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 Down Jones closed virtually flat on Tuesday, and the S&P 500 and Nasdaq lost roughly 0.2% and 0.8%, respectively, amid persistent concerns that further interest rate hikes will drag the US economy into a recession and lead to sharp downward earnings revisions. The market movement came along with an uptick in Treasury yields, enough to spook investors away from tech and other high-growth shares. In Europe, equity markets failed to hold earlier gains and closed practically flat, as losses across tech and consumer shares more than offset gains in miners and oil companies.

Summary

  • Asian equity markets were mixed on Wednesday as investors continued to assess the impact of China’s vaccination drive among the elderly. Chinese health officials announced on Tuesday that they would bolster vaccination among senior citizens in a move seen by experts as key for economic reopening. Investors also digested a raft of economic data in the region, highlighted by disappointing manufacturing and services activity in China.  
  • European markets are headed for a higher open this morning as investors await eurozone inflation data. Meanwhile, US equity futures were also steady early Wednesday as investors cautiously looked ahead to Federal Reserve Chair Jerome Powell’s speech, which could offer fresh clues on future rate hikes. 
  • Oil prices rose in early Asian trade on Wednesday as US crude inventories were seen falling, but concerns that OPEC+ would leave output policy unchanged at its upcoming meeting limited gains. 
  • The consumer price inflation in Germany fell to 10.0% year-on-year in November, from October’s all-time high of 10.4% and below market consensus of 10.4%, a preliminary estimate showed. Goods inflation slowed to 17.2% from 17.8%, while services inflation also slowed to 3.7% from 4.0%. On a monthly basis, consumer prices dropped 0.5% in November, the first decline in a year. 
  • Federal Reserve Bank of St. Louis President James Bullard repeated his call for additional interest rate hikes to a level that will restrict economic growth, which he said set the stage for a return to more ordinary monetary policy in 2023. “The policy rate has not yet reached a level that could be considered sufficiently restrictive,” Bullard said in an article posted online Tuesday, saying estimates show a rate of at least 4.9% would be needed. 
  • UK Prime Minister Rishi Sunak said the so-called golden era of relations with China was over, warning that Beijing’s move toward even greater authoritarianism posed a systemic challenge to Britain’s values and interests.   
  • HSBC has agreed to sell its business in Canada to Royal Bank of Canada for $13.5 billion Canadian dollars in cash. The transaction is expected to be completed in late 2023 and will result in a pre-tax gain of $5.7 billion for HSBC, the bank said in a statement. The sale comes as HSBC pursues a strategy of focusing its resources on its core markets. 
  • UnitedHealth Group reaffirmed its current year EPS guidance, while issuing 2023 EPS guidance with a midpoint below estimates. However, the company delivered 2023 revenue guidance that was above expectations.  
  • Chemours issued full-year guidance below expectations after the Teflon maker said market demand for titanium dioxide has weakened in Q4, particularly in Europe and Asia, amid an increasingly uncertain global outlook. The company also said Q4 seasonality and higher raw material costs are impacting its thermal and specialised solutions, as well as its advanced performance materials units. 
  • Apple shares dropped by over 2% on Tuesday after TF International Securities analyst Ming-Chi Kuo cut his 4Q22 iPhone shipments and said there are significant downside risks to the Apple and iPhone supply chain due to the Zhengzhou iPhone plant labour protests.