Investors were cautious ahead of Federal Reserve Chairman Jerome Powell's highly anticipated two-day hearing before Congress. The Fed President's remarks, ahead of the interest rate decision due in two weeks, are likely to be put on the gold scale by investors. Australia's central bank, meanwhile, raised its key interest rate by another quarter percentage point to its highest level since June 2012.
On the New York Stock Exchange, the Dow Jones Industrial remained virtually unchanged at the start of the week, closing 0.12% higher at 33,431.44 points. The S&P 500 closed at 4,048.42 points (+0.07%) and on the Nasdaq, the indices gained about 0.1%. The benchmark yield on ten-year US government bonds climbed from 3.95% to 3.97% and remains close to the four percent mark.
Stocks in the Asia-Pacific region trended mixed, as investors here are also eagerly awaiting Fed Chairman Powell's statements. In Australia, the central bank tightened its key interest rate by another 25 basis points to 3.6%, the highest level since mid-2012. The S&P/ASX 200 in Sydney was up about 0.5%. In Tokyo, the Nikkei 225 traded 0.4% higher and in Seoul, the Kospi rose around 0.3%. In Hong Kong, the Hang Seng Index gained 0.7% and in mainland China, the Shanghai Composite climbed marginally, while the Shenzhen Component slipped 0.6%. Here, the focus was on the latest data on China's foreign trade. Chinese exports at the beginning of the year (in US dollars) fell by 6.8% year-on-year and imports slumped by as much as 10.2%.
Europe's stock exchanges started the new week with confidence and the EuroStoxx 50 benchmark index marked its highest level since the beginning of 2022. By contrast, the latest survey data from the German financial market analysis company Sentix showed that the assessment of the financial experts surveyed regarding the prospects for the German and European economies deteriorated in March for the first time in several months. Economic expectations clouded over noticeably, while the assessment of the current situation improved slightly. The overall situation remains fragile, commented Sentix.
Corporate news in focus today: Lindt & Spruengli, Zalando and Henkel with annual figures. Novartis Annual General Meeting and Roche's annual media call.
Economic data in focus today: Germany incoming orders industry for January (08:00 CET) and in the US the hearing of Fed Chairman Jerome Powell before the Senate Banking Committee (16:00).
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Editor: Alessandro Fezzi,
Source: LGT Bank (Switzerland) Ltd.
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Reference regarding valuation rates
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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).
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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