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. 

European shares erased early gains to trade lower on Monday in thin trade due to the US public holiday, as investors remained cautious ahead of minutes of the last Federal Reserve meeting and a reading on core inflation due later this week.  Investors fear that major central banks might raise interest rates for longer than previously thought following recent data pointing to a still-tight labour market, sticky inflation and solid domestic demand in the United States.  The Euro Stoxx 50 Index was down 0.1%, to 4,271 points. 

Summary as at 21.02.2023 

  • Asian equity markets mostly fell on Tuesday on concerns that central banks will have to raise interest rates further to tame inflation reverberated through markets.  Investors also digested data showing manufacturing activity in Australia improved slightly in February, while that in Japan contracted at the steepest pace since August 2020.  Shares in Australia, Japan, and Hong Kong declined, while mainland China equities gained amid improving economic and corporate outlooks. 
  • European shares are on track for a muted open while US equity futures slipped in post-holiday trade on Tuesday. 
  • Oil prices were down more than 1% this morning as traders weighed optimism over China’s demand recovery against concerns about rising US crude supplies and further central bank policy tightening.   In the latest sign of rebounding energy demand from China following its exit from the zero-Covid policy, Russian exports of discounted crude and fuel oil to the world’s top crude importer jumped to record levels in January.  The IEA and OPEC also raised their forecast for 2023 oil demand growth, citing higher consumption from China. 
  • A pair of earthquakes measuring 6.4 and 5.8 in magnitude struck Turkey’s south-eastern Hatay province Monday. Three people were killed and 213 taken to hospital after the quakes on Monday evening, while at least six people were injured in Syria. 
  • President Joe Biden did little to tip his hand about his unannounced visit to Kyiv, heading to church on Saturday afternoon and then taking his wife out to dinner at a cosy Washington restaurant. But by the pre-dawn hours of Sunday, he was already crossing the Atlantic on a US military plane. It was the first leg of a journey to the Ukrainian capital, carried out under cloak-and-dagger secrecy after months of meticulous planning by a close circle of advisers. 
  • Russia’s economy contracted 2.1% in 2022, after an upwardly revised 5.6% expansion in 2021, mainly due to the sanctions from Western states in retaliation to its invasion of Ukraine in February, preliminary estimates showed. It was still a much softer contraction than some predictions made soon after the conflict with Ukraine began, with the economy ministry at one point predicting the economy would shrink more than 12% last year.  Looking ahead, Russia’s gross domestic product is expected to fall by 2.4% year-on-year in Q1 2023, according to the Central Bank of Russia. 
  • The consumer confidence indicator in the Euro Area rose by 1.7 points to -19 in February of 2023, the highest in a year and in line with market expectations, preliminary estimates showed. Sentiment improved on expectations that inflation has slowed as the energy crises eased thanks to mild weather and the region would be able to avoid a recession this year. In the European Union as a whole, consumer sentiment increased by 1.5 points to -20.6. Still, consumer confidence remains well below its long-term average. 
  • HSBC this morning reported Q4 earnings that beat analyst expectations.  The bank’s reported profit before tax for the three months ended in December was $5.2 billion, 108% higher than $2.5 billion a year ago and better than the $4.97 billion expected in estimates compiled by the Bank.  HSBC said its Q4 results reflect strong reported revenue growth and lower reported operating expenses.  
  • BHP Group Ltd. said it was optimistic about a demand recovery in China following the end of Covid Zero as the world’s biggest miner posted its lowest half-year profit since 2021. China’s slowdown hit buying of iron ore, copper and coal, BHP’s main sources of revenue, in the second half, while accelerating inflation in other major economies didn’t help. The miner’s revenue fell 16% from a year earlier and it cut its dividend sharply, although the company is hopeful that China will turn from a drag on its earnings to a driver this year.