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LGT Navigator: Markets in the grip of inflation fears

May 13, 2022

The risk of an uncontrollable and sustained surge in inflation is growing, and fears of an even more restrictive monetary policy and a slump in the global economy are increasing. Against this backdrop, equity markets remain battered. Meanwhile, the US dollar gained as a safe-haven and pushed the euro to a five-year low.

Markets in the grip of inflation fears

On Wall Street, stock indices remained under pressure on Thursday, especially towards the end of the trading day. The Dow Jones Industrial closed at 31'730.30 points, -0.33% lower than the previous day, extending its year-to-date loss to nearly -13%. The broad-based S&P 500 fell by -0.13% and ended yesterday's trading at 3'930.08 points. On the Nasdaq technology exchange, the indices were able to hold and went almost unchanged out of trading. Since the beginning of the year, tech stock indices lost against the background of the interest rate turnaround in the US and the prospect of further rising interest rates about -25%.

The Asian markets, on the other hand, tended to the majority in positive territory at the end of the week. In Tokyo, the Nikkei 225 gains about +2.5% and in Hong Kong, the Hang Seng trades about +2% higher. In Shanghai, the Composite Index is up about +0.6%.

In the currency market, the US dollar continued to benefit from interest rate expectations and pushed the euro to 1.0375 – the lowest level since the beginning of 2017. The yield on ten-year US government bonds eased at the same time to 2.87%.

US producer prices ease slightly

As with consumer prices, the momentum for producer prices in the US also eased minimally in April. On an annual basis, producer prices rose by +11.0% compared with a rate of increase of +11.5% in March. However, analysts on average had expected a slightly stronger decline to +10.7%. The development of producer prices flows into consumer prices with a time lag and thus has a significant influence on the direction of the US central bank.

ECB top officials expects multiple interest rate steps

As Bloomberg reported, some European Central Bank (ECB) council members are said to expect two more rate hikes by early next year, following a rate turnaround in July. This roughly mirrors the money market's assessment, which currently assumes three ECB rate hikes by the end of the year.

Powell confirmed as Federal Reserve chairman for second term

The Senate in Washington has confirmed Jerome Powell (69) for a second four-year term at the helm of the Federal Reserve by a large majority of 80 to 19. Powell has been Chairman of the Federal Reserve (Fed) since February 2018 and was nominated at the time by then President Donald Trump.

Economic Indicators May 13

MEZ Country Indicator Last period
08:45 FR Consumer Prices (April, y/y) +5.4%
09:00 ES Consumer Prices (April, y/y) +8.3%
11:00 EZ Industrial Production (March, y/y) +2.0%
14:30 US Import Prices (April, m/m) +2.6%
16:00 US Consumer Sentiment (May) 65.2

 

Earnings Calender May 13

Country Company Period
GE Deutsche Telekom Q1 

 

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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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