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.
Financial markets were once again volatile last week, initially reacting to the Fed chairman's tougher speech before ending the week on a high note on the backdrop of hopes for an easing of health restrictions in China. After two sessions of sharp declines, risk appetite abruptly resurfaced on Friday, allowing Europe to finish at its highest level since late August. As for US markets, they remained in negative territory for the week, impacted by technology stocks. However, Friday data showing that the unemployment rate grew more than expected in America boosted hopes that the Fed will ease its rate hikes from December.
Summary
- Hong Kong shares led gains in Asia early Monday as China’s trade data fell far short of expectations. The Hang Seng index gained 2.5% while mainland China’s Shanghai Composite was fractionally lower. The Nikkei 225 advanced by over 1% while the Kospi and the ASX 200 both gained in excess of 0.5%.
- European and US equity futures are pointing to a broadly lower open as investors gear up for US midterms and inflation data.
- Oil prices fell more than $1 a barrel on Monday after Chinese officials at the weekend reiterated their commitment to a strict Covid containment approach, dashing hopes of an oil demand rebound at the world’s top crude importer.
- China’s exports and imports unexpectedly shrank in October, the first simultaneous drop since May 2020, as high inflation and rising interest rates hurt global demand while Covid curbs at home disrupted output and consumption. In the meantime, the October trade surplus was far below market consensus, pointing to a further loss of momentum in the Chinese economic recovery.
- The US economy created 261k jobs in October, the least since December 2020, but above market forecasts of 200k. The jobless rate moved up to 3.7% from the 29-month low of a 3.5% hit in September, while average hourly earnings were up 0.4% over the previous month.
- Berkshire Hathaway on Saturday posted a solid gain in operating profits during the third quarter despite rising recession fears, while Warren Buffett kept buying back his shares at a modest pace. Operating earnings totalled $7.76 billion in Q3, up 20% from a year earlier.
- Starbucks on Friday reported adjusted Q3 EPS of $0.81, above the forecasted $0.72, with revenues rising 3.3% year-over-year (y/y) to $8.41 billion, exceeding the projected $8.32 billion. Same-store sales increased 7% y/y, driven primarily by an 8% rise in the average ticket, with an 11% gain in sales in North America offset by a 16% decline in receipts out of China. The company said daily store traffic in the US reached 95% of pre-pandemic levels in September.
- DoorDash reported an adjusted Q3 loss of $0.77 per share on Friday, compared to the forecasted $0.59 shortfall, but revenues jumped 33.4% y/y to $1.70 billion, beating estimates calling for $1.63 billion. The food delivery service said orders grew 27% in the quarter, ahead of the Street’s estimates, and defying earlier concerns of a slowdown. The company also said it sees spending patterns to remain consistent throughout the rest of the year.
- Meta Platforms is planning to begin large-scale layoffs this week that will affect thousands of employees, the Wall Street Journal reported on Sunday, citing people familiar with the matter. The announcement is planned as early as Wednesday.
- In the week ahead, investors will be closely monitoring Tuesday’s midterm election in the US as a change in the majority could signal a major shift in economic policy, while Thursday’s CPI report could offer fresh insight into the Fed’s inflation fight. More corporate earnings reports are also slated for this week.
