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LGT Navigator: Bleak economic outlook in the US fuels hopes for more moderate Fed policy

January 24, 2023

A gloomy outlook for the US economy and statements by top Fed officials fuelled hopes for a more moderate Fed policy, which in turn boosted stock prices on Wall Street. ECB chief Lagarde, on the other hand, once again underlined the restrictive orientation of her institution's monetary policy and prepared the markets for further interest rate hikes in the run-up to the upcoming interest rate decision next week. No impulses are expected from Asia this week due to the Chinese New Year.

Bleak economic outlook in the US fuels hopes for more moderate Fed policy

The stock indices on the New York Stock Exchange started the new week with gains. The Dow Jones Industrial rose to 33,629.56 points (+0.76%) and the S&P 500 gained 1.19% to 4,019.81 points. On the Nasdaq, the indices gained about 2.2%, reaching a four-week high. Sobering economic data from the US and dovish statements from the top of the Federal Reserve fuelled hopes for a more moderate monetary policy stance. Fed Director Christopher Waller said that US interest rate policy could now be "sufficiently restrictive". The US leading indicator fell by 1.0% in December compared to the previous month, signalling a deterioration in the economic outlook for the US economy for the tenth month in a row. The market research institute Conference Board commented that the renewed decline was a further signal of an imminent recession in the US economy.

The focus now shifts to further quarterly figures of listed companies, such as Logitech, Johnson & Johnson and Visa (today); Givaudan, Microsoft and Tesla (Wednesday); SAP, Visa and Intel (Thursday); or American Express and Chevron (Friday).

In Asia, many stock exchanges remain closed for the Chinese New Year. In Tokyo, the 225-stock Nikkei index was trading about 1.5% higher on Tuesday and the Japanese yen was up about 0.4% against the US dollar, trading above 130 for the second day in a row.

Interest rates still have to rise significantly and steadily, according to ECB chief Lagarde

Christine Lagarde, President of the European Central Bank (ECB), once again emphasised that the ECB's monetary policy must remain restrictive to lower inflation. Key interest rates would still have to rise significantly and steadily to reach a sufficiently restrictive level and ensure a return of inflation to the target set by the central bank, Lagarde affirmed. The ECB's next monetary policy meeting is next week, on February 2.

Ahead of the ECB rate decision, the euro hit its highest level since April 2022, trading above 1.09 against the US dollar.

Improved consumer sentiment in the euro area

At the end of last year, consumer sentiment in the euro countries brightened for the fourth month in a row. The indicator calculated by the EU Commission rose by 1.1 points compared to the previous month to minus 20.9 points, reaching the highest level since February 2022. Nevertheless, the sentiment barometer remains clearly below the long-term average.

Economic situation in Germany has improved, according to the Bundesbank

According to the latest monthly report of the German Bundesbank, the latest economic data indicate an overall improvement in the economic situation compared to the last assessment in December. Although the German economy continues to be affected by high inflation and uncertainties surrounding the war in Ukraine, the situation on energy markets and supply bottlenecks in industry have eased noticeably compared to the summer.

Economic Indicators January 24

CET Country Indicator Last period
08:00 GE GfK Consumer Climate (February) -37.8
08:45 FR Economic Indicator (January) 101.0
09:15 FR PMI Composite (January) 49.1
09:30 GE PMI Composite (January) 49.0
10:00 EZ PMI Composite (January) 49.3
10:30 UK PMI Composite (January) 49.0
10:45 EZ ECB President Lagarde speaks
15:45 US PMI Composite (January) 45.0

Earnings Calender January 24

Country Company Period
SZ Logitech Q3
US Johnson & Johnson Q4
US Visa Q4
US Verizon Q4
US General Electric Q4


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