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 ended the day mixed in a quiet trading session on Friday, while the major indices posted solid losses for the week. Investors sifted through more mixed earnings results, as Expedia Group and Lyft well short of the Street’s expectations, with the latter also disappointing with its Q1 guidance, while PayPal Holdings bested forecasts and offered an upbeat outlook. Economic news remained light, as the lone report showed a better-than-expected increase in consumer sentiment for February. The Dow Jones Industrial Average rose 0.5% to 33,869, and the S&P 500 Index went up 0.2% to 4,090, while the Nasdaq Composite lost 0.6% to 11,718. Meantime, European equities were lower across the board, extending a global rout as investors fretted about the prospect of further policy tightening from the European Central Bank and Federal Reserve amid their commitment to bring down inflation.
Summary as at 13.02.2023
- Asian equity markets mostly fell on Monday amid concerns that the Fed would need to keep pushing rates higher to bring down inflation. Investors also assessed the implications of the surprise nomination of Kazuo Ueda as the next BOJ governor, as well as the impact of tropical cyclone Gabrielle in New Zealand. Major benchmarks in the region all declined, except for mainland China shares.
- European shares are headed for a mixed start while US equity futures were down Monday morning after the S&P 500 and Nasdaq ended their worst week in nearly two months.
- Oil edged lower as concerns about slowing global growth offset Russia’s plan to curb supply in retaliation for western sanctions. West Texas Intermediate fell toward $79 a barrel after soaring by more than 8% last week. Although Moscow will reduce supply by half a million barrels from March as curbs on flows tighten, investors remain wary that the Federal Reserve needs to keep pushing interest rates higher to tame inflation.
- The University of Michigan consumer sentiment for the US jumped to a thirteen-month high of 66.4 in February from 64.9 in January, beating market forecasts of 65, preliminary.. The gauge for current economic conditions improved to 72.6 from 68.4 in the previous month, but the expectations subindex fell to 62.3 from 62.7. After three consecutive months of increases, sentiment is now 6% above a year ago but still 14% below two years ago, prior to the current inflationary episode.
- The British economy stalled in the last quarter of 2022, following a downwardly revised 0.2% fall in the previous period, and narrowly escaping a recession. Considering full 2022, the British economy expanded 4%, following a 7.6% increase in 2021. The Bank of England has warned that Britain would likely enter a shallow but lengthy recession, starting in Q1 of this year and lasting more than a year.
- PayPal Holdings Inc. posted adjusted Q4 EPS of $1.24, besting expectations for $1.20, on a 6.7% year-over-year (yoy) increase in revenues to $7.38 billion, nearly in line with projections. Looking ahead, the company said it sees EPS within a range of $1.08 to $1.10, compared to the Street’s $1.07 forecast, on roughly 7.5% revenue growth. Additionally, it was announced that CEO Dan Schulman will retire and leave the company at the end of 2023 but remain a member of the board of directors.
- Expedia Group Inc. reported adjusted Q4 EPS of $1.26, below the $1.69 estimate, as revenues rose 14.9% yoy to $2.62 billion, versus the Street’s forecast of $2.70 billion. Gross bookings rose 17.0% yoy, and its free cash flow rose to $2.8 billion, down 9.7% from a year ago, but over 70.0% higher compared to 2019. The company said it delivered its most profitable year in 2022, and that demand for travel was strong and accelerating, despite the negative impacts of severe weather.
- Lyft Inc. posted an adjusted Q4 loss of $0.76 per share, well below the forecasted $0.13 profit that the Street was looking for, as revenues grew 21.1% yoy to $1.18 billion, mostly matching expectations. The company said it recorded 20.3 million active riders during the period, essentially flat from Q3 and still below pre-pandemic levels, but 8.7% higher yoy. However, the company said it sees Q1 2023 revenue of roughly $975 million, compared to the $1.09 billion analysts’ estimate, citing seasonality and lower prices.
- Investors are bracing for key US inflation data this week that could worsen the bond-market rout. January consumer prices are seen accelerating for the first time in three months, even as the annual inflation rate declines further, a Labour Department report Tuesday is expected to show. Separately, UK wage and inflation data this week are likely to support arguments from Bank of England policy makers who want to keep raising interest rates.
