European Central Bank (ECB) President Christine Lagarde added to the week’s negative sentiment on Friday by reiterating the message of her Federal Reservce (Fed) counterpart Jerome Powell the day before: Interest rates may need to be increased if inflation doesn’t come down as planned. Stocks and bonds slumped most of the week as the euphoria of peak rates set off by a Federal Reserve (Fed) pause the week before faded away. Wall Street, however, rallied strong on Friday while European stock markets remained in the red. Asian markets were trading mixed on Monday.
Lagarde noted while speaking at a media event on Friday that if the current rates are maintained long enough, it should bring inflation down towards the ECB’s 2% target. However, the central bank remains ready to act if any shocks should pressure inflation upwards in the meantime. Euro area inflation decelerated to 2.9% in October, much lower than the 4.3% of the previous month, while the ECB left interest rates unchanged last month following 10 consecutive rate hikes.
The new week started mixed in Asia-Pacific equity trading as the focus remain on an in-person meeting between the leaders of the US and China this week. Chinese stocks were the only major regional market trading in positive territory late on Monday. In mainland China, the Shanghai Composite was up 0.1% while Hong Kong's Hang Seng Index gained 0.4%. In Tokyo, the Nikkei 225 ended the session roughly flat after wholesale inflation fell to 0.8% in October when compared to the same month last year. The Corporate Goods Price Index, which measures prices companies pay to other companies, has fallen 10 months in a row. South Korea’s Kospi closed down 0.2%. In Australia, the S&P/ASX 200 lost 0.4%.
Wrapping up last week’s equity markets, US stocks brushed off weak consumer data on Friday. The University of Michigan’s consumer survey released Friday showed that US consumers have the highest expectations for long-term inflation since 2011. They expect prices to increase by 3.2% for the next five to 10 years. The University of Michigan Consumer Sentiment Index slipped to 60.4, the lowest reading in a half of a year. Following a week dominated by poor sentiment, the Dow Jones Industrial nevertheless rallied 1.2% and the S&P 500 gained 1.6%. Tech stocks were the biggest winners with the Nasdaq-100 spiking 2.3%.
European markets plunged to finish the week with the Euro Stoxx 50 dropping 0.8% on Friday. In individual stocks, Richemont shares fell 5.2% after the company reported half-year results that missed market expectations. Allianz shares started the session strong after presenting third-quarter results that beat expectations but fell quickly in the afternoon to close 0.1% lower.
Outside of continental Europe, the UK economy just managed to avoid contraction in the third quarter with gross domestic product (GDP) coming in unchanged compared with the previous quarter. Positive trade performance saved the economy from contracting as most aspects of domestic activity - such as consumer and government spending - were lower in the third quarter. The Bank of England left its benchmark interest rate at 5.25% last week, the highest level in 15 years, despite inflation at more than three times the central bank’s target of 2%.
Corporate news in focus: Q3 figures from Porsche Automobil Holding and Q4 figures from Tyson Foods.
Economic data in focus: EU economic forecast (11:00 CET).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.