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 soared to begin Q4, bouncing back after last week’s fall, which sent the S&P 500 to its lowest levels of the year. The Dow Jones soared 2.7%, the S&P 500 climbed 2.6%, and the Nasdaq Composite advanced by 2.3%. Meanwhile, European shares also ended Monday’s session higher following the UK’s tax cut pivot and despite continued banking sector liquidity concerns. The benchmark Euro Stoxx 50 advanced by 0.7% after spending most of the day in negative territory.
Summary
- Asian shares rebounded sharply this morning, with benchmark equity indices in Australia and Japan jumping by around 3%. Meanwhile, markets in mainland China remain shut for the week-long holiday while the Hong Kong exchange is closed for the Chung Yeung Festival.
- European shares are on track to climb while US futures are seen building on yesterday’s rally as well.
- Oil prices held steady on Tuesday after rallying more than 4% in yesterday’s session, with prices remaining supported ahead of an OPEC+ meeting where it is to announce a large supply cut to counter recent weakness in energy markets.
- The Reserve Bank of Australia raised the case rate by 25bps to 2.6% earlier today, defying market consensus of a 50bps hike while bringing borrowing costs up to a level not seen since July 2013. The board said that inflation in Australia was too high and that a further increase in prices is expected.
- US manufacturing growth decelerated more than expected in September and hit the lowest level since May 2020. The ISM Manufacturing Index fell to 50.9, versus the consensus estimate of a decrease to 52.0 from August’s 52.8 level.
- Russian forces in Ukraine were on the run yesterday across a broad swath of the front line as the Ukrainian military pressed on toward the city of Lysychansk and made gains in the south after its weekend capture of Lyman, a strategic rail hub. Any loss of territory in the Donbas region undermines Russia’s objectives, which focus on seizing and incorporating the region.
- Members of the UK Cabinet expressed their opinion that Liz Truss will struggle to drive through key parts of the economic revolution she is planning for the UK because her standing in the ruling party is already so damaged. Less than a month into her premiership, the ministers said Truss has failed to take basic steps to line up support for her plans, such as putting them to Cabinet debate, and expressed doubts about the way she manages the ruling Conservative Party.
- North Korea fired a missile over Japan for the first time in five years, further ratcheting up tensions over Kim Jong Un’s nuclear programme and prompting a rare public safety warning to be issued by Tokyo.
- Credit Suisse’s shares plummeted 12% to an all-time low on Monday after a weekend of fevered Twitter speculation about its financial health, before they regained almost all of the losses later in the day. The wild gyrations show the difficulty for Credit Suisse in managing the febrile confidence of investors as it rushes to devise a repair plan for its investment bank, which has been on the ropes since suffering massive losses last year from backing Archegos Capital Management.
