European equities continued to outperform US markets even in February

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 finished lower on Tuesday in choppy action amid the backdrop of uncertainty regarding the ultimate impact of aggressive monetary policy tightening. Q4 earnings season continued to wrap up this week, with Target topping forecasts but offering disappointing guidance. The Dow Jones Industrial Average declined by 0.7% to 32,657, the S&P 500 Index lost 0.3% to 3,970, and the Nasdaq Composite was down 0.1 to 11,456. All three US averages finished in negative territory for the month as stronger-than-expected US economic data seen earlier this month reinforced the case for further monetary tightening. For the month of February, the blue-chip was down 4.2%, while the S&P 500 and Nasdaq lost 3.6% and 3%, respectively. Meantime, European markets continued to outperform, with the Euro Stoxx 50 Index up 1.6% for the month and down 0.2% yesterday. 

Summary as at 01.03.2023 

• Chinese bourses led gains across Asian equity markets on Wednesday after data showed that business activity in the country rose to pre-Covid levels, although lingering fears of rising US interest rates and weak data from other regions kept broader gains limited. Hong Kong’s Hang Seng index jumped 3.3% and was the best performer in Asia, as optimism over China helped the index recover from a near two-month low. 
• Oil prices rose this morning as the stronger-than-expected Chinese economic data drummed up hopes for a demand rebound in the country, helping markets look past signs of another large build in US inventories. 
• European equities are set for a modestly higher open while US futures were indicated slightly lower in the early hours on Wednesday. 
• The manufacturing PMI in China rose to 52.6 in February, higher than expectations for a reading of 50.5 and January’s figure of 50.1. The non-manufacturing PMI fared far better, rising 56.3 in February, more than expectations for growth of 55.0, and well above the prior month’s reading of 54.4. Strength in both indices saw China’s composite PMI jump 56.4 in February, its fastest pace in over three years. 
• Yesterday, ECB President Christine Lagarde noted that there is “every reason” to believe the ECB will hike rates by 50 bps in March and could do more in the future if needed to bring down inflation. She added that after March it will be data-dependent regarding rate hikes. 
• The annual inflation rate in France accelerated for a second straight month to 6.2% in February from 6% in January, above forecasts of 6.1%, preliminary estimates showed. The inflation moved back to 1985-highs seen late last year, pushed up by the cost of food and services. Meanwhile, inflation in Spain also resumed its upward trend to 6.1% in February, compared to 5.9% in January and expectations of 5.7%, led by higher electricity and food prices. 
• Target Corporation yesterday reported an adjusted Q4 EPS of $.189, above the $1.40 consensus estimate, as revenues rose 1.3% year on year to $41.40 billion, versus the Street’s expectations of $30.67 billion. Q4 same-store sales rose 0.7% year on year, compared to the anticipated 1.6% decline. However, the company issued q1 and full-year EPS and same-store sales guidance that came in below estimates, noting that it is planning cautiously in the near term to ensure it remains agile and responsive to the current operating environment. 
• Banco Santander on Tuesday announced its intention to raise its return on tangible equity ratio (ROTE) for the period 2023-2025 to between 15%-17% from a current 13.37% on the back of higher revenues and interest rates income in some of its core markets in Europe, such as Spain, and in South America. The Bank also unveiled a new dividend pay-out policy for the period of 50% of consolidated ordinary profit, compared to the previous policy of 40%. 
• Erste Group Bank Ag said Tuesday that its Q4 profit beat expectations as net interest income surged on the back of rate hikes and loan growth. The Bank’s quarterly profit was €517.7 million, up from €472.0 million in the same period last year and compared to expectations for €480.0 million. 
• Bayer AG posted a net profit of €611 million for the final quarter of 2022, down from €1.16 billion the year before, and missing consensus expectations for €981 million. The company said the number of lawsuits related to its allegedly harmful weedkiller Roundup stands at 154,000, of which 109,000 have been settled. A year ago, the claims were 138,000, of which about 107,000 have been settled. For the year ahead, the company expects earnings to be lower due to high inflation-driven cost increases, though sales are expected to grow. 
• Applied Materials yesterday unveiled a new chip tool to lower the cost of a process involving lithography which used light to print a pattern on the wafer, the shiny round discs used in chip making. 
• General Motors is cutting hundreds of executive-level and salaried jobs as it looks to cut costs by $2 billion in the next two years.