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LGT Navigator: Rising interest rate expectations

November 24, 2021

Following the nomination of incumbent Fed Chairman Powell for a second term, capital markets are now expecting a faster than previously anticipated turnaround in interest rates in the US. This is putting pressure on technology stocks in particular and leading to shifts into standard stocks. Meanwhile, in the eurozone, the latest purchasing managers' surveys showed that somewhat accelerated economic growth in November was accompanied by a record increase in purchasing and selling prices.

Rising interest rate expectations

US stock indices again went different ways on Tuesday. While profit-taking on the Nasdaq technology exchange led to further losses, the Dow and the S&P 500 benefited from demand for standard stocks. The Dow Jones Industrial closed +0.55% higher at 35'813.80 points and the market-wide S&P 500 gained +0.17% to 4'690.70 points. On the Nasdaq, however, the indices posted daily losses of about half a percent, although at least about half of the losses during the day could be recovered. The technology stocks are burdened by the assumption of a faster than previously expected first interest rate hike by the Fed next year. Following the nomination of Jerome Powell for a second term as Chairman of the Federal Reserve, the capital markets are now already expecting three US interest rate hikes in the coming year. As a result, yields on ten-year US government bonds temporarily rose by more than 5 basis points to as high as 1.68%.

In Asia, stock markets once again trended in no consistent direction. Here, too, the focus was on the increased interest rate expectations. In Tokyo, the Nikkei 225 index, after yesterday's holiday, falls at midweek by about -1.6%.

In Europe, the main focus today is on the monthly Ifo business climate survey, while in the US the minutes of the Federal Reserve's latest monetary policy decision are expected. On Thursday, the US financial markets will then be closed for the Thanksgiving holiday. 

Slowdown in eurozone growth seems inevitable, according to IHS Markit

According to the latest survey data from IHS Markit, business sentiment in the services and industrial sectors improved in November, contrary to expectations. The composite purchasing managers' index (PMI Composite) rose by 1.6 points to 55.8, while analysts had expected a weakening to 53.0. The somewhat accelerated economic growth in the 19-euro countries according to IHS Markit accompanied by a record increase in purchase and sales prices. According to IHS Markit Chief Economist Chris Williamson, the economic trend in the eurozone is expected to cool again in December, given heightened uncertainty due to the resurgence of corona infection figures and ongoing supply bottlenecks.

Inflation risks intensify according to ECB top representative

ECB Director Isabel Schnabel sees the risk of a stronger than previously anticipated rise in inflation in the eurozone. While it can still be assumed that the surge in inflation will only be temporary and that the inflation rate will remain below the ECB's 2% target in the medium term, the risk is more on the upside and uncertainty about the pace and anticipated extent of the decline has increased, Schnabel said in an interview with Bloomberg. The ECB is also keeping a close eye on wage developments. According to Schnabel, second-round effects on the labor market are not yet apparent, but the ECB knows from its own studies that companies themselves are expecting higher wage dynamics. Therefore, he said, the ECB “needs to be in a position to react to positive surprises, should they occur.” The central bank council will communicate its monetary policy stance for the last time this year on December 16.

US opens strategic oil reserve

Against the backdrop of the rapid rise in energy prices, US President Joe Biden ordered the release of 50 million barrels of oil from the strategic reserve. According to the White House, the move comes in concert with similar measures in China, Japan, South Korea, India, and the UK. Brent crude futures reversed early losses and rose about +0.15% to USD 82.40 per barrel this morning, while US crude futures gained +0.33% to USD 78.75 per barrel.

Economic Indicators November 24

MEZ Country Indicator Last period
08:45 FR Economic Sentiment (November) +107.0
10:00 GE Ifo Business Climate (November) +97.7
10:00 SZ ZEW Economic Sentiment (November) +15.6
14:30 US GDP Q3 (Revision, q/q, annualized) +2.0%
14:30 US Consumer Spending Q3 (q/q) +1.6%
14:30 US Initial Jobless Claims (weekly) 268,000
14:30 US Durable Goods Orders (October, m/m) -0.3%
16:00 US New Home Sales (October, m/m) +14.0%
16:00 US Consumer Sentiment University Michigan (November) +66.8
20:00 US FOMC Minutes


Earnings Calender November 24

Country Company Period
US Deere & Co Q3


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