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. 

All three major US indexes finished in the red on Thursday, after better-than-expected producer’s inflation report raised worries that the Fed will take its monetary policy tightening further. The Dow lost more than 400 points, while the S&P 500 and Nasdaq 100 were down almost 1.4% and 1.8%, respectively. The producer price index rose 0.7% month-on-month (mom) in January, the most since June 2022, while analysts expected a modest 0.4% gain. At the same time, initial jobless claims, the most timely snapshot of the labour market, came in lower-than-expected at 194,000 for the week ended Feb. 11, pointing to a tight labour market. Meanwhile, European equity markets pared some gains but closed Thursday’s session higher, with the Euro Stoxx 50 up 0.4%. Banks were among the best performers led by an over 10% gain in Commerzbank. 

Summary as at 17.02.2023 

  • Asian equity markets fell on Friday as investors digested more US economic data and hawkish commentary from the Federal Reserve. In Australia, RBA’s governor Philip Lowe also said further rate increases would be needed to tame high inflation. Shares in Australia, Japan, South Korea, Hong Kong, and China declined. 
  • European shares are poised to rack decline in Asia and the US after hawkish remarks from two Fed speakers dented sentiment. 
  • The US dollar index strengthened above 104 on Friday, hitting its highest level in six weeks as hawkish remarks from Federal Reserve officials yesterday, lifted the currency. Cleveland Fed President Loretta Mester said she sees a “compelling economic case” for another 50-basis point rate hike, while St. Louis Fed President James Bullard said he would not rule out backing a half-percentage point increase at the Fed’s March meeting. 
  • Oil prices were lower this morning, on track to end the week about 2% lower, weighed down by strong US economic data and hawkish remarks from Federal Reserve officials. 
  • Producer prices for final demand in the US increased 0.7% mom in January, the most in seven months and higher than market forecasts of 0.4%. The core rate was 0.5% higher mom, north of estimates calling for a 0.3% increase, versus the prior month’s upwardly adjusted 0.3% gain. The headline rate was 6.0% higher year-over-year, above expectations of a 5.4% increase, and compared to the prior month’s upwardly adjusted 6.5% rise. 
  • US President Joe Biden said Thursday that three unmanned aerial objects shot down over the weekend by the US military were “most likely tied to private companies, recreation or research institutions,” and were not connected to the massive Chinese surveillance balloon that was shot down on Feb. 4. Biden also said he intends to speak with President Xi Jinping to defuse tensions fanned by the uproar. 
  • Shopify posted Q4 EPS of $0.07, versus the expected loss of $0.01 per share, with revenues rising 26% yoy to $1.73 billion, topping the forecasted $1.65 billion. The company issued Q1 revenue guidance that came in below estimates, noting that its outlook assumes that the COVID-triggered acceleration of e-commerce continues to return to a more normalized rate of growth in 2023. It also said there is elevated inflation and continued caution around consumer spending due to various macroeconomic factors.