The crisis in Ukraine has pushed energy prices higher and increased uncertainty not only around inflation but also regarding the economic growth of the union which has become much more complicated
Christian Knolling – Deutsche Bank
01/03/22 11:57
1 comments
Market situation:
The exacerbation scenario of the crisis we presented last week continues to evolve and all the other issues sit in the back seat in light of the loss of life and property in the current situation that it causes the heart to miss. In the perspective of the markets, the imposition of further sanctions on the part of the West and a possible counter-reaction on the part of Russia will be closely monitored in order to assess the damage to the world economy and growth as well as inflationary expectations. Economic data for the coming week Updated readings of the ISM Institute’s Purchasing Managers’ Index for the Manufacturing and Services Sector and the employment report to be published on Friday. Inflation figures for the eurozone will be published this coming Wednesday, but the latest developments in the crisis will not be part of the report. Starting March 5, the National Congress of People in China – NPC will meet in Beijing and steps out of the meeting may be taken to support the economic slowdown.
Economic events log:
Third:
- Australia – Australian Central Bank interest rate decision.
- China – Purchasing Managers’ Index (February).
- United States – ISM Purchasing Managers’ Index (Manufacturing Index), Fed Production Index for Dallas (February).
Wednesday:
- Canada – Canadian Central Bank interest rate decision.
- Eurozone – Consumer Price Index (February).
- United States – ADP Institute Employment Survey (February).
Fifth:
- Eurozone – unemployment rate (January).
- United States – ISM Purchasing Managers’ Index for Services (February), Factory Orders (January).
sixth:
- China – Retail Sales (January).
- Eurozone – Retail Sales (January).
- United States – Monthly Employment Report (February).
Escalation occurs in Ukraine
The situation in Ukraine worsened and the markets reacted negatively in light of the fact that a full invasion was not taken into account. The risk assets recorded a rebound on Friday in light of the fact that the sanctions imposed on Thursday did not affect the energy sector or the SWIFT system. At the same time over the weekend the United States and its allies exclude certain banks from the SWIFT system and target additional sanctions against the reserves held by the Russian central bank. However restrictions on the receipt of funds as a result of energy trading are exempt from the sanctions. In terms of market perspective the new week starts with a mood of risk aversion. The price of a Brent oil barrel is trading at $ 105 per barrel (daily increase of 7%). The indices on the indices in Europe and the United States started the week with declines of about 3%. Properties that are considered safe shores in these times are in demand.
The Bottom Line: Volatility in the markets is expected to remain high in light of the current news flow. Investors need to adopt a cautious approach to the visible range until we get more information about what is happening.
Economic Data in the United States – Purchasing Managers’ Index ISM.
Among the economic data this week in the United States we will get the ISM Institute’s updated purchasing managers’ indices for the manufacturing sector (Tuesday) and the services sector (Thursday) as well as the monthly employment report on Friday. The 2 ISM calls are expected to indicate an improvement over the previous month (58 for the manufacturing sector and 61 for the services sector) but the general trend for the 2 sectors is on a slowdown compared to the peak recorded in the summer months of 2021. Investor attention remains on the sub-sections Of prices paid and new orders. Regarding the monthly employment report to be published this weekend, attention will be paid to the labor force participation rate. The previous figure was 62.2% and there is talk of how long it will take to reach the pre-corona level which stood at 63.4% given the number of people who left the labor market due to the corona crisis.
The Bottom Line: The labor market participation rate will be closely monitored.
The reporting season for the 4th quarter is coming to an end
The reporting season for the 4th quarter in the United States and Europe is entering the final stage. 476 companies in the S&P 500 index and 341 companies in the STOXX 600 index reported their results for the 4th quarter so far, while this week 17 and 62 (4% and 7% in terms of market capitalization) companies will be reported. The rate of increase in the combined profit remains very high on both sides of the ocean, 30.7% for the S&P 500 index and 55.8% for the STOXX 600 index. The data for the revenue item increase by 15.9% for the S&P index 500 and 20.6% For the STOXX 600. It is important to note that in terms of growth compared to the previous quarter recorded a stronger slowdown than Europe. At the same time when looking at the rate of companies beating the forecasts it is not reflected. To date, 77% of S&P 500 companies have beaten earnings forecasts by an average of 6%. The infrastructure sector is the only sector that recorded a decrease in profit compared to the corresponding period last year and the only industry sector that did not record a positive surprise rate in profit compared to expectations. 53% of companies in the STOXX 600 index beat profit forecasts by an average of 6.1% and the rate of increase in profit for cyclical sectors bypasses the defensive sectors.
The Bottom Line: The reporting season for the 4th quarter is strong so far but it is expected to stand in the shadow of recent events in Ukraine.
Inflation in the eurozone is supported by energy prices
The escalation in the situation between Ukraine and Russia and the invasion of Russia into the territory of Ukraine complicated and led to uncertainty regarding the inflation forecast. Consumer price index data released on Wednesday this week will not reflect recent developments and the inflation rate is expected to remain around January levels (the consumer price index will stand at 5.1% compared to the same period last year and the core index will stand at 2.4% compared to the same period last year). Expectations were that price increases stemming from temporary effects from supply and supply chains as well as administrative ones would begin to offset soon. At the same time, half of the prices in the eurozone are now expected to rise again in light of the high rise in energy prices. As high energy prices continue they will not only be reflected in higher inflation but will also hurt economic growth as the purchasing power of consumers and companies shrinks in light of rising food, energy and heating prices. The economic and inflationary situation became much more complicated last week and it will be interesting to see what the reaction of the European Central Bank will be at its next meeting on 10 March.
The Bottom Line: The crisis in Ukraine has pushed energy prices higher and increased uncertainty not only around inflation but also regarding economic growth.
China: National Purchasing Managers’ Index and National Congress (NPC).
China will report its PMI data this week. Purchasing managers’ indices for the manufacturing and services sector are also expected to remain relatively weak in light of the rigid approach in dealing with the corona virus. All of these may increase pressure on the Chinese central bank to take mitigating monetary measures soon, which will provide a boost to growth stocks and bond prices. In addition, the annual NPC conference will kick off on March 5 in Beijing. This is an event that will receive close attention. Economic incentives may emerge after the end of the conference that will support China’s economic recovery in the coming quarters.
The Bottom Line: The NPC may approve additional economic incentives in light of the relatively weak economic conditions.