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. 

US equities rallied into the close to finish near the highs of the day, as investors appeared to shake off the persistent rise in interest rates.  The markets also digested some earnings reports, as Salesforce jumped after topping expectations, and Macy’s also moved solidly higher after besting the Street’s forecasts.  However, disappointing guidance from Best Buy took some lustre off its earnings beat.  Elsewhere, the economic calendar added to the Fed uncertainty, as jobless claims unexpectedly dipped, while Q4 productivity was revised lower and unit labour costs were adjusted to the upside.  The Dow Jones Industrial Average rallied 342 points or over 1%, the S&P 500 Index added 0.8%, and the Nasdaq Composite was up 0.7%.  Meantime, European equity markets followed a similar pattern, reversing losses to close yesterday’s session higher, after CPI numbers in the Euro Area came in above market expectations, but not as high as investors had feared based on national readings in recent days. 

Summary as at 03.03.2023 

  • Asian equity markets rose on Friday as investors digested a raft of economic reports, with Chinese services data posting strong growth in February and a soft inflation figure in Japan.  Shares in Australia, Japan, Hong Kong and China advanced.  Investors are now keenly looking to this weekend’s National People’s Congress in China which could provide fresh catalysts for market movements. 
  • European shares are set to gain at the open while US equity futures ticked lower on Thursday night. 
  • Oil prices fell slightly this morning as traders weighed the prospect of more economic headwinds from rising interest rates, although renewed optimism over a rebound in Chinese demand put prices on course for strong weekly gains. 
  • The Caixin China General Services PMI climbed to 55.0 in February from 52.9 in the previous month.  This was the second straight month of expansion in services activity and the strongest pace since last August. 
  • Atlanta Fed President Raphael Bostic yesterday backed smaller 25 basis point rate hikes and indicated that the central bank could be in a position to pause rate hikes sometime this summer.  However, Fed Governor Christopher Waller maintained a hawkish view, saying rates could peak higher if labour and inflation numbers don’t cool as expected. 
  • Data showed inflation in the Euro Area eased further to 8.5% in February, compared with the market consensus of 8.2%, while the core rate hit a fresh record high of 5.6%.  Meanwhile, ECB President Christine Lagarde said that rates will have to rise higher and stay higher for some time to combat inflation.  Markets are fully priced for an ECB’s 50bp hike this month and are flirting with another 50bp in May.  
  • Macy’s Inc. posted adjusted Q4 EPS of $1.88, north of the expected $1.58, with revenues declining 4.6% year on year (yoy) to $8.26 billion, exceeding the forecasted $8.23 billion.  Q4 same-store sales declined 3.3% yoy, compared to the projected 3.9% decrease.  However, the company issued a full-year earnings outlook that came in above estimates. 
  • Best Buy Co. Inc. reported adjusted Q4 EPS of $2.61, well above the $2.10 consensus estimate on a 10% yoy decline in revenues to $14.7 billion, which matched forecasts.  However, on a conference call with analysts, the retailer’s CEO said it is preparing for another down year for the consumer electronics industry.