Ongoing Market Commentary: US equities end higher for two days in a row

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 rallied late on Tuesday to end higher for a second straight day as technology and energy shares gained, while Target Corp’s warning about excess inventory weighed on retail stocks for much of the session. The Dow Jones rose more than 260 points and both the S&P 500 and the Nasdaq were up almost 1% after opening about 1% lower. In the meantime, European bourses came under renewed selling pressure yesterday, as concerns over high inflation, monetary policy tightening, and slow economic growth re-emerged. 

Summary

• Shares in Asia largely traded higher on Wednesday, with the Hang Seng jumping over 1.5% to a near 2-month peak. Stocks in Japan extended gains for the 4^th straight session, as the country’s Q1 GDP shrank less than expected, on an upward revision of private consumption. The Shanghai Composite fell, however, after the World Bank warned that many countries could fall into recession this year. 
• European equities are set to advance as US stock futures were called lower early morning. 
• Oil prices edged up today ahead of data on US oil inventories, with crude futures supported by tight supplies and recovering fuel demand as China’s top cities relax Covid-19 curbs. 
• The Japanese economy shrank 0.1% in Q1, compared with flash data of a 0.2% fall and after an upwardly revised 1.0% growth in Q4. The latest figure was better than market forecasts of a 0.3% drop, amid an upward revision of private consumption. 
• Economists and markets criticised Australia’s central bank for confusing communications after it had yesterday raised interest rates by twice as much as expected, having previously signaled a preference for quarter-point moves. The cash rate was raised to 0.85% and the increase was the largest in 22 years. 
• The World Bank slashed its global growth forecast on Tuesday to 2.9% for 2022 from 5.7% in 2021 and 1.2 percentage points lower than the 4.1% predicted in January. The bank warned that the world economy could slip into a period of stagflation reminiscent of the 1970s. 
• Angela Merkel warned that isolating Russia isn’t possible long term even if President Vladimir Putin made a “big mistake” by invading Russia.  
• Europe has dethroned Asia as the biggest destination for US liquefied natural gas as the region seeks to slash its dependence on Russian supplies. The US sent nearly three-quarters of all its liquefied natural gas to Europe in the first four months of 2022, with daily shipments to the region more than tripling from last year’s average. The increase means the US now accounts for nearly half of Europe’s LNG imports, about twice the share in 2021.  
• US retailer Target slashed its Q2 guidance for the second time in 3 weeks, lowering its expected Q2 operating margin to around 2%, down from the 5.3% midpoint of the previous guidance range. The company is taking actions to tackle a surge in inventory, by lowering prices and canceling orders. 
• Credit Suisse said on Wednesday that it is likely to post a loss for the second quarter as the war in Ukraine and monetary policy tightening squeeze its investment bank.