Are US earnings resilient to inflation, war and COVID-19?

Week started quietly on Monday, as many European markets were closed for the Easter holiday. Trading volumes were slim, and the US indices swung between slim gains and losses following a bearish session on Friday which sent the S&P500 1.20% down and Nasdaq more than 2% lower, to a fresh one-month low.  

Inflation worries, the hawkish Federal Reserve (Fed) expectations, the intensifying war in Eastern Ukraine and rising energy prices weigh on appetite, while better-than-expected earnings from big US banks, including the Bank of America, Morgan Stanley and Citigroup, hint that the US earnings season could be a positive surprise and confirm that the US economy is resilient to higher inflation, higher energy prices, war disruptions and the Chinese lockdown. 

Earnings from big US technology companies should help determining the short-term direction in US equities. Johnson & Johnson, IBM and Netflix will go to the earnings confessional today. Procter & Gamble, Tesla and United Airlines are due to report earnings on Wednesday, Snap, Dow, American Airlines and Philip Morris International on Thursday and American Express on Friday. 

Gold up, Bitcoin down 

Risk appetite remains slim, and the rising geopolitical tensions increase appetite in safe haven assets. Gold rallied to the $2000 per ounce on Monday, despite the positive pressure on US yields – which increase the opportunity cost of holding the non-interest-bearing gold. The worsening tensions in Ukraine could enhance capital inflows toward the yellow metal in the short run and help the bulls clear the $2000 offers.  

Bitcoin, on the other hand, remains under a decent selling pressure and trades near the $40K mark as the cryptocurrency moves parallel to risk assets, and more precisely to technology stocks right now. Appetite in cryptocurrencies is limited due to the rising inflation that boosts the expectations of a tighter Fed policy and a possible recession. 

Oil rises on Ukraine tensions, Libyan unrest 

Crude oil flirted with the $100pb mark on Monday on rising tensions in Eastern Ukraine, and unrest in Libya.  

Libya closed its biggest oil field – which can pump up to 300’000 per day, due to protests and warned of further disruption. A nearby facility which could pump 65’000 barrels per day was closed for the same reason. Overall, the Libyan oil production fell by more than half a million barrels per day, and the National Oil Corporation declared force majeur and suspended exports.  

The Libyan unrest intensifies the energy crisis, as the European lawmakers warn that paying the Russian oil and gas in rubles would violate the sanctions and could force the European countries to stop buying energy from Russia. 

As such, risks in crude oil remain tilted to the upside although growth in drilling permits for new wells in the US Permian basin, which is the most prolific US oilfield, could signal a future production surge by allowing a horizontal drilling. But that production may not hit the market before 2023.