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LGT Navigator: ECB policy decision moves into focus

June 7, 2022

In the shortened trading week, the focus will be on the European Central Bank's (ECB) monetary policy direction decision on Thursday. In light of strong inflationary pressures, ECB President Lagarde may be forced to send a strong signal to the capital markets and announce the imminent turnaround in interest rates. Meanwhile, the Federal Reserve is likely to stay on its chosen path of interest rate hikes considering continued solid labor market performance.

ECB policy decision moves into focus

In Asia, most stock indices trended today without a clear direction. While the Nikkei 225 index in Tokyo trades around +0.4% higher than at the previous day's close, the Hang Seng index in Hong Kong loses something -0.25%. In Shanghai, the Composite Index gains around +0.4%. Positive impetus was provided by the meanwhile relaxed pandemic restrictions in the Shanghai metropolitan area.

In Europe, many stock exchanges remained closed for the Whitsun weekend. The leading index EuroStoxx 50 rose on Monday by +1.45% to 3'838.42 points.

On the New York Stock Exchange, the indices gained again on Monday after the losses suffered at the end of last week. However, the focus remains on inflation, interest rate and economic concerns. The Dow Jones Industrial initially rose about one percent to start the week, but then closed virtually unchanged from Friday at 32'915.78 points (+0.05%). The S&P 500 gained +0.31% and went out at 4'121.43 points. On the Nasdaq, the indices gained about +0.4%. To talk on the New York Stock Exchange floor continues to be the acquisition of Twitter by Tesla CEO Elon Musk. The short message service refuses to hand over requested data on spam and fake user accounts on the platform.

In the bond market, the yield on ten-year US government bonds is again above the three-percent mark at 3.04%.

The focus now shifts to the interest rate decision of the European Central Bank (ECB) expected on Thursday. Central bank chief Christine Lagarde and her team are expected to use clear words to prepare the financial markets for an interest rate turnaround at the next meeting in July.

Solid US labor market development reinforces Fed course

More jobs were created in the United States in May than analysts had expected on average. Excluding the agriculture sector, +390'000 new jobs were created, the Labor Department reported last Friday. The market consensus was +318'000 nonfarm payrolls. At the same time, the unemployment rate remained unchanged at a low 3.6% last month. The continued solid state of the labor market should keep the Federal Reserve on track to raise interest rates further on June 15.

US service sector suffers from inflation and labor shortages

General sentiment in the service sector in the US deteriorated more than analysts expected in May. The ISM Purchasing Managers' Index weakened to 55.9 points from 57.1 (consensus 56.5), registering the lowest reading since February 2021. Rising prices were weighing on demand and a labor shortage was weighing on businesses, the Institute for Supply Management commented.

Economic Indicators June 7

MEZ Country Indicator Last period
08:00 GE Factory Orders (April, m/m) -4.7%
10:30 UK PMI Composite (May) 51.8
10:30 EZ Sentix Investors' Economic Perspectives (June) -22.6
14:30 US Trade Balance (April) USD -109.8bn


Earnings Calender June 7

Country Company Period
UK British American Tobacco  Q2 Sales


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