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. 

Financial markets took a pause last week, fearing that monetary tightening will continue and that the world economy will enter a recession next year.  While several better-than-expected US statistics already raised doubts that the Fed would slow the pace of rate hikes, the new rise in the producer price index on Friday reinforced these worries and raised further questions.  This week should therefore be decisive, with the Fed and ECB decisions on rates.  In the US, the Dow Jones wrapped up last week with a descend of 2.8%, the S&P fell 3.4%, and the Nasdaq Composite dropped 4.0%.  In Europe, the benchmark Euro Stoxx 50 was lower by 0.6% for the week. 

Summary as at 12.12.2022 

  • Asian equity markets fell on Monday as caution dominated sentiment ahead of a pivotal week for monetary policy.  Shares in Hong Kong declined, along with mainland China, Japanese and Australian equities. 
  • European equities are tipped for declines while US futures are seen fractionally lower in the early hours of the new week as traders assess the outlook for rates ahead of several major central bank decisions over the next few days. 
  • Oil prices edged higher this morning as the Keystone Pipeline that connects fields in Canada to refiners in the US Gulf Coast remained shut, while Russian President Vladimir Putin’s threat to cut production in retaliation to a Western price cap on Russian oil kept markets on edge. 
  • The Producer Price Index for final demand in the US rose 0.3% month-over-month in November, the same as an upwardly revised 0.3% increase in October and above market forecasts of 0.2%.  Compared to the same month in 2021, producer prices were up 7.4%, the smallest increase since May last year, but higher than expectations of 7.2%. 
  • The preliminary University of Michigan Consumer Sentiment Index in the US showed that sentiment increased more than expected in December, rising to 59.1 from November’s final reading of 56.8, and above the consensus estimate calling for a slight increase to 57.0.   The index continued to move off the record low seen in June, as both the current conditions portion of the index and the expectations component of the report rose. 
  • Covid is rapidly spreading through Chinese households and offices, especially in the capital, after the country’s pandemic rules were unexpectedly unwound last week.  It’s straining the medical system and rendering official numbers that show infections at the lowest in a month meaningless. 
  • UK home sellers cut their asking prices at the quickest pace in four years after soaring interest rates made buyers more hesitant, according to property search website Rightmove.  Data from the company showed the average asking price dropped by 2.1% in December an acceleration from the 1.1% decline in October. 
  • Lululemon Athletica reported Friday an adjusted Q3 EPS of $2.00, slightly ahead of the $1.97 consensus estimates, as revenues rose 28.7% year-over-year (yoy) to $1.86 billion, which topped the Street’s forecast of $1.81 billion.  The company said that while it delivered another quarter of strong results, it continues to see a dynamic operating environment.  As such, it sees Q4 EPS in a range of $4.20 to $4.30, and sales of between $2.61 billion and $2.66 billion, compared to the analysts’ expectations of $4.30 and $2.65 billion, respectively. 
  • The Federal Trade Commission (FTC) said it had filed an antitrust lawsuit against Microsoft in an attempt to block its acquisition of Activision Blizzard.  The move comes as Microsoft is already facing scrutiny in the UK, which is looking into whether the acquisition would lessen competition in the country.  
  • This will be a busy week in the US with the Fed Interest rate decision and the CPI report taking central stage.  Also, the Bank of England, the European Central Bank, and the Swiss National Bank will hold monetary policy meetings and the UK will also release inflation data.  Investors will also follow ZEW Economic Sentiment for Germany and retail sales and industrial production for China.  Finally, flash PMI readings will be released for major developed economies including the US, UK, Euro Area, and Australia.