US equities post best January since 2019 ahead of decisive Fed meeting

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. 

The Dow added more than 1% on Tuesday, while the S&P 500 and Nasdaq 100 almost gained 1.5% and 1.7%, respectively, as investors digested a batch of economic data and earning results in the busiest week of earnings season. On the economic front, the growth in US labor costs slowed down in December, indicating that the Federal Reserve’s aggressive approach to tame inflation will most likely ease later today. General Motors jumped almost 8% on its firm earnings report and Pfizer added 1.4% amid its weak 2023 outlook, while Caterpillar missed estimates and dipped 3.5%. Meantime, PayPal went up 2.3% after it planned to cut 2,000 jobs. In January, the Nasdaq 100 rallied 11.5%, while the S&P 500 and Dow were up 6.6% and 2.9%, respectively, marking their third positive month.  Meantime equities in Europe finished mixed, as the markets digested a series of economic reports from all over the region, while also appearing cautious ahead of looming monetary policy decisions. 

Summary as at 01.02.2023 

• Asian equity markets rose on Wednesday as investors digested a raft of regional manufacturing PMI data which yielded mixed results for January, as China’s economic reopening vied with weakening global demand.  Shares in Australia, Japan, South Korea, Hong Kong, and mainland China all advanced. 
• European shares are poised to nudge higher this morning while US equity futures tick lower as traders await the Federal Reserve’s latest rate hike decision later in the day. 

• Oil prices were higher in early morning trade as investors awaited production guidance from OPEC and its allies which is expected to maintain its current oil production levels at a monitoring meeting on Wednesday. Meanwhile, global economic uncertainties continued to grip commodity markets as manufacturing data and corporate earnings in major economies yielded mixed results. Elsewhere, industry data showed that US crude inventories increased by 6.3 million barrels last week despite forecasts for a 1 million barrel decline. 
• The Caixin China General Manufacturing PMI edged up to 49.2 in January from December’s 3-month low of 49.0 but less than the market consensus of 49.5. This was the sixth straight month of a drop in factory activity. Output fell the least in 5 months while a fall in new orders eased. Buying levels dropped at the slowest pace in 3 months while foreign demand remained weak, falling for the sixth month. On inflation, input and output prices diverged for the fourth month running. The rise in input cost was due to the elevated cost of raw materials, particularly metals, while output prices fell, on sluggish market activity. Finally, the sentiment was at its highest since April 2021, buoyed by hopes of better economic conditions and a rebound in orders. 
• Compensation costs for civilian workers in the US increased 1% Q4 2022, a third straight slowdown, compared to a 1.2% rise in the previous quarter and slightly lower than market forecasts of 1.1%. Wages and salaries which make up about 70% of employment costs rose 1% (vs 1.3% in Q3) and benefit costs went up 0.8%, also lower than 1% in the previous period. Year-on-year, compensation costs rose 5.1%, slightly above 5% in Q3, but adjusted for inflation, they fell 1.3%. 
• The Eurozone economy grew slightly by 0.1% in Q4 2022, easing from a 0.3% expansion in the previous three-month period but beating market consensus of a 0.1% contraction, a preliminary estimate showed. It was the weakest pace of expansion since Q1 2021 as demand and activity were hit by high inflation and rising borrowing costs, as well as supply chain bottlenecks. Amongst the bloc’s largest economies, the GDP grew in Spain (0.2%, the same as in Q3) and France (0.1% vs 0.2%), but contracted in Germany (-0.2% vs 0.5%) and Italy (-0.1% vs 0.5%). 
• United Parcel Services Inc posted adjusted Q4 EPS of $3.62, slightly higher than the $3.58 estimate, as revenues decreased 2.7% yoy to $27.0 billion, compared to the forecasted $28.1 billion. The company declared a quarterly dividend of $1.62, an increase of 6.6% per share, and also authorized a new $5.0 billion share repurchase program that replaced the existing authorization. UPS also provided a revenue guidance range that was slightly below expectations and an adjusted operating margin range that was roughly in line with forecasts.  

• Pfizer Inc reported Q4 EPS of $1.14, above the expected $1.05, as revenues grew 1.9% yoy to $24.29 billion, slightly below the estimated $24.38 billion. For the full-year 2022, revenues were $100.3 billion, which marked an all-time high. Management noted how the company plans to make significant incremental investments in 2023 to support launch products and R&D projects. However, the company provided full-year EPS guidance that was well below expectations, and a revenue range than was also lower than forecast. 
• General Motors announced adjusted Q4 EPS of $2.12, above the estimated $1.69, as revenues climbed 28.4% yoy to $43.11 billion, versus the $39.96 billion expectation. The automotive manufacturing company said that it expects its core auto operations to perform at a consistently strong level in 2023, and offered full-year EPS guidance that came in above estimates.  
• Caterpillar Inc announced adjusted Q4 EPS of $3.86 compared to analysts’ estimates of $4.02. Revenues rose 20% yoy to $16.60 billion, besting the estimated $15.82 billion.  
• In extended trading on Tuesday, Snap plunged 14% after the social media firm missed revenue forecasts in the latest quarter, dragging peers Meta Platforms (-1.3%) and Pinterest (-2.1%) lower. Electronic Arts and Western Digital also tumbled on disappointing quarterly updates, while chipmaker AMD gained after beating estimates on the top and bottom lines