IG Morning Call

[MongiIG]

Markets are looking to begin the week on a more positive note, after another impressive late-session rebound by US stocks on Friday. Wall Street came storming back to end a volatile week on a much better footing, defending the lows again and providing some hope that the selling has subsided for now. The impending Lunar New Year holiday in Asia has already caused a thinning out of volumes but indices in the region followed the US lead and recovered, while European futures are pointing towards some gains for the cash markets on the open as well. The focus of the day will be on inflation from Germany and the Chicago PMI figure, but Amazon's results tomorrow, accompanied by ExxonMobil and others, will begin to loom large as the day goes on. 

 

[MongiIG]

Yesterday's strong session in the US and most of Europe has helped to put markets on a more secure footing. With the FOMC meeting out of the way, and six weeks until the next one, investors have been able to recover some of their optimism. US earnings season is still in full flow, but the declines have driven prices and valuations back down to a level that allows buyers to at least consider jumping back in. Indices in Japan and Australia made small gains overnight, but most of the region was closed for the Lunar New Year. Today sees the publication of German and eurozone employment data, along with the US ISM manufacturing PMI, but crucially also the release of earnings for Amazon and Alphabet. 

 

[MongiIG]

Stock markets continue their broad-based recovery, and earnings from Alphabet have provided the latest reason for optimism. Defying expectations of a slowdown, the stock delivered a jump in revenue, along with a stock split that could see it head towards eventual inclusion in the Dow. The Lunar New Year holiday means trading is still thin in Asia, but those markets that were open made headway once again. The focus on tech continues with Amazon tonight, while the monthly ADP report puts the spotlight on US jobs growth, which culminates in Friday's payrolls. 

 

[MongiIG]

Earnings from Meta (formerly Facebook) last night spoiled much of the positive atmosphere that had prevailed throughout most of Wednesday's session. A gloomy forecast on ad revenues, and a fall in user numbers, prompted the 20% for this market titan, taking the Nasdaq along with it. The Dow still managed to make gains for another day however, unfazed by the poor ADP jobs report, which showed a loss of 300,000 for the month. Today sees central banks once again dominate the scene. The Bank of England is expected to raise rates to 0.5%, while also signalling the beginning of its quantitative tightening programme. No major changes are expected from the European Central Bank, but with the market expecting at least two rate hikes from Christine Lagarde and co this year, a more hawkish tone to the statement would not be surprising. 

 

[MongiIG]

After the Meta shock on Wednesday, Amazon earnings helped the market to recover some of its poise, although it came after the bell. The retail giant saw sales surge 24%, while profits rose to $14.3 billion. Yesterday's rate hike from the BoE was accompanied by the appearance of a hawkish caucus on the MPC, while the ECB also shifted tack and a rate hike from them later in the year now looks likely. Today's focus is on the US jobs report, following on from the surprise drop seen in the ADP figure on Wednesday. While there is no direct link between the two, expectations regarding today's print have become much more muted in the wake of Wednesday's disappointing figure. 

[MongiIG]

Last week's volatility looks set to continue into the new week, as inflation concerns remain front and centre. Friday's jobs report cooled fears of a sudden reversal in jobs growth, but the rise in wages, together with the gains in crude oil throughout the week, point towards the likelihood of a rise in US rates at the next Fed meeting. Most markets in Asia were softer overnight, although Chinese indices rose as they returned from their new year break. Today marks a quieter day after recent activity, with little of note on the calendar for the day, but a cautious recovery in markets appears in progress, at least for the time being.

[MongiIG]

It was another mixed day for US markets, which continued to struggle for direction. Early gains and a rally towards the close were reversed, but overnight trading has not seen any further moves to the downside. Asian markets were also mixed, as Japan rose while Chinese stocks fell sharply on news that the US government might add more entities to its export control list. Monday saw both earnings and economic data take a small break, and while today has earnings from Pfizer, in general this week's crop of reports lacks some of the heavyweight punch that was such a feature of last week.  

[MongiIG]

US stocks took advantage of the quieter day yesterday to make further headway in their bid to recover from recent weakness. While European markets were much more muted, Wall Street was able to move firmly higher. In Asia overnight, the Hang Seng gained thanks to recovering tech stocks and a stronger aluminium price, while the Nikkei also rose 1.2%. Today sees the focus on pharmaceutical companies continue with GlaxoSmithKline reporting earnings in the UK, and then Disney and Uber scheduled for the US.

[MongiIG]

Another solid day for stock markets witnessed strong recoveries across a variety of markets. Weaker US bond yields provided a break for hard-hit growth stocks, but both the Dow and S&P 500 also had a good day. Asian markets were more mixed, with the CSI 300 and Hang Seng both lower, although the Nikkei rose 0.3%. Today sees the release of US CPI for January; the key event of the week, another strong rise in this reading could put pressure on stocks once again as worries about tighter US monetary policy come to the fore.

[MongiIG]

US markets gave up the gains of the previous two days in the wake of yesterday's CPI reading, prompting a dramatic reversal in sentiment matching that seen in the price. Inflation hit a new high of 7.5% year-on-year, increasing expectations that the Fed will have to raise rates more quickly and more dramatically than had been the forecast only a few days ago. US equities have been hit by a wave of selling that looks set to spread to European markets, with the move amplified by comments from regional Fed president James Bullard, who wants a 50 basis point hike in March and for 100 basis points to have been added by July. With little on the calendar for the day it looks like the focus will remain on this changed outlook, with further losses expected for Wall Street when it opens this afternoon.

[MongiIG]

Warnings on Friday that a Russian invasion of Ukraine had suddenly become much more likely, accompanied by news that several nations, including the US and UK, had advised their citizens to leave that country, prompted a sharp turn lower for risk assets on Friday. Oil prices continued to rise, providing yet another boost for global inflation, driven by fears that a conflict could disrupt supply. Asian markets were hit hard too overnight, and it looks like a weaker open for European markets too. Fears about Fed tightening have been on the rise too, although speculation that March could see a 50-basis point hike has died down, while concerns that today's unscheduled Fed board meeting could see a sudden rate hike have faded, since no change to the bond buying schedule have been made and the bank has said it would only raise rates after its bond buying had come to an end. Today's quiet calendar means markets will continue to focus on the situation in Eastern Europe, and further rises in oil and natural gas prices may occur as a result. 

 

[MongiIG]

Suggestions that a Russian attack on Ukraine remains imminent continue to hit global markets, pushing US markets lower once again on Monday and causing sharp losses in the Asian session overnight. Financial stocks led the way lower, as they did in Europe and the US on Monday, as some of the recent gains arising from expectations of tighter policy were unwound as investors wondered whether a conflict in eastern Europe would cause the Fed and others to stay their hand for the time being. Energy names also struggled too, although oil prices continue to be resilient thanks to the overall strong demand and unchanged supply outlook. A calmer day is expected for now, although another rise in US factory-gate prices will bring inflation concerns back to the forefront.

 

[MongiIG]

Risk appetite has recovered to an extent, with US indices snapping a three-day losing streak yesterday. Signs of at least a small withdrawal of Russian troops helped lift sentiment, providing a boost for indices in Europe and the US, which carried over into the Asian session. Comments from President Biden reflected the ongoing unease however, since significant Russian forces are still arrayed along the Ukrainian border, giving them the potential to move swiftly if a conflict develops. Chinese CPI rose by 0.9% year-on-year overnight, although this was slightly below forecasts, while UK price rises for January beat forecasts with a 5.5% rise, providing further confirmation that the Bank of England will hike rates once again at its next meeting.

 

[MongiIG]

US stock futures ended mixed in the previous session, as investors weighed geopolitical developments in Ukraine, earnings results and the latest FOMC minutes, filtering through to the Asian session overnight. Fears from NATO about Russian duplicity and commitment to diplomacy weighed on financial markets as the situation about actual number of Russian troop withdrawals from the Ukrainian border is unclear. FOMC minutes gave little new information, nor conveyed any heightened urgency, for the US Federal Reserve to tighten policy. Oil prices continue to be resilient thanks to the overall strong demand and unchanged supply outlook while gold probes its 1877 to 1879 resistance in view of ongoing geopolitical tensions. The European open is expected to be down, although a packed earnings calendar in Europe, the UK and US initial jobless claims may create some volatility.

 

[MongiIG]

Wall Street sold off, with technology stocks leading the dive into options expiry, as investors were kept on edge amid ongoing geopolitical concerns as tensions over Ukraine remained high with gold rallying to an 8-month high at $1900. Stock selling pressure eased in Asian trade after US secretary of state Antony Blinken agreed to meet with Russian foreign minister Sergei Lavrov next week, raising hopes for a diplomatic solution to the Russia-Ukraine standoff. After eight consecutive weekly gains WTI crude futures slid to around $90 per barrel and were headed for their first weekly loss, as the prospect of Iranian oil returning to the market outweighed fears of possible supply disruptions from a Russia-Ukraine conflict. The European open is expected to be higher, and with today's light economic calendar all eyes will likely be focused on Eastern Europe.

 

[MongiIG]

Friday saw further losses for markets as tensions in Ukraine increased once again. A war now seems more likely, with a rising number of ceasefire violations taking place and warnings of 'provocations' coming from the Russian side. A summit between the US and Russian foreign ministers, and even discussion of a meeting between Biden and Putin has given hope that war might yet be avoided, and futures have firmed up overnight, despite another tough session for Asian markets as well. US markets are out of the picture due to the Presidents Day holiday, leaving European markets to struggle on without them in what will be a low-volume session. However, the release of February's flash PMIs means that the day is not entirely uneventful.

[MongiIG]

A bounce in European markets and in US futures did not last long yesterday, as the crisis in Ukraine entered a new phase. Russia has now officially recognised the two breakaway republics in eastern Ukraine, and Russian troops have entered these areas. A wider conflict between Russia and Ukraine looks inevitable, and Western nations are now beginning a discussion of a first round of sanctions. Markets fell sharply on the news, and while US cash markets were closed, futures there registered losses too. That continued overnight, and European markets are facing fresh losses this morning. While today's calendar features the German IFO index plus US flash PMIs for February, the likelihood is that the Ukraine conflict and possible European and US sanctions will dominate the day. 

 

[MongiIG]

US markets continued to fall further yesterday as the crisis in Ukraine rumbled on. In response to the Russian recognition of the two breakaway republics the US and European nations imposed sanctions on Russia, which will likely draw a response from Moscow. Fighting appears to be intensifying, although most Russian troops do not appear to have entered Ukraine yet. Oil and gas prices continue to rise on fears of further disruption as well. While Asian markets managed to push higher, the atmosphere remains nervous, with most investors continuing to anticipate further developments in the crisis. 

 

[MongiIG]

Thursday saw a broad risk-off move across European markets, although US indices did manage to rebound off their lows. The Nasdaq in particular sustained a large bounce, but the overall atmosphere remains risk-off. Oil and gas prices surged as Russia began its move into Ukraine, and look set to move higher, although so far there has been no disruption to supplies of energy to Europe. Asian markets also managed to rebound from their lows, but this bounce seems likely to be short-lived; the Russian assault is in its early stages and markets are still at risk of further falls. 

 

[MongiIG]

While markets initially dropped back overnight, they have managed to avoid any further losses so far. After rallying hard at the end of last week the weekend's developments prompted a wobble in risk sentiment, but with Ukrainian and Russian negotiators set to meet soon there is at least some hope that this conflict can be brought to a halt. However, the situation is likely to remain fraught, as indicated by the imposition of sanctions and the closure of European airspace to Russian flights, while Putin's decision to bring Russian nuclear forces to alert adds an extra dimension. The world and markets remain transfixed by the events in Ukraine, beside which today's US Chicago PMI rather pales into insignificance. 

 

[MongiIG]

Stock markets dropped back yesterday from the highs seen on Friday, but were able to recoup some of the initial losses. The intensifying conflict in Ukraine clearly provides a reason for caution, as does the hardening rhetoric from Moscow and the West, but markets appear to have recovered from the initial shock. Japanese and Australian stocks enjoyed a stronger session, but the Hang Seng was more mixed as Covid fears continued to predominate. Overnight the RBA left rates unchanged, and warned of further uncertainty arising from the situation in Ukraine. The monthly US ISM manufacturing PMI is released this afternoon but President Biden's State of the Union address will be one to watch as markets attempt to gauge the next steps in the US response to the Russian invasion. 

 

[MongiIG]

Asian markets fell overnight, reversing some of the gains from earlier in the week, following the lead set in Europe and the US, where equities dropped sharply as the war in Ukraine intensified. Oil prices of course show no sign of falling however, moving to a new seven-year high as reports circulate that some in the US advocate cutting off Russian oil supplies to the global market. Investors continue to look for safe havens, and while European equities are particularly hard-hit a general move to a risk-off outlook is affecting most stock markets. Today sees a busier day for data, including eurozone CPI and the monthly ADP employment report in the US. The Bank of Canada is also expected to raise rates to 0.5%, joining the ranks of those that have tightened policy in recent months.

 

[MongiIG]

Despite the ongoing surge in oil prices, hints from Jerome Powell that the Fed's pace of tightening may not be as dramatic as first feared helped to lift stock markets yesterday. This more positive tone carried over into Asia, where stock markets were also looking stronger. Fears of a 50-basis point hike have been eased, as Powell noted the uncertainty surrounding the outlook due to the war in Ukraine. Nonetheless, the ongoing rise in oil means that inflation and growth concerns will remain front and centre for the time being. Yesterday's ADP jobs report helped to revive faith in the US economic recovery, after a strong number for February and a big revision to January's poor number. 

 

[MongiIG]

It continues to be a whipsaw week, with equities oscillating between gains and losses on alternate days. Yesterday's commentary from Powell to lawmakers raised fears of an economic slowdown due to the war and higher oil prices, prompting a reversal in some of the bullishness seen earlier in the session. Today sees non-farm payrolls released, with the focus being on whether the US economy can show further growth in job numbers; Wednesday's ADP report, which was quite strong, will be uppermost in people's minds. Oil prices are quiet so far today, but despite yesterday's reversal further increases are expected in the near-term.

 

[MongiIG]

Asian markets suffered fresh falls as the week got underway, while oil prices continued to make gains, although some of the upside was trimmed during the session. The Nikkei fell 3.4% to a fifteen-month low, while the China CSI300 was down over 2%. Commodity prices continue to rise generally, and talk of cutting off Russian oil supplies would likely mean further rises boosting global inflation yet further while also putting pressure on consumer spending. A meeting of NATO foreign ministers is expected today, as the organisation debates what further measures to take in response to the war. With an empty economic calendar today, the war will continue to take centre stage.

 

[MongiIG]

Another tough day in markets yesterday saw heavy losses for most European indices and US markets too, and this has continued overnight. Surging commodity prices, including nickel, wheat and of course oil, raise the spectre of slowing growth and strong inflation, a worrying scenario for policymakers. While European nations are hesitant, the US is looking to push ahead with restrictions on Russian oil exports, which Bank of America said could push prices to $200 a barrel and Moscow has said a $300 would be likely as a result. The losses in stock markets may slow today, but the broader risk-off atmosphere seems to have much further to run. 

 

[MongiIG]

The sudden surge in optimism over the past 24 hours, and the accompanying bounce in market prices, has been driven by tentative signs of a willingness to negotiate on both sides, and a move towards increasing oil output to deal with the rise in prices. Russian and Ukrainian officials will meet again today, which at least shows that the talking will continue. Today sees the release of the latest US CPI figures, which will be interesting given the ongoing surge in energy prices, while the ECB also meets. Policy is not likely to change today, and given the Ukraine situation the likelihood of an imminent rate rise here has been dialled back, but the bank will still need to respond to the ongoing rise in prices. 

 

[MongiIG]

Further losses in Asia overnight came after a session in which most US and European indices lost ground. US CPI figures were strong once again, while the ECB meeting struck a more hawkish tone than many had expected, reminding markets of the challenges of rising prices and tightening policy. Hong Kong fell 3.7% as concerns about Chinese firms listed in the US took hold, while Japan was down 2.4% and the ASX200 fell 0.9%. The prospect of rising prices eroding incomes and growth forecasts being slashed continues to hobble stock markets. In addition, next week's Fed decision on Wednesday is beginning to appear on investors' radar, providing another reason for nervousness.

 

[MongiIG]

After a week of volatility, markets attempted to find some support overnight. Asian markets were generally positive, with Japan's Nikkei rising 0.9%, but Chinese markets suffered after Shenzhen was put in lockdown to fight rising Covid cases. Hopeful comments from negotiators in the Russia-Ukraine talks also helped to steady the mood, although fears of escalation remain. This week sees central banks in the US, UK and Japan make decisions on monetary policy, with the first two both expected to increase rates. The week begins quietly however, with little in the way of major economic data.

 

[MongiIG]

It was a tough session for Asian markets, which fell back once more, led by Chinese stocks. The Hang Seng fell 4%, having already lost 5% on Monday, as fears over widening lockdowns and growing US-China tensions over aid to Russia came to the fore. Rising Covid cases in China have caught overextended commodity prices too, driving prices lower on fears of weakening demand. US futures look steady however, with the continuing negotiations between Russia and Ukraine providing some hope for the near-term, although actual progress on a ceasefire deal is still very limited.