Ongoing Markets Commentary: The start of the Q1 earnings season

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 globalisation and further fuel higher structural inflation. 

The three major US indices posted losses last week, with the S&P 500 snapping a three-week winning streak that had lifted it to the best performance since 2020, as investors reacted to the Fed’s more aggressive tone in fighting inflation.  For the week, the Nasdaq sank 3.6% and the S&P slipped 1.3%, the worst declines for both indices in a month, while the Dow Jones edged lower by 0.3%.  On the other side of the Atlantic, European equities managed to secure their second weekly gain, with the Stoxx 600 Index rallying by 0.5%.  

Summary

• Shares in Asia were largely lower Monday morning.  Australia’s ASX 200, bucked the overall trend once again, as it climbed slightly. 
• European markets were heading for a negative open earlier today as US futures were pointing to a similarly lower start. 
• Oil prices slipped $2 a barrel in early Asian trading, following a second straight weekly decline.  This was on the back of world consumers announcing plans to release a record volume of crude and oil products from strategic stocks and as China lockdowns continued. 
• China’s annual inflation rate rose to a 3-month high of 1.5% in March from 0.9% in the prior two months and above market estimates of 1.2%.  Meanwhile producer price inflation of 8.3% was also above expectations for a 7.9% increase. 
• French leader Emmanuel Macron and his far-right rival Marine Le Pen topped the first round of presidential elections on Sunday, and are set to face off in the final vote on April 24.  A flurry of early projections and exit polls showed incumbent Macron came first with 28.1-29.5% of the vote, followed by Le Pen on 23.3-24.4%. 
• Elon Musk informed Twitter on Saturday that he has abandoned is plans to join the company’s board.  Elsewhere, a financial filing from Twitter specified that as long as Musk served on its board, he would be limited to owning no more than a 14.9% stake in the company’. 
• BMW Chief Executive Oliver Zipse said in an interview on Monday that a shortage of semiconductors is likely to remain a problem for the auto industry into 2023.  Zipse’s comments echoed similar statements by VW’s CFO Arno Antlitz on Saturday who said he expected that supply of chips would not be able to meet demand until 2024. 
• NIO suspended production of its electric vehicles as lockdowns imposed during the latest wave of Covid-19 in China disrupted operations at its suppliers. 
• This week will mark the start of the Q1 earnings season, with big banks such as JPMorgan Chase, Goldman Sachs and Wells Fargo heading into the earnings confessional.  The airline sector will also be watched closely, with Delta Air Lines due to report earnings and update on Q2-Q3 booking trends.  The economic calendar is headlines by the highly anticipated Consumer Price Index report on April 12, with the CPI expected to show inflation rising 8.4% from a year ago.