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, extending the previous week’s solid gains, as the markets reacted to a day full of earnings and economic data. On the earnings side, Dow members Chevron and Exxon Mobil bested expectations while economically, personal income and spending were upbeat and employment costs for Q3 moderated. The Dow Jones Industrial climbed 2.6%, the S&P 500 jumped 2.5%, and the Nasdaq Composite soared 2.9%. Markets were higher for the week, as the Dow soared 5.7%, the S&P 500 climbed 4.0%, and the Nasdaq Composite rose 2.2%. Shares in Europe were mixed, with the Euro Stoxx 50 Index up a mere 0.2% on the day and 3.8% for the week. 

Summary

  • Asian equity markets were mixed on Monday as earnings optimism and bets for a slower pace of US monetary tightening were offset by persistent economic concerns in China. Investors also digested robust retail sales data in Australia and Japan for September. Shares in Australia, Japan, and South Korea gained. Meanwhile, markets in mainland China and Hong Kong shifted between gains and losses as data showed that factory and services activity in China contracted in October. 
  • European markets look set to open higher this morning while US equity futures are seen slightly lower with the Dow still on track for its best month since 1976. 
  • Oil prices fell on Monday on concerns that widening Covid-19 curbs in China will curtail demand, offsetting signs that output at the top US shale field is losing steam. 
  • Brazil’s electoral authority said Sunday that Luiz Inacio Lula da Silva of the leftist Workers’ Party defeated incumbent Jair Bolsonaro to become the country’s next president. It is a stunning return to power for da Silva, 77, whose 2018 imprisonment over a corruption scandal sidelined him from that year’s election, paving the way for then-candidate Bolsonaro’s win and four years of far-right politics. 
  • China’s official manufacturing PMI unexpectedly declined to 49.2 in October from 50.1 in September due to softening external demand and disruptive Covid restrictions that hit production, while services sector activity contracted for the first time since May. 
  • In the US, the Personal Consumption Expenditures Price Index remained unchanged at 6.2% on a year-over-year (y/y) basis in September. However, the Core PCE Price Index rose less than expected to 5.1% from 4.9% in August, versus forecasts of 5.2%. In addition, Personal Spending was up 0.6% in September, compared with 0.4 % expected. 
  • Credit Suisse on Monday said qualified investors have committed to buying 462 million new shares at a purchase price of 3.82 Swiss francs ($3.83) as it announced details of its capital hike. 
  • Chevron reported a Q3 profit of $5.78 per share on Friday, besting consensus expectation of $4.89, on a 49% y/y surge in revenues to $66.64 billion, well ahead of the $57.36 billion forecast. 
  • Exxon Mobil also posted results that were well ahead of estimates, with Q3 EPS rising to $4.45, compared to the Street’s estimate of $3.86, as revenues grew 52% y/y to $112.07 billion, versus expectations of $104.59 billion. 
  • Sanofi reported Friday a drop of 10% in Q3 profit after reflecting a €1.59 billion impairment charge. Nonetheless, the company raised its full year guidance, predicting a growth of 16% compared to 15% previously, on the back of strong demand for its bestselling drug Dupixent and for its flu vaccines. 
  • Twitter’s new owner Elon Musk has denied a New York Times report about laying off Twitter employees at a date earlier than 1st November to avoid stock grants due on the day.   
  • It will be a very busy week in the US this week, with the Federal Reserve’s interest rate decision, labour report, and earnings reports taking centre stage. Also, investors will be closely watching central bank meetings in the United Kingdom and Australia, and inflation rate figures from the Euro Area. Finally, China will be releasing manufacturing and services PMIs for October.