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LGT Navigator: Inflation worries cloud start to month on stock markets

May 3, 2021

May is considered to be a rather difficult month for stock markets and at least the start of the month seems to indicate this. Thus, equity markets in Asia started at the beginning of the merry month of May mostly in the red zone and thus followed the negative guidance of Wall Street at the end of last week. Further strong economic data, especially from the US, provide optimism, but also increase fears of rising inflation and thus an earlier than anticipated end to the extremely loose monetary policy of major central banks. 

Inflation worries cloud start to month on stock markets

Most stocks in Asia fell this morning as concerns about increased inflation risks and an earlier-than-expected pullback by central banks also came to the fore in the face of increased signs of a sustained economic recovery. However, with no trading in China and Japan due to a holiday, the picture is not as meaningful. For Europe's stock exchanges, futures markets indicate a mixed positive start to trading, although even in Europe, given a holiday in the UK, the picture is not quite complete. 

On Friday, the indices on the New York Stock Exchange had suffered a setback again after the recently reached record values. The Dow Jones Industrial closed -0.54% lower at 33'874.85 points compared to the previous day and was thus about -0.5% in the red for the week. The monthly balance for April, however, is positive for the Dow with a plus of about +2.7%. The S&P 500 declined on Friday by -0.72% to 4'181.17 points and the Nasdaq 100 fell by -0.78% to 13'860.76 points. Today, a speech by Federal Reserve Chairman Jerome Powell is in focus and then at the end of the week, as always, the latest US labor market report will attract the attention of investors.

Stimulus boosts incomes in the US dramatically in March and fuels inflation

Americans' incomes increased +21.1% in March from the previous month, the latest data showed Friday. According to the Commerce Department in Washington, this is mainly due to government stimulus aid in the wake of the corona crisis. Consumer spending at the same time also rose sharply by +4.2% on the previous month. As a result, prices are also rising. As a result, the Fed's highly watched inflation indicator (PCE) rose to +2.3%, exceeding the Fed's target of 2.0%. However, the Fed has signaled that it will temporarily tolerate an overshoot.

Consumer spending in the US is also being supported by good consumer sentiment. For example, the University of Michigan's consumer confidence barometer climbed by 3.4 points to 88.3 in April, its highest level since March 2020. In addition to the immense fiscal packages, consumer sentiment is also being boosted by the corona vaccination campaign, which is progressing rapidly in the US, and the prospect of a further economic recovery.

Industry in the US continues to gain momentum – ISM survey in focus

The Chicago Purchasing Managers' Index (PMI) is considered an indicator for the Institute for Supply Management (ISM) national survey due this afternoon. In April, the Chicago PMI unexpectedly increased significantly from 66.3 to 72.1 points, reaching the highest level since the end of 1983! Analysts had on average expected a weakening to 65 points. It is also interesting to observe the price component of the PMI. This reached its highest level in 41 years in April due to the shortage of raw materials and transportation problems, which is likely to indicate increased inflationary pressure.

Corona slows euro economy again in first quarter

In the eurozone, the economy contracted less than feared in the opening quarter. In the first three months, GDP declined by -0.6% compared with the previous quarter in view of the renewed lockdowns in many places in the corona crisis. Economists had expected a stronger decline of -0.8%. Economic output had already fallen by -0.7% in the final quarter of 2020. Compared with the prior-year period, GDP declined by -1.8% in the first quarter (consensus -2.0%).

In Germany, economic output in Q1 declined by -1.7% compared with the previous quarter after two quarters of growth (Q4: +0.5%, Q3 +8.7%). Exports performed well, while private consumption slowed down.

Inflationary pressure in the eurozone increased, but core inflation only low

Inflation in the euro area continued to rise in April. On an annual basis, consumer prices increased by +1.6% compared to an inflation rate of +1.3% in March. However, excluding the often-volatile components energy or food, the core inflation rate declined from +0.9% in the previous month to +0.8%. Accordingly, the higher inflation rate was due to an increase in energy prices, which rose by +10.3% year-on-year. However, this was also due to the statistical effect of the sharp drop in crude oil prices observed during the first wave of the pandemic in the same period last year.

US pushes for stronger pledges at UN climate summit in fall

John Kerry, US President Joe Biden's climate envoy, plans to push for more climate commitments at the meeting of the 20 major industrialized and emerging economies (G20) in Rome in October. The G20 meeting is a very important point on the way to the UN Climate Change Conference (COP26) in Glasgow in November, he said.



Economic Indicators May 3

MEZ Country Indicator Last
00:00 UK & JP Holiday
08:00 GE Retail Sales (March, y/y) -9.0%
09:15 SP IHS Markit PMI Manufacturing (April) 56.9
09:30 SZ PMI Manufacturing (April) 66.3
09:45 IT IHS Markit PMI Manufacturing (April) 59.8
09:50 FR IHS Markit PMI Manufacturing (April) 59.2
09:55 GE IHS Markit PMI Manufacturing (April) 66.4
10:00 EZ IHS Markit PMI Manufacturing (April) 63.3
15:45 US IHS Markit PMI Manufacturing (April) 60.6
16:00 US ISM PMI Manufacturing (April) 64.7

Earnings Calender Mai 4

Country Corporate Period
SZ Adecco Q1 
SZ Geberit Q1
SZ ams Q1
SZ SIG Combibloc Q1
GE Infineon Q1
US Pfizer Q1


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