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.
Wall Street closed lower on Thursday, giving back some of the gains from earlier this week as the volatility in the currency and bond markets continued to be a major source of uneasiness for investors. The Dow Jones declined by 1.2%, the S&P 500 decreased by 1.0%, and the Nasdaq Composite lost 0.7%. European equity markets also closed in the red yesterday, extending losses for the second straight session as investors worry about inflation and rising interest rates. The benchmark Euro Stoxx 50 lost 0.4%.
Summary
- Asia equities followed global markets lower on Friday, with the Hang Seng extending losses from the prior day, and the Nikkei falling after gaining in the previous four sessions. The Kospi in South Korea also dropped as Samsung Electronics posted a decline in profit for the first time since late 2019.
- European equity futures edged lower in tandem with their US counterparts ahead of a key US jobs print that is expected to underscore the need for more Fed tightening.
- Oil prices rose this morning and were set to gain more than 11% this week as OPEC+ agreed to cut production targets by 2 million barrels per day or about 2% of global supply from November. Goldman Sachs significantly raised its oil price forecast after the OPEC+ move, projecting Brent prices to reach $104 per barrel this year and $110 per barrel in 2023.
- US Treasury yields were higher, as the yield on the 2-year Treasury note gained 9 basis points to 4.22%, the yield on the 10-year note rose 3bps to 3.81%, and the 30-year bond rate went up 2bps to 3.79%.
- The number of Americans filing new claims for unemployment benefits rose by 29,000 to 219,000 in the week that ended 1st October, jumping from the five-month low hit in the prior week and sharply above expectations of 203,000, suggesting some loosening in labour market conditions. The 4-week moving average, which removes week-to-week volatility, rose slightly by 250 individuals from the prior week to 206,500.
- Minutes of the ECB September policy meeting showed that policymakers were worried about surging prices across the region, saying that inflation will likely stay above the central bank’s target for an extended period and that growth concerns should not prevent a needed increase in interest rates.
- Federal Reserve Officials kept up the drumbeat of support for extending their run of interest-rate hikes. Five officials yesterday delivered a resolutely hawkish message that inflation is too high and that they will not be deterred from raising rates by volatility in financial markets. The median of the 19 policymakers’ latest projections sees another 1.25 percentage points of increases over their two remaining meetings of the year and an additional 25 basis point increase next year, with policy staying at restrictive levels until at least 2024.
- Samsung Electronics missed the third-quarter earnings estimates on weak semiconductor business and its outlook stayed bearish, especially with the US plans for new bans on chip technology exports to China.
- Costco reported that its September net sales rose 10.1% year-on-year (yoy), which is slightly lower than the 11.4% yoy increase reported last month. The membership-only retail store corporation noted that its September comparable sales were up 8.5% versus the same period last year. Shares traded slightly higher.
- Shell warned yesterday that it expects a significant hit in its Q3 results from lower refining margins and weaker earnings from natural gas trading. The company also cited higher costs for delivering fuel.
- The economic calendar is today dominated by the highly anticipated September nonfarm payroll report, with expectations for 250,000 jobs created compared to August’s 315,000 jobs gain. The unemployment rate is estimated to remain at the prior month’s 3.7% reading, and average hourly earnings are forecasted to match August’s 0.3% month-on-month rise and be up 5.1% year-on-year.
