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.
The Dow Jones lost over 300 points on Friday, while the S&P 500 and the Nasdaq dropped 1.1% and 1.3%, respectively, after a highly-anticipated employment report failed to allay investors’ fears about the Fed’s aggressive interest rate hikes. On the week, the Dow and S&P lost 3% and 3.3%, respectively, while the Nasdaq shed 4.2%, recording their third negative week in a row. In Europe, equity bourses closed sharply higher on Friday, with the Euro Stoxx 50 up more than 2.5% amid a broad-based rally led by financials, basic materials and industrials, as investors ended the week with hopes of slower tightening ahead.
Summary
- Shares in Asia traded mixed on Monday with regional losses led by the Hang Seng's drop of over 1%. The Nikkei, the Shanghai Composite and the ASX 200 were all fractionally higher while the Kospi moved in the opposite direction.
- European equity markets are heading for a sharp fall at the open later today while US markets will remain closed for the Labour Day holiday.
- Oil prices advanced by more than 2% this morning as traders mulled the supply outlook ahead of today’s OPEC+ meeting, while weighing the impact of the latest fallout from Europe’s worsening energy crisis. Analysts expect no significant change in output for October but Saudi Arabia’s recent warning that the group could cut production at any time kept markets on edge.
- The Caixin China General Services PMI fell to 55.0 in August from July’s 15-month high of 55.5 amid the recent wave of Covid-19 cases and the impact of adverse weather. Still, the latest print pointed to the third straight month of growth in services activity, as new orders grew solidly despite a steeper fall in export sales and a further drop in employment.
- Gazprom said late Friday it cannot resume natural gas flows through its key Nord Stream gas pipeline to Germany for now, deepening the region’s energy crisis. Germany said last week that its gas storage facilities are set to be 85% full by next month, earlier than the October target.
- Three European countries announced relief measures yesterday to soften the blow of soaring energy costs. The German government pledged $65 billion in relief measures. Sweden will offer $23 billion to help energy companies until March while France has begun its biggest conservation effort since the 1970s oil crisis.
- The UK will today announce Boris Johnson’s successor as prime minister. Foreign Secretary Liz Truss is the bookmakers’ odds-on favourite to become the Tories’ fourth leader in just over six years and inherit a dismal economic outlook. The result is due to be announced at 13:30pm CET.
- The US economy added 315k payrolls in August, compared to a downwardly revised 526k in July but above market forecasts of 300k and pointing to broad-based hiring across many sectors. Labour Participation rate, which had been trading down all summer, was much higher in August, which led to unemployment up to 3.7% from 3.5%. Average hourly earnings decelerated a bit too, which is welcome news.
- Central bank meetings in Euro Area, Australia, and Canada as well as several speeches by Fed officials, will dominate the calendar next week. Also, China will release inflation rate and foreign trade figures, and GDP updates will be available for Australia, Euro Area, Japan, and Canada.
