The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation.
US equities fell sharply on Thursday, ending a two-day rally, as the markets continued to contend with the ultimate impacts of aggressive monetary policy tightening globally. A host of economic reports were released, among which the jobless claims came in below estimates, which seems to play into the theme of a tight labor market that has dampened investor sentiment. Additionally, Q3 GDP and Personal Consumption were revised higher. The Dow Jones Industrial Average declined 1.1% to 33,027, the S&P 500 Index fell 1.5% to 3,822, and the Nasdaq Composite tumbled 2.2% to 10,476. European equity markets also closed deeply in the red after a positive open, with the benchmark Euro Stoxx 50 Index declining by 1.3% to 3,823.
Summary
- Asian equity markets mostly declined on Friday, with shares in Australia, South Korea, and Hong Kong posting sharp losses. Japanese shares also tumbled as investors reacted to data showing core consumer prices in the country rose 3.7% in November on an annualized basis, accelerating at the fastest pace since December 1981 and supporting a hawkish tilt from the Bank of Japan. Meanwhile, shares in mainland China fluctuated as Covid-related concerns vied with new pro-growth policy measures from the government.
- European equity futures edged higher while their US counterparts were trading more towards the flatline.
- Oil prices rose this morning and were set to gain for the second straight week, as signs of tightening US crude supplies and an improving demand outlook in China supported oil prices during the period. Uncertainties around Russian crude flows also added to the bullish case, with Russia’s Baltic oil exports predicted to decline by 20% month-on-month in December after the European Union and G7 nations imposed sanctions and a price cap on Russian crude.
- Weekly initial jobless claims in the US came in at a level of 216,000 for the week ended December 17, below the consensus estimate of 222,000 and compared to the prior week’s upwardly revised 214,000 level.
- The final look (of three) at Q3 GDP, showed a qoq annualized rate of expansion of 3.2%, upwardly revised from the second release’s 2.9% gain versus estimates of an unchanged adjustment. Q2’s figure was unadjusted at a 0.6% contraction. Personal consumption was revised higher to a 2.3% rise for Q3 from the previous estimate of a 1.7% gain.
- In contrast, UK Q3 GDP was revised to a slightly larger contraction than initially estimated yesterday, solidifying the first decline since Q1 of 2021.
- China’s soaring Covid infections are keeping people home and causing a slump in travel and economic activity, according to the latest high-frequency data. Following the recent abrupt end of Covid Zero controls, more cities have been hit by an exit wave of infections in the past week, leading to crowded hospitals and queues at funeral parlors. That’s keeping people in major cities from going out despite workers in some places being told to return to work even if sick.
- Micron Technology reported a Q1 loss of $0.04 per share, compared to estimates of a $0.02 per share shortfall, as revenues fell 46.8% yoy to $4.09 billion, versus the Street’s forecast of $4.13 billion. The company cited challenging conditions but said its strong technology, manufacturing, and financial position put it on solid footing to navigate the near-term environment, and it is taking actions to cut its supply and expenses. It added that it expects improving customer inventories to enable higher revenue in Q2 and to deliver strong profitability once it gets past this downturn. Micron issued Q2 guidance that was below expectations.
- Tesla is offering discounts on Model 3 and Model Y vehicles delivered in the United States and Canada this month, amid concerns the automaker is facing softening demand as economies slow. Meantime, its CEO Elon Musk said yesterday he will not sell more Tesla shares for another two years.
- Sam Bankman-Fried was released on a $250 million bail package after making his first US court appearance to face fraud charges over the collapse of FTX, the cryptocurrency exchange he co-founded. The bail package includes a $250 million personal recognizance bond secured by his parent’s house in California, which accounts for one of the largest pretrial bonds in US history.
