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 failed to recover from last week’s losses on Monday as prospects of aggressive Fed tightening, the war in Ukraine, and Covid-19 lockdowns in China weighted on investors’ mood. The Dow closed marginally higher, the S&P 500 fell 0.4% and the Nasdaq Composite dropped 1.2%. The S&P 500 is now on edge of a bear market, while the Nasdaq Composite is almost 30% off its record peak. European equity markets also ended mixed on Monday, after posting their first weekly gain in five.  

Summary

  • Shares in Asia rose on Tuesday, with the Hang Seng jumping over 2% to trade at a near two-week high and the Shanghai Composite increasing modestly, after China’s statistics bureau said it expects the Chinese economy to improve in May and that a recovery in consumption would quicken. Stocks in Australia pared their early gains as the RBA signals more rate hikes to tame soaring prices. 
  • European stocks are on track to follow US futures higher. 
  • Oil prices were marginally lower this morning after rising for four straight days to the highest close since March 23, as traders tracked developments around a proposed EU ban on Russian oil. Meanwhile, WTI has been rising at a faster pace than Brent in recent sessions, as US gasoline prices surged to record highs on rising demand coupled with restrained refining capacity.  
  • The US senate overwhelmingly voted to move toward passage of $40 billion in aid to Ukraine, underscoring the broad Republican and Democratic support for the country. The procedural vote on Monday sets up Senate passage of the legislation as soon as Wednesday, if all lawmakers consent to waive rules on debate. 
  • The European Union said companies can keep buying Russian gas without breaching sanctions and that they should consider their obligations fulfilled once they pay in euros or dollars. The guidance does not prevent companies from opening an account at Gazprombank, but stops short of addressing the requirement by Moscow to open a second account in rubles. 
  • Elon Musk stoked speculation that he could seek to renegotiate his takeover of Twitter, saying a viable deal at a lower price wouldn’t be “out of the question.” Twitter shares fell 8.2% yesterday. Concern over the possibility that Musk could walk away from the $44 billion acquisition has grown in the past week as the billionaire has questioned Twitter’s publicly disclosed data on the percentage of spam and fake accounts on its social-media service. 
  • Renault is to sell its majority stake in carmaker Avtovaz to a Russian science institute reportedly for just one ruble with a six-year option to buy it back, leaving the door open for the French carmaker’s return. 
  • Vodafone reported on Monday that Emirates Telecommunications Gorup Company has acquired a 9.8% stake of the UK-based mobile operator, for $4.4 billion.  
  • Investors today await retail sales and industrial production numbers from the US, along with a slew of retail earnings from the likes of Walmart and Home Depot.