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LGT Navigator: Stock markets defy tougher interest rate outlook

March 23, 2022

Despite the ongoing war in Ukraine and the Fed's recent prospect of a brisker stance by Federal Reserve Chairman Powell, most equity markets around the world posted gains on Tuesday. Although Powell's hawkish remarks had briefly caused uncertainty, equity investors' confidence in the American central bank still appears solid. In addition, outflows from the bond markets appear to be flowing back into the equity markets.

Stock markets defy tougher interest rate outlook

On Wall Street, the recovery course continued and the Dow Jones Industrial closed +0.74% higher at 34'807.46 points. The market-wide S&P 500 gained even more strongly by +1.13% to 4'511.61 points and on the technology exchange Nasdaq, the indices gained almost +2%. Sought-after financial stocks and good quarterly figures from the sports equipment supplier Nike provided support. In Asia, most stock indices also joined the positive guidance from overseas and trended in positive territory. In Tokyo, the 225-stock Nikkei index is up just under +3% and in Hong Kong, the Hang Seng index is also gaining around +1.4%.

Confidence in the Federal Reserve seems solid

It is noteworthy that a faster increase in key interest rates in the United States doesn't scare investors, thus the confidence in the Fed prevails. At the beginning of the week, Federal Reserve Chairman Jerome Powell held out the prospect of faster rate hikes in view of what he called “far too high” inflation. Thus, on its next interest rate decision on May 4, the Fed could well raise the key rate even more sharply by at least 50 basis points. Other top Fed officials, such as James Bullard, head of the St. Louis Federal Reserve, are also advocating a rapid tightening of monetary policy. The market now expects a probability of around 72% that the Fed will raise the key interest rate by 50 basis points in May, up from a previous probability of just under 50%. Meanwhile, the yield on ten-year US government securities climbed to 2.39%, its highest level since May 2019.

EU seeks joint gas procurement

At the meeting of the heads of state and government of the European Union, plans were discussed, according to which the euro countries should jointly purchase gas, liquefied natural gas (LNG) and hydrogen in the future to fill their own gas storage facilities. The background is the war in Ukraine and the dependence on Russian gas supplies. The EU needs new partners, such as Qatar or the United Arab Emirates. Negotiations are also underway within the EU about capping gas prices. France, Italy, Belgium, and Spain, for example, are in favor of this. Germany, on the other hand, rejects such a mechanism.

EU solidarity fund for Ukraine

At the upcoming EU summit, a solidarity fund for Ukraine is to be decided to support the reconstruction of a democratic Ukraine. The fund would initially provide emergency aid, but would then finance massive long-term investments to rebuild the economy. The EU wants to use it to tie Ukraine more economically to the West.

“This war is unwinnable”

UN Secretary-General António Guterres is demanding an immediate ceasefire from Moscow and is warning the Kremlin that the illegitimate war of aggression against Ukraine is morally unacceptable, politically indefensible, militarily nonsensical, and ultimately unwinnable.

  

Economic Indicators March 23

MEZ Country Indicator Last period
08:00 UK Consumer Prices (February, y/y) +5.5%
08:00 UK Producer Prices (February, y/y) +9.9%
13:00 GE Bundesbank President Nagel speaks
13:00 UK Bank of England Governor Bailey speaks
13:00 US Fed Chair Powell speaks
15:00 US New Home Sales (February, m/m) -4.5%
16:00 EZ Consumer Sentiment (March) -8.8

 

Earnings Calender March 24

Country Company Period
SZ Zur Rose Annual
SZ Meyer Burger Technology Annual
GE Daimler Truck Annual
GE Heidelberg Cement Annual
IT Saipem Annual
UK Next Annual

 

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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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