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. 

Major US equity indices failed to sustain early gains and closed the first trading day of the year in the red, amid persistent concerns that the Federal Reserve will continue to raise interest rates and hurt growth to bring inflation down to its target. The Dow closed practically flat and the S&P 500 lost 0.4%, as a 4% decline in crude oil prices pressured energy giants. In the meantime, the Nasdaq 100 underperformed and dropped 0.7%, remaining under pressure after sliding 33% in 2022. Elsewhere, European markets maintained their outperformance, with the Euro Stoxx 50 advancing for a second day by another 0.7%. 

Summary as at 04.01.2023 

  • Asian equity markets mostly rose on Wednesday amid an improving risk sentiment. Meanwhile, rate hike concerns and recession fears in the US, as well as Covid-related uncertainties in China continued to weigh on sentiment. Shares in Australia, South Korea, Hong Kong, and mainland China advanced, while Japanese equities declined. 
  • European markets are seen heading for a positive open while US equity futures were seen little changed in the early hours of Wednesday morning. 
  • Oil prices remained weak this morning after tumbling more than 4% yesterday, weighed down by a weakening demand outlook amid growing US recession fears and Covid-related uncertainties in China. 
  • Manufacturing PMIs in Spain and France improved more than expected, and data from the Eurozone and Italy increased in line with estimates. Elsewhere, Germany’s manufacturing growth rose less than forecasts, while activity in the UK declined at a slower pace than anticipated, but all countries remained in contraction territory.  
  • The annual consumer price inflation in Germany fell to 8.6% in December, from 10% reported in November and below the market consensus of 9.1%, a preliminary estimate showed. It was the lowest rate since August as a government’s initiative to lower household natural gas bills came into effect. On a monthly basis, consumer prices dropped 0.8% in December, much more than an expected 0.3% decline. 
  • Former New York President William Dudley said yesterday that a recession is on the cards but will not likely be severe, while former Fed Chair Alan Greenspan was quoted as saying that a recession is the “most likely outcome” for the US. 
  • China is pausing massive investments aimed at building a chip industry to compete with the US, as a nationwide Covid resurgence strains the economy and its finances. Top officials are discussing ways to move away from costly subsidies that have so far borne little fruit and encouraged both graft and American sanctions. 
  • The European Union is moving toward an approach to the rampant Covid outbreak in China that may include masks and pre-flight testing requirements on travellers from the country. EU health advisers agreed Tuesday on a draft opinion that includes masking recommendations and increased wastewater monitoring and suggests discussing Covid testing. 
  • FTX founder Sam Bankman-Fried appeared in US District Court in New York and pleaded not guilty to criminal charges Tuesday and is set to face a trial in October, a courtroom showdown likely to be one of the highest-profile white-collar fraud cases in recent years.  
  • Apple Inc’s market capitalisation slipped below $2 trillion on the first trading day of 2023 as its equity fell nearly 4% following a rating downgrade due to production disruption in China. Exane BNP analyst Jerome Ramel downgraded Apple to “neutral” from “outperform” with a price target cut to $140 from $180.