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 extended Wednesday’s sharp drop yesterday, which followed the Federal Reserve’s fourth-straight 75 bps rate hike and some hawkish comments. As a result of the Fed’s monetary policy decision, Treasury yields and the US dollar climbed noticeably higher. The Fed’s rate hike was trailed by yesterday’s announcement from the Bank of England that it would hike its benchmark interest rate by 75 bps, though it tried to suppress expectations of future aggressiveness of that magnitude. The Dow Jones Industrial Average declined by 0.5%, the S&P 500 Index decreased by 1.1%, and the Nasdaq Composite fell by 1.7%. In the meantime, European markets were mostly lower, with the Euro Stoxx 50 Index down 0.8%, led by losses in auto shares after carmakers BMW and Stellantis warned that rising inflation and interest rates would start to weigh on sales in the coming months.
Summary
- Asian equity markets mostly rose on Friday, with Hong Kong and China shares leading the advance as investors continued to look for signs that China will dial back its zero-Covid strategy. Shares in Australia and South Korea also eked out small gains, while Japanese equities caught up with post-Fed declines after Thursday’s holiday.
- European and US equity futures nudged higher this morning ahead of a key US jobs report.
- Oil prices slid in early trade on Friday, extending losses from the previous session on fears US interest rates will go higher than previously expected and fresh concerns that Covid outbreaks will dent fuel demand in China.
- The Bank of England raised interest rates by 75 bps to 3% yesterday, the largest rate hike since 1989 to the highest level since late 2008. The central bank also said further rate increases may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into by financial markets. The Bank estimates the economy may shrink 1.7% over 18 months and not recover for 18 months.
- The US ISM Services Index for October showed a larger-than-expected slowdown for the key services sector. The index declined to 54.4, compared to the consensus estimate of 55.3 and versus September’s 56.7 reading.
- The unemployment rate in the Euro Area fell to a record low of 6.6% in September from an upwardly revised 6.7% the prior month, in line with market estimates. In the meantime, youth unemployment rose from 14.4% to 14.6%. Among the largest economies, the unemployment rate fell in France (7.1% from 7.3% in August) and remained steady in Germany (at 3%) and Italy (at 7.9%).
- PayPal posted better-than-expected profit and sales in the latest quarter late on Thursday night. However, shares slipped in after-hours trading after PayPal lowered its revenue projections for fiscal 2022. The company also lowered its total payment volume growth outlook, calling for an 8.5% growth rate for fiscal 2022 compared to a 12% growth rate outlook in the second quarter.
- eBay posted adjusted Q3 EPS of $1.00, above the forecasted $0.93, with revenues declining 5.0% year-over-year to $2.4 billion, exceeding the projected $2.3 billion. The company said that despite a challenging macroeconomic environment, it made significant progress against its long-term objectives and exceeded expectations for all its key business metrics. It also raised its full-year EPS guidance and narrowed its revenue outlook with a midpoint above expectations.
- Marriott International reported adjusted Q3 EPS of $1.69, just above the forecasted $1.68, with revenues rising 35.0% y/y to $5.3 billion, roughly in line with estimates. The company said leisure transient demand remained very robust and group revenue per available room more than fully recovered to 2019 levels in Q3, while business transient demand, though still lagging in recovery, continued to improve. It also released Q4 earnings guidance that was above expectations.
