Market view e Insights
Consumer prices are slowing quickly in some of Europe’s major economies, according to data released Thursday. The Consumer Price Index for Germany increased in March by 7.4% year-on-year, down from 8.7% for February. The slowed rate of price increases in Europe’s largest economy was mostly due to energy prices, which only grew 3.5% on the year in March, compared with 19.1% in February. Food prices, however, continued to get more expensive more quickly and were 22.3% higher in March of 2023 than a year earlier.
Elsewhere in Europe inflation was also falling rapidly, with inflation in Spain coming down to 3.1% in March, from 6.0% in February, according to the euro area’s harmonised calculation method. The falling inflation rates on the continent could provide the European Central Bank with room to slow the pace of its interest rate hikes after it raised its key interest rate by 50 basis points earlier this month, faster than the Federal Reserve’s 25 basis point move last week. The Consumer Price Index for the full euro area is set to be released later Friday.
Equity markets reacted positively to the slowing inflation rates. In Europe, Germany’s DAX ended the day up 1.26% and France’s CAC 40 finished up 1.06%. Sentiment on markets in New York also remained positive, even as fourth-quarter year-on-year US gross domestic product was confirmed in its final reading to be slower at 2.6% than in the previous quarter, which saw 3.2% year-on-year growth. Data released Thursday also showed new jobless claims in the US remained broadly flat at just under 200’000 last week, close to the previous week’s value. The Dow Jones Industrial gained 0.43% to finish the day at 32’859.03 points and the S&P 500 increased 0.57% to close at 4050.83 points. On the Nasdaq, the major tech indices finished the day with gains of almost 1%.
Markets in Asia followed the positive sentiment coming out of the US. Hong Kong’s Hang Seng Index was trading up 0.7%. In mainland China, the Shanghai Composite gained 0.29% and the Shenzhen Component was up 0.48%. Japan’s Nikkei increased nearly 1%.
Elsewhere in Europe on Thursday, Switzerland’s KOF Economic Barometer fell slightly in March and is back below its long-term average of 100. The indicator stood at 98.2 points in March, falling 0.7 points from its revised value for February of 98.9 points. The initial reading for February was 100 points, which corresponds to the index’s long-term average. The negative signals within the index came from the manufacturing, services and construction sectors, according to the KOF Swiss Economic Institute, which computes the Economic Barometer, an indicator of the current position of the Swiss business cycle.
Corporate news in focus: No major corporate news scheduled for Friday.
Economic data in focus: German unemployment in March (09:55 CET), Consumer Price Index for the euro area for March (11:00 CET), core PCE price index for February (14:30 CET), European Central Bank President Christine Lagarde speaks at an event with students in Florence, Italy (17:00 CET).
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Editor: Alessandro Fezzi,
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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).
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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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