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German GDP, Amazon Deal, Bitcoin - What's Moving Markets

Germany’s economy shrank more than expected in the first quarter, yet U.S. stocks and bitcoin both head higher. Oil awaits news about Iranian supply, Amazon (NASDAQ:AMZN) eyes up the acquisition of MGM, while the West looks to punish Belarus over the forced jet landing. Here's what's moving markets on Tuesday, May 25th.

1. German economy shrinks in Q1

The impact of the second wave of the Covid-19 pandemic in Europe was laid bare Tuesday by the latest growth figures from Germany, the region’s largest economy.

The German economy shrank more than expected in the first quarter, contracting by 1.8% quarter on quarter and by 3.1% on the year. Household spending fell by 5.4% on the quarter while the savings rate rose to a record high of 23.2%, as curbs linked to containing the pandemic made it hard for consumers to spend their cash.

At the same time the U.K. posted a 31.7 billion-pound budget deficit ($45 billion) in April as the new fiscal year got under way, underlining the difficult position the pandemic has created to the country’s public purse.

Borrowing in 2021-22 is still expected to total more than 200 billion pounds, or 10% of GDP, while the deficit hit a peacetime high of 14.3% of GDP in the last fiscal year.

The second release of the first quarter U.S. gross domestic product data is due Thursday, and is set to illustrate the difference in the recovery in the two continents.

The first print showed growth jumping 6.4% for the first three months of the year on an annualized basis. Outside of the reopening-fueled third-quarter surge last year, it was the best period for GDP since the third quarter of 2003.

2. Stocks set to open higher; Amazon nears MGM deal

U.S. stocks are set to trade higher Tuesday, continuing the positive start to the week as tech continued its rebound as fears of a prompt policy move to combat inflationary pressures lessened and the reopening trade continued.

By 6:30 AM ET, Dow Jones futures were up 90 points, or 0.3%, at just over 34,440, S&P 500 futures were 0.3% higher and Nasdaq 100 futures gained 0.5%.

The major indices posted strong gains Monday, with the Dow Jones Industrial Average rising almost 200 points, or 0.5%, the S&P 500 climbed 1%, while the Nasdaq Composite was the relative outperformer, jumping 1.4%.

Helping the tone was more progress on the reopening and signs the vaccine rollout is slowing the spread of new cases in the U.S. New York City and Los Angeles announced all children will return to public school classrooms in-person in September, while the United States last week reported the lowest number of new Covid-19 cases in nearly a year.

At the same time, Federal Reserve officials have made it clear that the central bank is set to maintain its ultra-easy monetary policies for some time to come, seeing the soaring inflation as a temporary phenomenon.

There is another wave of earnings due Tuesday, with the likes of AutoZone (NYSE:AZO), Nordstrom (NYSE:JWN), Toll Brothers (NYSE:TOL), Agilent (NYSE:A), Intuit (NASDAQ:INTU) and Urban Outfitters (NASDAQ:URBN) all set to report quarterly numbers.

Amazon (NASDAQ:AMZN) is also likely to be in the spotlight Tuesday following reports that the retail giant is close to a deal to buy MGM Studios for between $8.5 billion and $9 billion.

3. Bitcoin bounces; Musk helps sentiment

Bitcoin, the world’s biggest digital currency, has shown more strength Tuesday, continuing the previous session’s rebound after heavy selling over the weekend.

The digital currency was last seen 5% higher at $38,150, up more than 17% in the last 24 hours, rebounding from a low of $31,192 seen on Sunday.

Helping the recovery was a tweet from Tesla (NASDAQ:TSLA) CEO Elon Musk about meeting with North American bitcoin miners about “sustainability initiatives”, suggesting some of his recent concerns may be being addressed.

Musk has been a vocal supporter of bitcoin, and cryptocurrencies in general. But he recently suspended the use of the digital currency as a method to purchase its vehicles, causing it to weaken sharply, citing concerns about the impact on the environment from its mining.

That said, bitcoin is still down sharply from its all-time high of just under $65,000, hit in mid-April, as authorities in China and the U.S. moved to tighten regulation and tax compliance.

The negative commentary from monetary authorities has continued, with Bank of England Governor Andrew Bailey warning Monday that there is a danger of "getting carried away" with financial innovation. "I’m skeptical about crypto assets frankly because they are dangerous and there’s a huge enthusiasm."

Additionally, HSBC’s CEO Noel Quinn said the bank, which has a large presence in Asia, has no plans to start a cryptocurrency trading desk or sell digital currencies as an investment to customers, according to a Reuters report.

4. Outrage at Belarus plane move mounts

The international outrage over the move by Belarus to force the landing of a Ryanair jet and arrest a dissident journalist shows no sign of dissipating any time soon.

European Union leaders, meeting in Brussels on Monday, agreed to impose more sanctions on Belarus, including economic ones, called on their airlines to avoid Belarusian airspace and authorised work to ban Belarusian airlines from European skies and airports.

The EU currently has a travel ban and an asset freeze in place on 88 Belarusians, including President Alexander Lukashenko, and 7 companies, over Minsk's crackdown on protests following a contested presidential election last year.

U.S. President Joe Biden added to the pressure by stating that he had ordered his team to “develop appropriate options” to hold those responsible accountable.

That said, such a move by the Belarusian regime suggests that the sanctions already in place are having little impact as Lukashenko was seemingly quite prepared to provoke the West once more.

“This is not just a defensive action from Lukashenko but a full frontal attack on the EU - an EU plane, travelling between two EU capitals, forced out of the air by an autocratic regime,” said Timothy Ash, senior emerging markets strategist at Bluebay Asset Management, in a note.

“If the West lets Lukashenko get away with this, no Western airline is safe, flying across any autocratic run country. The skies and dissidents are not safe.”

5. Crude slips; Iranian talks continue

Crude oil prices edged lower Tuesday, but remained near one-week highs as traders look for new information over the potential of additional Iranian crude hitting the global market.

By 6:30 AM ET, U.S. crude was down 0.4% at $65.77 a barrel, while Brent was down 0.4% at $68.12. The contracts have rallied around 6% over the last couple of days, the biggest two-day surge since early March.

Talks between Iran and world powers will continue in Vienna this week to resolve outstanding issues over the resumption of the 2015 Iran nuclear deal, which may pave the way for the removal of U.S. sanctions on Iranian crude flows.

Oil prices fell almost 3% last week as traders anticipated a return of Iranian oil to international crude markets, but gaps still remain in the negotiations, allaying concerns of a rapid ramp up in the Persian Gulf country’s output.

Adding to the optimism is the pick up in mobility in the U.S., the largest consumer of oil in the world, with new coronavirus cases rising just 0.5% in the past week, the slowest increase since March 2020. This comes just before the upcoming Memorial Day break, traditionally marking the start of the nation’s summer driving season.

Investors now await U.S. crude oil supply data from the American Petroleum Institute, due later in the day.

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