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.
Wall Street closed higher in the first session of the third quarter, as stocks bounced back from earlier losses amid thin trading volumes ahead of a holiday-extended weekend. The Dow was up 322 points, the S&P 500 rose 1.1%, and the Nasdaq booked a 0.9% gain. Still, all three indices posted weekly losses, with the Nasdaq underperforming with a 4.1% loss, the S&P falling 2.2% and the Dow shedding 1.3%. In Europe, the major indices closed around the flatline on Friday but were lower for the week.
- Shares in Asia mainly rose on Monday, with the ASX climbing over 1% on bargain hunting, while the Nikkei rose for the first time in four sessions, boosted by utility shares. Markets in China went up slightly after a US official said that Beijing was not giving material support for Russia’s war in Ukraine. However, the Hang Sen fell, trading at an over 1-week low as cities in eastern China tightened Covid-19 curbs due to new virus clusters.
- European equity futures are holdings onto modest gains after US contracts fell ahead of the Independence Day holiday in the US.
- Oil prices fell in early trading on Monday, paring gains from the previous session as fears of global recession weighed on the market even as supply remains tight amid lower OPEC output, unrest in Libya, and sanctions on Russia.
- Ukrainian troops have withdrawn from the eastern Ukranian city of Lysychansk, the last urban holdout under Kyiv’s control in the embattled Luhansk region, as Vladimir Putin’s Russian forces come closer to their goal of capturing the province. Having failed to seize the capital Kyiv, Russia has narrowed near-term goals to grabbing the heavily industrialised Donbas, made up of the eastern Luhansk and Donetsk regions.
- The annual inflation rate in the Euro Area increased to a new record high of 8.6% in June from 8.1% in May, preliminary estimates showed. Figures topped market expectations of 8.4%, strengthening the case for the ECB’s first rate hike in 11 years in July. Prices continued to accelerate for energy and food but eased slightly for services, resulting in a marginal drop in core inflation, from 3.8% to 3.7%.
- The US ISM Manufacturing PMI fell to 53 in June from 56.1 in May, pointing to the slowest growth in factory activity since June of 2020, and below market forecasts of 54.9. New orders contracted for the first time in two years, in a sign rising interest rates are hurting demand.
- Micron on Friday released a gloomy outlook, providing a guidance for fourth quarter sales and earnings below Wall Street estimates because of weakness in the personal computer and smartphone industries.
- US retailer Kohl cut its second quarter outlook, citing softer consumer spending, and terminated talks to sell its business, saying the retail environment has deteriorated since the beginning of its bidding process.
- After a turbulent first half of the year, investors will this week continue to look for signs of a potential recession as interest rates around the globe increase. The US jobs report and FOMC minutes will take centre stage this week but comments from ECB President Lagarde, the RBA interest rate decision and China services PMI and inflation will also be keenly watched.