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 ended Friday’s session lower, giving up initial gains that came amid optimism surrounding a reversal in the UK’s controversial tax plans. Q3 earnings season kicked into gear with the release of mixed results from some banking sector heavyweights, as Dow member JPMorgan Chase and Citigroup both bested estimates, but Morgan Stanley and Wells Fargo fell short. The Dow Jones decreased by 1.3%, the S&P 500 fell by 2.4%, and the Nasdaq Composite tumbled 3.1% in moderate volume. Markets ended mixed for the week as the Dow gained 1.2%, while the S&P 500 and Nasdaq declined 1.6% and 3.1%, respectively. Shares in Europe ended higher on Friday, with the Euro Stoxx 50 rising more than 0.5%. For the week, the Index gained 0.8%. 

Summary

  • Asian equity markets fell on Monday as China signalled no adjustment to its Covid policy and property regulations, which have been weighing on its economy and affecting the wider Asia-Pacific region. Shares in Australia, Japan, South Korea, China, and Hong Kong all declined in morning trade. 
  • Oil prices were trading higher this morning, recouping some losses after falling nearly 9% last week, in what analysts attributed to bargain hunting, an easing dollar, and hopes for more policy support from the Chinese government. 
  • European shares are poised to drop at the open while US equity futures are pointing to a positive start as investors await earnings reports. 
  • US treasury yields finished higher as the yields on the 2-year note and 10-year note were up 7 basis points (bps) to 4.52% and 4.02%, respectively, while the 30-year bond rate increased 6 bps to 3.99%. 
  • Russia this morning launched another attack on Kyiv, using explosive Iranian drones, one week after it unleashed a deadly missile barrage on the capital and other cities across the country that killed at least 19 people. 
  • The newly appointed UK’s Chancellor of the Exchequer, Jeremy Hunt, said in a BBC interview that nothing was “off the table” when it came to potentially abandoning more of the premier’s planned measures.  
  • In a speech running almost two hours on Sunday, China’s President Xi Jinping let the world know that his country wouldn’t change course even as it faces “dangerous storms” in a more hostile world. The Chinese leader hailed the nation’s “fighting spirit” and said the country was “well-positioned for pursuing development and ensuring security”. 
  • US retail trade was unchanged in September, missing market expectations of a 0.2% advance, as high inflation and rising borrowing costs hit consumer demand. Receipts were down at motor vehicle and parts dealers, gasoline stations, building materials and electronics stores, while sales at grocery stores were up, helped by rising prices in food. 
  • The University of Michigan consumer sentiment for the US rose to 59.8 in October, the highest in six months, up from 58.6 in the previous month and above market expectations of 59. The current economic conditions index rose to 65.3 from 59.7 while the expectations gauge fell to 56.2 from 58. On the negative side, the 1-year inflation forecast increased to 5.1% from 4.6% in September, and the 5-10-year inflation outlook rose to 2.9% from 2.7%. 
  • JPMorgan Chase reported adjusted Q3 EPS of $3.12, above the $2.90 expected by analysts, with revenues rising 10.4% year-over-year (y/y) to $33.5 billion, north of the Street’s forecast of $32.1 billion. However, CEO Jamie Dimon cautioned that while businesses and consumers were robust during the period, there are immediate headwinds, notably high inflation, higher global interest rates, the uncertain impacts of quantitative tightening, and increasing geopolitical risks. 
  • Morgan Stanley posted adjusted Q3 EPS of $1.47, short of the expected $1.52, with net revenues declining 12.0% y/y to $13.0 billion, below forecasts of $13.3 billion. The company’s investment banking revenues tumbled over 55% from a year ago and investment management receipts were also impacted by the market environment, while its fixed income and wealth management division fared better but also navigated a challenging market. 
  • Wells Fargo reported an adjusted Q3 profit of $0.85 per share, well below the Street’s expectation of $1.09 per share, as revenues rose 5.3% y/y to $19.5 billion, topping the forecasted $18.8 billion. The bank cited the impacts of operating losses related to litigation, customer remediation, and regulatory matters for the shortfall.  
  • Citigroup reported an adjusted Q3 profit of $0.85 per share, well below the Street’s expectation of $1.09 per share, as revenues rose 5.3% y/y to $19.5 billion, topping the $18.8 billion estimate.  
  • UnitedHealth Group reported adjusted Q3 EPS of $5.79, above the expected $5.43, on revenues of $80.8 billion, an 11.8% increase y/y and eclipsing expectations of $80.5 billion. Looking ahead, the company upped its full-year 2022 adjusted net earnings outlook to a range of $21.85 to $22.05 per share, compared to previous guidance of $21.40 to $21.90 per share and consensus estimates of $21.87. 
  • In M&A news, Kroger announced that it has agreed to buy Albertsons Companies for $34.10 per share in a transaction valued at $24.6 billion, a 17.4% premium over yesterday’s closing price. The tie-up will combine the second and fourth largest grocers in the US, respectively. Both companies’ boards approved the deal, which will need to pass regulatory scrutiny. 
  • Temenos lost a fifth of its value on Friday after the Swiss banking software group ditched its full-year guidance and reported a steep fall in Q3 profit. The group said banks had become more cautious in their decision-making amid macroeconomic uncertainty and costs were rising. 
  • In the US, the week will be dominated by earnings reports, speeches by several Fed officials, and housing data. Investors will also be monitoring financial markets in the UK following the government’s U-turn on tax cuts. In China, the 20th National Congress of the Chinese Communist Party will take place and Q3 GDP growth, alongside industrial production and retail sales, will be released too. Also, inflation data is due for the UK, Japan, Canada, and New Zealand.