Market view and Insights
According to the latest data, inflation in the USA firmed up again at the beginning of the year and consumer sentiment brightened, which in turn increased interest rate concerns on capital markets. Against this backdrop, the mood on stock markets remains depressed. Changes will be made to the constituents of Germany's major stock indices on the Frankfurt stock exchange today. This week, the focus is once again on a series of corporate results from Europe. In addition, Commerzbank is making a comeback on the Frankfurt Stock Exchange today, replacing gas company Linde in the DAX.
On the New York Stock Exchange, the Dow Jones Industrial dropped by 1.02% to 32,816.92 points on Friday, thus limiting the even greater losses during the day. The Dow was down 3% for the week, falling back to pre-Christmas levels. The broad S&P 500 closed 1.05% lower at 3,970.04 points and on the Nasdaq technology exchange the indices fell by 1.7% before the weekend. On the bond market, the yield on ten-year US government bonds remained close to the 4% mark at 3.94%.
In Asia, stock markets started Monday mostly negative. In Tokyo, the Nikkei 225 fell minimally, by around 0.1%. In Hong Kong, the Hang Seng tech index posted a daily loss of almost one per cent. On the Chinese mainland, the Shanghai Composite slipped 0.3% and the Shenzhen Component fell 0.7%. China's central bank maintained a moderately "dovish" tone in its quarterly report and reaffirmed its current monetary policy stance.
At the beginning of the year, the PCE price index, which is calculated on the basis of consumer spending, turned out to be much higher than expected. The price index, which is monitored by the US Federal Reserve (Fed) as an inflation indicator, rose by 5.4% year-on-year in January (consensus 5.0%). In addition, the annual rate for December was revised upwards from 5.0% to 5.3%. This means that the US monetary policy stance is likely to remain restrictive. As was also reported on Friday, US consumer spending rose by 1.8% in January, more than anticipated (consensus 1.4%). At the same time, Americans' incomes did not rise as much as expected at the beginning of the year, increasing by 0.6%.
According to the latest survey results from the University of Michigan, consumers in the US were more optimistic than expected in February. The consumer confidence index climbed from 64.9 points in January to 67.0 points, the highest level since the beginning of 2022.
German consumers were more confident about the economic development in Germany. According to the Nuremberg-based consumer research company GfK, the consumer climate barometer calculated for March improved by 3.3 points to minus 30.5 points. "Consumer pessimism is visibly fading," GfK commented.
All about global economic and market trends at a glance
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Editor: Alessandro Fezzi,
Source: LGT Bank (Switzerland) Ltd.
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Reference regarding analysis history
If this analysis was made available to any issuers mentioned in the publication prior to its distribution or publication, no changes were made to the price or rating after the issuer’s feedback. Important references for Liechtenstein can be found in articles 3 to 6 FinMV [Financial Analysis Market Abuse Ordinance], for Switzerland in the Swiss Bankers Association Directives on the Independence of Financial Research, and for Austria in section 48 BörseG [Stock Exchange Act], the Austrian analysis principles of the Österreichische Vereinigung für Finanzanalyse und Asset Management [Austrian Association for Financial Analysis and Asset Management, ÖVFA] and the Austrian Society of Investment Professionals (ASIP) and the Standard Compliance Code of the Austrian banking sector. A history of all ratings and recommendations is available at your LGT relationship manager.
Essential sources of information
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Reference regarding valuation rates
Unless otherwise stated or specified, the rates used in the analysis are normally the share prices provided by the news agencies Reuters and/or Bloomberg at the close of the stock exchange of the domestic market of the analyzed security or the relevant principal market of this security on the respective local stock exchange on the eve of the day of compilation.
Explanation of investment recommendations for stocks
We apply a “hybrid approach” (internal fundamental analysis combined with “theScreener”, an external, purely quantitative analysis tool). TheScreener is based on purely quantitative, i.e. computable variables such as (but not exclusively restricted to) profit adjustments of the past few weeks, stock valuation in relation to historical performance and comparison groups, the technical trend, performance in relation to the market etc. The assessment of the equity analysts, which is largely based on a qualitative analysis, does not need to match with the one of theScreener. For the overall judgement the assessment of the equity analysts overrides the one of theScreener. LGT Bank (Switzerland) Ltd. categorizes its analysis recommendations into five ratings: for a “Buy” recommendation we expect a relative outperformance compared with the sector. Only equities subjected to an internal fundamental analysis can be rated “Buy”. The recommendation “Attractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly positive” or “positive”. A moderate relative outperformance versus the index is expected. For equities that we rate as “Hold” we expect a performance largely in line with the one of the sector. This can comprise both equities for which a fundamental analysis has been carried out as well as equities that theScreener ranks as “neutral” versus the index. The recommendation “Unattractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly negative”. A moderate relative underperformance versus the index is expected. By contrast, “Sell” recommendations are based on the expectation of a relative underperformance compared with the sector. This can comprise both equities for which we are recommending “Sell” for fundamental reasons as well as equities that theScreener ranks as “negative” versus the index. Therefore the ratings always reflect a relative consideration versus the sector and/or specified index. The risk assessment is based on the individual judgement of the analyst (e.g. we assume a “high” risk for illiquid shares, highly indebted companies or shares from developing countries).
Reference regarding share valuation basis: The analysis compiled by LGT Bank (Switzerland) Ltd. are essentially based on secondary research relating to fundamental and quantitative analysis. Generally accepted valuation methods (valuation multiples, return figures, sector comparisons, comparisons with past valuations etc.) are used for this. The forecasts for the quantitative analysis are prepared with the help of mathematical-statistical procedures (see statements above concerning the analysis tool “theScreener”). Economic indicators such as interest rates, currencies, commodity prices and assumptions relating to the economy are included in the overall assessment. The mood of the market also affects the company valuation. Moreover, many of the approaches are based on estimates and expectations that may change quickly and without warning, depending on developments specific to the industry. Therefore, the recommendations derived from the analysis can also change accordingly. The investment judgements generally refer to a period of 6 to 12 months. However, they are also subject to market conditions and represent a snapshot of the situation. They may be achieved more quickly or more slowly or be revised upwards or downwards.
Explanation of investment recommendations for bonds
We employ both qualitative and quantitative methods to derive our recommendations, which are to be seen as relative to sector/quality peers among comparable maturities. “Buy” and “Sell” recommendations demand a qualitative in-house analyst opinion, in which we incorporate both historical and projected financial results and credit metrics as well as past and anticipated company and sector-specific observations and trends. We recommend “Buy” for a security for which we expect a strong relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Sell” if we expect strong relative underperformance compared to sector/quality peers among comparable maturities. The ratings “Attractive”, “Hold” and “Unattractive” can be based purely on a quantitative approach, which includes the market price of credit risk, valuation of equities and associated instruments, corporate leverage, liability structure, size, and agency rating. We recommend “Attractive” for a security for which we expect a relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Hold” if we expect an average performance compared to sector/quality peers among comparable maturities. We recommend “Unattractive” if we expect a relative underperformance compared to sector/quality peers among comparable maturities.
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Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates
For more information on our methodology for bonds, please contact your LGT relationship manager or your local LGT Group company.
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