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Uncertain inflation outlook continues to fuel interest rate concerns

Uncertainty about the future monetary policy stance of the major central banks set the tone on the capital markets at the end of last week. A stronger than expected rise in producer prices in the US caused the already only cautious optimism about the moderate US consumer prices of the day before to fade again. From an economic perspective, the focus this week will be on the retail sales data from the US on Tuesday and the regular economic report of the Federal Reserve (Fed) on Wednesday evening. 

Alessandro Fezzi, LGT
Tempo di lettura
5 minuto

On Wall Street, interest rate-sensitive technology stocks were in focus on Friday, coming under pressure amid a sharp rise in bond yields - the yield on the ten-year US Treasury bond climbed to 4.17% - after US producer price data came in slightly stronger than expected, stoking interest rate concerns. The Nasdaq 100 ended last week at 15'028.07 points, down 0.67% from the previous day's close. The Dow, however, gained 0.3% to 35'281.40 points on Friday, posting a gain of 0.62% for the week. The S&P 500 closed slightly lower at 4'464.05 points (-0.11%). The greenback benefited from the prospect of a possibly continued tight monetary policy of the Fed.

On Friday, the Labour Department in Washington reported that prices at the producer level in the US rose slightly more than expected in July. For the year, prices rose 0.8%, while analysts on average had expected a 0.7% increase. Excluding energy and food, core producer prices also rose by a stronger-than-expected 2.4% on a July 2022 basis. In July, the Fed had resumed the fight against inflation after an interest rate pause and raised key interest rates again but left open the further course of action. A counterargument was provided by the survey results of the University of Michigan. According to these, Americans' inflation expectations were somewhat more moderate in August.

Asia-Pacific markets declined for the most part on Monday, led by the Hang Seng Index in Hong Kong. The index fell more than 2%, mainly due to basic materials and consumer cyclical stocks. But the real estate sector also saw a sell-off, led by a slide in the price of real estate company Country Garden Holdings. Equity markets in mainland China also all traded in the red, losing around 1.25% to start the week. In Tokyo, the Nikkei 225 fell by 0.44%. Japan will release second-quarter gross domestic product figures on Tuesday, while inflation data for July will be released on Friday. The South Korean Kospi fell 0.6%, while Australia's S&P/ASX 200 lost 0.5%.
The European benchmark index EuroStoxx 50 declined on Friday after an attempt to recover the day before due to economic concerns and posted a daily loss of almost 1.5%. Over the week, this means a minus of 0.27%. In Frankfurt, the Dax ended last week with significant losses. The German benchmark index closed around 1% lower and lost 0.8% for the week. The psychological mark of 16'000 points represented too high a hurdle for now.

Great Britain's economy grew surprisingly in the second quarter. The gross domestic product (GDP) increased by 0.2% compared to the previous quarter. On average, economists had expected economic output to stagnate. The British economy thus continued the moderate growth seen at the beginning of the year (+0.1%). Industrial production showed an unexpectedly strong development. In June, British industry increased production by 1.8% (consensus +0.2%) monthly.

Switzerland continues to receive the top rating from Standard & Poor's (S&P). The rating agency affirmed its long- and short-term credit rating for the Swiss Confederation at "AAA/A-1+" with a "stable" outlook. Despite a still fragile economic environment, the Swiss economy is expected to remain resilient and grow modestly thanks to its strong fiscal and external buffers, diversified economy, flexible monetary policy and effective policies, S&P reasoned. The agency projects GDP growth of 0.8% this year. Domestic demand remains the driving force, it said.

Corporate news in focus: Bilfinger Q2 figures.

Economic data in focus: Germany wholesale prices for July (08:00 CET) and consumer inflation expectations in the US from the Fed New York (17:00).

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