European markets at 11-month highs

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 mixed on Tuesday as markets in the US returned to action following the three-day holiday weekend.  Q4 earnings season continued to heat up, with investors sifting through differing results from Goldman Sachs and Morgan Stanley.  The Dow Jones Industrial Average fell 1.1% to 33,911 and the S&P 500 Index shed 0.2% to 3,991, while the Nasdaq Composite increased 0.1% to 11,095.  Markets in Europe closed slightly higher yesterday, with the benchmark Euro Stoxx 50 rising to an 11-month high, supported mainly by oil and gas shares that tracked higher crude prices. 

Summary as at 17.01.2023 

• Asian equity markets were mixed on Wednesday as the Bank of Japan pushed back against speculations of another policy adjustment by maintaining ultra-low interest rates and keeping its yield control policy unchanged.  Shares in Japan and Australia rose, while those in South Korea fell.  Meanwhile, Hong Kong and mainland China equities fluctuated between gains and losses.  
• European shares are on course to tick higher defying US equity futures which were seen trading lower on Tuesday night. 

• Oil prices extended gains this morning, closing in on their highest levels since early December, as hopes for a demand recovery in China after its rapid exit from zero-Covid policy outweighed fears of a global economic slowdown.  A top Chinese economic official said at the World Economic Forum that China will likely rebound to its pre-pandemic growth trend this year as Covid infections passed their peak. 
• The Bank of Japan maintained its key short-term interest rate at –0.1% and that for 10-year bond yields around 0% during its January meeting by a unanimous vote.  The central banks also kept its 0.5% cap for bond buying, defying market speculation and signalling that policymakers aren’t seeking a looser grip on bond yields after the board unexpectedly tweaked its yield curve control in December.  
• The ZEW Indicator of Economic Sentiment for Germany rose sharply by 40.2 points from a month earlier to +16.9 in January, returning into positive territory for the first time since February and remaining comfortably above market expectations of –15.0.  The latest reading suggested the economic outlook for Europe’s largest economy has improved significantly, likely due to a more favourable situation in the energy markets after the government introduced energy price caps.  In addition, export conditions improved after China lifted Covid restrictions. 
• United Airlines reported Q4 profit and revenues higher than Wall Street expectations after the bell and gave a bullish 2023 forecast that assumes people will keep travelling despite inflation and concern about the economy.  Shares rose modestly by less than 2% in after-market trading. 
• Goldman Sachs Group Inc. reported Q4 EPS of $3.32, compared to estimates for $5.56, as revenues declined 16.0% year-over-year to $10.59 billion, versus the Street’s forecast of $10.76 billion.  The Bank said that compared to the same period a year ago, it saw significantly lower net revenues in assets & wealth management and low net revenues in global banking & markets.  

• Morgan Stanley posted adjusted Q4 EPS of $1.31, compared to the forecasted $1.25, as revenues declined 12.2% yoy to $12.75 billion, above the expected $12.54 billion.  The Bank said its wealth management segment provided stability amid a difficult market environment, while its investment management business benefited from diversification.  It also added that its institutional securities unit saw strong revenues from equity and fixed-income trading, offset by sluggish investment banking results. 
• Travelers Companies Inc warned that it expects adjusted Q4 earnings of $3.40, below forecasts of $4.04, due to catastrophe losses primarily resulting from the significant winter storm that impacted much of the US and Canada in late December. 
• Moderna jumped 5% in extended trading yesterday after saying its vaccine for the respiratory syncytial virus is effective at preventing the disease in older adults.