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LGT Navigator: Recession fears and imminent ECB interest rate turnaround set the pace

June 29, 2022

Consumer confidence in the US and in Europe's two largest economies continued to deteriorate, also dampening sentiment on the stock markets. Recession fears and the monetary tightening course of the major central banks continue to determine events on the capital markets. Statements from the ECB's top management also held out the prospect of the central bank possibly initiating the turnaround in interest rates with a sharp rate hike and then accelerating the pace of monetary policy normalization if the inflation trend continues to worsen.

Recession fears and imminent ECB interest rate turnaround set the pace

On Wall Street, stock indexes came under pressure again, after the brief recovery on Tuesday, against the backdrop of fears of recession and inflation as well as record-low consumer sentiment. The Dow Jones failed to hold recent gains and closed -1.56% lower at 30'946.99 points. The S&P 500 lost -2.01% and went out of trading at 3'821.55 points. The losses were most pronounced on the Nasdaq technology exchange, where the indices fell by about -3%. The yield of ten-year US government bonds remained virtually unchanged from the previous day at 3.19%.

The Asian markets also posted losses across the board today. In Tokyo, the Nikkei 225 traded around -1.1% lower and in Hong Kong, the Hang Seng index lost around -1.7%. The fear of a global recession outweighed the hopes of an easing by the expected relaxation of the hard corona provisions in China.

ECB could press the pace of monetary policy normalization, according to Lagarde

According to statements by Christine Lagarde, president of the European Central Bank (ECB), the ECB could move faster than previously anticipated in normalizing its monetary policy in the coming months if inflationary pressures do not ease. “Given the overall outlook, the process of normalizing our monetary policy will continue in a determined and sustained manner,” Lagarde opined at a central bank conference in Portugal. Capital markets expect the ECB to decide on July 21 to raise interest rates for the first time in 11 years, initiating a turnaround in interest rates and launching the fight against stubborn inflation.

Consumer sentiment in the US remains gloomy

American consumers were more cautious in the latest survey by The Conference Board, a New York-based economic research institute. The consumer confidence index fell more sharply than expected from 103.2 to 98.7 points - the lowest value since February 2021. Analysts had expected a decline to 100.0 points on average. Consumers' medium-term economic expectations clouded over the most.

Consumer climate in Germany falls to record low

Against the background of the Ukraine war and concerns about Europe's energy supply, consumer sentiment in Germany has fallen to a new low. According to Nuremberg-based consumer research firm GfK, it slipped from minus 26.2 to minus 27.4 points in July. “The war in Ukraine and ongoing supply chain problems are causing energy and food prices to skyrocket, resulting in an unprecedented deterioration in consumer sentiment,” GfK commented.

Consumers in France are also more pessimistic

French consumers' confidence in economic development deteriorated further in June, for the sixth month in a row. The consumer sentiment barometer fell by from 85 to 82 points, its lowest level in nine years. At the same time, the inflation expectations of the private households surveyed rose to their highest level since 2008. In May, the inflation rate in France was +5.8%.

Economic Indicators June 29

MEZ Country Indicator Last period
09:00 ES Consumer Prices (June, y/y) +8.5%
10:00 SZ ZEW Economic expectations (June) -52.6
11:00 EZ Economic Sentiment (June) +105.0
11:00 EZ Consumer Confidence (June) -23.6
11:00 EZ Business Climate (June) +1.26
14:00 GE Consumer Prices (June, y/y) +8.7%
14:30 US GDP Q1 (Revision, annualized) -1.5%
15:00 US Fed Governor Powell speaks
15:00 EZ ECB President Lagarde speaks
15:00 UK Bank of England Governor Bailey speaks


Earnings Calender June 29

Country Company Period


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