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 closed marginally higher on a choppy Wednesday, as minutes from the December FOMC meeting confirmed policymakers’ previous signals that interest rates must continue to rise and remain elevated for the foreseeable future. Officials also emphasised that investors should not interpret the slower 50bps rate hike as a dovish pivot, warning markets against pricing interest rate cuts this year. The Dow climbed 0.4%, while the S&P 500 and the Nasdaq added 0.8% and 0.7%, respectively. Banks led the gains on the corporate front, while Microsoft tanked 5.3% after UBS downgraded the company’s shares to “neutral”. Elsewhere, European equities extended gains for a third consecutive session yesterday, with the benchmark Euro Stoxx 50 adding 2.4%, driven by a rally in the consumer discretionary and technology sectors. 

Summary as at 05.01.2023 

  • Asian equities mostly rose on Thursday, extending broad gains from the previous session as risk sentiment improved. Investors reacted to data showing China’s services and composite PMIs remained contractionary for the fourth straight month in December. Shares in Japan, Hong Kong and mainland China advanced, while Australian shares fluctuated. 
  • European equity markets are poised for a cautious start while US equity futures remained flat as investors digest the latest Fed minutes. 
  • Oil prices rose this morning after losing nearly 10% over the past two sessions, as investors continued to assess the global demand outlook.  The commodity suffered heavy losses in the first two trading sessions of the year as a surge in Covid cases in China clouded the near-term outlook, prompting officials to raise export quotas for refined oil products in the first batch for 2023. 
  • Minutes of the Federal Open Market Committee December meeting were released yesterday. The report showed Committee members remained committed to fighting inflation, saying “a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time.” In addition, officials noted that “historical experience cautioned against prematurely loosening monetary policy,” and warned against reading too much into its move to moderate its pace of increases.  
  • The December Institute for Supply Management Manufacturing Index showed that manufacturing activity in the US remained in contraction territory. The index declined to 48.4 from the prior month’s unrevised 49.0 reading, and versus the consensus estimate calling for a dip to 48.5. 
  • Amazon is laying off more than 18,000 employees – a significantly bigger number than previously planned – in the latest sign that a technology slump is deepening. The cuts, which began last year, were previously expected to affect about 10,000 people. 
  • Salesforce Inc announced that it plans to cut its workforce by approximately 10% as part of its restructuring program aimed at reducing operating costs, improving operating margins, and continuing to advance its ongoing commitment to profitable growth. The company also said its plan includes selective real estate exits and office space reductions within certain markets. 
  • Alibaba Group Holding Ltd rallied yesterday amid signs that Chinese regulators may be easing their clampdown on the tech sector in the country. Regulators approved Ant Group Co’s fundraising plan which could potentially pave the way for a restarted initial public offering process of the financial technology firm that had been scrapped in 2022. Alibaba owns a stake in Ant Group. 
  • Sanofi said on Wednesday that it expected its fourth quarter results, which will be published early next month, to reflect a boost from foreign exchange movements and from flu vaccine sales. The company said its preliminary estimate of currency movements was for a boost of between 4.5%-5.5% on Q4 sales and a positive impact of between 6%-7% on its fourth quarter core earnings per share.