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 rose sharply on Friday as investors sifted through a host of earnings releases and reassessed the outlook for future Fed rate hikes. This follows the release of a Wall Street Journal (WSJ) report that said some Fed officials are concerned about over-tightening monetary policy. The Dow Jones Industrial Average soared 2.5%, the S&P 500 Index jumped 2.4%, and the Nasdaq Composite rose 2.3%. Markets ended noticeably higher for the week, as the Dow climbed 4.9%, the S&P went up 4.7%, and the Nasdaq soared 5.2%. Shares in Europe traded mostly lower in the last trading session of the week as the markets continued to react to the sudden resignation of UK Prime Minister Liz Truss the day before. The Euro Stoxx 50 was down 0.5% on the day and up 2.8% for the week. 

Summary

  • Asian equity markets were mixed on Monday, driven by weakness in Chinese markets. Shares in Australia, Japan and South Korea were trading higher while those in mainland China and Hong Kong slumped as investors reacted to mixed Chinese economic numbers and assessed the country’s policy direction after President Xi Jinping tightened his grip over the ruling party. 
  • European and US equities appear to be set for gains as investors looked ahead to a batch of earnings reports from big tech companies this week which could move the markets. 
  • Oil prices remained sideways for the past three sessions as investors weighed the prospect of tighter supply against fears of a demand-sapping global recession.  
  • US treasury yields were mixed following the WSJ report and as the economic calendar was quiet on Friday. The yield on the 2-year note declined 11 basis points (bps) to 4.49%, the yield on the 10-year note was unchanged at 4.22%, and the 30-year bond rate rose 12 bps to 4.34%. 
  • The Chinese economy advanced 3.9% year-on-year in Q3, exceeding market consensus of 3.4% and picking up from a 0.4% rise in Q2. However, the latest results brought the year-to-date growth to 3%, well below the official target of around 5.5%, reflecting Covid measures, especially during Q2, softening exports, and a property downturn. In other economic data released this morning, the country’s retail sales, exports and labour market weakened in September.  
  • Rishi Sunak took a huge step toward becoming the UK’s next prime minister after Chancellor of the Exchequer Jeremy Hunt endorsed him and former premier Boris Johnston pulled out of the contest. In a statement Johnson said he would not stand for fear of dividing the Conservative Party. Sunak faces House of Commons Leader Penny Mordaunt in what is now a two-person race. 
  • San Francisco Fed President Mary Daly echoed the sentiment expressed by the WSJ reported, saying it is time to start talking about slowing the pace of the hikes in borrowing costs and that doing so should avoid sending the economy into an “unforced downturn” by hiking interest rates too sharply. In addition, Chicago Fed President Charles Evans reiterated his stance that the Fed should get policy to “a bit above” 4.5% by early next year and then hold it there. 
  • Verizon Communication reported a Q3 EPS of $1.32 on Friday, which compares favourably with estimates of $1.29, on a 4.0% y/y rise in revenues to $34.20 billion, above the Street’s $33.76 billion forecast. The company said it added 342,000 wireless home internet customers during the quarter but only 8,000 monthly wireless phone subscribers, which was well short of analysts’ estimates of 38,500. It reaffirmed its full-year guidance. 
  • American Express reported Friday a Q3 EPS of $2.47, besting estimates of $2.40, as revenues rose 6.5% y/y to $13.56 billion, just above the expected $13.52 billion. The company said it continued to see high levels of customer engagement and loyalty across its premium Card Member base, with overall spending up 21%, driven by 57% growth in travel and entertainment spending. Looking forward, it said it expects full-year EPS to be above its previous guidance of between $9.25 to $9.65 and continued revenue growth of 23% to 25%. However, an increase in its reserves for potential defaults seemed to be a catalyst that weighed on its shares. 
  • It will be a busy week in the US with earnings reports, preliminary estimates for Q3 GDP growth, durable goods orders, and flash PM readings taking central stage. Also, investors will closely follow central bank meetings in Euro Area, Japan, Canada, Brazil, and Russia, and fresh Q3 GDP growth figures for Germany, France, Spain, and South Korea. Finally, flash PMI figures for Euro Area, UK, Japan, and China should provide some insights into the economic activity in October.