Signs of easing tensions between US and China

written on November 15, 2022

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 declined Monday in a choppy and cautious trading session as investors await a host of notable economic reports later this week. Treasury yields were mostly higher and the US dollar rose, paring some of last week’s tumble. The Dow Jones Industrial Average decreased 0.6%, the S&P 500 Index went up by 0.9%, and the Nasdaq Composite fell 1.1%. Shares in Europe ended the day mostly higher, with the Euro Stoxx Index notching a gain of 0.5%. 

Summary

  • Asian equity markets mostly rose, with Hong Kong leading the gains, rising about 3% on the back of a strong technology rally. Equities in Japan and China also advanced even after data showed that Japan’s economy unexpectedly shrank in Q3, while China’s industrial production and retail sales activities missed expectations in October. Meanwhile, shares in Australia declined on weaker commodity prices, while those in South Korea also tumbled. 
  • European and US equity futures edged up this morning as traders assessed signs of easing tensions between China and the US, as well as the Fed’s rate path outlook. 
  • Oil prices extended losses in early Asian trade on Tuesday after OPEC cut its 2022 global demand forecast, while rising Covid-19 case numbers in China clouded the outlook for fuel consumption in the world’s top crude importing nation. 
  • Federal Reserve Vice Chair Lael Brainard said the central bank should soon moderate the size of its interest rate increases, signalling she favours slowing to a half-point hike as early as next month. 
  • At the end of a meeting between US President Joe Biden and the Chinese leader Xi Jinping on Monday, the US said the two sides would resume cooperation on issues including climate change and food security, and that Biden and Xi jointly chastised Russia for loose talk of nuclear war over Ukraine. Chinese Foreign Minister Wang Yi called it a “new starting point”. 
  • Berkshire Hathaway took a stake of more than $4.1 billion in Taiwan Semiconductor Manufacturing Co., a rare significant foray into the technology sector by billionaire Warren Buffett’s conglomerate. 
  • Credit Suisse announced this morning that it would accelerate the restructuring of its investment bank by selling a significant portion of its securitised products group to Apollo Global Management. The Bank said the transaction, along with the potential sale of other assets to third-party investors, is expected to reduce SPG assets from around $75 billion to $20 billion. 
  • Amazon is planning to lay off approximately 10,000 employees in corporate and technology roles beginning this week, according to a report from the New York Times. Separately, The Wall Street Journal also cited a source saying the company plans to lay off thousands of employees. 

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Life’s full of mysteries. Your money shouldn’t be one of them.