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 added more than 300 points on Friday, while the S&P 500 and the Nasdaq 100 were up roughly 1.9% and 2.7%, respectively, backed by rallies in tech and other high-growth stocks, sweeping some of the week’s losses. Mega-cap companies, including Meta, Amazon, Microsoft and Tesla jumped between 1% and 5%. Meantime, Google (Alphabet) was up 5.3% after announcing that it will cut 12000 jobs. For the week, the Dow was down 2.1%. while the S&P 500 and Nasdaq 100 roughly added 0.3% and 2.9%. European equity markets also closed higher on Friday, recouping some of the previous day’s losses in a volatile week. In the end, the Euro Stoxx 50 was down 0.8% for the week, in what has otherwise been a strong start to 2023 for equities in the region.
Summary as at 23.01.2023
- Shares were higher in Asia on Monday, but most markets were closed for the Lunar New Year holiday, with markets in China shut for the whole week. The Nikkei jumped more than 1%, hitting its highest level in a month, boosted by a rally in technology shares.
- European shares are tipped to advance with traders focused on the potential for further moderation in Fed policy. Meantime, US equity futures were quoted as flat early Monday morning.
- Oil prices slipped this morning as investors continued to assess the global demand outlook and various risks to Russian supply. However, trading is expected to remain subdued as many Asian markets remain shut for the Lunar New Year holidays. WTI and Brent are still more than 10% above their January lows.
- China said its Covid-related death toll topped more than 12,600 in the week before the Lunar New Year holiday. Meanwhile, a top health official suggested more than 1.1 billion or 80% of the population had been infected since virus controls were abruptly dismantled late last year and at this stage another way of Covid infections over the next two or three months is remote.
- On Friday, Fed Governor Christopher Waller said he favours just a quarter-point hike on Feb. 1, when the central bank gives its next interest rate policy update. Waller also said that rates are already high enough to be slowing the economy. The remarks could have helped calm rising-rate worries in the market.
- The ECB is set to raise rates by 50 bps in both February and March and will continue to raise rates in the months after, ECB governing council member Klass Knot said in an interview on Dutch media on Sunday. In a separate interview on Italian media also published on Sunday, Knot said it was “too early to tell” if the ECB could slow down the pace of its rate increases by summer.
- Existing home sales in the US fell 1.5% to a seasonally adjusted annual rate of 4.02 million in December, slightly above market forecasts of 3.96 million. It marks an eleventh straight month of falling home sales, the longest stretch since 1999, and the lowest level since November of 2010, as buyers continue to face limited inventory and high mortgage rates.
- The annual producer inflation in Germany fell to 21.6% in December from 28.2% in November, compared with market forecasts of 20.8%, marking the lowest level since November 2021. Energy prices remained the most significant upward contributor. In fact, excluding energy, producer prices rose by 12% from a year earlier. On a monthly basis, producer prices went down 0.4%, the third straight month of decline. Considering the full year of 2022, producer prices surged 32.9%, the highest price increase since the start of the survey in 1949.
- Retail sales in the UK sank 1% month-over-month in December, following an upwardly revised 0.5% drop in November and compared to market forecasts of a 0.5% rise. Sales at non-food stores fell 2.1% as consumers are cutting back on spending because of increased prices and affordability concerns. Compared with December 2021, sales declined by 5.8%, the most for that month since records began. Retail sales are now 1.7% below their pre-covid levels.
- Brasil and Argentina will announce this week that they are starting preparatory work on a common currency, the FT reported on Sunday. The plan, set to be discussed in Buenos Aires this week, will focus on how a new currency which Brasil suggests to call the “sur” (south) could boost regional trade and reduce reliance on the US dollar.
- Google parent Alphabet Inc. announced Friday it will lay off 12,000 employees, or roughly 6% of its workforce, adding to the list of major tech companies shedding workers amid fears of an oncoming recession. In an email to staff, CEO Sundar Pichai said the cuts in the US would begin immediately, but those in other countries could take longer due to local laws and practices.
- Hedge fund Elliott Investment Management has taken a substantial activist stake in Salesforce, making its move after layoffs and a deep stock swoon at the enterprise software giant.
- It will be a busy week in the US with releases including the Q4 GDP growth rate, durable goods orders, the PCE price index, personal income and spending, and earnings reports. Also, flash PMI data for January will be published for the US, UK, Japan, and Euro Area countries. Investors will also follow BoC Interest Rate Decision, Germany IFO business climate and GFK consumer confidence, and the inflation rate for Australia.
