Ongoing Market Commentary: ECB rate hike surprises markets

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. 

The Dow index recovered from an over 200-point drop to cross over into positive territory on Thursday, while the S&P 500 and Nasdaq outperformed by adding 0.7% and 1.4%, respectively, as better-than-expected corporate earnings offset recession fears. The European Central Bank surprised markets with a larger-than-expected rate hike, its first in 11 years by 0.5 pp, more than market forecasts of a 0.25 pp rate hike. US stock futures dropped in Asian trade on Friday as investors digested more corporate earnings reports, with disappointing results from Snap hurting sentiment and sending social media shares down. Nasdaq 100 futures fell 0.7%, while Dow and S&P 500 futures lost 0.2% and 0.4%, respectively. Nasdaq is on track to gain more than 5% this week, while the Dow and S&P 500 are up 2.4% and 3.5%, respectively, so far this week.  

Summary 

• China’s largest policy bank (CDB) said on Friday that it had disbursed 181.5 billion yuan ($27 billion) in loans for urban development projects in the first half of the year, and pledged to maintain an accelerated pace of lending to fund infrastructure. 
• The Nikkei 225 Index rose 0.3% to around 27,900 while the broader Topix Index edged up 0.1% to 1,952 on Friday, with both benchmarks set to book their biggest weekly gains since March, helped by a boost from Wall Street and as the Bank of Japan remained an outlier by retaining its easy monetary policy. 
• Brent crude futures rose above $105 per barrel. WTI crude futures rose above $97 per barrel on Friday after falling for two straight sessions, as traders navigated a volatile week marked by persistent supply-side issues, weakening US gasoline demand and mounting risk of a global economic slowdown. 
• The GfK Consumer Confidence indicator in the United Kingdom held steady at -41 in July 2022, remaining at a record low as runaway inflation and economic uncertainties continued to dampen sentiment.   
• Tesla rose nearly 10% following the electric-car maker’s positive earnings report on Wednesday, pushing other high-growth stocks into the green.  
• Alcoa and CSX also reported results that beat Wall Street estimates.  
• On the flip side, American Airlines dropped more than 7% after cutting back on growth plans, while United Airlines plunged roughly 10% after disappointing earnings results.  
• Carnival’s stock fell by more than 10% following the cruise line’s announcement that it would sell an extra $1 billion worth of stock. 
• On the US Futures technology side, Snap plummeted nearly 27% in extended trading after the social media firm missed the top and bottom lines in the second quarter and said it would substantially slow hiring. Other technology firms heavily reliant on online advertising sales followed suit, with losses from Alphabet (-2.8%), Meta Platforms (-4.7%), Twitter (-2.1%) and Pinterest (-6.4%). The news is set to break a hot streak on Wall Street, with the three major averages posting their third straight positive session on Thursday.