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LGT Navigator: Market environment remains challenging

March 28, 2022

On capital markets, investors continue to try to assess the risks and economic impact posed by the open conflict with Russia, further rising inflationary pressures and tighter monetary policy. Rising US government bond yields dampened sentiment on Wall Street and renewed lockdowns in China heighten concerns about ongoing global supply chain problems. Meanwhile, the war in Ukraine continues unabated and hopes for a rapprochement in direct talks will be limited. At the end of this week, the focus will once again be on labor market developments in the United States.

Market environment remains challenging

High uncertainties regarding further developments in the conflict with Russia and the war in Ukraine slowed down share prices and clouded the mood on the New York Stock Exchange before the weekend. In addition, equity investors also looked to the bond market, where the yield on ten-year US government bonds reached 2.53%, the highest level in almost three years. After all, the Dow Jones Industrial closed Friday +0.44% higher at 34'861.24 points but remained below the psychologically important mark of 35'000 points. The S&P 500 went out of Friday's trading with a daily gain of +0.51% at 4'543.06 points and on the Nasdaq technology exchange, the indices remained virtually unchanged from the previous day's close.

In Asia, the stock markets opened the new week without a clear trend. In China, the coronavirus slows down economic activity in some industrial centers. China's financial metropolis of Shanghai, with a population of 26 million, imposed a nine-day lockdown and ordered all companies to halt production or have employees work in their home offices. As a result, oil prices also fell. In Japan, the Bank of Japan intervened to prevent higher yields, which put pressure on the yen.

Americans more pessimistic than at any time in more than ten years

Against the backdrop of the war in Ukraine, the resulting geopolitical tensions, and an inflation rate of nearly eight percent, American consumer confidence plunged in March to its lowest level since July 2011. The University of Michigan's consumer sentiment barometer fell from 62.8 to 59.4 points. Both assessments of the current situation and the outlook clouded over, and a record high number of households surveyed, around one-third, expected their financial situation to worsen.

Ukraine conflict and high energy prices slow down German companies

The business climate in Europe's largest economy has deteriorated sharply due to the high level of uncertainty caused by the war in Ukraine. The Munich-based Ifo Institute's business climate index fell by 7.7 points to 90.8, which was a much sharper decline than analysts had expected (consensus 94.2). Companies were particularly pessimistic about their outlook. The main reasons for this are the sharp rise in energy costs and ongoing supply chain problems. A complete embargo of Russian energy supplies could probably put the German economy in even more trouble.

More liquefied gas from the US for the EU

The United States, together with international partners, wants to supply the European Union with an additional 15 billion cubic meters of liquefied natural gas (LNG) this year to replace Russian gas imports to the EU. In the long term, according to US President Joe Biden, the volume is then to be expanded to 50 billion cubic meters per year. EU Commission President Ursula von der Leyen expressed confidence that this could replace about a third of current gas imports from Russia.

Germany presses the pace in reducing dependence on Russian energy

German Economics Minister Robert Habeck believes Germany is well on its way to reducing its dependence on Russian energy imports. This is happening at a fast pace, Habeck assured. Oil imports could be halved by the summer, and by the fall Germany could already do without Russian coal completely. Regarding gas supplies, Germany could manage to become independent of Russian supplies by the middle of 2024, according to a statement from Berlin on Friday.

  

Economic Indicators March 28

MEZ Country Indicator Last period
12:00 UK Bank of England Governor Bailey speaks
15:30 US Dallas Fed Business Climate index (March) +14.0

 

Earnings Calender March 28

Country Company Period
GE BASF Investor Day

 

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

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