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 posted gains Tuesday following the release of a softer-than-expected read on wholesale price inflation. However, shares finished well off the highs yesterday as geopolitical tensions flared again following reports of Russian missiles crossing into NATO-member Poland, killing two individuals. The earnings calendar included releases from retail heavyweights Walmart and Home Depot, with both beating estimates. Treasury yields declined following inflation data and the US dollar finished lower. The Dow Jones Industrial Average increased 0.2%, the S&P 500 Index was up 0.9%, and the Nasdaq Composite advanced 1.5%. European shares were also higher for the most part, with the Euro Stoxx 50 rallying by another 0.7%. 

Summary

  • Asian equity markets traded mostly lower this morning as caution prevailed following increased geopolitical tensions. Shares in Hong Kong, Australia and South Korea fell, while markets in Japan traded marginally higher. 
  • European shares are on course to drop at the open, while US equity futures were seen slightly positive as investors digested news surrounding the missile that struck Poland and the release of more economic data. 
  • Oil prices were little changed on Wednesday as Covid-19 cases in China continued to climb, sparking worries of lower fuel demand in the world’s top crude importer, and outweighing concerns about an escalation of geopolitical tensions and tighter oil supply. 
  • NATO member Poland said on Tuesday that a Russian-made rocket killed two people when it landed about six kilometers from the frontier with Ukraine. US President Joe Biden said that the United States and its NATO allies are investigating the blast but early information suggests it may not have been caused by a missile fired from Russia. 
  • The US Producer Price Index (PPI) rose 0.2% month-over-month (m/m) below the consensus estimate of a 0.4% gain and in line with September’s downwardly revised 0.2% increase. The core rate was unchanged m/m, below estimates of a 0.3% gain. The headline rate was 8.0% higher year-over-year (y/y), south of expectations of an 8.3% increase, while the core PPI was up 6.7% last month, below the estimated 7.2% rise. 
  • The world population reached 8 billion people on Tuesday and India is expected to surpass China as the most populous country in the next year, according to projections from the United Nations. The global population has more than tripled since 1950 as mortality rates dropped and life expectancy increased. 
  • Donald Trump entered the 2024 US presidential race on Tuesday, making official a re-run that he has been hinting at for months. 
  • Walmart announced adjusted Q3 earnings-per-share (EPS) of $1.50, beating the $1.32 estimates, as revenues grew 8.7% year-over-year (y/y) to $152.80 billion, versus the expected $147.67 billion. The company noted how it continued to gain US market share in the grocery business, which was helped by unit growth in the food business. It raised its full-year guidance and announced a new $20 billion share repurchase programme. 
  • Home Depot reported adjusted Q3 EPS of $4.24, above the predicted $4.12, as revenues rose 5.6% y/y to $38.87 billion, north of the anticipated $37.95 billion. The company reaffirmed its full-year guidance.