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LGT Navigator: Tightrope act for central banks and investors

June 30, 2022

At the stock exchanges, the outlook for rapidly rising interest rates by the central banks in the fight against high inflation and fears of a recession continued to dominate the mood on the capital markets in midweek. For the central banks, above all the Fed and the ECB, this is a major challenge and remains a balancing act. Fed Chairman Powell warned that entrenched or persistent inflation would be worse than an economic downturn. Meanwhile, the latest data point to persistent inflationary pressures, at least in the short term, weighing heavily on consumer confidence.

Tightrope act for central banks and investors

In New York, recession fears and investor caution dominated. The Dow Jones Industrial was nevertheless slightly up +0.27% to 31,029.31 points on Wednesday. The broad S&P 500, however, remained virtually unchanged at 3,818.83 points (-0.07%) and on the Nasdaq, the indices posted slight losses of around -0.2%. Little inspiration offered the revised data on the growth of the US economy in the first quarter. Accordingly, the world's largest GDP shrank at an annualized rate of -1.6%, stronger than previously assumed. The reason was mainly a weaker than anticipated private consumption. In Asia this morning, no consistent trend is apparent on the stock markets.

While in the bond market, the yield on ten-year US government bonds fell slightly to 3.10%, the US dollar benefited from the interest rate outlook and pushed the euro well below the 1.05 mark to 1.0440.

Fed Powell: Sustained inflation is worse than an economic downturn

Federal Reserve Jerome Powell expressed caution about the future course of the economy at a central bankers' forum in Portugal on Wednesday. He said he believes the US economy remains in solid shape to withstand the Fed's monetary tightening, but it remains unclear whether the US economy will ever return to its pre-pandemic status. The economy and inflation dynamics are currently driven by very different forces and have changed the global economic landscape. In addition to pandemic-related supply chain disruptions, the war in Russia has put tremendous pressure on food and inflation, making the Fed's job of ensuring price stability and maximum employment a different task than it has been in the past 25 years, the Fed chairman commented. Powell warned that entrenched or persistent inflation would be worse than an economic downturn. The forum was also attended by ECB President Christine Lagarde and Bank of England Governor Andrew Bailey.

Depressed mood in Europe's economy

General economic sentiment in the euro area deteriorated again in June against the backdrop of the Ukraine war, worsening inflation and the continuing difficult situation in global supply chains. This is indicated by the latest survey results of the EU Commission. According to these, the Economic Sentiment Indicator (ESI) fell by one point in June to 104.0. Consumer confidence has deteriorated.

Inflation in Germany somewhat contained by government subsidies

Year-on-year, consumer prices in Germany rose by +7.6% in June. This means that the strong upward pressure on prices caused by the introduction of the gasoline rebate and the reduced rail ticket has weakened somewhat. In May, the inflation rate had still been +7.9% and had thus reached its highest level in almost 50 years. The main driver in June remained energy, which was +38% more expensive than in the same period a year earlier. However, German consumers also had to pay more for food (+12.7%).

Spanish inflation rate reaches 10% mark

Consumer price inflation in Spain accelerated significantly again in June. On an annual basis, the inflation rate jumped from +8.5% in May to +10.0% in June. Economists had forecast only a slight increase to +8.7%. Compared with the previous month, inflation was also strong at +1.8% (consensus +0.8%).

German industry lacks material

According to a recent survey by the Munich-based economic research institute Ifo, German industrial companies are suffering from a persistent severe shortage of materials for production. According to the survey, the tight situation is likely to continue into next year. In the electrical industry, mechanical engineering, and the automotive sector, close to 90% of the companies surveyed expect supply problems to continue. An easing of the global supply chain problems is being pushed back further and further, and not a single industry in the industrial sector expects the problems to be resolved this year, Ifo commented.

Economic Indicators June 30

MEZ Country Indicator Last period
08:00 ES Retail Sales (May, m/m) -5.4%
08:45 FR Consumer Prices (June, y/y) +5.8%
09:00 SZ KOF Economic Indicator (June) +96.8
09:55 GE Unemployment Rate (June) 5.0%
11:00 EZ Unemployment Rate (May) 6.8%
14:00 GE Consumer Prices (June, y/y) +8.7%
14:30 US Consumer Spending (May, m/m) +0.4%
14:30 US Personal Income (May, m/m) +0.4%
14:30 US Initial Jobless Claims (weekly) 229,000
15:45 US Chicago PMI (June) 60.3


Earnings Calender June 30

Country Company Period
US Micron Technology Q3


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