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LGT Navigator: Slightly lower US inflation rate, but interest rate expectations remain unchanged

May 12, 2022

Although inflation in the US weakened slightly in April, this is unlikely to change much in terms of expectations regarding the expected monetary tightening course of the US Federal Reserve. As a result, interest rate expectations on the capital markets remained more or less unchanged and stock markets and investor sentiment remained depressed.

Slightly lower US inflation rate, but interest rate expectations remain unchanged

On Wall Street, stock indices came under renewed pressure, led by losses in tech stocks. On the technology exchange Nasdaq it went south again -3% and the Nasdaq 100 fell below the mark of 12'000 points for the first time since November 2020. The Dow Jones Industrial fell by about -1% and ended Wednesday trading at 31'834.11 points. The S&P 500 lost -1.65% and now trades at 3'935.18 points, the lowest level in more than a year.

In Asia, the negative trend continued for the most part. In Tokyo, the Nikkei 225 loses almost -1.5% and in Hong Kong, the Hang Seng index gives up about -1.7%.

US government bonds came under pressure after the publication of US inflation data and the yield of ten-year government bonds climbed at times to 3.04%. In later trading, however, the yield fell back to 2.90%.

US inflation rate declines slightly

Consumer prices in the United States continued to rise strongly in April, but at a slower pace than in the previous month. The inflation rate for the year was +8.3% compared with +8.5% in March. Analysts had on average expected a stronger decline to +8.1%. The inflation rate is thus only slightly below the highest value recorded in March for a good 40 years and is unlikely to change the interest rate policy of the Federal Reserve.

ECB Chair Lagarde reaffirms prospect of an interest rate hike soon

Christine Lagarde, president of the European Central Bank (ECB), sees the possibility that the ECB could initiate the interest rate turnaround (possibly on July 21) shortly after the end of net bond purchases - this step is already expected for the next ECB meeting on June 9. Lagarde herself and other top ECB officials had recently reiterated the prospect of an interest rate move in the near future.

Energy and food prices drive Germany's inflation rate higher

The sharp rise in energy prices, but also a sharp rise in food prices, are causing the inflation rate in Germany to rise further. In April, the cost of living increased by +7.4% compared with the same period a year earlier - the highest level since reunification in 1990. In March, the inflation rate had been +7.3%. Energy prices rose by around +35% year-on-year and food prices by +8.6%. The Bundesbank expects the inflation rate in Germany to average just under 7% in the current year.

Economic Indicators May 12

MEZ Country Indicator Last period
08:00 UK GDP Q1 (Q/Q) +1.3%
08:30 SZ Producer Prices (April, y/y) +6.1%
13:00 OPEC Monthly Report
14:30 US Producer Prices (April, y/y) +11.2%
14:30 US Core Producer Prices (April, y/y) +9.2%
14:30 US Initial Jobless Claims (weekly) 200,000

 

Earnings Calender May 12

Country Company Period
SZ Zurich Insurance Q1 
GE Merck KGaA Q1
GE Allianz Q1 
GE Commerzbank Q1
GE RWE Q1
NL Aegon Q1
FR Veolia Q1
FR Bouygues Q1
AUT Wienerberger Q1

 

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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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