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.
Equities across the globe rose noticeably in the first trading session of the week following the UK’s new finance minister’s announcement that the government would abandon nearly all its tax cut plans. Treasury yields traded mixed, while the US dollar fell as both the British pound and the euro strengthened. Crude oil prices nudged lower and gold traded slightly higher. The Dow Jones Industrial Average rose 1.9%, the S&P 500 jumped 2.7%, and the Nasdaq Composite soared 3.5% in moderate volume. Shares in Europe also traded to the upside across the board with the Euro Stoxx 50 wrapping the session with a gain of 1.8%.
Summary
- Asian equity markets rose on Tuesday, with the ASX 200 in Australia leading gains in the region with an advance of 1.7%. The moves came notwithstanding hotter-than-expected inflation data in New Zealand and hawkish remarks from Australia’s central banks raising concerns about further monetary tightening.
- European shares are headed for a higher start as US equity futures are also seen building on Monday’s rally.
- Oil prices steadied this morning as a weaker US dollar lent support, although rising shale production and fears that stubbornly high inflation could lead the world economy into a recession limited gains.
- US treasury yields were mixed, with the yield on the 2-year note down 4 basis points (bps) to 4.46%, the yield on the 10-year note unchanged at 4.01%, and the 30-year bond rate increasing 5 bps to 4.03%.
- The UK’s new finance minister, Jeremy Hunt, announced that almost all of the government’s planned tax cuts will be scrapped, including cuts to the lowest tax bracket, in a bid to appease the markets, which have seen increased volatility since the introduction of the plans. Additionally, Hunt said that the energy package designed to subsidise consumer and business energy bills will only be in place through April and then will be reviewed in order to lessen the burden to taxpayers.
- UK Prime Minister Liz Truss is facing calls to resign from within her own Conservative Party just six weeks after entering Downing Street.
- The Reserve Bank of Australia raised the cash rate by 25 bps to 2.6% during its October meeting, defying market estimates of a 50-bps hike. The move followed a 50-bps hike each in the prior 4 months. The board said that inflation in Australia was too high, as was the case in most countries, and that a further increase in prices is expected over the months ahead. The 2022 CPI is expected to be around 7.75%, a little above 4% in 2023, and around 3% in 2024.
- China’s statistics authority unexpectedly delayed the publication of third-quarter gross domestic product data, which was originally scheduled for release earlier today.
- The Biden administration is moving toward a release of another 10 million to 15 million barrels of oil from the nation’s emergency stockpile in a bid to balance markets and keep gasoline prices from climbing further. The Strategic Petroleum Reserve release would be the latest tranche of a 180-million-barrel programme that began in the spring.
- German Chancellor Olaf Scholz ordered an extension in the life of the country's three remaining nuclear plants until mid-April 2023 in a dramatic reversal of an earlier decision by Economy Minister Robert Habeck as the country contends with an unprecedented energy crisis.
- Bank of America reported adjusted Q3 EPS of $0.81, above expectations of $0.78, with revenues rising 7.6% year-over-year (y/y) to $24.5 billion, north of the Street’s forecast of $23.5 billion. Profits were 8% lower versus last year as the company booked $738 million in credit losses for the quarter. Chairman and CEO Brian Moynihan said, “Our US consumer clients remained resilient with strong, although slower-growing, spending levels and still maintained elevated deposit amounts.”
- Archaea Energy announced an agreement to be acquired by BP for approximately $26 per share. The total enterprise value is roughly $4.1 billion, including around $800 million of net debt. The offer represents an approximate 38% premium to the renewable natural gas company’s 30-day weighted average price.
