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 kicked off the shortened week by posting sharp losses yesterday. Uncertainty regarding the Fed’s future rate hike decisions appeared to pressure market sentiment, as investors grapple with recent hot inflation data and Fedspeak. Retail companies headlined the earnings calendar, as Walmart bested profit projections and raised its annual dividend, while Home Depot beat estimates and increased its quarterly dividend, but issued some disappointing guidance. The economic calendar showed manufacturing activity increased but continued to contract, while services activity rose more than expected into expansion territory. The Dow Jones Industrial Average tumbled 2.1% and turned negative for the year, while the S&P 500 and Nasdaq Composite dropped 2% and 2.5%, respectively. In Europe, losses were much more contained, with the benchmark Euro Stoxx 50 down 0.5% led by tech, auto and basic resources shares while banks moved higher.   

Summary as at 21.02.2023 

  • Asian equity markets fell on Wednesday, tracking sharp loss on Wall Street overnight. Investors also digested a raft of economic data in Asia, while the Reserve Bank of New Zealand delivered a widely expected 50 basis point rate increase. Shares in Australia, Japan, South Korea, Hong Kong and China declined. 
  • European shares are poised to edge lower while US equity futures were stable ahead of the publication of the Fed minutes of the Jan.31-Feb.1 gathering, at which policymakers voted unanimously to raise rates by just a quarter percentage point. 
  • Oil prices held recent declines this morning, remaining under pressure ahead of the release of the Federal Reserve’s late minutes that may provide cues on the trajectory of interest rate hikes in the US.   
  • The preliminary S&P Global US Manufacturing PMI Index for February remained in contraction territory, but rose to 47.8 from January’s upwardly revised 46.9 figure, ad versus the consensus estimate of a slight increase to 47.1. The preliminary S&P Global US Services PMI Index also gained ground and unexpectedly moved into expansion terrain, as the key US sector in January increased to 50.2, compared to expectations of a modest gain to 47.5 from January’s upwardly revised 46.8 figure. 
  • The European Union slashed its gas demand this winter by almost a fifth, beating a voluntary 15% goal that was made to help it survive the heating season with much lower Russian flows. The bloc’s consumption between August and January was 19% below the average of the previous five years. Finland saw the biggest drop – with usage more than halving – with demand rising in only Malta and Slovakia.  
  • Rio Tinto posted a 37.9% drop in annual profit and more than halved its dividend this morning, hurt by weaker iron ore prices due to slowing demand from top consumer China, while higher labour and material costs also ate into earnings. The company reported underlying earnings of $13.3 billion for 2022, compared with a record $21.4 billion in 2021 and missing estimates of $13.8 billion. 
  • Walmart reported adjusted Q4 EPS of $1.71 yesterday, above the $1.52 estimate, as revenues rose 7.3% year-over-year (yoy) to $164.05 billion, topping the Street’s forecast of $159.76 billion. US same-store sales grew 8.3% yoy, above the estimate of a 4.9% rise. The company noted inventory and cost challenges and issued full-year guidance that came in below expectations.  
  • Also yesterday, Home Depot posted Q4 EPS of $3.40, above the expected $3.28, with revenues ticking 0.3% higher yoy to $35.83 billion, versus the estimated $35.97 billion. Same-store sales dipped 0.3% yoy, compared to the forecasted 0.3% gain. The company noted a challenging and dynamic environment, with persistent inflation, ongoing global supply chain disruptions, and a tight labour market. It expects 2023 sales and same-store sales growth to be approximately flat compared to 2022, while its EPS is projected to decline in the mid-single digits.