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LGT Navigator: Capital markets digest central bank decisions well – German election in focus

September 24, 2021

After the Federal Reserve indicated that it would soon curb its quantitative monetary policy measures, the directional decisions of other important central banks were eagerly awaited. While the Swiss National Bank and the Bank of England confirmed their previous course, Norway's central bank raised its key interest rate for the first time since the start of the corona pandemic. The focus today will be on the Ifo business climate survey and the German parliamentary elections due this weekend.

Capital markets digest central bank decisions well – German election in focus

On the capital markets, the latest central bank decisions were well digested, and investors were more willing to take risks again. The better mood was also supported by the fact that fears of a collapse of the Chinese real estate giant “Evergrande” have calmed down somewhat, at least for the moment. The Dow Jones Industrial gained +1.48% to 34,764.82 points on Thursday and the S&P 500 went out of the day's trading with a gain of +1.21% at 4,448.98 points. On the tech exchange Nasdaq, the indices rose by about one percent. In Asia, the friendly trend on most stock markets continued at the end of the week.

In Europe, the focus is now shifting to the German federal elections scheduled for the weekend. However, with a difficult and lengthy coalition formation looming, the immediate impact of the German election on the financial markets is likely to be minor.

SNB confirms its previous course

As expected, the Swiss National Bank (SNB) confirmed its negative interest rate policy on the grounds of further supporting the Swiss economy in the pandemic, achieving price stability, and keeping the franc under control. Accordingly, the key interest rate remained untouched at -0.75%. In its inflation outlook, the SNB now assumes slightly stronger inflationary pressure. An inflation rate of +0.5% is expected for the current year and +0.7% and +0.6% respectively for 2022 and 2023. In its baseline scenario, the SNB assumes that the solid growth momentum will continue in the coming quarters, but that the international economic situation will continue to be shaped by the pandemic.

Bank of England sees no room for maneuver yet

The Bank of England (BoE) also confirmed its key interest rate. On the one hand, it left its key interest rate at the record low of +0.1% and on the other hand, the bond purchase program also remains unchanged at the previous level of GBP 895 billion. The decision to leave the key interest rate unchanged was unanimous. On the other hand, two council members were in favor of an immediate reduction in the asset purchase volume, arguing that an unchanged high volume with inflation above 3% could further push up medium-term inflation expectations.

Norway's central bank dares to take first interest rate step

Norges Bank raised its key interest rate by a quarter percentage point to +0.25% for the first time since the start of the corona pandemic, but this had been expected by most analysts. Central bank chief Oystein Olsen also held out the prospect of a further rate hike in December, referring to the normalization of economic growth. In addition, the inflation rate in Norway recently climbed to +3.4%. The Norwegian krone subsequently rose against other major currencies.

Turkish central bank surprises with interest rate cut

Yesterday, the Turkish central bank caught investors on the wrong foot. It surprisingly lowered its key interest rate by a full percentage point to +18% despite extremely high inflation. As a result, the Turkish lira came under massive pressure and fell to a record low against the US dollar. Turkey is currently facing an inflation rate of almost 20%. The central bank is relying on the lower core rate and sees the increased inflationary pressure as unsustainable.

Leading indicator for euro economy signals further slowdown

IHS Markit's Purchasing Managers' Index (PMI Composite) for the entire private sector fell to 56.1 points in September from 59.0 in the previous month, indicating a further deterioration in business sentiment in the eurozone. The decline was thus much steeper than expected - consensus 58.5. The background was said to be the ongoing supply bottlenecks in global trade and concerns regarding the delta variant. IHS Markit chief economist Chris Williamson summarized: Concerns about strained supply chains and rising prices had dampened the confidence of many companies, with the result that the business outlook for the coming year had now fallen to its lowest level since January.

 

Economic Indicators September 24

MEZ Country Indicator Last period
10:00 IT Business Climate (September) 113.4
10:00 IT Consumer Confidence (September) 116.2
10:00 GE Ifo-Business Climate (September) 99.4
16:00 US Fed-Chef Powell Speach
16:00 US New Home Sales (August, M/M) +1.0%

 

Earnings Calender September 28

Country Company Period
GE Hella Q1

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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