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LGT Navigator: Subdued start to a challenging second half of the year

July 4, 2022

In view of today's national holiday in the US, momentum on the stock markets is likely to be limited at the start of the week. On Friday, the latest purchasing managers' surveys from the US, the eurozone and the UK had shown that the mood in industry is as bad as it has been for almost two years. At the same time, inflationary pressure in the euro area also continued to increase, putting further pressure on the ECB shortly before the expected turnaround in interest rates.

Subdued start to a challenging second half of the year

On the New York Stock Exchange, the indices were able to save themselves into positive territory before the extended holiday weekend. The Dow Jones Industrial closed +1.05% higher at 31,097.26 points but recorded a loss of -1.3% for the week. The S&P 500 went out of trading at 3,825.33 points, -1.06% lower than the previous day and to the indices on the Nasdaq gained about +0.7% but remained over the past week in the red with -4.3%. The prospect of further increases in key interest rates and fears of a recession are also likely to provide a restrained start to the week in Europe. As a result, oil prices fell on Monday and quoted lower against the backdrop of lower OPEC production, unrest in Libya and the sanctions against Russia. On Asia's stock exchanges today, no consistent trend was observed. While in Tokyo, the Nikkei 225 increased by about +0.5%, the Hang Seng in Hong Kong traded about -0.6% lower. Meanwhile, demand for US government bonds remains solid and the yield on ten-year Treasuries fell at times to the lowest level in a month – currently at 2.88%.

PMIs signal weakening growth in the manufacturing sector

The Purchasing Managers' Index (PMI) of the industry association ISM (Institute for Supply Management), which is highly regarded because of its correlation with overall economic growth, fell more sharply than expected in June from 56.1 to 53.0 points (consensus 54.5). The background to this is the ongoing global supply chain problems. According to the ISM, new orders at the industrial companies surveyed were particularly weak in June.

In Europe, S&P Global's Purchasing Managers Index fell from 54.6 to 52.1 points last month, recording its worst result in nearly two years. According to S&P Global, several indicators, such as new orders and foreign business, signal that the downturn will intensify in the coming months. On the positive side, however, the rates of increase in purchasing and selling prices have slowed, indicating that inflationary pressure is easing somewhat.

In the UK, sentiment in the industrial sector also cooled noticeably. The Purchasing Managers' Index fell by 1.8 points to 52.8, thus registering its lowest level in two years, in line with the Eurozone PMI.

Inflation in the eurozone climbs to a new high

In the euro area, the rise in the cost of living was further accentuated in June. The inflation rate reached a new record level of +8.6%. In May, inflation had still been +8.1%. On a monthly basis, consumer prices in the eurozone increased by +0.8%. Prices continue to be driven mainly by energy prices, which have risen by almost +42% over the year. However, food prices also rose by just under +9% year-on-year. Excluding energy and food prices, however, the core rate weakened slightly from +3.8% to +3.7%. As energy prices in particular are not expected to ease any time soon due to the ongoing Ukraine war, the inflation trend is unlikely to have peaked yet. Accordingly, the European Central Bank (ECB) is expected to raise interest rates for the first time (possibly sharply) on July 21.

In Italy, the inflation rate rose much more strongly than expected and at a record pace in June. Consumer prices rose +8.5% for the year, compared with inflation of +7.3% a month earlier. Economists had forecast an increase to +7.9%.

Economic Indicators July 4

MEZ Country Indicator Last period
00:00 US National Holiday 
08:00 GE Exports (May, m/m) +4.4%
08:00 GE Imports (May, m/m) +3.1%
08:30 SZ Consumer Prices (June, y/y) +2.9%
10:30 EZ Sentix Economic Outlook (July) -15.8
11:00 EZ Producer Prices (May, y/y) +37.2%

 

Earnings Calender July 12

Country Company Period
US Pepsico Q2

 

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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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