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LGT Navigator: Inflation and foreseeable Fed braking maneuver keep stock markets in check

October 14, 2021

The renewed rise in the inflation rate in the US is putting the Federal Reserve under increasing pressure. Against this backdrop, the appetite for buying on the stock markets remains limited. Investors are hoping for positive impetus from the corporate reporting season in the US, which started yesterday. JPMorgan delivered a better than expected result with a strong jump in Q3 earnings. Banks remain in focus with balance sheet reports from Citigroup, Bank of America, Wells Fargo and US Bancorp.

Inflation and foreseeable Fed braking maneuver keep stock markets in check

On Wall Street, the rise in US consumer prices in September caused restraint. The Dow Jones Industrial went out unchanged from the previous day at 34'377.81 points. The S&P 500 was able to gain slightly after initial losses and climbed +0.3% to 4'363.80 points. The Nasdaq 100 closed +0.77% higher at 14'774.60 points.

JPMorgan convinced with a strong increase in profits. The bank earned USD 3.74 per share (consensus USD 3.00) or net USD 11.69 billion in Q3, which is almost 25% more than in the same period last year. However, the strong profit increase was mainly based on the release of loan loss provisions of around USD 2 billion.

The stock markets in Asia once again trended inconsistently. While the Nikkei in Tokyo gained about +1.3%, the Hang Seng Index in Hong Kong fell by about-1.5%. The Shanghai Composite remained virtually unchanged. Here, too, the focus is primarily on inflation concerns. China, for example, reported the strongest increase in producer prices since the survey began in 1996. 

Fed under increasing pressure

In the minutes of the last FOMC meeting on September 21-22, published last night, the Federal Reserve reiterated that it considers an early tapering of bond purchases to be appropriate. Tapering could begin as early as mid-November or mid-December. The securities purchase program could then end in mid-2022 if the economic recovery continues. Although the economic outlook appears to be in jeopardy due to problems in global supply chains, a tepid labor market recovery and the ongoing pandemic, the Fed is coming under increasing pressure to counteract, primarily because of rising inflationary pressures.

Inflationary pressure in the US increases again

After rising to +5.4% in the summer, the highest level in around 13 years, the inflation rate in the US fell back slightly to +5.3% in August. In September, inflationary pressure picked up again and consumer prices rose by +5.4% for the year. So far, the Fed has been relaxed and, like the ECB, is assuming a temporary overshooting due to base effects. However, there are more and more voices expecting a longer-lasting rise in inflation. However, the core inflation rate remained unchanged in September at +4.0%.

Inflation rate in Germany climbs above four percent for the first time in almost 28 years

In Germany, consumer price inflation rose to +4.1% in September, driven by the base effect in energy prices, and thus exceeded the 4% mark for the first time since December 1993. Private households had to pay +14.3% more for energy over the year. According to the German statistics office, heating oil has increased in price by around +75% within a year and gasoline costs around +28% more. In Germany, the CO2 tax to be paid since the beginning of the year and the withdrawal of the VAT reduction are also having an impact. However, not only energy has become massively more expensive, but also the prices for food increased on average by almost +5% in September.

EU promotes “toolbox” against rising energy prices

According to the EU Commission, companies and private households must be protected as quickly as possible against the rapidly rising energy prices. EU Energy Commissioner Kadri Simson presented a so-called “toolbox” for this purpose, which can be applied without violating European competition rules. The Brussels executive suggests, for example, that EU countries could apply direct payments, tax breaks and subsidies for small businesses. In the medium-term, however, the EU needs reforms to make the European energy market more robust in the long term, it said.

IMF sees “Evergrande” as potential risk to global financial stability

According to the International Monetary Fund (IMF), the heavily troubled Chinese real estate group “Evergrande” poses a threat not only to the Chinese economy, but also to global financial stability. In its just-released Financial Stability Report, the IMF warns that while China has tools to prevent serious economic fallout in the short-term, the IMF also says that in the long-term, China needs to take action to prevent the financial crisis from spreading to the rest of the world. In the longer term, however, China's government needs to strengthen the framework for corporate restructuring and insolvency.

 

Economic Indicators October 14

MEZ Country Indicator Last period
09:00 SP Consumer Prices (September, y/y) +4.0%
14:30 US Producer Prices (September, y/y) +8.3%
14:30 US Initial Jobless Claims (weekly) 326,000

 

Earnings Calender October 14

Country Company Period
SZ Temenos Q3
GE Hannover Re Investor Day
UK Rio Tinto Q3
US Citigroup Q3
US Bank of America Q3
US Morgan Stanley Q3
US Wells Fargo Q3
US US Bancorp Q3
US Alcoa Q3
US United Health Q3
US Walgreens Boots Alliance Q3

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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