Growth concerns stall the rally in equities

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 failed to hold their upward momentum on Wednesday, with all three major indices crossing into negative territory as investors digested a slew of US economic data and earnings while reassessing the outlook for monetary policy.  The Dow Jones tumbled 1.8%, while the S&P 500 and the Nasdaq 100 fell 1.6% and 1.2%, respectively.  Meanwhile, European equities closed practically flat yesterday, with the benchmark Euro Stoxx 50 holding at an 11-month high as investors welcomed positive earnings updates and signs of easing inflationary pressure. 

Summary as at 19.01.2023 

• Asian equity markets were mixed on Thursday as investors digested data showing Japan recorded another trade deficit in December, while Australia’s unemployment rate held steady at 3.5% in the same month.  Shares in Japan, Hong Kong and mainland China declined, with Australian and South Korean equities gained. 
• European and US equity futures are pointing at a lower open on renewed worries over global growth.  

• Oil prices extended losses from the previous session as disappointing US data fanned recession fears, while industry figures pointed to a surprise build in US crude stockpiles.  
• Advanced retail sales for December in the US were down 1.1% month-over-month, below the consensus forecast of a 0.9% decrease, and compared to November’s negatively revised 1.0% gain. 
• US monthly producer prices declined by 0.5% in December, versus estimates of a 0.1% dip, and cooler than November’s downwardly revised 0.2% increase.  The core rate was 0.1% higher month on month, in line with estimates, and versus the prior month’s downwardly adjusted 0.2% gain.  On an annual basis, both the headline and the core rates came in below expectations, at 6.2% and 5.5%, respectively.   
• The market digested a lot of Fed commentary yesterday with St. Louis President James Bullard and Cleveland President Loretta Mester both stressing the need to raise rates beyond 5% to bring inflation to heel.  Moreover, Philadelphia Fed President Patrick Harker said he expects the Fed to raise rates a few more times this year although he reiterated earlier comments that he’s ready to move to a slower pace of rate hikes due to signs of cooling inflation. 
• The consumer price inflation in the Euro Area was confirmed at 9.2% year-on-year in December, down from November’s 10.1% and October’s all-time high of 10.6%.  Meanwhile, the core rate, picked up to a fresh record high of 5.2% while on a monthly basis, consumer prices fell 0.4%, the largest decline since August 2020. 

• The annual inflation rate in the UK fell to 10.5% in December from 10.7% in November, matching market forecasts.  It marks a second consecutive month of slowing inflation and the lowest rate in three months, after a peak of 11.1% in October.  Compared to the previous month, the CPI increased 0.4%, the same as in November and also in line with forecasts. 
• Malta’s annual inflation rate climbed to 7.3% in December from 7.2% in the previous month. Prices advanced faster for food & non-alcoholic beverages, transportation, and housing & utilities.  On the other hand, restaurant & hotel prices eased.  Monthly, consumer prices were flat, following a 2.6% drop in November. 
• Microsoft Corp announced yesterday it will cut 10,000 jobs, or approximately 5% of its workforce by the end of its third fiscal quarter.  On a similar note, Amazon.com Inc also said it will be cutting some jobs in the United States, Canada and Costa Rica as part of its plan to lay off 18,000 employees.  The layoffs are the latest in the US technology sector, with companies cutting their bloated workforce and slashing costs to reverse pandemic-era excesses and prepare for a worsening global economy. 
• Investors around the world appear to have an insatiable appetite for new debt this year.  Issuance has already topped half a trillion dollars, with everything from European banks to Asian corporates and developing-nation sovereigns tapping the market for fresh funds.  The boom is thanks in part to a rally that’s seen global bonds surge 4.1%, the best performance to start a year in data stretching back to 1999.