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LGT Navigator: US central bank remains on course to fight inflation

April 21, 2022

In its latest economic report (Beige Book), the Federal Reserve emphasizes the persistently high inflationary pressure and the ongoing problems in global supply chains. Overall, the US economy is on a “moderate” growth path thanks to continued solid consumption, which should confirm the Fed in its anticipated course of interest rate hikes. On the stock markets, the focus remains on the corporate reporting season and expected statements by high-ranking central bank representatives. In addition, the Ukraine war, and the presidential election in France at the weekend are causing further uncertainty.

US central bank remains on course to fight inflation

On the New York Stock Exchange, the short-term positive trend continued in midweek. The Dow Jones Industrial closed +0.71% higher at 35'160.79 points. The S&P 500 exited Wednesday at 4'459.45 points, virtually unchanged from the previous day (-0.06%). The indices on the Nasdaq technology exchange also could not hold the previous day's gains and closed around -1.5% lower. Among other things, the streaming service Netflix, which disappointed investors in the past quarter with the first decline in subscriptions in more than ten years, caused a stir on Wall Street. The share fell at times by almost -30%. The slump also affected other entertainment stocks. Walt Disney fell by -5.6% and the share of the audio streaming service Spotify fell by almost -11%. On the other hand, the reaction to the Q1 results of the computer group IBM, which exceeded expectations, was positive. The stock rose by about +7%.

In the bond market, the yield on ten-year US government bonds fell back slightly to 2.85%, after previously registering almost 3%, the highest level since the end of 2018.

In Asia, stock indexes in mainland China and Hong Kong slipped on Thursday on economic concerns, but then found support from a decline in longer-term US Treasury bond yields. In Tokyo, however, the Nikkei 225 rose by about +0.8%.

Fed Beige Book: Moderate growth trend with higher inflation

The regular economic report of the Federal Reserve, the so-called Beige Book, attested the US economy a “moderate” growth, making the wording slightly more positive than at the beginning of March. However, the Fed stressed that inflationary pressures remain high and the war in Ukraine is causing sharp price increases for energy, metals, commodities, and agricultural products. In addition, there are ongoing supply chain issues.

China's central bank keeps its powder dry

China's central bank refrained from easing key interest rates, despite economic concerns heightened by pandemic restrictions and supply chain problems. As a result, the benchmark rate for one-year bank loans remained unchanged at 3.7% and the rate for five-year loans remained at 4.6%. Most analysts had expected a slight cut in key interest rates.

Senior ECB Governing Council members see possibility of interest rate tightening soon

The European Central Bank (ECB) could raise key interest rates as early as July amid rising inflation risks, according to Martins Kazaks, head of the Central Bank of Latvia. Alluding to ECB President Christine Lagarde's statement that the exit from expansionary monetary policy will be “gradual,” the central banker said in an interview with Bloomberg that “gradual” does not mean slow, but “the policy measures taken must be appropriate.” In the eurozone, inflation peaked at +7.5% in March.

Bundesbank President and ECB Governing Council member Joachim Nagel also assumes the possibility that the ECB could raise key interest rates as early as the summer due to high inflation. A first interest rate step is possible at the beginning of the third quarter, Nagel commented at the spring meeting of the International Monetary Fund in Washington.

Increased upward price pressure at producer level in Germany

The already strong rise in producer prices in Germany accelerated further in March. On an annual basis, the price level increased by almost +31% – the strongest increase since the start of the data series in 1949! Producer prices continue to be driven primarily by energy costs, which rose by +84% year-on-year against the backdrop of the war in Ukraine. Natural gas prices even rose by +145%.

  

Economic Indicators April 21

MEZ Country Indicator Last period
08:45 FR Economic Perspectives (April) 106.0
09:00 AUT Consumer Prices (March, y/y) +6.7%
11:00 EZ Consumer Prices (March, y/y) +7.5%
11:00 EZ Core Consumer Prices (March, y/y) +3.0%
14:30 USA Philly Fed Manufacturing Indicator (April) +22.7
14:30 USA Initial Jobless Claims (weekly) 185,000
16:00 US Leading Indicator (March) +0.3%
16:00 EZ Consumer Sentiment (April) -18.7
17:00 US Fed Governor Powell speaks
18:30 UK Bank of England Governor Bailey speaks
19:00 EZ ECB President Lagarde speaks

 

Earnings Calender April 21

Country Company Period
SZ ABB Q1 
SZ Nestlé Q1 Sales
FR Kering Q1 Sales
FR Vinci Q1 Sales
NL Akzo Nobel Q1
US AT&T Q1 
US Dow Q1
US American Airlines Q1
US Philip Morris International Q1
US Blackstone Q1
USA Snap 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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