Markets welcome US inflation relief but remain wary of Fed

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 closed Tuesday’s session higher but well below their daily highs as investors digested signs of cooling inflation but remained cautious ahead of today’s Federal Reserve meeting. The Dow Jones eked up 0.3%, the S&P 500 added 0.7%, and the Nasdaq rose 1%, with the latter two indices up 2.8% and 3.8% at session highs, respectively. In Europe, equities enjoyed a wave of momentum on Tuesday, with the Euro Stoxx 50 index ending 1.7% higher, driven by gains in real estate, technology, and energy shares.

Summary

• Asian equity markets were mixed on Wednesday, with markets in Australia, Japan, and South Korea tracking Wall Street higher while Hong Kong and mainland China shares struggled to gain traction as a key economic policy meeting in China was delayed due to a surge of Covid infections in Beijing. 
• European equities are on track for a muted start similar to their US counterparts as traders weigh softer US inflation data ahead of the Fed’s policy meeting. 
• Oil prices fell in early trade this morning after industry data showed a big build in US crude inventories rather than the decline forecast by analysts, reinforcing fears about weakening demand even as supply tightens. 
• The annual inflation rate in the US slowed for a fifth straight month to 7.1% in November, the lowest since December last year, and below forecasts of 7.3%. It follows a reading of 7.7% in October. Compared to the previous month, the CPI edged up only 0.1%, the least in three months, and also lower than forecasts of 0.3%. Shelter was by far the largest contributor rising by 0.6%, and more than offsetting a 1.6% drop in energy costs.  
• The economic calendar in Europe was robust as Germany’s CPI decreased in line with expectations but remained elevated. Elsewhere, the ZEW Economic Sentiment Surveys out of Germany and the Eurozone both contracted at slower paces that forecasted while the UK’s unemployment rate increased to 3.7% in the third quarter, in line with analysts’ predictions. 
• Moderna shares jumped over 20% yesterday after the company issued promising data about its cancer treatment. An experimental personalised melanoma vaccine developed by Moderna given with Merck’s blockbuster immunotherapy Keytruda cut the risk of the skin cancer’s recurrence or death by 44% compared with Keytruda alone, a mid-stage trial has shown.  
• Airline shares in the US came under heavy selling pressure yesterday, with Jet Blue down almost 10% after the company offered weak guidance. American Airlines and United Airlines were also among the biggest laggards, down 5% and 7%, respectively.  
• Oracle reported adjusted fiscal Q2 EPS of $1.21, besting estimates for $1.17, as revenues rose 25% year-over-year to $12.28 billion, versus the expected $11.96 billion. The company discussed how the strengthening US dollar had a significant impact on results, and if not for the foreign exchange impact, EPS would have been $0.09 higher. It also noted how each of its strategic businesses delivered solid revenue growth, and how the growth was powered by infrastructure and applications cloud businesses that grew 59% and 45%, respectively. 
• Sam Bankman-Fried told a Bahamian judge at an arraignment Tuesday that he wouldn’t waive his right to an extradition hearing. A defence lawyer said the FTX founder planned to fight being sent to the US. Separately, Manhattan US Attorney Damian Williams said at a press conference that the case shows “you can commit fraud in shorts and t-shirts in the sun”.