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 finished mixed in a choppy Thursday session as a host of earnings and economic news was released. The markets digested a second-straight 75 basis point rate hike by the ECB. Shares of Meta Platforms tumbled after missing earnings estimates and forecasting much higher-than-expected capital expenditures, while Dow members Caterpillar, McDonald’s, Honeywell, and Merck all rallied after beating earnings expectations. The economic calendar was full yesterday, as Q3 GDP growth came in stronger than expected, and weekly initial jobless claims were lower than anticipated, while durable goods orders missed forecasts. The Dow Jones Industrial Average increased 0.6%, while the S&P 500 Index declined 0.6%, and the Nasdaq Composite fell 1.6%. Elsewhere, European equity markets were broadly flat for the day.
Summary
- Asian equity markets dropped on Friday as local investors cautiously awaited earnings reports from heavyweight firms such as BYD Company and LG Electronics. Meanwhile, investors watched for market reaction to the Bank of Japan’s monetary decision, where it maintained its policy of ultra-low interest rates but lifted its inflation forecast for this year. Shares in Australia, Japan, South Korea, mainland China and Hong Kong all fell on Friday.
- European shares are set to follow overnight drops in US equity futures as investors absorb mixed US economic data and soft results from tech giants.
- Oil prices fell in early trade on Friday on a stronger dollar but were on track for a weekly gain on concerns about supply tightening with Europe’s pending cut-off of imports from Russia.
- The ECB raised its key interest rates by 75 basis points during yesterday’s meeting, following a similar move in September, bringing borrowing costs to the highest since early 2009, as the central bank battles high inflation and a looming recession. The decision came in line with expectations.
- The US economy grew an annualised 2.6% on quarter in the three months to September, more than market expectations of 2.4% and rebounding from a contraction in the first half of the year. The growth in exports, consumer spending, non-residential fixed investment, federal government spending, and state and local government spending was partly offset by decreases in residential fixed investment and private inventory investment.
- Amazon late Thursday reported Q3 revenue that fell short of Wall’s Street’s expectations, while the company provide a weaker-than-projected sales outlook for the final quarter of this year. Net sales jumped 15% annually to $127.1 billion in Q3 but missed consensus expectations of $127.5 billion. EPS fell to $0.28 from $0.31 last year, topping estimates of $0.21 a share. Amazon expects net sales of $140 billion to $148 billion in Q4, below market expectations of $155.37 billion.
- Apple reported strong fourth quarter results after the closing bell on Thursday despite noting a challenging and volatile macroeconomic backdrop. Quarter profit was up 0.8% to $20.72 billion compared to the previous year’s figure of $2055 billion. EPS climbed to $1.29 from $1.25 y/y. However, the company’s revenue came up short versus expectations in core product categories, including the iPhone, and services.
- Unilever increased its prices by 12.5% in Q3 from a year earlier. The company expects sales this year to increase more than 8%, up from a prior range of 4.5% to 6.5%, after reporting a better-than-expected third quarter on Thursday. However, the group said volumes are falling in a sign that cash-strapped shoppers are starting to cut back on essential spending.
- Caterpillar yesterday posted adjusted Q3 EPS of $3.95, well above the anticipated $3.16, with revenues rising 21.0% y/y to $15.0 billion, north of the forecasts $14.4 billion. The company noted higher prices realisation and higher sales volumes.
- McDonald’s announced on Thursday Q3 earnings of $2.68 per share, above the anticipated $2.58, as revenues decreased 5.0% y/y to $5.9 billion, exceeding the expected $5.7 billion. The company noted broad-based business momentum as global same-store sales increased by nearly 10.0% y/y.
- Mastercard on Thursday reported better-than-expected Q3 results, but while consumer spending remained resilient amid inflationary pressures, the company is seeing a shift in buying trends. The company’s adjusted earnings increased to $2.68 per share from $2.37 last year, ahead of consensus expectations of $2.57. Revenue jumped 15% to $5.76 billion, surpassing the Street’s $5.66 billion mean estimate.
- Elon Musk completed his $44 billion acquisition of Twitter late on Thursday and his first move was to fire the social media company’s top leadership, whom he accused of misleading him over the number of spam accounts on the platform.
