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LGT Navigator: Fed Chair Powell paves the way for larger interest rate steps

April 22, 2022

The Federal Reserve will consider raising the key interest rate by 50 basis points at its next meeting on May 4. It would be appropriate to move faster, Fed Chairman Jerome Powell stressed at the International Monetary Fund (IMF) meeting in Washington. The prospect of sharply rising key interest rates (not only) in the US in the fight against increasing inflationary pressure dampened the mood on Wall Street, which had previously been optimistic thanks to positively received quarterly figures.

Fed Chair Powell paves the way for larger interest rate steps

The Dow Jones Industrial gave up -1.05% to 34'792.76 points by the end of the day and the broad S&P 500 fell by -1.48% to 4'393.66 points. On the interest rate-sensitive technology exchange Nasdaq, the indices traded around -2% lower than the previous day. Solid quarterly reports from Tesla, American Airlines or AT&T supported the since midweek again significantly more optimistic stock market sentiment. However, investors were unimpressed by surprisingly weak economic data from the United States. Thus, the business climate in the economic region around Philadelphia clouded over significantly in April. The Philly Fed index fell by almost ten points to +17.6 points, while analysts had expected a more moderate decline to 21.4 points. Ultimately, however, the statements of the Federal Reserve Chairman tipped the scales on the mood on the New York stock exchange floor. On the bond market, the yield on ten-year government bonds rose to 2.89%.

Tension mounts ahead of presidential election in France

In the race for the highest office in Europe's second largest economy, the tension and nervousness are rising. On Sunday, it will be decided who will call the shots in the Elysée in Paris for the next five years. After the last TV duel on Wednesday, incumbent President Emmanuel Macron still seems to have a slight lead, but the outcome of the election could be extremely close. Should challenger Marine Le Pen really make it, the cards in Europe would probably be reshuffled, at least in part, and the relationship within the European Union would certainly not become any easier. Le Pen will insist on more national competences. Even a “Frexit”, i.e. France leaving the EU, cannot be 100% ruled out in the case of a President Le Pen, although this was explicitly not part of the party program of the “Rassemblement National” during the election campaign. 

ECB vice president reaffirms prospect of interest rate hike in summer

Luis de Guindos, Vice President of the European Central Bank (ECB), said in an interview with Bloomberg that there is no reason why the ECB could not phase out its bond-buying program as early as July, which would then also put the option of a first interest rate hike in July on the table. However, the decision would depend on the data situation, the ECB vice president stressed. The statements by de Guindos reflect recent assessments by other top ECB officials. The ECB's next interest rate decision is due on June 9. Driving the discussion about a rate tightening in the near future is the sharp rise in inflation in the euro area to 7.5%. However, due to the still uncertain impact of the Ukraine war on the euro economy, the ECB has so far been reluctant to initiate the interest rate turnaround.

  

Economic Indicators April 22

MEZ Country Indicator Last period
08:00 UK Retail Sales (March, m/m) -0.7%
09:15 FR PMI Composite (April) 56.3
09:30 GE PMI Composite (April) 55.1
10:00 EZ PMI Composite (April) 54.9
10:30 UK PMI Composite (April) 60.9
11:00 GE Bundesbank Monthly Report
15:00 EZ ECB President Lagarde speaks
15:45 US PMI Composite (April) 57.7
16:30 UK Bank of England Governor Bailey speaks

 

Earnings Calender April 22

Country Company Period
SZ Holcim Q1 Sales
SZ Schindler Q1 
SZ BB Biotech Q1 
SZ Inficon Q1 
GE SAP Q1
FR Renault Q1 Sales
SWE Volvo Q1
US Verizon Communications Q1
US American Express Q1
US Schlumberger Q1

 

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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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