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’s three main indices mostly fell overnight with sentiment weighed down by the disappointing earnings reports from JPMorgan Chase and Morgan Stanley, which fanned fears of a sharp economic downturn. The Dow lost 100 points and the S&P 500 fell 0.4%, while the Nasdaq closed at the flatline for the second consecutive session. Still, the three major indices closed substantially higher from session lows after Fed officials Waller and Bullard said they would back a 75bps rate hike this month, slightly easing concerns of a 100bps raise. European markets also closed lower on Thursday, as investors weighed prospects of rising interest rates, soaring inflation and political instability in Italy.
- Equity markets were mixed in Asia this morning as soaring inflation and a series of interest rate hikes around the world continued to fan recession fears, while a big miss on Chinese growth added to anxiety about the world’s biggest economies.
- European equities are on course for gains after US stock futures steadied ahead of more major bank earnings.
- Oil prices edged higher on Friday, but were still set to end the week nearly 7% lower, as escalating fears of a demand-sapping economic slowdown outweighed persistent supply-side issues.
- China released second quarter economic data today, showing growth was slower than expected and the property sector had severe funding stresses, with retail sales being the only bright spot as major cities were locked down to contain Covid-19. Second quarter GDP shrank 2.6% in the three months to June, compared with market estimates of a 1.5% drop and after an upwardly revised 1.4% growth in the previous quarter.
- The resignation of Prime Minister Mario Draghi from Italy’s ruling coalition was rejected by President Sergio Mattarella in a bid to avert a political crisis. The move was triggered after the Five Star Movement, the second-largest party in Draghi’s alliance, boycotted a confidence vote in the senate, criticising the government’s response to the economic crisis.
- US Producer prices jumped 1.1% month-over-month in June, the most in three months and above market forecasts of 0.8%. Goods prices jumped 2.4%, much higher than 1.4% in May, with over half of the increase due to an 18.5% rise in gasoline prices. Services costs rose 0.4%, slightly less than 0.6% in May, and due to higher margins for food and alcohol retailing. Year-on-year, producer inflation accelerated to 11.3%, the largest increase since a record 11.6% in March.
- JPMorgan Chase reported a sharp drop in earnings for its latest quarter, falling short of forecasts as the bank built reserves for bad loans by $428 million and suspended share buybacks. CEO Jamie Dimon reaffirmed a pessimistic view for the economy.