Stocks dropped, yields rose and the dollar strengthened ahead of the second day of the central bank symposium in Jackson Hole. Federal Reserve Chairman Jerome Powell is set to take the stage Friday at the gathering in the US state of Wyoming. At the same meeting of central bankers last year, Powell warned markets that the US is heading towards a long period of restrictive monetary policy, causing equity markets to plummet more than 3% on the day and 13% in the following month.
In New York, stock markets finished the day weak on Thursday. Early gains disappeared throughout the session. The Dow Jones Industrial lost 1.1%, falling to 34,099.42 points and the S&P 500 closed down 1.35% at 4376.31 points. Nvidia’s earnings report gave the technology-heavy Nasdaq stock indices a short-term boost, but the gains crumbled quickly during Thursday’s session. The Nasdaq-100 lost 2.19% by the end of the day, finishing at 14,816.44 points.
In Asia, stock markets were similarly weak at the start of Friday’s session. Some macroeconomic data was thrown into the mix, with the core inflation rate in the city of Tokyo coming in at 2.8% in August, slightly below market expectations. Headline inflation in Tokyo was 2.9%, coming down slightly from 3.2% in July. The Nikkei 225 was trading down more than 2% on Friday. Hong Kong's Hang Seng Index dropped 1.2%, while the Shanghai Composite slipped 0.7%. In South Korea, the Kospi lost 0.8%. In Australia, the S&P/ASX 200 was down around 1%.
This year’s Jackson Hole Economic Symposium is being held under the theme of “Structural Shifts in the Global Economy” and ends this weekend. In addition to Powell, dozens of other central bankers and academic figures attend the conference. European Central Bank President Christine Lagarde and Bank of Japan Governor Kazuo Ueda will also be on stage on Friday and Saturday.
Adding to general jitters before Powell’s speech on Friday were comment from Susan Collins, president of the Boston Fed, who said on Thursday that the Fed may need to continue raising rates. She said she was surprised by the US economy’s resilience and that the current inflation trajectory may not be sufficient to get rates back the Fed’s target of 2%.
Corporate news in focus: There is no major corporate news scheduled today.
Economic data in focus: Day 2 of central bank symposium in Jackson Hole, German gross domestic product (08:00 CET), Switzerland’s BFS Employment Barometer (09:00), Germany’s ifo Business Climate Index (10:00), University of Michigan Consumer Sentiment Index (16:00).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.
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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).
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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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