The losing streak on US stock markets continued on Thursday. The prospect of a significant tightening of monetary policy caused nervousness among investors. After inflation turned out unexpectedly high in June, Fed Funds Futures signal a rate hike of +100 basis points at the next meeting of the Federal Reserve (Fed), which will be held on July 27. US producer prices also rose rapidly in June, climbing +11.3% year-on-year. At the same time, recession concerns are rising, as the Fed's monthly economic report – the Beige Book – showed earlier on Wednesday. The S&P 500 lost -0.3% and the Dow Jones slipped -0.5%. The Nasdaq Composite shed -0.3%. Stock markets thus curbed the daily losses, which were well above -1% at times.
The first quarterly results of major US banks further dampened the already gloomy mood. Shares of JPMorgan Chase lost -3.5% after the banking giant announced an unexpectedly sharp drop in profits for the second quarter and therefore stopped its stock buybacks. In particular, the provisions for potential credit defaults reduced profits: JPMorgan is thereby preparing for a possible economic downturn. Competitor Morgan Stanley also failed to convince with its quarterly report. The shares lost -0.5% on Thursday. Today, among others, the results of Citigroup and Wells Fargo follow.
Asian stock exchanges showed a mixed picture on Friday. In Tokyo, the Nikkei gains +0.7%. In Hong Kong, the Hang Seng loses -1.6% and the Shanghai Composite sheds -0.4%.
The strict corona measures have left their mark on the Chinese economy. Thus, growth in the second quarter has slumped significantly. Compared to the same period last year, the second-largest economy grew by +0.4%, as reported by the Beijing Bureau of Statistics on Friday. Analysts had expected a plus of +1.2%. China thus shows the weakest quarterly growth since the beginning of the corona pandemic. In the first quarter, economic output had increased by +4.8%.
Meanwhile, the euro remains under pressure. On Thursday, it fell against the US dollar to USD 0.9952 and thus traded clearly below parity to the greenback. The euro also remains weak against the Swiss franc. After briefly slipping below CHF 0.98 on Wednesday, the currency pair traded above this mark again on Thursday. The eurozone is currently facing a number of problems, which are reflected in the weakness of the euro. Thus, rising concerns about an energy crisis have fueled the recent sell-off in the euro. In addition, a government crisis is brewing in Italy. On Thursday evening, president Sergio Mattarella rejected a request by prime minister Mario Draghi to resign. Draghi now faces a vote of confidence in parliament. The Five Star Movement has already declared yesterday that it will not support the government. This threatens to break up Draghi's governing alliance.
The weak currency threatens to exacerbate the burden of high inflation: since energy deliveries are usually settled in US dollars, the unfavorable exchange rate is making commodities even more expensive.
The EU Commission expects this year record high inflation rates for the currency area. According to its summer economic forecast, inflation in the eurozone is expected to climb to an annual average of +7.6%. In the spring, it had still forecast an inflation rate of +6.1%. For 2023, average price growth is expected to slow (+4%). The EU Commission is largely sticking to its growth forecast: for the eurozone, it expects a plus of +2.6%, after +2.7% in May. By contrast, it expects a significant economic slowdown in 2023, with growth falling to +1.4%.
|04:00||China||Gross domestic product (Q2, q/q)||+4.8%%|
|04:00||China||Producer prices (June, m/m)||+0.7%|
|11:00||EZ||Trading balance (Mai)|
|14:30||USA||Retail sales (June, m/m)||-0.3%|
|14:30||USA||Empire State Index||-1.20|
|15:15||USA||Industrial production (June, y/y)||+5.4%|
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Editor: Alessandro Fezzi, E-Mail: firstname.lastname@example.org
Source: LGT Bank (Switzerland) Ltd.
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