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LGT Navigator: Quarterly earnings of major US banks dampen stock market sentiment

July 15, 2022

The downward trend on Wall Street continued on Thursday, also driven by poor quarterly results from JPMorgan Chase and Morgan Stanley. The Chinese economy grew unexpectedly slowly in the second quarter. Meanwhile, a government crisis is brewing in Italy.

Wall Street

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%.

China's economy grows unexpectedly slowly

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%.

Euro trades below parity

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.

EU Commission raises inflation expectations

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%. 

Economic Indicators July 15

MEZ Country Indicator Last period
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%
16:00 USA Consumer confidence 50.0


Earnings Calender July 15

Country Company Period
CH Ems Chemie Q2
CH Richemont Q2
USA BlackRock Q2
USA Citigroup Q2
USA Wells Fargo Q2


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Source: LGT Bank (Switzerland) Ltd.

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