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LGT Navigator: Only short-lived recovery – market sentiment remains fragile

May 11, 2022

Stock markets have initially stabilized on Tuesday from the slump at the beginning of the week. On Wall Street, however, the gains quickly shrank again, and the stock market sentiment remains highly fragile. Current statements from the top of the Federal Reserve indicate that further interest rate increases can be expected until the summer, but in a moderate scope of 50 basis points each. The decisive factor, however, will be how inflation develops. That is why the latest consumer price data from the US are eagerly awaited this afternoon.

Only short-lived recovery – market sentiment remains fragile

After the slump at the beginning of the week, stock indices on the New York Stock Exchange were able to recover initially on Tuesday, but trading remained volatile and ultimately the gains could not be held. The Dow Jones Industrial ended the trading day with a new, albeit moderate, loss of -0.26% at 32'160.74 points. Interest rate, inflation and economic concerns continue to determine the fragile investor sentiment. The S&P 500 closed at 4'001.05 points +0.25% higher than the previous day and on the Nasdaq, the indices with daily gains of around +1.3% could at least somewhat dampen the previous slump. Among other things, the acquisition of Biohaven by Pfizer for USD 11.6 billion also attracted attention.

In Asia, most stock indices trended in positive territory on Wednesday morning. In Tokyo, the 225-stock Nikkei index trades +0.2% higher and in Hong Kong, the Hang Seng index is up around +1.8% after a holiday today.

On the bond market, the yield of ten-year US government bonds is now again just below 3%. The focus is now the US inflation data due today at 14:30 (CET).

Fed leaders reaffirm prospect of further “moderate” rate hikes

Further rate hikes of 50 basis points at each of the next two Federal Open Market Committee (FOMC) meetings of the Federal Reserve (Fed) in June and July make sense, said New York Fed President John Williams. His council colleague, Loretta Mester, president of the Federal Reserve Bank of Cleveland, also favors another half-point of rate hikes. Mester believes the Fed funds rate will have to go beyond 2.5% to get inflation under control. This could well mean that another quarter of negative or slow growth, as well as a slight increase in the unemployment rate, would have to be expected. The statements by Williams and Mester confirm the statements made by Federal Reserve Chairman Jerome Powell on last week's interest rate decision.

Investors slightly more confident about outlook according to ZEW survey

Analysts and institutional investors surveyed by the Mannheim-based research institute ZEW (Center for European Economic Research) were more optimistic about the outlook for the European economy, but again assessed the current situation more negatively. The expectations index improved by 6.7 points month-on-month to minus 34.3 points in May (consensus -43.5). By contrast, the index for the current economic situation fell for the third month in succession against the backdrop of the war in Ukraine and supply chain problems, dropping by 5.7 to minus 36.5 points in April.

Bundesbank chief reaffirms prospect of ECB rate hike in summer

German central bank President Joachim Nagel reiterated yesterday that in his view the ECB will stop buying bonds under the APP purchase program at the end of June, at which point there is the possibility of a first rate hike. He added that the rise in inflation was gaining momentum and that the ECB needed to act. Delaying the turnaround in monetary policy would be a risky strategy, Nagel stressed. The ECB's next interest rate decision is due on June 9.

Economic Indicators May 11

MEZ Country Indicator Last period
08:00 GE Consumer Prices (April, y/y) +7.8%
09:15 GE Bundesbank President Nagel speaks
14:30 US Consumer Prices (April, m/m) +1.2%
14:30 US Consumer Prices (April, y/y) +8.5%
14:30 US Core Consumer Prices (April, y/y) +6.5%


Earnings Calender May 11

Country Company Period
SZ Swiss Life Q1 Sales
GE Continental Q1
GE Siemens Energy Q1 
GE ThyssenKrupp Q2
FR Alstom Q2
NL Ahold Delhaize Annual
US Walt Disney Q1
US Google Developer Conference


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Source: LGT Bank (Switzerland) Ltd.

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