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US consumers significantly more pessimistic - focus on inflation data

The mood among Americans has taken a surprisingly sharp turn for the worse, while consumer inflation expectations have risen noticeably. In view of the fragile inflation outlook, the latest inflation data from the US and the eurozone will now take centre stage all the more this week. In Asia, stock markets opened without any visible trend. On Wall Street and in Europe, most share indices ended last week with gains, in some cases, such as in Paris or London, at new record levels. 

Alessandro Fezzi, LGT
Reading time
5 minutes
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Stock markets in the Asia-Pacific region were mixed on Monday, while investors assessed the stronger-than-expected inflation data for April in China. Annual Chinese consumer price inflation rose by 0.3% year-on-year, exceeding the consensus of 0.2%. The producer price index, on the other hand, fell by 2.5% year-on-year, more than the estimated decline of 2.3%. In Tokyo, the Nikkei 225 and the broad-based Topix were virtually unchanged from Friday's close. Markets are now eagerly awaiting the Japanese GDP figures for the first quarter. The South Korean Kospi fell by 0.2%, while the small-cap Kosdaq fell by 1%. The Australian S&P/ASX 200 lost 0.2%. In Hong Kong, the Hang Seng index reversed earlier declines and rose 0.4%, while the CSI 300 index in mainland China traded unchanged.

In New York, the stock market closed favourably on Friday despite some headwinds. The Dow Jones Industrial ended the week with a daily gain of around 0.3% at 39,512.84 points - not far from its record high at the end of March - and thus recorded its eighth consecutive day in the green. Over the week as a whole, this represented a healthy gain of 2.2%. The S&P 500 ended Friday's trading almost 0.2% higher at 5222.68 points and the technology-heavy Nasdaq was up almost 0.3%. This was despite new data on consumer inflation expectations and cautious statements from the Fed regarding the interest rate cuts expected on financial markets. On the bond market, the yield on ten-year Treasuries rose again slightly to just under 4.5%.

According to the latest survey results from the University of Michigan, consumer sentiment in the US deteriorated significantly in May. The consumer confidence barometer fell by almost ten points to 67.4 points, its lowest level since November 2023. Although a decline was expected, it was only moderate at 76.2 points. Consumers' inflation expectations also increased noticeably. They climbed to 3.5% (previous month: 3.2%) on a one-year horizon.

The UK economy has had a surprisingly good start to the year. Gross domestic product rose by 0.6% in the first quarter compared to the previous quarter. Analysts had forecast average growth of 0.4%. In the final quarter of 2023 and in the third quarter, UK GDP had still fallen and was therefore in a technical recession. Growth at the start of the year was driven by the service sector and the industrial sector. Despite the stronger than expected economic growth, the Bank of England held out the prospect of an imminent easing of interest rates last Thursday. However, it seems doubtful whether this will be the case as early as June. Consensus currently puts the probability of an interest rate cut in June at around 48%.

The US has overtaken China as Germany's most important trading partner. In the first quarter, combined exports and imports between Germany and the United States totalled EUR 63 billion, while trade with China amounted to just under EUR 60 billion. Several factors are likely to have played a role here. On the one hand, the robust economic growth in the US has boosted demand for German products and, on the other hand, the political will of a certain independence from China, weaker domestic demand in the People's Republic and the fact that China is able to produce goods itself that it previously imported from Germany (especially cars) have reduced German exports to China. In this context, the Ifo economic institute had already shown in a study that the number of companies that are dependent on China (according to their own information) has fallen from 46% in February 2022 to 37% in February 2024. This is due to the fact that fewer companies are dependent on inputs from Chinese manufacturers.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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