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.
In regular trading on Wednesday, the Dow rose 1.3%, the S&P 500 gained 1.6% and the tech-heavy Nasdaq advanced 2.6%. Robust corporate earnings supported the recent market rally, while a surprise rebound in July services PMI helped ease concerns about a potential recession. Elsewhere, European equity markets rose to 8-week highs after a negative open on Wednesday, with the Euro Stoxx 50 rising 1.3% led by gains in tech shares.
Summary
- Asian markets were broadly higher today with shares in Hong Kong leading the region. The Hang Seng was up 1.5% while Japan’s Nikkei 225 edged up 0.7% and China’s Shanghai Composite was broadly flat.
- European equity futures are pointing to a steady start while their US counterparts were seen as flat early Thursday morning.
- Oil prices stabilised this morning after falling 4% in the previous session, as traders weighed a modest supply increase from OPEC+ against rising US crude inventories and signs of declining US gasoline demand. OPEC+ agreed to raise oil output by a meagre 100,000 barrels a day in September and warned of “severely limited” spare capacity.
- The ISM Services PMI unexpectedly increased to 56.7 in July, the highest in 3-months, from 55.3 in June and beating market forecasts of 53.5.
- The Bank of England is today expected to push through the biggest interest rate increase in 27 years despite growing risks of a recession. The UK central bank also plans to give details on how it will reverse some of the $1 trillion of stimulus it pumped into the economy over more than a decade.
- Toyota Motor this morning posted a worse-than-expected 42% drop in first-quarter operating profit, as auto production was curbed by Covid-19 restrictions on factories in China and a global semiconductor shortage.
- Adidas reported today a 28% fall in second quarter operating profit as results suffered from suspending business in Russia, higher supply chain costs and Covid-19 lockdowns in China and Vietnam. The company cut its 2022 outlook in July, citing slower than expected recovery in China, and now expects currency-neutral revenues to grow at a mid- to high-single-digit rate this year.
