Economic concerns weigh on markets

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 considerable damper on globalization and further fuel higher structural inflation. 

European equity markets closed higher on Monday, with the Euro Stoxx 50 extending its 2023 rally to a fresh eleven-month high led by retail, financial and media share.  The sentiment was boosted by hopes that the worst global price squeeze is over and optimism about China’s re-opening.  Meantime, US markets remained closed yesterday in observance of Martin Luther King Jr. Day. 

Summary as at 17.01.2023 

• Asian equity markets mostly fell on Tuesday as investors digested a slew of Chinese economic data.  Shares in Australia, South Korea, Hong Kong and mainland China decline, while Japanese equities advanced. 
• European shares are headed for a cautious start as traders weigh Chinese economic data while US equity futures eased on Tuesday as investors assessed whether the recent rally could continue higher given the deteriorating outlook for growth while awaiting more corporate earnings that could provide clues on US economic activity. 

• Oil prices reversed earlier losses and were trading higher in Asia this morning notwithstanding recession fears dominated market sentiment, with the World Economic Forum, World Bank and major US companies sounding the alarm about a potential slowdown this year. 
• The Chinese economy expanded 2.9% year on year in Q4 of 2022, easing from a 3.9% growth in Q3 but above market estimates of a 1.8% rise. Industrial output grew more than expected in December, while retail sales fell much softer. For the full of 2022, the economy grew by 3.0%, missing the official target of around 5.5% and marking the second slowest pace since 1976. 
• Separate data released Tuesday showed China’s population started shrinking in 2022 for the first time since 1961, underscoring an increasingly serious demographic crisis.