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LGT Navigator: Markets kick off second quarter on a friendly note

April 4, 2022

Despite lower-than-expected employment growth in the US, the labor market remains solid and an acceleration in wage growth confirms the course of the Federal Reserve. By contrast, sentiment in the industrial sector has recently deteriorated, both in the US and in the eurozone. After a difficult first quarter, stock markets started April with slight gains. 

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US stock markets kicked off the second quarter with slight gains. While the American labor market continues to be robust, weak industrial data weighed on investor sentiment. The S&P 500 advanced on Friday +0.3% and the Dow Jones Industrial gained +0.4%. The Nasdaq 100 was up +0.1%. 

In Asia, stock exchanges started the new week friendly. In Hong Kong, the Hang Seng Index gains more than +1%. In particular, technology stocks such as Tencent and Alibaba are in demand. In Tokyo, the Nikkei is trading slightly higher. Chinese stock markets are closed on Monday and Tuesday for a holiday.

US labor market development remains solid

In March, fewer new jobs were created in the US economy than expected, but the trend at the labor market remains quite robust. At the same time, the unemployment rate fell more sharply than forecast. As the Labor Department in Washington announced on Friday, job growth last month was +431’000 (consensus +490’000). In the two previous months, however, employment has developed even better than initially assumed and 95’000 additional new jobs were counted. The unemployment rate fell from 3.8% in February to 3.6% (consensus 3.7%). In addition, wage growth accelerated in March, as expected. Average hourly wages increased by +0.4% month-on-month and by +5.6% year-on-year. 

Industry facing headwinds on both sides of the Atlantic

Growth and sentiment in US industry weakened in March. This was signaled by the closely observed Purchasing Managers' Index (PMI) of the ISM industry association. Accordingly, the PMI slipped from 58.6 to 57.1 points, while analysts had expected an improvement to 59.0 points. The main reasons for this are likely to be the ongoing supply chain problems and the strong upward pressure on prices and costs. 

Among industrial companies in the eurozone, the war in Ukraine and the associated negative impact on the global economy due to rising energy costs caused uncertainty. As a result, the Purchasing Managers' Index for industry in the eurozone fell by 1.7 points to 56.5 in March, its lowest level in more than a year. The war in Ukraine and the conflict with Russia have created new headwinds, commented Chris Williamson, chief economist at S&P Global. 

In the UK, industrial sentiment also deteriorated more than expected in March. The corresponding PMI slipped from 58.0 to 55.2 points - the lowest level in 13 months. Persistent supply bottlenecks, rising inflationary pressures and geopolitical tensions have slowed the recovery of the British economy, it said. 

Inflation in the eurozone continues to soar

In the eurozone, consumer prices continued to rise in March. At +7.5%, the inflation rate reached a new record high, after +5.9% in February. Analysts had expected a much smaller jump in prices and had forecast an annualized inflation rate of +6.7% for March. On a monthly comparison, consumer prices in the euro countries rose by an average of +2.5%. The main driver remains energy prices, which have risen by almost +45% over the year. The core rate, excluding energy and food prices, climbed from +2.7% in February to +3.0%. As inflationary pressure continues to rise, pressure on the European Central Bank (ECB) to initiate an interest rate turnaround is also increasing. The capital markets are now assuming at least one key interest rate hike by the ECB before the end of this year. 

ECB chief economist appeases

Philip Lane, the ECB's chief economist, still expects the record-high inflation in the euro area to fall in the medium-term. He said this is a supply shock and therefore most of the inflationary pressure will subside. "Europe may have to get used to higher prices, but the momentum will be easing," Lane said in an interview. For the ECB, the most important thing is a flexible monetary policy framework that allows it to respond to all medium-term developments, he said.

  

Economic Indicators April 4

MEZ Country Indicator Last period
08:00 GE Exports (February, m/m) -2.8%
08:00 GE Imports (February, m/m) -4.2%
10:30 EZ Sentix Economic Outlook (April) -7.0
11:00 EZ Producer Prices (February, y/y) +26.3%
11:00 UK Bank of England Governor Bailey speaks
12:00 EZ Eurogruppe Meeting
16:00 US Durable Goods Orders (February, m/m) +1.4%

 

Earnings Calender April 4

Country Company Period
ESP Repsol Q1 Sales

 

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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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