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LGT Navigator: Regained short term confidence

May 18, 2022

Solid sales figures from the US retail sector as well as hopes for an easing of pandemic measures in China and, as a consequence, an easing of the tense global supply chains provided a more positive outlook and a renewed improvement in sentiment on the capital markets. Fed Chairman Powell, meanwhile, stressed that monetary policy will continue to tighten until inflation is contained. He said the Fed will not hesitate to raise interest rates above neutral if necessary to control rising prices.  At the same time, ECB President Lagarde sent a clear signal that the ECB will raise rates in July.

Regained short term confidence

Latest US economic data made investors more confident again and displaced previously heightened growth concerns. This lifted the mood on the New York Stock Exchange and ensured a positive end to the day. The Dow Jones Industrial closed at 32'654.59 points +1.34% higher and the S&P 500 gained a good +2% to 4'088.85 points. On the Nasdaq, the daily gains were even more pronounced at around +2.6%. In addition to the solid sales figures of the US retail sector, the hope for an easing of the pandemic-related "lockdowns" in China also provided optimism. Looking at individual stocks, Twitter's stock remains in the spotlight. Elon Musk continues to insist on close scrutiny of potential "fake accounts" on the short messaging service. At US retail giant Walmart, high costs and supply chain issues caused a steep drop in first-quarter profits. The stock plunged nearly -12% as a result. Meanwhile, on the bond market, the yield on ten-year US government bonds rose again to almost 3%.

In Asia, stock markets trended inconsistently on Wednesday. In Tokyo, the 225-stock Nikkei index traded around +0.75% higher, while the indices in Hong Kong and Shanghai trade lower. As reported this morning, Japan's economy contracted -0.2% quarter-over-quarter in the first quarter.

US retailers show solid sales growth

Despite rising prices and recent deterioration in survey data, retail sales in the US increased in April. Compared with the previous month, retail sales rose by +0.9%. Although this was slightly below expectations, sales growth of +1.4% in March was almost three times as strong as initially expected. Consumer spending is one of the most important pillars of the world's largest economy.

Powell reaffirms tighter monetary policy stance

Federal Reserve Chairman Jerome Powell stressed that the Fed will tighten its monetary policy until it sees clear and convincing evidence that inflation is once again approaching the Fed's long-standing 2% target. Restoring price stability is essential to the smooth functioning of the economy, Powell said. The Fed Chairman added that there are ways to curb demand and lower inflation without causing significant losses in the labor market. This would constitute a "soft landing", Powell opined.

Finland makes official application for NATO membership

Like Sweden earlier, the Finnish Parliament yesterday overwhelmingly approved Finland's application for NATO membership. This clears the way for a Finnish application for membership in the defense alliance. The applications from Helsinki and Stockholm must be approved by all 30 NATO member states.

Euro economy able to maintain moderate growth rate

In the eurozone, economic growth in the opening quarter of 2022 was slightly stronger than previously expected. In the first three months, GDP expanded by +0.3% compared with the previous quarter. An initial estimate had still been +0.2%. The pace of growth in the eurozone thus remained unchanged compared with the final quarter of 2021. The European economy is being burdened above all by the war in Ukraine and the further intensification of global supply chain problems.

Inflation in Italy is weakening

In Italy, consumer price inflation eased somewhat at a high level. On an annual basis, according to revised data, an inflation rate of +6.3% was measured in April, compared with +6.8% in March. A first estimate of the statistics office in Rome had still shown an inflation rate of +6.6% for April.

British central bank chief warns of hyperinflation and real wage shock

Bank of England Governor Andrew Bailey sees the danger of uncontrolled inflation in view of the Ukraine war and the conflict with Russia. Bailey spoke of "apocalyptic food price rises" because of the loss of supplies from Ukraine. Ukraine exports mainly wheat. In the UK, inflation rose to +7% in March and the Bank of England expects inflation to rise further to just over 10% due to rising energy and food prices. The central bank chief also warned of a "significant real wage shock".

Economic Indicators May 18

MEZ Country Indicator Last period
08:00 UK Consumer Prices (April, y/y) +7.0%
08:00 UK Producer Prices (April, y/y) +11.9%
09:00 AUT Consumer Prices (April, y/y) +7.2%
11:00 EZ Consumer Prices (April, y/y) +7.5%
11:00 EZ Core Consumer Prices (April, y/y) +3.5%
14:30 US Housing Starts (April, m/m) +0.3%
14:30 US Building Permits (April, m/m) +0.3%


Earnings Calender May 18

Country Company Period
NL ABN Amro Q1 
UK Burberry Annual
UK Aviva Q1 Sales
US Cisco Systems Q3
US Analog Devices Q2
US Target Q1


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Source: LGT Bank (Switzerland) Ltd.

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