Equities fall after Fed decision

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 staged a late-day reversal on Wednesday, giving up their gains after the Federal Reserve raised its federal-funds rate by a half percentage point but projected the terminal rate would be higher than expected. The Dow Jones Industrial Average fell 0.4% to 33,966, the S&P 500 Index was down 0.6% to 3,995, and the Nasdaq Composite decreased 0.8% to 11,171. Elsewhere, European markets closed yesterday’s session virtually flat as losses among materials and energy shares offset gains in real estate.

Summary

• Asian equity markets fell on Thursday after investors digested a raft of economic reports in Asia, including disappointing retail sales and industrial production data in China, a wider-than-expected trade deficit in Japan, and stronger-than-expected economic growth in New Zealand. Hong Kong shares led the retreat with a nearly 2% drop while Australian, Japanese and mainland China shares also declined. 
• European equities are set to follow Asian and US shares lower this morning while US equity futures were seen mixed early Thursday morning. 
• Oil prices were largely unchanged in early Asian trade on Thursday as traders weighed optimism over China’s demand outlook against the possibility of further interest rate hikes from global central banks. 
• The Federal Reserve raised the fed funds rate by 50bps to 4.25%-4.5% yesterday, following four three-quarter point hikes, in line with market expectations. Policymakers projected rates would reach 5.1% next year before being lowered to 4.1% in 2024, a higher level than previously indicated. In the news conference following the decision, Powell said that the central bank is getting close to reaching the end of a tightening cycle.  
• China’s industrial production advanced 2.2% year-over-year (y/y) in November, less than market estimates of a 3.6% increase and easing from a 5.0% gain in the previous months. In the meantime, retail trade declined by 5.9% y/y in November, much faster than a 0.5% fall in the prior month and worse than market expectations of a 3.7% drop. 
• Delta Air Lines rose yesterday after the air carrier increased its Q4 EPS guidance and issued a full-year profit outlook that was above market expectations. Additionally, the company said it expects EPS for 2023 and 2024 above what the Street is anticipating. It noted that demand for air travel remains robust as it exits the year and its momentum is building, while in 2022 it made significant progress in the restoration of the airline’s financial foundation.   
• Elon Musk, who lost his No. 1 spot on Bloomberg’s ranking of the world’s richest people this week, unloaded Tesla stock for the fourth time this year. Tesla’s CEO sold almost 22 million shares of the electric-car maker for $3.58 billion between Dec. 12 and Dec. 14, a filing showed late Wednesday.