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. 

The S&P 500 and Nasdaq fell for a second straight session on Wednesday as the rate-sensitive indices were hurt by rising bond yields.  The benchmark 10-year yield topped 4% for the first time since November and the 1-yar Treasury yield climbed above 5%.  Meantime, the Dow Jones finished marginally higher.  Domestically, the latest ISM report showed that the US manufacturing sector contracted for a fourth consecutive month in February.  The market movement came in tandem with an uptick in Treasury yields, enough to spook investors away from tech and other high-growth shares.  In Europe, equity markets were also lower, with the Euro Stoxx 50 index losing 0.5%, as stronger-than-expected German inflation data and hawkish remarks by ECB officials raised doubts over where the bank’s interest rates will peak. 

Summary as at 02.03.2023 

  • Asian equity markets mostly fell this morning, facing pressure from rising Treasury yields as investors weighed the prospect of a higher peak in US interest rates.  Investors also digested a raft of economic data in Asia, headlined by South Korean manufacturing PMI which contracted for the 8th straight month in February.  Shares in Japan, Hong Kong and China declined, while Australian equities rose. 
  • European equity markets head for a slightly higher with eurozone inflation in focus while US futures are rising after Salesforce posted strong guidance after hours yesterday. 
  • Oil prices kept to a tight range on Thursday as traders weighed the prospects of a strong recovery in Chinese demand against the possibility that rising interest rates and elevated inflation will crimp economic activity this year.  Oil prices gained nearly 1% on Wednesday after data pointed to robust manufacturing and services activities in China, while top executives from Chevron and Saudi Aramco signalled optimism about Chinese demand. 
  • The US ISM Manufacturing PMI edged higher to 47.7 in February from 47.4 in January, which was the lowest since May 2020, but fell short of expectations of 48.  The reading pointed to a fourth consecutive month of falling factory activity with companies continuing to slow outputs to better match the demand for the first half of 2023 and prepare for growth in the second half of the year. 
  • Fanning fears about persistent inflation and rising interest rates, Minneapolis Fed President Neel Kashkari, a voter in the rate-setting committee in 2023, said he is “open-minded” on either a 25-basis point or a 50-basis point rate hike in March.  On a similar note, Atlanta Fed President Raphael Bostic wrote that Fed policy would have to remain tight “well into 2024”. 
  • Germany’s consumer price inflation remained unchanged at 8.7% yoy in February, not far from a peak of 8.8% seen in October and November and above market expectations of 8.5%, a preliminary estimate showed.  On a monthly basis, consumer prices advanced 0.8% in February, also above the consensus of a 0.6% rise.  
  • Lowe’s Companies yesterday reported adjusted Q4 EPS of $2.28, above the $2.21 consensus estimate, as revenues rose 5.2% year-on-year (yoy) to $22.45 billion, below the Street’s expectation of $22.71 billion.  Q4 same-store sales declined by 1.5% yoy, compared to the forecasted flat reading.  The company issued full-year EPS guidance with a midpoint above estimates, though its revenue outlook missed expectations. 
  • Salesforce on Wednesday announced first-quarter revenue above Wall Street estimates.  The company expects revenue between $8.16 billion and $8.18 billion for the current quarter, compared with an average estimate of $8.06 billion.  It reported a loss of $98 million, or 10 cents per share for the quarter, compared to a loss of $28 million in the same quarter of the previous fiscal year.  Shares rallied by over 15% in extended trading overnight.  
  • Elon Musk’s much-hyped third Master Plan for Tesla fell flat with investors failing to offer any firm detail on the company’s long-awaited next generation of electric cars.  The four-hour presentation was long on Musk’s vision to build the next phase of Tesla’s growth around a sustainable energy future by moving into products like heat pumps, but short on any detail of new vehicles – especially a cheaper EV like the $25,000 model flagged more than two years ago.