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 declined on Monday, extending losses that came in the wake of Friday’s much stronger-than-expected key labour report, which caused Fed uncertainty to flare back up.  The Dow Jones Industrial Average dipped 0.1% to 33,891, the S&P 500 Index decreased 0.6% to 4,111, and the Nasdaq Composite fell 1.0% to 11,887.  Europe markets were mostly lower as well, trimming some of their strong starts to the year. 

Summary as at 07.02.2023 

  • Asian equity markets traded mixed on Tuesday, as investors digested the Reserve Bank of Australia’s decision to raise rates by 25 basis points.  Shares in South Korea, Hong Kong and mainland China gained, while equities in Australia and Japan were marginally lower. 
  • European equities are poised to eke out an advance, while in the US, futures contracts tied to the three major indices were all trading near breakeven, as traders await commentary from Fed Chair Jerome Powell. 
  • Oil prices extended the previous day’s gains on supply concerns and optimism about China’s demand recovery.  Operations at the Ceyhan oil terminal in southern Turkey, which can export up to 1 million barrels of crude per day, were suspended as a precaution after a major earthquake hit the region.  The Johan Sverdrup Phase 1 in Norway also halted oil production due to a technical fault in a cooling system.    
  • The Reserve Bank of Australia raised the cash rate by 25bps to 3.35% at its February meeting, matching market forecasts. While dropping the previous guidance that it was not on a pre-set path, the board reiterated further hikes would be needed as inflation remains too high. The central bank is expecting inflation to come in at 4-3/4% this year and at around 3% by mid-2025. The committee forecast Australia’s GDP growth to average around 1-1/2% in 2023 and 2024. 
  • Federal Reserve Bank of Atlanta President Raphael Bostic said yesterday that January’s strong jobs report raises the possibility that the central bank will need to increase interest rates to a higher peak than policymakers had previously expected.   
  • Retail sales in the UK increased 3.9% on a like-for-like basis in January from a year ago, decelerating from a 6.5% rise in December and lagging far behind inflation amid falling sales volumes. UK’s annual inflation surged 10.5% in December, remaining close to a four-decade high of 11.1% recorded in October.   
  • BNP Paribas this morning posted a lower-than-expected net profit in Q4, as a jump in its cost of risk and higher operating expenses offset a boom in its trading sales.  The bank, however, raised its 2025 targets and announced a €5 billion share buyback program in 2023.  In the three months to the end of December, net income fell by 6.7% from a year earlier to €2.15 billion, missing estimates.  
  • Credit Suisse is delaying a much-anticipated compensation day for some of its bankers, further straining its relationship with employees as it restructures its Wall Street operations.  The bankers – mainly at the managing director or director level – were notified on Monday that meetings set for today have been cancelled, pushing back conversations on bonuses. 
  • Shares of Baidu more than 13% in Hong Kong this morning, as the company said it will launch its own artificial intelligence chatbot.  The company said in a statement that its AI chatbot project will likely complete internal testing in March before being made public and that it will be named “Ernie bot” in English.  Baidu’s announcement, which confirmed earlier reports, comes after Microsoft-backed ChatGPT has surged in popularity and Google recently announced a similar service. 
  • Dell Technologies Inc. Yesterday confirmed reports that it plans to cut about 6,500 jobs or about 5.0% of its workforce, as the company has been hampered by cooling demand for PCs.