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LGT Navigator: High degree of uncertainty stifles recovery attempt on equity markets

December 2, 2021

Indications of a possible faster tightening of US monetary policy and the new coronavirus variant Omicron continue to create a high degree of uncertainty on stock markets. Meanwhile, the Federal Reserve noted in its “Beige Book” that the US economy has recently grown at a moderate pace, with prices rising at the same time.

High degree of uncertainty stifles recovery attempt on equity markets

As in most countries in Europe, the US reported yesterday the first detected infection with the new virus variant Omicron. On the New York Stock Exchange, the latest recovery attempt failed, and the indices turned into the loss zone. The Dow Jones Industrial fell -1.34% to 34'022.04 points, closing at its lowest level since early October. The S&P 500 fell by -1.18% to 4'513.04 points on Wednesday and losses of around -1.5% were also observed on the Nasdaq. 

Fed Beige Book – moderate growth pace with rising prices

The US economy grew at a moderate pace in October and early November, summarized the Federal Reserve (Fed) in its economic report published last night, the “Beige Book”. However, supply chain disruptions and labor shortages are hurting growth, while prices have risen at a “moderate to robust” pace. The Beige Book serves as the basis for decisions by the Fed's Federal Open Market Committee (FOMC) in each case. The US central bank on December 15 again decide on its monetary policy stance.

Strong employment growth in the US private sector

According to the monthly survey of the private labor market services company ADP, the US private sector again created many new jobs in November. Compared with the previous month, 534'000 new jobs were added, more than the 525'000 expected by economists. The strongest growth was in the service sector. Employment growth was already strong in October, with 525'000 new jobs filled. The official labor market report on Friday, which covers the entire economy apart from the agricultural sector, is now eagerly awaited.

Industry continues to suffer from ongoing supply chain issues

In the industrial sector in the US, growth accelerated in November, according to survey data from the industry association ISM (Institute for Supply Management). The Purchasing Managers' Index (PMI) improved from 60.8 to 61.1 points. The PMI published at the same time by IHS Markit remained virtually unchanged at 58.3 points. While demand remained stable, there were signs in November that growth in new orders had cooled to its lowest level so far this year, commented IHS Markit chief economist Chris Williamson.

In the eurozone countries, industrial companies were minimally more optimistic, according to the latest survey data from IHS Markit. After weakening in previous months against the backdrop of supply chain problems, the Purchasing Managers' Index improved slightly in November for the first time since June, by 0.1 points to 58.4. Some confidence among companies was provided by a good level of new orders. According to IHS Markit chief economist Williamson, serious supply bottlenecks remain the main obstacle to further development. Regionally, business sentiment improved in France and Italy, while German firms remained more pessimistic in November.

In British industry, business sentiment improved for the second month in a row in November. The purchasing managers' index surveyed by IHS Markit climbed by 0.3 points to 58.1.

OECD expects inflation in the eurozone to decline in the longer term, but sees upside risks

The Organization for Economic Cooperation and Development (OECD) OECD expects inflation in the euro zone to average +2.7% in 2022, but then to fall to below two percent as early as the end of the year and to average +1.8% in 2023. According to the OECD, however, there is a greater risk that inflation will remain at a higher level and that the central banks could be forced to tighten their monetary policy earlier and to a greater extent than planned.

OECD expects significantly lower growth in China, as well as in the US

The problems in the real estate market are clouding China's growth prospects, according to the OECD. The institution therefore lowered its growth forecast relatively significantly and now expects the second-largest economy to grow by +8.1% in the current year (previous forecast +8.5%) and by +5.1% in 2022 (+5.8%). The Chinese real estate group Evergrande, which has run into payment difficulties, has weakened an important growth driver. In addition, the outlook for investment in industry has also dimmed due to temporary power outages in many provinces, according to the OECD.

The OECD also expects weaker growth momentum in the US. The world's largest GDP will still grow by +5.6% on average in 2021 (September forecast +6.0%, May forecast +6.9%) and weaken to +2.7% in 2023 and +2.4% in 2024 (previously +3.9%). 

For the global economy, the OECD forecasts GDP growth of +5.6% in the current year (previous forecast +5.7%) and unchanged growth rates of +4.5% and +3.2% for the following two years.

Economic Indicators December 2

MEZ Country Indicator Last period
11:00 EZ Producer Prices (October, y/y) +16.0%
11:00 EZ Unemployment Rate (October)  7.4%
14:30 US Initial Jobless Claims (weekly) 199,000


Earnings Calender December 2

Country Company Period
SZ Novartis Capital Markets Day
SZ Glencore Investor Day
GE ThyssenKrupp Capital Markets Day


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