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LGT Navigator: Fed Chair Powell pushes the pace and unsettles markets

March 22, 2022

The ongoing war in Ukraine and a further rise in oil prices ensured a mostly negative start to the week on the stock markets. Meanwhile, an energy embargo against Russia seems to be increasingly being considered by the European side. On Wall Street, however, statements by Fed Chairman caused a stir. Powell expressed his concern about the massive and rapid rise in inflation and seems to consider a faster increase in key interest rates.

Fed Chair Powell pushes the pace and unsettles markets

Federal Reserve Chairman Jerome Powell stressed that the inflation rate in the US, which in his view is “far too high” at almost eight percent, could justify a faster increase in key interest rates. He said the Fed would take the necessary steps to ensure a return to price stability. In doing so, Powell could be trying to prepare financial markets for an even tighter stance. So far, interest rate steps of 25 basis points each are anticipated. On the New York Stock Exchange, the statements were not well received and the Dow Jones Industrial closed at the beginning of the week, after a strong previous week, -0.58% lower at 34'552.90 points. The S&P 500, on the other hand, remained virtually unchanged from Friday's close at 4'461.18 points (-0.04%). On the Nasdaq, the indices fell yesterday by about -0.3%. The yield of ten-year US government bonds quoted at 2.33% this morning.

EU discusses possible energy embargo against Russia

After the US had already decided an import ban oil from Russia about two weeks ago, the European Union is now also debating a possible embargo. In view of the developments in Ukraine, the EU is under increasing pressure. On Thursday, EU leaders are scheduled to meet with US President Joe Biden to discuss further action in the conflict with Russia. At the same time, the G7 and NATO also plan to meet for consultations.

Against this background, oil prices rose sharply again at the beginning of the week. A barrel of the North Sea sort Brent costs up-to-date approximately USD 119 per barrel and for a barrel of the US sort West Texas Intermediate (WTI) must be paid scarcely USD 115.

Moscow warns of consequences of an EU oil embargo

An EU embargo on oil supplies from Russia would have serious repercussions on the global oil market and on the energy balance of the European continent, the Kremlin warned. Germany's Economy and Climate Protection Minister Robert Habeck continues to reject an embargo on Russian energy. This would cause severe damage to Europe's largest economy.

ECB top sees no danger of stagflation (so far)

ECB President Christine Lagarde and ECB Vice President Luis de Guindos stressed that the central bank does not expect the euro area economy to slip into stagflation – that is, weak economic growth accompanied by high inflation. Even in the worst-case scenario – an environment with second-round inflationary effects in the form of significantly rising wages, a boycott of Russian energy and a prolonged and intensified war – the ECB expects the euro economy to grow, he said. According to Vice de Guindos, the decisive factor in whether inflation remains high over a longer period depends above all on how strongly wages react to the environment. Should the wage-price spiral turn faster, this could contribute to permanently higher inflation. Lagarde, for her part, pointed out that the eurozone and the US are in different economic phases, and that Europe has been hit harder by the effects of the Ukraine war.

Price inflation in Germany strengthened further in February

Producer prices in Germany rose by almost +26% last month compared to the same period last year, the highest increase ever. According to the Federal Statistical Office, this does not even take into account current price developments in connection with the war in Ukraine. The main price driver remains energy prices, for which German producers had to pay almost +70% more over the year. The price of natural gas rose by around 125%.

  

Economic Indicators March 22

MEZ Country Indicator Last period
14:15 EZ ECB President Lagarde speaks
16:15 SZ SNB President Jordan speaks

 

Earnings Calender March 22

Country Company Period
GE Stada Annual
FR Air Liquide Capital Markets Day
ESP Iberdrola Capital Markets Day
UK Kingfisher Annual
US Adobe Q1
US Nvidia Investor Day

 

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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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