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Stocks surge as weak economic data suggest Fed, ECB pause

Stock markets around the world were trading higher mid-week after poor economic data from Europe and US led some investors to the conclusion that the US Federal Reserve (Fed) and European Central Bank (ECB) will likely pause their rate hiking cycles at upcoming monetary policy meetings. Tech stocks led the way, powered by record results from chipmaker Nvidia.

Shane Strowmatt, LGT
Tempo di lettura
5 minuto
Stock chart
© Shutterstock

Purchasing Managers’ Indices (PMI) from around the world came in somewhat weak Wednesday. In particular, the eurozone economy showed more weakness with the flash Purchasing Managers’ Index falling to 47 points, below the 50-point level that signals contraction. The bloc’s largest economies showed poor results with overall activity in Germany falling at the fastest pace since the start of the pandemic and France reporting a third monthly drop. The PMI data was weak enough to convince some investors that the ECB will pause its interest rate hiking cycle next month, which caused bond yields and the euro to fall. The Euro Stoxx 50 managed to finish the session in positive territory, up 0.15% Wednesday.

In the US, sentiment on stock markets was much more positive, despite mortgage data that suggested the housing market is struggling. Mortgage applications fell by 4.2% last week and interest rates for 30-year fixed home loans reached their highest level since the year 2000. That suggests a cooling in the US real estate sector. Nevertheless, the Dow Jones Industrial gained 0.54% to finish Wednesday at 34,472.98 points and the S&P 500 climbed 1.10%, ending at 4436.01 points. The Nasdaq-100 shot up 1.60%, closing the session at 15,148.06 points.

In individual stocks, Nvidia’s highly anticipated second-quarter figures beat market expectations, fuelled by demand for chips needed to power the AI revolution. The company also announced a 25-billion-US-dollar share buyback. The chipmaker’s stock gained 3.17% during Wednesday’s session and exploded another 6.6% in after-hour trading. Nvidia’s processors are a necessary component for the AI trend taking over many industries, making the company a major AI beneficiary. The company has been the largest contributor to the Nasdaq-100’s rally so far this year.

The optimism in New York spilled over to Asian markets, which were trading higher on Thursday. In Tokyo, the Nikkei 225 gained 0.8% and in South Korea, the Kospi was up 1.1% after the Bank of Korea held rates steady for the fifth time in a row, keeping its base rate unchanged at 3.50%. Concerns in recent weeks about China’s real estate and shadow banking sectors couldn’t hold equities in the world’s second-largest economy back on Thursday. Hong Kong's Hang Seng Index jumped 2.1% and in mainland China the Shanghai Composite gained 0.6%. In Australia, the S&P/ASX 200 increased 0.6%.

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: Central bank symposium begins in Jackson Hole, Chicago Fed Manufacturing Index (14:30 CET), US durable goods orders for March (14:30), US weekly initial jobless claims (14:30).


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Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.