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 significantly damper globalization and further fuel higher structural inflation. 

US equities finished higher yesterday after whipsawing in response to a comment from Fed Chair Powell. The Chairman spoke at the Economic Club in Washington, saying that disinflation has begun, but interest rate increases would likely continue. The moves came as the markets were looking for more insight regarding monetary policy, but all-in-all Powell’s remarks appeared to offer little in the way of new information on the Fed’s path forward. The Dow Jones Industrial Average rose 0.8% to 34,157, the S&P 500 Index increased 1.3% to 4,164, and the Nasdaq Composite advanced 1.9% to 12,114. European equity markets also closed higher on Tuesday, helped by gains in energy-related shares as oil prices rose for a second day and BP reported a record profit, increased dividend, and a $2.75 billion share buyback. 

Summary as at 08.02.2023 

  • Asian equity markets were mixed this morning as investors digested mixed economic data in the region. Shares in Australia and South Korea advanced, while Hong Kong and mainland China equities declined. Japanese shares also fell sharply amid heavy losses in SoftBank Group and Nintendo on disappointing quarterly profits. 
  • European shares are poised for gains as they open on Wednesday, tracking the overnight rise on Wall Street.  
  • Oil prices held steady on Wednesday after rallying for two straight sessions, underpinned by industry data showing US crude inventories decline by 2.18 million barrels last week, defying forecasts for a 2.15 million barrel increase. 
  • Federal Reserve Chair Jerome Powell stuck to his message that interest rates need to keep rising to quash inflation. In particular, Powell floated the idea during an event in Washington on Tuesday that borrowing costs may reach a higher peak than traders and policymakers anticipate. His remarks suggest that the 5.1% interest-rate peak forecast by officials in December, according to their median projection, is a soft ceiling. Federal Reserve Bank of Minneapolis President Neel Kashkari shared the view by saying that January’s strong labor-market report shows the US central bank needs to keep raising interest rates. 
  • Turkey declared a three-month state of emergency in areas struck by two massive earthquakes earlier this week, allowing the government more leeway for rescue and reconstruction efforts. The death toll across Turkey and neighboring Syria is nearing 8,000, while more than 11,000 buildings have been damaged by the temblors, trapping many. Turkish President Recep Tayyip Erdogan’s government is overwhelmed by the extent of the logistical problems and aid needed to assist the 13.4 million people living in the areas affected by the disaster. Many countries have pledged to help, including the US. 
  • Rating agency Fitch has revised its forecast for China’s economic growth in 2023 to 5.0% from 4.1% previously as consumption and activity are recovering faster than initially anticipated after the authorities moved away from their “dynamic zero COVID-19” policy stance in late 2022. 
  • Societe Generale, posted a higher-than-expected profit in Q4, driven by a strong performance of its corporate and investment banking division as it set aside more money for failing loans. The reported group net income for the quarter came in a €1.16 billion, beating the analyst consensus of €834 million. The figure was 35% lower than the same period a year ago, as the bank’s hiked provisions for failing loans, which increased by nearly fivefold to €413 million in an uncertain economic environment. 
  • Credit Suisse will pay some of its junior and mid-level banker bonuses in installments, adding to turmoil in the firm’s handling of employee compensation as it seeks to overhaul its operations after a series of scandals and deep losses. Each of the three installments will be paid about 40 days after April 1, July 1, and Oct. 1. The embattled Swiss lender also this week postponed its much-anticipated compensation day for some investment bankers at the managing director or director level.