Equity markets are eagerly awaiting evidence on the US economy and the Federal Reserve's next steps. Capital markets currently expect the Fed to ease interest rates this year. The question is when and how often. This will depend on how the economy develops, the US central bank recently said. Meanwhile, the World Bank predicts that global economic growth will remain weak through 2024. In Tokyo, the Nikkei 225 surpassed 34,000 for the first time since March 1990.
On Wall Street, indices were mixed on Tuesday. The Dow Jones Industrial closed 0.42% higher at 37,525.16, while the S&P 500 lost 0.15% to close at 4,756.50. The Nasdaq posted modest gains of around 0.15%. Investors seem to be searching for direction now. US CPI data due on Thursday and the corporate reporting season starting on Friday are likely to provide fresh impetus.
In the bond market, the yield on ten-year US Treasuries was virtually unchanged from the previous day at 4.02%. Investors are still looking to lock in higher yielding Treasuries before key interest rates are cut later in the year. With both the Fed and the European Central Bank (ECB) holding rates steady recently, interest rates are expected to fall in the coming months.
As reported yesterday, the US trade deficit narrowed in November. Contrary to expectations, the trade deficit fell by USD 1.3 bn month-on-month to USD 63.2 bn (consensus USD 64.9 bn). Both exports and imports fell by just under 2% monthly.
Asia-Pacific markets were mostly lower on Wednesday, although Japanese stocks extended their gains after hitting a 33-year high in the previous session. In Tokyo, the Nikkei 225 rose 2.2%, driven by healthcare technology and consumer services stocks, and broke above 34,000 for the first time since March 1990. South Korea's Kospi was down 0.7% for the day after the country's unemployment rate hit a 23-month high. Hong Kong's Hang Seng Index fell 0.45%, while mainland China's CSI 300 was down 0.1%. Sydney's S&P/ASX 200 fell 0.7% after snapping a four-day losing streak on Tuesday. Meanwhile, inflation in Australia hit a near two-year low.
According to the World Bank, the global economy will grow at a slower pace in 2024 for the third year in a row. Global GDP growth is expected to be 2.4%, down from 2.6% last year. At the regional level, growth will slow the most this year in North America, Europe and Central Asia, and Asia-Pacific, mainly due to slower growth in China. From a low base, Latin America and the Caribbean are forecast to see a slight improvement, while the Middle East and Africa are expected to see a more pronounced upturn.
Unemployment in the euro area fell to a record low in November last year. The jobless rate fell from 6.5% to 6.4%. This means that around 11 million people were registered as unemployed in the euro area as a whole.
Corporate news in focus: Sika sales 2023, CropEnergies Q3 figures.
Economic data in focus: France industrial production November (08:45), Italy retail sales November (10:00), US MBA weekly mortgage applications (13:00), Wholesale inventories and sales November (16:00).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
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
Our analysts draw on publicly accessible information we consider to be reliable. For the compilation of the analysis, publications by domestic and foreign media and news services (e.g. Reuters, Bloomberg, VWD etc.), business publications, trade publications, statistics and rating agencies were used, together with information from the issuers of the analyzed securities – mainly via the Internet, but also in writing or by telephone. We also procure information from investment banks (sell-side research and primary research).
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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