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LGT Navigator: Defensive stance ahead of landmark central bank decisions

September 20, 2022

Ahead of the interest rate decision by the Federal Reserve in the middle of this week and further monetary policy decisions over the week, for example by the Bank of England and the Bank of Japan or the Swiss National Bank, the capital markets largely remained in a wait-and-see position. In view of the more resistant than expected inflation, the pressure on central banks has increased. On the stock markets, however, the Fed's next interest rate hike of 75 basis points now seems to be priced in, and as a result the indices on Wall Street and on Asia's stock exchanges were able to escape the downward pressure that had recently prevailed. However, the mood is likely to remain defensive and an even stronger interest rate hike cannot be ruled out.

Defensive stance ahead of landmark central bank decisions

The Dow Jones Industrial closed yesterday +0.64% firmer at 31'019.68 points, just below the high of the day, and the broad S&P 500 went out +0.69% higher at 3'899.89 points. On the Nasdaq, the indices posted a gain of around +0.8%. In the bond market, the benchmark yield for ten-year Treasuries climbed at times above 3.5% for the first time since 2011.

In the Asia-Pacific region, the stock indices rose in the majority on Tuesday. In Tokyo, the 225-value Nikkei index rose after the holiday break on Monday by just under +0.5%. The Hang Seng Index in Hong Kong is up +1.3% and the Hang Seng Tech Index rose by +2.5%. On the Chinese mainland, the Shanghai Composite gained +0.5% and the Shenzhen Component +0.9%. The MSCI index for the Asia-Pacific region rose today by about +1.1%.

Inflation also picks up strongly in Japan – Bank of Japan challenged

As reported this morning, core inflation in Japan climbed on an annual basis by +2.8% in August – the strongest rate of increase since late 2014. Analysts had expected a +2.7% increase and in July consumer prices, excluding energy and food prices, had risen +2.4 year-over-year. The stronger inflation reinforced the suspicion that price pressures will persist for longer and that the Bank of Japan will soon have to counteract them. 

Sentiment on the US housing market more gloomy than expected

The monthly published NAHB housing market index indicated a further deterioration in sentiment in the US housing market with a renewed decline of three points to 46 – the lowest level since May 2020. This marks the ninth consecutive month of deterioration in the housing market, the longest streak since 1985. The housing recession shows no signs of abating as builders continue to struggle with increased construction costs and aggressive monetary policy, the National Association of Home Builders commented.

Bundesbank expects double-digit inflation and a recession

According to the German Bundesbank, inflation in Germany is expected to remain high in the coming months. The rate of consumer price inflation is likely to rise even further and reach double digits. In August, the inflation rate in Germany was +7.9%. At the same time, the central bank warns that signs of a recession are increasing for Europe's largest economy and that “a broad and prolonged decline in economic output” must be assumed. First and foremost, these are the consequences of the Ukraine war and the resulting threat of an energy crisis, the Bundesbank stressed in its monthly report published yesterday.

Economic Indicators September 20

MEZ Country Indicator Last period
08:00 GE Producer Prices (August, y/y) +37.2%
09:00 SZ Seco Economic Forecasts
14:30 US Housing Starts (August, m/m) -9.6%
14:30 US Building Permits (August, m/m) -0.6%
19:00 EZ ECB President Lagarde speaks


Earnings Calender September 20

Country Company Period
GE Henkel Capital Markets Day
UK Kingfisher H1


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