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. 

Last week’s developments evidenced another slowdown in US inflation where risk aversion suddenly resurfaced. This followed the much more hawkish comments of the Fed and the ECB, leading to fears that monetary tightening will continue for a prolonged period and that the economy will enter a recession. Markets ended lower for the week as the Dow Jones declined 2.0% to 32,920, the S&P 500 fell 2.4% to 3,852, and the Nasdaq Composite dropped 3.0% to 10,705. European markets also experienced widespread losses, with the Euro Stoxx 50 down 2.9% for the week.

Summary

  • Asian equity markets fell on Monday as investors grappled with rising Covid cases in China, though authorities vowed to stabilise the economy with new policy measures. In Japan, the government and central bank are reportedly planning to revise a policy statement to add flexibility to the 2% inflation target. 
  • European and US equity markets are seen opening flat today after the major averages posted consecutive weekly losses. 
  • Oil prices rose on Monday to snap a two-day decline as Chinese authorities vowed to boost consumption at a key economic policy meeting, sparking hopes of greater energy demand in the world’s top crude importer. Adding to the bullish sentiment, the Biden administration is moving to replenish US emergency reserves starting with a 3-million-barrel, fixed price purchase. 
  • Adobe reported fiscal Q4 EPS of $3.60 on Friday, above the $3.50 estimated by analysts, as revenues grew 10% year-over-year (y/y) to $4.53 billion, matching the Street’s forecasts. The company said it saw record operating cash flows of $7.84 billion for 2022 and continued strong demand for its offerings. Looking ahead, Abode said it sees Q1 EPS within a range of $3.65 to $3.70 on sales of between $4.60 and $4.64 billion, compared to analysts’ projections of $3.64 per share and $4.63 billion revenues. 
  • Elon Musk has asked users to vote on whether he should step down as head of Twitter after coming under fire for recent policy changes. Musk pledged in a tweet on Sunday that he will abide by the results of the poll.   
  • It will be another busy week in the US with the most important releases including the PCE price index, personal income and spending, and the University of Michigan’s consumer sentiment and durable goods orders. Elsewhere, Japan will release inflation data and the central bank will hold a monetary policy meeting. Also, investors will follow German’s Ifo Business Climate, and consumer confidence readings from the Euro Area, UK, and Germany.