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 traded noticeably lower on Friday on the heels of the September nonfarm payroll report but were still able to post weekly gains following the strong rebound on Monday and Tuesday. The report seemed to dampen recently increased optimism that the Fed could decelerate its aggressive monetary policy tightening campaign. The Dow Jones decreased by 2.1%, the S&P 500 fell by 2.8%, and the Nasdaq Composite tumbled 3.8%. For the week, the Dow Jones rose by 2.0%, the S&P 500 gained 1.5%, and the Nasdaq increased 0.7%. Meanwhile, shares in Europe also traded lower, with the markets paring a weekly gain as volatility in the currency and bond markets persisted, the energy crisis in the region continued to fester, and the global monetary policy environment remained tight. The Euro Stoxx 50 decline by 1.7% on Friday but advanced by 2.8% for the week.
- Equities in Asia mostly fell on Monday, with the Hang Seng plunging over 2%, while the ASX dropped for the second session. Shares in China were muted amid a drop in services activity and as trading returned from a week-long break. Markets in Japan and South Korea are closed for holidays.
- European shares are poised for a soft start to the week following the lead from US equity futures.
- Oil prices slipped on Monday, easing off five-week highs, as the market took profits following strong gains last week on expectations of tighter supplies following OPEC+ cuts and ahead of the European Union embargo on Russian oil.
- The Caixin China General Services PMI plunged to 49.3 in September from 55.0 in the prior month. This was the first contraction in services activity since May amid the severity of Covid-19 outbreaks in many areas across the mainland.
- Nonfarm payrolls rose by 263,000 jobs month-over-month in September, compared to estimates of a 255,000 rise. The labour force participation rate dipped to 62.3% from August’s unrevised 62.4%, while the unemployment rate declined to 3.5% from August’s 3.7% rate, where forecasts called for it to remain unchanged. Average hourly earnings were up 0.3% month-on-month, in line with projections and August’s unadjusted rise.
- Treasury yields advanced following the labour report, with the yield on the 2-year note rising 8 basis points (bps) to 4.32%, the yield on the 10-year note gaining 7 bps to 3.89%, and 30-year bond rate increasing 5 bps to 3.84%.
- Vladimir Putin accused Ukraine of carrying out an attack that badly damaged a key bridge linking annexed Crimea to the Russian mainland.
- Advanced Micro Devices warned that its revenues will come in lower than previously forecasted, reflecting lower-than-expected client segment revenue resulting from reduced processor shipments due to a weaker-than-expected PC market and significant inventory correction actions across the PC supply chain.
- Levi Strauss reported adjusted Q3 EPS of $0.40, above expectations of $0.37, as revenues rose 1.0 year-over-year to $1.5 billion, below the Street’s forecast of $1.6 billion. The company lowered its full-year guidance, citing foreign exchange headwinds, as well as a more cautious outlook for North America and Europe due to macroeconomic conditions and ongoing supply chain disruptions.
- Looking ahead to this week, along with the start of Q3 earnings season, the economic calendar will also offer some key data points that could shape market action. The development of the September inflation picture, courtesy of the PPI and CPI, is likely to carry the most weight. The all-important US consumer will also be in focus as we get the release of September retails sales and the preliminary October University of Michigan Consumer Sentiment Index.