Investors maintain cautious mode despite resilient economic data

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 equity indices fell sharply in the last hour of trading, erasing gains, with the Dow closing down almost 200 points at a two-month low, and the S&P 500 and Nasdaq losing 1.1% and 1.4% respectively. The current market environment continued to pressure treasury notes, with the 2-year yield surging to 15-year highs and widening the inverted gap to the 10-year and 30-year spread. European markets were also lower with the Euro Stoxx 50 down by just over 1%, with financials as the only sector advancing following a Morgan Stanley analyst note upgrading the banking sector. 

Summary

• Asian markets are broadly lower today with shares in China off the most despite better-than-expected economic numbers. The Shanghai Composite is down 1.5% while Japan’s Nikkei 225 is off 1.1% and Hong Kong’s Hang Seng is lower by 0.6%. 
• European equities are on track to follow their Asian and US peers lower as trading opens on Friday. 
• Oil is set to decline for the third straight week as aggressive monetary tightening by major central banks and global recession fears dampened the demand outlook. Moreover, oil prices plummeted on Thursday after the US Department of Energy backtracked previous reports that the US would restock its emergency reserves should WTI crude prices drop below $80, removing the potential price floor for oil. 
• China’s latest economic data release showed growth accelerated in August. Retail sales increased 5.4% in August from the same period last year, much higher than July’s 2.7% and also above expectations of 3.5%. Industrial production grew 4.2% last month compared to a year ago, topping expectations and July’s reading of 3.8%.  
• Retail sales in the US unexpectedly rose 0.3% in August, beating market expectations of no change but following a downwardly revised 0.4% decline in July. Sales at fuel stations were down as fuel prices fell but spending surged on motor vehicles, restaurants, and at miscellaneous stores. Excluding fuel, sales rose 0.8%. 
• Russian President Vladimir Putin told Chinese leader Xi Jinping he understands Beijing’s “questions and concerns” about his invasion of Ukraine, a rare admission of tensions between the diplomatic allies. Calling Putin an “old friend,” Xi Jinping said “China is willing to work with Russia, display the responsibilities of the major powers and play a leading role to inject stability and positive energy to a world of chaos”. However, President Xi may continue to withhold material support as Putin suffers humiliating battlefield losses. 
• Germany is in advanced talks to take over Uniper and two other large gas importers in a historic step to avoid a collapse of its energy market.  
• Adobe on Thursday released third quarter earnings that topped Wall Street’s targets but sales were a tad below views. It also announced a deal to acquire Figma, a web-first collaborative design platform, for about $20 billion, which the market judged as expensive considering a drop of almost 17% in its share price on Thursday. 
• FedEx on Thursday said its fiscal first-quarter results were hit by a global volume softness that accelerated at the end of period and withdrew its financial forecast, saying it expected further deterioration of business conditions in the fiscal second quarter.