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LGT Navigator: Growth worries and geopolitics increase nervousness

May 17, 2022

Weak economic data from the US and China have again increased growth concerns at the beginning of the week and further increased the nervousness of the investment community. Today, the focus is on US retail sales and speeches by Fed Chairman Powell and ECB President Lagarde. Meanwhile, a majority of the Swedish parliament voted in favor of joining NATO on Monday. At the same time, the EU continues to try to find an agreement for an oil embargo against Russia.

Growth worries and geopolitics increase nervousness

After Friday's significant recovery, economic worries slowed down the stock indices on Wall Street again at the start of the week. The Dow Jones Industrial closed virtually unchanged at 32'223.42 points (+0.08%) and the broad S&P 500 fell -0.39% to 4'008.01 points. The technology exchange Nasdaq was down just over one percent. The growth concerns are based on the one hand, on the fear that the Federal Reserve could plunge the economy into recession with further sharp increases in key interest rates and, on the other hand, that the zero-covid strategy in China will further burden supply chains and thus weaken the global economy. In addition, the conflict with Russia and the war in Ukraine are causing continued uncertainty, particularly due to the impact on energy prices.

Asian stock markets are trading broadly higher today, with Hong Kong stocks leading the region. The Hang Seng is up about +2.3%, while Japan's Nikkei 225 is up about +0.5% and the Shanghai Composite is about +0.4% higher than the previous day.

The gold price remained under pressure at the beginning of the week, but then recovered to around USD 1'820 by this morning. On Monday, the price of a troy ounce of gold on the commodity exchange in London fell back to USD 1'787, its lowest level since the end of January. Since mid-April, the gold price has already been trending south and has since lost around nine percent in value. Gold is burdened primarily by the stronger US dollar, which benefits from the prospect of further interest rate increases by the Federal Reserve.

Regional industrial indicator signals weakness in US industry

As reported by the New York Federal Reserve, the mood of industrial companies in the region deteriorated significantly in May. The Empire State index slumped 36.2 points to minus 11.6. Analysts had expected a decline to plus 15.0 points.

Sweden takes big steps towards NATO

Swedish Prime Minister Magdalena Andersson sees the Scandinavian country moving into a new era after committing to NATO membership. Stockholm wants to submit the application together with Finland in the next few days, she said.

Brussels cuts growth forecast due to Ukraine war

The EU Commission has significantly corrected its forecast for the European economy against the backdrop of the ongoing war in Ukraine. It said the eurozone economy would grow by +2.7% in the current year. This is significantly less than the +4.0% previously forecast. Regarding inflation, the Brussels executive expects average inflation of +6.1%. This is almost twice as much as in the previous forecast.

Rising inflation expectations in Germany

Private households in Germany expect inflationary pressure to increase further. This is the result of a recent survey by the Bundesbank. Over the next twelve months, an inflation rate of +6.9% is anticipated – a significant increase on the +5.8% expected in March. Thus, inflation expectations in this time frame reached the highest level since 2019. With a time horizon of five years, the inflation expectation is +5.2%. Currently, the inflation rate in Germany is +7.4% and in the euro area +7.5%. Rising inflation expectations are likely to put the European Central Bank (ECB) under increasing pressure to complete the interest rate turnaround soon.

Meanwhile, wholesale prices in Germany also continued to rise at a record pace. In April, an annual price increase of just under +24% was recorded, the strongest rise since the start of the data series in 1962. Significantly higher prices were recorded for petroleum products, ores, and metals in particular, but also for cereals, seeds and animal feed.

EU deplores economic damage caused by China's zero-covid strategy

According to the EU Chamber of Commerce, European companies operating in China are heavily burdened by the ongoing restrictions of the strict pandemic measures. Companies need predictability, but the situation is unpredictable, said Jörg Wuttke, chairman of the EU Chamber of Commerce in China.

Economic Indicators May 17

MEZ Country Indicator Last period
07:30 FR Unemployment Rate (Q1) 7.4%
08:00 UK Unemployment Rate (March) 3.8%
11:00 IT Consumer Prices (April, y/y) +6.6%
11:00 EZ GDP Q1 (q/q) +0.2%
14:30 US Retail Sales (April, m/m) +0.7%
15:15 US Industrial Production (April, m/m) +0.9%
16:00 US NAHB Housing Market Index (May) +77.0
19:00 EZ ECB President Lagarde speaks
20:00 US Fed Governor Powell speaks

 

Earnings Calender May 17

Country Company Period
GE Daimler Truck Q1 
FR Engie Q1
NL Euronext Q1
UK Vodafone Annual
US Walmart Q1
US Home Depot Q1
US Moderna Science & Technology Tag

 

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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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