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LGT Navigator: Lower US inflation dampens interest rate worries (for the time being)

August 11, 2022

A much larger-than-expected drop in the inflation rate in the US eased the situation on the stock markets and fueled hopes that the Federal Reserve will not have to put the brakes on monetary policy as much as previously assumed. The question now is whether inflation in the US has peaked. However, it seems too early to sound the all-clear, but stock market sentiment is also buoyed by hopes. The conclusion of the maneuvers around Taiwan announced by China also had a positive effect on market sentiment.

Lower US inflation dampens interest rate worries (for the time being)

In the US, consumer prices rose by +8.5% year-on-year in July. This means that the pace of inflation has slowed more than economists had anticipated (consensus +8.7%). As recently as June, the US inflation rate reached +9.1%, its highest level in over 40 years. The main reason for the easing was the decline in energy prices (-4.6% versus the previous month) and especially in gasoline prices in the US (-7.7%). However, food prices rose in July, up +1.1% on the previous month. The interest rate turnaround is also likely to have had a certain dampening effect. The core inflation rate, i.e. excluding energy and food prices, was +5.9% in July after +6.1% in June.

Prospect of a possible more moderate interest rate hike by the Fed provides relief on the stock markets

At midweek, investors on Wall Street showed relief in view of the decline in inflation and the prospect of a possible more moderate interest rate hike by the Fed in September. The Dow Jones Industrial closed +1.63% higher at 33,309.51 points and the S&P 500 gained +2.13% to 4,210.24 points. Among other things, the quarterly results of Walt Disney contributed positively. In particular, the subscriptions at the streaming business Disney+ were stronger than anticiapted. Even stronger were the daily gains on the Nasdaq, where the indices were +2.8% higher than the previous day.

In Asia, the stock indices followed most of the positive guidance from overseas. While the Japanese stock exchange remained closed for a holiday, the Hang Seng Index in Hong Kong rose +1.8% and the markets on the Chinese mainland also traded higher. The Shanghai Composite was up around +1.2% and the Shenzhen Component climbed around +1.6%.

The US dollar and capital market rates in the United States weakened after the release of US consumer price data. The euro rose above 1.03 against the greenback, the highest level since early July. On the US bond market, the yield on ten-year Treasuries stood at just under 2.8%.

Sustained high inflationary pressure in Germany

Inflationary pressures in Germany intensified in July on an EU-harmonized basis. On a year-on-year basis, consumer prices rose by +8.5% in July, compared with an inflation rate of +8.4% in June. Compared to the previous month, the cost of living increased by +0.8% on average. Excluding the alignment with the European price index, the inflation rate in Germany declined to +7.5% in July from +7.6% in the previous month.


Economic Indicators August 11

MEZ Country Indicator Last period
13:00 OPEC Monthly Report
14:30 US Producer Prices (July, y/y) +11.3%
14:30 US Initial Jobless Claims (weekly) 260,000


Earnings Calender August 11

Country Company Period
SZ Zurich Insurance H1
GE Deutsche Telekom Q2
GE Daimler Truck Q2
GE Siemens Q3
GE ThyssenKrupp Q3
NL Aegon H1


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