

• Global indices close lower on rising geopolitical tensions
• Yen shines as risk outflows increase amidst US-China debacle
• ISM Manufacturing above forecast but at its weakest rate in years
• Oil and Brent plunge as OPEC+ production improves; speculations of further increase
• Pinterest and Pearson soar after earnings reports

Nikkei Slumps 1.25% amidst Pelosi trip to Taiwan

Pelosi is set to visit Taiwan on Tuesday but the White House hasn't officially confirmed the visit, and her tweet about her itinerary didn't include Taiwan. The White House characterised the visit as a "potential" while trying to downplay what it is characterising as "sabre-rattling" by China. Markets are wary of how China might react after stern warnings.

The stronger currency contributed to the Nikkei dropping 1.30%, with geopolitics and upcoming earnings feeding a general risk-off position. USD/JPY closed 1.25% lower as a result, and it’s 0.50% down at the time of writing. British politicians also plan to visit Taiwan according to reports. GBP/JPY dropped 0.70% and is down 0.60% this morning.

S&P500 dips -0.35% after ISM setback

ISM Manufacturing growth came in at the slowest pace since the middle of the pandemic, and weighed most heavily on the S&P, although all indices closed in the red. US markets might be pricing in an early end to rate hikes, contributing to a weaker dollar in the first session of the week. However, Moody's latest forecast sees the Fed lifting rates to 3.5-3.75% by the end of the year and with further rates beyond that.

Brent is down 8.75% ahead of the OPEC meeting

Following weaker data out of China (NBS Manufacturing PMI reported the first contraction in two months on Sunday), crude prices were weaker through the session with Brent below the $100 mark. WTI ended Monday 5% lower, but brent slumped some 8.75%.

Reportedly OPEC+ production is improving as OPEC is set to come up with a new production plan later this week. Reports circulated that Saudi Arabia would push for more production increases. Russia has cut gas supplies to 12 EU countries, and von der Leyen said yesterday that the Union had to "prepare for the worst situation" regarding gas later in the winter.

Movers and shakers: Pinterest; Pearson; Avis

Pinterest jumped 23% after the market close following earnings and confirmation that activist Elliott Management is now the largest shareholder in the company. Although Monthly Active Users declined, Average Revenue Per User increased, supporting better-than-expected sales.

Another sales beat that led to a strong jump in stock prices was Pearson PLC in Europe, as it soared 13% higher, and Avis Budget Group, which also reported after the US close.

On the docket

• UK reports Nationwide Housing Prices
• Canada’s Global Manufacturing in focus
• US JOLTs job opening in the spotlight
• API Crude oil report ahead of the EIA