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LGT Navigator: Powell guarantees continuity at the top of the Fed

November 23, 2021

US President Biden nominated incumbent Fed Chairman Jerome Powell for a second term, thus ensuring continuity at the helm of the Federal Reserve amid the monetary policy turnaround. The weighty personnel decision was well received in the financial markets. Powell guided the Fed through the turbulent Trump presidency and the corona crisis. Now he can prove his worth in the still challenging environment of increasing inflation risks, fragile economic recovery, and the upcoming interest rate turnaround. 

Powell guarantees continuity at the top of the Fed

US President Joe Biden expressed his confidence in the current Federal Reserve Chairman Jerome Powell (68) and nominated him for a second term. Powell, who was appointed to the post in 2018 by former President Donald Trump, prevailed over his colleague Lael Brainard. Brainard, who holds a doctorate in economics, has already been a member of the seven-member central bank council since 2014. She is now to become the number two at the top of the central bank. Under Powell's leadership, the Fed cut the key interest rate to virtually zero in the aftermath of the corona crisis and flooded financial markets with liquidity. In his second term, Powell can now prove himself in the already communicated monetary policy turnaround. The nomination must now be confirmed in the US Senate.

Futures contracts now signal that the Federal Reserve will raise interest rates by 25 basis points by June next year – previously, the Fed's effective interest rate turnaround was not expected until July 2022 at the earliest.

US equity indices climb to record highs again, but cannot hold on to gains

On Wall Street, the personnel decision at the top of the Fed was received positively and the stock indices as well as the greenback rose in an initial reaction. At the end of the day, however, the indices could not hold their gains and the Dow Jones Industrial closed virtually unchanged from the previous day at 35'619.25 points (+0.05%) and the S&P500 even declined -0.32% to 4'682.94 points. Previously, however, the broad stock market barometer had reached a new record high. On the technology stock exchange, profit-taking set in after the recent record highs, resulting in a sharp drop of a good one percent at the beginning of the week. Amazon (-2.8%) and Alphabet (-1.8%) recorded above-average losses compared to the market.

In Asia, stock indices showed no clear trend on Tuesday. While there was no trading in Japan because of a holiday, prices in Hong Kong fell noticeably. The Hang Seng Index traded around -1.2% lower compared to the previous day's close. In Shanghai, however, the Composite Index increased slightly by about +0.25%.

In Europe, the futures indicate a negative stock market opening. The focus here remains the further worsening pandemic situation and concerns about drastic corona measures.

Inflation rate in Germany could rise to just under six percent according to the Bundesbank

In its latest monthly report, the German Bundesbank predicts that the rate of consumer price inflation may have risen to just under +6% in November. In October, the inflation rate was still +4.6%. However, the central bank's assessment remains the same. Thus, most of the rapid increase is due to special effects such as the temporary reduction of VAT in Germany from summer 2020 during the corona crisis – but an effect that will cease from January 2022. On the other hand, however, higher energy prices – above natural gas prices – could keep inflation well above +3% for some time to come. The Bundesbank also warns of the corresponding negative impact of the increase in the minimum wage planned by the new coalition government for the end of 2022. This could trigger “non-negligible spillover effects”.

Economic Indicators November 23

MEZ Country Indicator Last period
00:00 JP Holiday
08:00 GE GDP Q3 (Revision, q/q) +1.8%
08:00 GE Import Prices (October, y/y) +17.7%
09:15 FR IHS Markit PMI Composite (October) 54.7
09:30 GE IHS Markit PMI Composite (October) 52.0
10:00 EZ IHS Markit PMI Composite (October) 54.2
15:45 US IHS Markit PMI Composite (October) 57.6


Earnings Calender November 23

Country Company Period
SZ Clariant Capital Markets Day
GE E.ON Capital Markets Day
US Dell Q3
US Hewlett-Packard Q4
US Medtronic Q2
US Best Buy Q3
US Analog Devices Q4


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Source: LGT Bank (Switzerland) Ltd.

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