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LGT Navigator: Powell provides strong tailwind for stock markets

December 1, 2022

Federal Reserve Chairman Jerome Powell hinted that the US central bank could raise interest rates at a slower pace in view of recently somewhat weaker inflation and increased economic risks. According to Powell, the upcoming decision on December 14 could already be the time for a reduction in interest rate increases. Powell's statements were also reinforced by the Beige Book, the Fed's economic report. According to this, economic growth in the US has weakened recently.

Powell provides strong tailwind for stock markets

The prospect of a slowdown in the pace of tightening caused prices to jump on Wall Street and on Asia's stock exchanges. The Dow Jones Industrial closed +2.18% higher at 34'589.77 points after the Fed Chairman's statements, reaching the highest level in about seven months. Thus, after an already strong October, the Dow ended the month of November with a handsome gain of almost +6%. Prices on the broad market rose even more strongly. The S&P 500 gained +3.09% and ended Wednesday trading at 4'080.11 points. On the Nasdaq technology exchange, the prospect of a more moderate pace of the Fed provided fireworks. The indices rose by around +4.5%. Before Powell's statement, the stock indices on Wall Street were still in the red. At the same time, the prices of US government bonds rose and the yield of the ten-year US government bond yielded to 3.66%. The US dollar came under pressure after Powell's statements and is currently quoted against the euro at 1.0445.

Stock markets in the Asia-Pacific region joined the positive guidance from New York. In Tokyo, the Nikkei 225 gained about +1% and in Hong Kong, the Hang Seng index gained +1.6% – the Hang Seng Tech index even +2.4%. On the Chinese mainland, the Shanghai Composite rose by +0.65%. A better-than-anticipated Purchasing Managers Survey result in China's industrial sector also contributed positively.

ADP data points to slower job growth in the US

As an indication of the official US labor market statistics due on Friday, the report of the labor market services company ADP is interpreted in each case. With a gain of 127'000 jobs in November – the smallest gain in nearly two years – job growth has slowed somewhat, at least in the private sector. In October, according to ADP, 239'000 new jobs were still created. The monthly labor market data from Washington for the overall economy, which will be published before the weekend, are now eagerly awaited.

Inflation in the eurozone declines slightly – relief for ECB?

The rate of consumer price inflation in the euro area weakened somewhat in November from the record level recorded in the previous month by more than expected. Year-on-year, the cost of living in the euro countries increased by +10.0% on average (consensus +10.4%). In October, the inflation rate was +10.6%. The main driver remains energy prices, which increased by just under +35% on an annual basis. However, food and beverages also rose sharply in November, namely by +13.6% year-on-year. The core inflation rate, i.e. excluding energy and food, remained unchanged at +5.0%. It is now eagerly awaited whether the ECB will take the brakes off its monetary policy somewhat at its next interest rate decision on December 15, i.e. whether it will raise interest rates more moderately (by 50 basis points instead of 75).

Economic outlook for Switzerland remains clouded according to KOF

The outlook for the Swiss economy did not improve in November. This is indicated by the monthly economic barometer of the Swiss Institute for Business Cycle Research (KOF) at the ETH Zurich. Compared with October, the barometer fell by 1.4 points to 89.5. The barometer is thus below the long-term average of 100 points for the seventh month in succession. The areas of production capacities, inventories and the competitive situation were the main contributors to the overall negative development, commented the KOF.

 

Economic Indicators December 1

CET Country Indicator Last period
08:00 GE Retail Sales (October, m/m) +0.9%
08:30 SZ Consumer Prices (November, y/y) +3.0%
09:30 SZ PMI (November) 54.9
09:45 IT PMI Manufacturing (November) 46.5
09:50 FR PMI Manufacturing (November) 49.1
09:55 GE PMI Manufacturing (November) 46.7
10:00 EZ PMI Manufacturing (November) 47.3
10:30 UK PMI Manufacturing (November) 46.2
14:30 US Initial Jobless Claims (weekly) 240,000
14:30 US Consumer Spending (October, m/m) +0.6%
15:45 US PMI Manufacturing (November) 47.6
16:00 US ISM PMI Manufacturing (November) 45.2
16:00 US Pending Home Sales (October, m/m) 50.2

Earnings Calender December 1

Country Company Period
NL Heineken (Capital Markets Day)

 

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Imprint
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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