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LGT Navigator: Interest rate expectations dampen dynamics on equity markets

January 5, 2022

On stock markets, the momentum of the positive start to the year ebbed away and concerns surrounding omicron and inflation as well as higher US government bond yields and a weaker ISM industrial indicator weighed on the stock markets, especially on technology stocks. The prospect of several interest rate hikes by the Federal Reserve and a generally tighter monetary policy by central banks is throwing sand into the gears of the stock markets and is likely to put pressure on equities again and again over the course of the year.

Interest rate expectations dampen dynamics on equity markets

On Wall Street, the Dow Jones Industrial and the S&P 500 climbed to new record highs, but then failed to hold onto gains over the course of Tuesday. While the Dow closed with a solid daily gain of around +0.6%, the broad S&P 500 ended trading slightly in the red. Selling pressure was felt especially the technology stocks. The Nasdaq indices fell by around -1.3%. The prospect of several interest rate hikes in the US increases a shift from growth-sensitive stocks, such as technology companies, in high-yield stocks, such as financials and industrials. In Asia, too, most stock indices struggled. MSCI's index of Asia-Pacific shares outside Japan lost about one percent after hitting a three-week high the previous day. While Tokyo's Nikkei 225 was virtually unchanged, the Japanese yen fell to a five-year low against the US dollar. In China, meanwhile, a renewed lockdown in the metropolis of Zhengzhou starting Tuesday is causing concern.

Deteriorating sentiment in US industry

The growth trend in American industry weakened more than expected at the end of last year. In the process, the Purchasing Managers' Index published monthly by the Institute for Supply Management (ISM) slipped to 58.7 points from 61.1 points in the previous month (consensus 60.0) – the lowest level since January 2021. At the same time, however, price pressures also eased, indicating a cooling of inflationary pressures. The ISM industrial PMI shows a relatively strong correlation with the overall economic trend and therefore attracts a great deal of attention on the capital markets.

Signs of stabilization in British industry

Although the mood of industrial companies in the UK again deteriorated slightly at the end of last year, the London-based market research firm IHS Markit sees signs of stabilization. The purchasing managers' index fell by 0.2 points to 57.9 in December but did better than analysts' expectations of 57.6. As before, the consequences of Brexit and concerns about renewed pandemic measures would weigh on British companies, but less so than was the case in earlier phases. 

Opec+ expands oil production

As expected, Opec+, which comprises 23 countries, decided to increase its production volume. An additional 400'000 barrels per day are to be produced in February. The increase brings production back to the level seen before the Corona crisis. Opec+ supplies around 45% of the world market's crude oil requirements.

Inflationary pressure in France not increased further

In France, consumer prices did not rise further at the end of 2021. On an annual basis, the inflation rate in December was +3.4%, unchanged from November. Analysts had expected an increase to +3.5%. This is the first time since August that the French inflation rate has not risen further. Price increases continue to be driven primarily by energy prices, which rose by just under +19% year-on-year.

Economic Indicators January 5

MEZ Country Indicator Last period
08:45 FR Consumer Sentiment (December) +99.0
09:15 ESP PMI Services (December) 59.8
09:45 IT PMI Composite (December) 57.6
09:50 FR PMI Composite (December) 55.6
09:55 GE PMI Composite (December) 50.0
10:00 EZ PMI Composite (December) 53.4
11:00 IT Consumer Prices (December, y/y) +3.9%
14:15 USA ADP Employment Growth Private Sector (December)  +534,000
15:45 USA PMI Composite (December) 56.9
20:00 USA FOMC Minutes


Earnings Calender January 5

Country Company Period
US Computer Technology Association (CES) Event in Las Vegas


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