Wall Street stages a significant turnaround

written on October 14, 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 staged a significant turnaround yesterday, ending six straight days of declines, shrugging off another hotter-than-expected consumer price inflation report. The Dow Jones soared 2.8% for its best day since November 2020, the S&P 500 jumped 2.6%, and the Nasdaq Composite 2.2%, in moderately heavy volume. European shares ended the day in the green as well as the markets grappled with the potential tax-cut U-turn out of the UK.  

Summary

  • Asian equity markets rallied on Friday with shares in Japan and Hong Kong leading gains in the region after surging more than 3%. Australian, South Korean and mainland Chinese markets also posted strong gains.  
  • European and US shares are set to extend the global rally when they open later today. 
  • Oil prices slipped this morning as US crude and gasoline inventories jumped, while Saudi Arabia and Washington continued to clash over plans by OPEC+ to slash production. 
  • China’s annual inflation rose to 2.8% Y/Y in September from 2.5% in the prior month, matching market consensus. This was the highest reading since April 2020, mainly due to a sharp jump in cost of food. In the meantime, producer price inflation eased to a 20-month low of 0.9% Y/Y in September from 2.3% a month earlier and compared with market consensus of 1.0%.  
  • US Consumer Price inflation rose 0.4% M/M in September compared to expectations of a 0.2% gain, and versus 0.1% increase. The core rate increased 0.6% M/M, above expectations of a 0.4% rise, and matching August’s unadjusted gain. The main increases came from shelter, food, and medical care costs, which were partially offset by a drop in gas prices. 
  • US weekly initial jobless claims came in at a level of 228,000 for the week ended October 8th, above consensus estimates of 225,000 and the prior week’s 219,000 level.  
  • Delta Air Lines reported adjusted Q3 EPS of $1.51, below the $1.53 estimate, with revenue rising 3.0% to $12.8 billion, south of the Street’s forecast of $12.9 billion. The company said it saw negative impacts from Hurricane Ian. Nonetheless, it issued Q4 EPS guidance that came in well above expectations, noting that the travel recovery continues as consumer spending shifts to experiences and demand improves in corporate and international. 
  • Mizuho Financial has emerged as a suitor for at least part of Credit Suisse’s securitised products group as the Swiss bank moves closer to a final deal. The Japanese bank is competing against parties including Apollo Global, Centerbridge Partners, Pimco and Sixth Street. Credit Suisse has said the securitised products platform is highly profitable and employs about $20 billion in risk-weighted assets and roughly $75 billion of leverage exposure, which is a regulatory measure of assets. 
  • Shares in semiconductor equipment maker ASML fell 7% on Thursday after its biggest customer, Taiwan Semiconductor Manufacturing, cut its forecasts for capital spending by 10% this year, citing in part equipment delays. 

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