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LGT Navigator: Markets digest central bank decisions

June 18, 2021

As expected, the Swiss National Bank and the Bank of Japan are sticking to their current course and are unlikely to have any leeway for monetary policy maneuvers for some time to come. The Federal Reserve, on the other hand, is now at least considering the question of when the time might have come to envisage a reduction in the massive stimulus measures. This is now likely to be priced into the financial markets, with the currently still expansive monetary policy of the major central banks giving a boost to technology stocks and the Nasdaq subsequently setting new records.

Markets digest central bank decisions

On the New York Stock Exchange, the approaching monetary policy turnaround of the Federal Reserve caused losses in the standard stocks. The Dow Jones Industrial declined by -0.62% to 33'823.45 points. Meanwhile, the S&P 500 remained virtually unchanged at 4'221.86 points (-0.04%). As the interest rate turnaround in the US becomes more foreseeable, but the financing environment remains favorable, the Nasdaq technology exchange yesterday recorded another record high. In Asia, the stock indices developed at the end of the week without a clear trend.

The economic data published yesterday from the US were mostly mixed: The composite index of leading economic indicators rose strongly by +1.3%, as expected. On the other hand, the number of initial jobless claims surprisingly increased and the business climate barometer of the Philadelphia Fed – Philly Fed – signaled a slight weakening in the regional industrial sector.

Bank of Japan without room for maneuver

Japan's central bank is maintaining its extremely loose monetary policy in the face of the ongoing uncertain pandemic situation and is even extending an aid program for companies that have been hit particularly hard by the crisis. The central bank in Tokyo is also likely to wait for the effect of the Olympic Games, both economically and in terms of the pandemic. In the near future, the Bank of Japan is unlikely to have much leeway.

SNB stays the course

The Swiss National Bank (SNB) did not identify any room for maneuver in its quarterly assessment and, as expected, left its monetary policy course unchanged. The Helvetic central bank is thus sticking to its negative interest rate of -0.75% despite expectations of stronger economic growth and rising inflation. Unsurprisingly, the SNB is also sticking to its assessment that the Swiss franc is still (too) highly valued. It will therefore intervene if necessary. In the latest forecasts, GDP growth of +3.5% is expected for the current year (previously 2.5-3.0%). At the same time, however, inflation is expected to average +0.4% in 2021 (previously +0.2%) and rise to +0.6% in 2022 (previously +0.4%). Compared with the rest of the world, however, this is still an extremely modest rate of inflation.

Brazil's central bank with further interest rate hike in fight against inflation

The Brazilian central bank tightened its key interest rate again, for the third time in a row, by three-quarters of a percentage point to 4.25% in an attempt to curb the sharp rise in inflation. In addition, the Banco do Brasil also held out the prospect of further interest rate steps. Brazil's inflation rate is currently around 8%, compared with around 2% a year ago.

Turkish central bank refrains from further interest rate hikes for the time being

The central bank in Ankara left its key interest rate unchanged at 19%, but in its statement showed its determination to continue to fight rising inflation. Against the background of inflation expectations, the current tight monetary policy course will be resolutely maintained, the central bank commented. The inflation rate in Turkey was 17% in May.

Economic Indicators June 18

MEZ Country Indicator Last period
08:00 GE Producer Prices (May, y/y) +5.2%
08:00 UK Retail Sales (May, m/m) +9.2%
08:00 UK Retail Sales (May, y/y) +42.4%


Earnings Calender June 23

Country Company Period
UK GlaxoSmithKline Investor Day
NL ASML Investor Day
US Johnson & Johnson  ESG Investor Update


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Source: LGT Bank (Switzerland) Ltd.

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