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LGT Navigator: Interest rate outlook breathing down technology stocks' necks

May 5, 2021

Against the backdrop of heightened inflation concerns and the outlook for higher interest rates resulting from a dynamic recovery of the global economy from the corona crisis, investors continue to shift from winners of the pandemic, mostly from the technology sector, into beneficiaries of a post-crisis normalization. Meanwhile, most economic data confirm the assumption of a sustained recovery in most economies, and the corporate reporting season has also been quite positive so far.

Interest rate outlook breathing down technology stocks' necks

In view of the growing hope that the corona crisis will soon come to an end, technology stocks again came under pressure. The indices on the Nasdaq technology exchange fell by almost -2% yesterday. The selection index Nasdaq 100 closed -1.85% lower at 13'544.67 points. At the same time, the S&P 500 also lost -0.67% and now trades at 4'164.66 points. As a trigger for the losses, stockbrokers cited statements by US Treasury Secretary Janet Yellen, according to which it could be that interest rates would have to rise somewhat to prevent the economy from overheating. In the standard stocks, the picture looked a little better and so the Dow Jones Industrial was able to hold at the previous day's level and went out of the day's business virtually unchanged at 34'133.03 points (+0.06%). Particularly, defensive sectors such as financials, basic materials and energy were in demand.

In the Asia-Pacific region, stock market indices trended inconsistently on Wednesday, with no trading in Japan, mainland China and in South Korea due to holidays. In Hong Kong, the Hang Seng index gives -0.4%. For Europe's stock markets, the futures nevertheless indicate a slightly positive opening. In addition to some more corporate balance sheets, especially from Europe, are today further purchasing managers survey values and the report of ADP on employment trends in the US private sector in focus. This could provide an indication of the official US labor market report due on Friday.

British industry also in top form

After the London-based research company IHS Markit reported a record value for industrial sentiment in the euro zone yesterday, the latest survey figures show that the industrial sector in the UK was also in the best of moods in April. For example, the British industrial purchasing managers' index climbed from 58.9 points in the previous month to 60.9 points in April, its highest level since July 1994. Further easing of corona restrictions led to a further significant boost to growth in British industry, but the development was dampened by problems with supply chains and rising prices, IHS Markit commented.

The ECB has difficulty to assess the post Brexit EU-UK trade

Economists at the European Central Bank (ECB) pointed out that the post-Brexit slump in trade in goods is difficult to assess due to distortions such as corona-related supply chain disruption or a, increased inventory build-up ahead of Brexit. Initial data on trade in the first quarter signal a significant decoupling of trade flows between the two economic regions, according to the ECB. For example, exports from the eurozone to the British island fell by almost a third at the start of the year, while imports more than halved. The long-term consequences of Brexit for EU foreign trade with the UK and British demand for goods from the eurozone cannot be assessed at present, he said.

US trade balance in record deficit

The US imported more in March than ever before. Imports rose by +6.3% to USD 274bn compared with the previous month, reaching their highest level ever. Demand was high for cell phones, automobiles, and furniture, for example.  Exports rose by +6.6% to USD 200bn in March, with the American foreign trade deficit widening by +5.6% on the previous month and reaching a record level.



Economic Indicators May 5

MEZ Country Indicator Last
00:00 JP, CN, SK Holiday
08:30 SZ Consumer Prices (April, y/y) -0.2%
09:00 SZ KOF Economic survey
09:00 SP IHS Markit PMI Services (April) 48.1
09:45 IT IHS Markit PMI Composite (April) 51.9
09:50 FR IHS Markit PMI Services (April) 51.7
09:55 GE IHS Markit PMI Services (April) 56.0
10:00 EZ IHS Markit PMI Services (April) 53.7
11:00 EZ Producer Prices (March, y/y) +1.5%
15:45 US IHS Markit PMI Services (April) 62.2
16:00 US ISM PMI Non-Manufacturing (April) 69.4

Earnings Calender Mai 5

Country Corporate Period
SZ Alcom Q1 
GE Deutsche Post Q1
GE Hugo Boss Q1
SP Endesa Q1
US General Motors Q1
US PayPal Q1


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Source: LGT Bank (Switzerland) Ltd.

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US employment growth remains dynamic at the beginning of the year