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LGT Navigator: China's central bank cuts interest rates again

January 20, 2022

On the New York Stock Exchange, the expectation of a significantly more restrictive monetary policy on the part of the Federal Reserve and, as a result, rising bond yields, continues to cause selling pressure even after three weak days on the stock market. At midweek, the yield on ten-year US Treasuries reached a two-year high, and the yield on German Bunds with the same maturity was slightly positive for the first time in almost three years. On Asia's stock markets, on the other hand, a further easing of interest rates by the Chinese central bank provided relief.

China's central bank cuts interest rates again

China's central bank again eased its key interest rates, thus strengthening monetary policy incentives to support the domestic economy. The People's Bank of China lowered the key interest rate for one-year loans by ten basis points to 3.7% and for the first time since April 2020 the interest rate for five-year loans by five basis points to 4.6%. China had already stepped up monetary easing measures earlier this week to support its slowing economy. Most new and outstanding loans in China are based on the one-year LPR. The five-year rate influences mortgage pricing. On stock exchanges in the Far East, monetary easing caused prices to rise.

On Wall Street, the Dow Jones Industrial and the S&P 500 each fell by almost one percent. On the Nasdaq technology exchange, too, interest rate expectations are causing continuing pressure and the indices closed around one percent lower. The Nasdaq 100 fell to its lowest level in three months. Even positive economic data, such as new housing starts (December +1.4%) and building permits (+9.1%), which are indicative of future construction activity, failed to provide positive impetus and brighten the battered stock market sentiment.

Inflation in the UK climbs to 30-year high

UK consumer prices rose by +5.4% on an annual basis at the end of last year, the highest rate of inflation observed since the start of the data series in 1997. The price jump was also stronger than analysts expected, as the consensus was +5.2%. More expensive than a year ago were mainly services, food, and transport. As is well known, the Bank of England has already responded to the rising inflationary pressure with a first interest rate hike and is also signaling its willingness to raise interest rates further.

German companies expect further price increases according to Ifo

According to a recent survey by the Munich-based Ifo Institute for Economic Research, German companies expect prices to continue rising. The background to this is rising energy prices and higher costs for the procurement of intermediate products. This will sooner or later also have an impact on consumer prices, Ifo commented. On a positive note, it pointed out that wage negotiations to date did not point to a wage-price spiral. However, inflationary pressure is not expected to weaken until the end of the current year. For the year, Ifo forecasts an inflation rate in Germany of around +3.5%.

Intensified rhetoric in the Ukraine conflict

US Secretary of State Antony Blinken warned during his visit to the Ukrainian capital Kiev that the ongoing conflict is about “more than Ukraine.” Russia's aggressions challenged the fundamental principles on which the entire international system is based and threaten peace and security, he said. If these principles are violated with impunity, it could open a “Pandora's box.” After a subsequent visit to Berlin, Blinken will then meet Russian Foreign Minister Sergei Lavrov for talks in Geneva on Friday.

Economic Indicators January 20

MEZ Country Indicator Last period
08:00 GE Producer Prices (December, y/y) +19.2%
08:45 FR Economic Sentiment Indicator (January) +111.0
09:00 AUT Consumer Prices (December, y/y) +3.8%
11:00 EZ Consumer Prices (December, m/m) +0.4%
11:00 EZ Consumer Prices (December, y/y) +5.0%
11:00 EZ Core Consumer Prices (December, y/y) +2.6%
13:30 EZ ECB Minutes
14:30 US Philly Fed Manufacturing Indicator (January) +19.0
14:30 US Initial Jobless Claims (weekly) 230,000
16:00 US New Home Sales (December, m/m) +1.9%


Earnings Calender January 20

Country Company Period
SZ Zur Rose Q4 Sales
FR Alstom Q3 Sales
US Netflix Q4 Sales
US Travelers Q4


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