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LGT Navigator: Stock markets face icy headwind

January 25, 2022

Growing fears of escalation and war in the Ukraine conflict and the prospect of a tighter monetary policy by the US Federal Reserve caused share prices around the world to plummet at the start of the week. An icy wind is blowing against the stock markets and investor sentiment is noticeably battered by the worsening uncertainty factors.

Stock markets face icy headwind

At the start of the week, Europe's stock markets already showed deep red share prices and the EuroStoxx 50 lost a good four percent. The negative trend initially continued on Wall Street yesterday, with the Dow falling by more than three percent. Then, however, the indices in New York turned just into positive territory in late trading. On the one hand, bargain hunters stepped onto the trading floor and on the other hand, the announcement of direct talks between Ukraine and Russia in Paris to resolve the Ukraine conflict provided hope. In addition to the upcoming monetary policy direction decision of the Federal Reserve on Wednesday evening and the smoldering conflict between the West and Russia, the current corporate reporting season also shaped the stock market picture. After a disappointing start to the earnings season, the quarterly results of the software company Microsoft are in the spotlight today.

Asia's stock markets also faced an icy headwind. In Tokyo and Hong Kong, the indices lost a good one and a half percent today. Shares in mainland China also fell ahead of the upcoming Chinese New Year. In Shanghai, the Composite Index lost a good one percent. A surprise interest rate hike by the Central Bank of Singapore caused a stir. For the first time in seven years, the city-state's central bank tightened its monetary reins to counter rising inflationary pressures.

Ukraine conflict continues to escalate

The Western military alliance NATO has confirmed US considerations to increase troops in alliance countries in Eastern Europe. In response to the Russian troop buildup on the borders with Ukraine, other allies such as France, Spain, the Netherlands, and Denmark will also increase their presence, NATO Secretary General Jens Stoltenberg said. The New York Times had previously reported that US President Joe Biden was considering sending up to 5000 American troops as well as warships and aircraft.

Omicron clouds business climate on both sides of the Atlantic

Latest survey data from London-based market research firm IHS Markit confirmed that the assessment of companies surveyed in the service and industrial sectors in the eurozone, as well as in the UK and the US, deteriorated at the beginning of the year. The composite index (PMI Composite) for the US private sector slumped to 50.8 points in January, from 57.0 points in the previous month and is thus only just above the 50-growth threshold. The Purchasing Managers' Index for manufacturing fell to its lowest level in 15 months, and the PMI for the service sector also dropped sharply from 57.6 to 50.9 and is now at its lowest level in a year and a half. According to IHS Markit, the rapid spread of the omicron variant is slowing down the service sector. Tourism, travel, and leisure are particularly affected. In industry, meanwhile, the situation has improved again somewhat. On the positive side, supply bottlenecks and cost pressures in industry have eased, explained Markit chief economist Chris Williamson.

In the eurozone, the composite purchasing managers' index also signaled a deterioration in business sentiment. The purchasing managers' index fell for the second month in a row, from 53.3 to 52.4 points (consensus 52.6), dropping to its lowest level in nearly a year.

A similar picture was seen in the UK. The British Purchasing Managers' Index for the private sector declined by 0.2 points to 53.4 in January. Here, too, it was the service sector that suffered from the pandemic-related uncertainties.

Economic Indicators January 25

MEZ Country Indicator Last period
10:00 GE Ifo Business Climate (January) 94.7
15:00 US S&P/CaseShiller House Prices 20 cities (November, y/y) +18.4%
16:00 US Consumer Confidence (January) 115.8


Earnings Calender January 25

Country Company Period
KOR Hyundai Motor Q4
CH Logitech Q3
FR Remy Cointreau Q3 Sales
SWE Ericsson Annual
US Microsoft Q4
US Johnson & Johnson Q4
USA Texas Instruments Q4
USA Visa Q4
US Verizon Communications Q4
US American Express Q4
US 3M Q4


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