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 ended Friday’s session and the week higher following Thursday’s trading session, which posted the largest daily gain since 2020. The ongoing turmoil in the cryptocurrency markets kept sentiment in check after crypto exchange FTX.com voluntarily began Chapter 11 bankruptcy procedures. The bond markets were closed on Friday in observance of the Veteran’s Day holiday, giving Treasuries a breather after Thursday’s plunge, with the US dollar’s continued fall. The Dow Jones Industrial Average advanced 0.1% on Friday, the S&P 500 Index increased 0.9%, and the Nasdaq Composite rose 1.9%, in moderately heavy volume. Markets ended noticeably higher for the week, as the DJIA went up 4.2%, the S&P 500 rose 5.9%, and the Nasdaq Composite soared 8.1%. Shares in Europe ended the day mixed on Friday, tempering the previous trading session’s solid gains. The Euro Stoxx 500 Index advanced by 4.8% for the week.
- Asian equity markets mostly fell on Monday as investors fretted about the prospect of a higher endpoint for US rates, while the optimism stemming from China’s policy shifts began to fade. Japanese shares led the losses as SoftBank Group sold off, while shares in Australia, South Korea and mainland China also declined. Meanwhile, Hong Kong shares held onto gains from earlier in the session.
- European shares are on track to climb this morning while US equity futures are poised to slip at the open.
- Oil prices rose nearly 1% on Monday, extending gains from the previous session, as China eased some of its strict Covid-19 protocols, fuelling hopes of a recovery in economic activity and demand at the world’s top crude importer.
- US President Joe Biden and China’s leader Xi Jinping are set to speak in person Monday evening in Bali, Indonesia, on the sidelines of the Group of 20 summit. Both countries have tempered expectations with tensions high over Russia’s invasion of Ukraine, US curbs on chip exports to China, and the status of Taiwan.
- Federal Reserve Governor Christopher Waller said “we’ve still got a ways to go” before the US central bank stops raising interest rates, despite good news last week on consumer prices. While officials could moderate the size of their rate hikes to 50 basis points at their next meeting or the one after that, Waller cautioned that officials were not close to a pause.
- Democrats will hold their razor-thin majority in the US Senate after incumbents held their ground in key races and Democratic Lt. Govt. John Fetterman flipped Pennsylvania’s GOP-held seat. One uncalled race, where Democratic Sen. Raphael Warnock of Georgia is defending his seat against Republican Herschel Walker, will be decided in a runoff on the 6th December. Democrats currently control the Senate split 50-50 by party through Vice President Kamala Harris’ tie-breaking vote.
- The most important economic releases in the US this week include retail sales, producer prices, and housing data. Investors will also be keeping an eye on earnings reports from big retailers, such as Home Depot, Lowe’s and Walmart. Elsewhere, in the spotlight will be inflation rates from Japan, India, UK, and Canada, and the Autumn budget statement from the UK. Also, it would be interesting to follow Chinese data related to industrial production, retail sales, and fixed investment.