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. 

Markets chose to ignore disappointing activity indicators last week to focus instead on signs of easing of the Chinese zero-Covid policy, but especially the more accommodating words of Jerome Powell about a smaller rate hike in December. The monthly report on American employment dampened the mood, with job creations well above expectations and an hourly wage up 0.6%, generating profit-taking on Friday. The Dow Jones gained 0.1% on Friday, while the S&P 500 and Nasdaq Composite both retreated by 0.1% and 0.4%, respectively. For the week, the Dow was little changed, while the S&P and the Nasdaq both advanced for the second week in a row. In the meantime, European equity indices fell on Friday afternoon, registering the first week of losses in seven. 

Summary

  • Asian equity markets mostly rose on Monday, with Hong Kong and mainland China shares leading the advance, as investors cheered easing Covid restrictions in China that sparked hopes of further reopening. Meanwhile, markets reacted to a raft of economic reports in Asia, headlined by services activity data in China that contracted the most in six months. Shares in Australia also gained, while South Korean and Japanese shares wobbled. 
  • European equities are poised to nudge higher while US equity futures slipped slightly this morning as traders look ahead to more economic data. 
  • Oil prices jumped 2% on Monday after OPEC+ nations held their output targets steady ahead of a European Union ban and a price cap kicking in on Russian crude. Russia’s deputy Prime Minister Alexander Novak condemned the cap and said that Russia was willing to cut output if needed. 
  • The Caixin China General Services PMI fell to 46.7 in November from 48.4 in October, pointing to the third straight month of drop. This was also the steepest fall in the services sector since May, amid anti-Covid containment measures that weighed on demand. New orders declined the most in six months, employment shrank at the steepest rate since the survey began, and sentiment slipped to an eight-month low. 
  • US nonfarm payrolls rose by 263,000 jobs month-over-month (m/m) in November, compared to the consensus estimate of a 200,000 rise, while October’s figure was upwardly adjusted at an increase of 284,000 from the initial 261,000. The labour force participation rate dipped to 62.1% from October’s unrevised 62.2% figure while the unemployment rate remained at October’s 3.7%, in line with forecasts. Average hourly earnings were up 0.6% m/m, above projections for a 0.3% rise and compared to October’s upwardly-adjusted 0.5% rise. 
  • Apple supplier Foxconn expects to see full production resume at a Covid-hit China plant around late December to early January. The largest factory making Apple’s iPhone has been grappling with strict Covid-19 restrictions that have fuelled discontent among workers and disrupted production ahead of Christmas and January’s Lunar New Year holiday, as many workers were either put into isolation or fled the plant. 
  • Saudi Arabia’s Crown Prince Mohammed bin Salman is preparing to invest in Credit Suisse’s investment bank, the Wall Street Journal reported. Prince Mohammed may invest around $500 million in the lender’s CS First Boston spinout, the newspaper said, citing people with knowledge of the matter. Other investors could include former Barclays chief executive Bob Diamond’s Atlas Merchant Capital, according to the report. 
  • In the week ahead, the spotlight in the US will be taken by ISM Non-Manufacturing PMI, the University of Michigan’s consumer sentiments, and PPI data. Investors will also follow interest rate decisions in Australia, Canada, Brazil, and India and inflation rates from China, Brazil, Turkey and Russia. Finally, German factory orders and trade data from China, Canada, and the US should provide some insights into the state of global demand.