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LGT Navigator: Does increased price pressure put the Fed in a predicament?

July 12, 2019

After the stock markets initially reacted positively to the Fed head Powell's prospect of a loosening of interest rates in the near future, economic concerns seem to predominate, which could explain the initial relatively restrained reaction on the equity markets. One reason could be that a rise in inflation could thwart the Fed's plans.

Navigator_US_Inflation

Core inflation in the United States, i.e. excluding the often volatile components of energy and food, rose more strongly in June than economists had forecast. Compared to the previous month, the cost of living in the US increased by +0.3% last month compared to a market expectation of +0.2%. The annual core rate climbed from +2.0% to +2.1%. However, in the broad view of all components, price pressure eased and inflation fell from +1.8% in May to +1.6% in June. As the Federal Reserve normally focuses more on core rates, increased inflationary pressures may force the Fed to refrain from over-loosening interest rates too quickly. The latest statements by Fed Chairman Jerome Powell, however, do not point to this and the financial markets seem to have "shot in" themselves for a first rate cut at the end of the month. With this assumption, Wall Street indices rose yesterday and the Dow Jones Industrial breached the 27,000 level for the first time, while the broad S&P 500 closed close to the previous day's 3,000 level. The Nasdaq 100 technology index relinquished gains from its previous record high in the course of trading and fell back to 7,897 points.

ECB ready to ease

Due to the ongoing trade conflict and the increasing risk of a global economic slowdown, the most important central banks are increasingly focusing on a renewed easing of interest rates. After Fed Chairman Powell signaled that the Fed could cut key interest rates soon – probably as early as July – the minutes of the latest monetary policy decision of the European Central Bank (ECB) on 6th June published yesterday indicated that the ECB was considering a renewed stimulation of the euro zone economy in view of weak inflationary pressure and increased global uncertainties. The ECB had to be prepared to further relax its monetary policy stance by adjusting all instruments, according to the minutes.

Closer cooperation between Volkswagen and Ford

At a joint investor conference in New York (2pm CET) Volkswagen and Ford will inform about an expansion of their cooperation. This is about the planned cooperation in autonomous driving and electric cars. The Wolfsburg-based company and the number two in the US had already announced their global alliance at the beginning of the year at the Detroit Motor Show. After the two car manufacturers initially focused their cooperation on the development of vans and pick-ups, this is now to be extended to self-propelled vehicles, mobility services and electric cars. Volkswagen is to share its platform for electric cars (MEB) with Ford and, in return, VW is to join the Ford subsidiary Argo AI, which develops systems for robotic cars. VW also wants to contribute the activities of its Audi subsidiary in autonomous driving.



Economic Indicators July 12

MEZ Country Indicator Last
06:00 CN Exports (y/y) +1.1%
06:00 CN Imports (y/y) +8.5%
09:00 SP Consumer Prices (y/y) +0.6%
11:00 EZ Industrial Production (y/y) +0.4%
14:30 US Producer Prices (y/y) +1.8%
14:30 US Core Producer Prices (y/y) +2.3%

Earnings Calendar July 15

Country Corporate Period
US Citigroup Q2

 

 

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Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Quelle: LGT Bank (Schweiz) AG