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LGT Navigator: Economic worries keep investors on tenterhooks

June 24, 2022

Worse than expected business survey results intensified the already increased fears of recession on financial markets. The mood on the capital markets remains tense and the outlook for the global economy appears highly fragile due to continued strong inflationary pressures, the corresponding response of central banks, and ongoing problems in global supply chains as well as geopolitical uncertainties. At least in the short-term, however, investors seem to be able to free themselves somewhat from pessimism, leading to higher prices on stock markets and a falling yield on US government bonds. 

Economic worries keep investors on tenterhooks

On Wall Street, the mood remains nervous in the face of recession fears against a backdrop of high inflation and rising key interest rates. Nevertheless, the indices were able to shake off some of the pessimism on Thursday and closed with solid daily gains. The Dow Jones Industrial closed at 30'677.36 points +0.64% higher than the previous day and the S&P 500 gained +0.95% to 3'795.73 points. On the Nasdaq, the indices posted even stronger gains of around +1.5%. Latest US economic and labor market data had no major impact on market activity. The weekly initial jobless claims in the US fell slightly less than expected. On the other hand, the purchasing managers surveys were worse than expected in June.

In Asia, the stock indices ended the week mostly with descriptive daily gains. In Tokyo, the 225-stock Nikkei index traded around +1.1% higher and in Hong Kong, the Hang Seng traded almost +1.5% higher.

In the bond market, the yield of ten-year US Treasuries fell further to 3.10%.

Purchasing managers' indices signal economic slowdown

The latest results of the regular Purchasing Managers' Surveys indicate that the momentum of the US economy slowed significantly in June. The PMI for the US private sector fell from 53.6 to 51.2 points. Survey data for the eurozone countries also signaled a clouding of business sentiment and a slowdown in economic activity. S&P Global's Purchasing Managers' Index (PMI) for the eurozone weakened to 51.9 points in June from 54.8 the previous month, its lowest level since early 2021, while analysts on average had expected only a slight dip to 54.0. Chris Williamson, chief economist at S&P Global said inflation and falling business and consumer confidence were overcompensating for the pandemic-related pent-up demand. The outlook for firms surveyed is now the most pessimistic since October 2020, Williamson commented. In the UK, the Purchasing Managers' Index remained unchanged at 53.1 points in June, its lowest level in 15 months. Especially in British manufacturing the sentiment and outlook deteriorated again.

Fed member argues for another big interest rate move

Fed Governor Michelle Bowman argued in favor of another hefty rate hike of 75 basis points. Based on the current inflation trend, she believes that another major rate hike would be appropriate at the next meeting on July 27. In June, the Fed had already surprised with a rate hike of 75 basis points - the largest rate increase since 1994. In his latest comments, Fed Chairman Jerome Powell kept open the option of further major steps and referred to the strength of the US economy. Nevertheless, he also emphasized the increasing risk of recession.

Norway's central bank makes strong interest rate move

The Norwegian central bank raised its key interest rate by 50 basis points to +1.25%, more than analysts had anticipated. This was the fourth time that the Norges Bank tightened the monetary policy screw and held out the prospect of a further rate hike at the next meeting in August. In Norway, the inflation rate rose to +5.7% in May. “The prospects for a prolonged period of high inflation suggest a faster increase in the policy rate than previously assumed,” said central bank chief Ida Wolden Bache.

US current account in record deficit

The United States registered a record current account deficit in the first quarter of this year. Compared to the final quarter of 2021, the deficit increased by USD 66.6 billion to USD 291.4 billion (consensus USD 275 billion). The main factor was a higher trade deficit.

Economic Indicators June 24

MEZ Country Indicator Last period
08:00 UK Retail Sales (May, m/m) +1.4%
09:00 ES GDP Q1 (q/q, revision) +0.3%
10:00 GE Ifo Business Climate (June) 93.0
10:00 IT Business Climate (June) 109.3
10:00 IT Consumer Confidence (June) 102.7
13:00 UK Bank of England Quarterly Report
16:00 US Consumer Sentiment (June) 50.2
16:00 USA New Home Sales (May, m/m) -16.6%

 

Earnings Calender June 27

Country Company Period
US Nike Q4

 

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

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