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LGT Navigator: Recession fears and interest rate worries dominate market sentiment

September 7, 2022

US stock markets started the new week with further losses after Monday's holiday. The mood on the stock market floor is dominated by fears of recession and the prospect of a further tightening of central bank interest rates. Latest purchasing managers survey values of the ISM from the American services sector turned out better than expected but could not lift the mood. The financial markets are now focusing on the ECB's interest rate decision on Thursday.

Recession fears and interest rate worries dominate market sentiment

On Wall Street, the Dow Jones Industrial closed at 31'145.30 points, -0.55% lower than Friday's close, and thus at the level of mid-July. The S&P 500 lost -0.41% lower at 3'908.19 points and on the Nasdaq, the indices exited trading around -0.7% lower. The outlook for the global economy is becoming visibly more difficult due to high inflation and the corresponding monetary policy responses of the major central banks. This will also have an increasingly negative impact on the earnings outlook of companies and thus on analysts' earnings estimates. Most of the markets in the Asia-Pacific region trended in negative territory at midweek.

Europe's stock markets are likely to start Wednesday weaker in view of the negative guidance. The focus will now be on the ECB's eagerly awaited interest rate decision on Thursday afternoon. A strong interest rate hike is expected. Meanwhile, the prospect of the announced IPO of Porsche sets positive accents on the Frankfurt stock exchange floor. CEO Oliver Blume, who has also been head of the Wolfsburg-based Volkswagen Group since September, described the planned IPO as a “historic moment and milestone” for the sports car maker. Listing is expected in late September or early October, and the IPO should then be completed by the end of the year at the latest.

In the bond market, US government bond prices came under pressure and the yield on ten-year US Treasuries climbed further in return to 3.34%, the highest level since June. The yield on 30-year Treasuries closed at its highest level since 2014. With great interest is expected tonight the regular economic report of the Federal Reserve, the so-called Beige Book.

Weak export and import growth in China

Chinese exports rose by +7.1% year-on-year in August when calculated in US dollars but remained far below the double-digit growth forecast by economists. In July, exports had still risen by +18%. Imports also performed worse than expected, growing by only +0.3%. In July, imports had still increased by +2.3%. On the one hand, weaker global demand is putting pressure on China's exports, and, on the other hand, weaker domestic consumption is causing a lower demand for imports.

US services sector holding up surprisingly well according to ISM

According to the latest survey results from the industry association ISM (Institutes for Supply Management), sentiment in the US service sector has brightened surprisingly. The corresponding Purchasing Managers' Index (PMI) improved by 0.2 to 56.9 points in August, while analysts had forecast a decline to 55.3 points. With a value well above 50 points, the PMI signals a continued solid growth trend in the sector. On a more positive note, the fourth consecutive decline in the price index may indicate a somewhat weaker inflation trend.

Continuing decline in orders in German industry

Order intake in German industry weakened further and more sharply than expected in July. Compared to the previous month, companies collected -1.1% fewer orders (analyst consensus -0.7%), as reported by the Federal Statistical Office. This is the sixth month in a row that orders have fallen. The background is said to be the uncertainties arising from the Ukraine war and high gas prices. The outlook for the second half of the year thus remains subdued, commented the Federal Ministry of Economics.

Economic Indicators September 7

MEZ Country Indicator Last period
08:00 GE Industrial Production (July, m/m) +0.4%
11:00 UK Bank of England Governor Bailey speaks
11:00 EZ GDP Q2 (q/q) +0.5%
14:30 US Trade Balance (July) USD -79.6bn
20:00 US Fed Beige Book 

 

Earnings Calender September 7

Country Company Period
US Apple New Products Event

 

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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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