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LGT Navigator: US consumption shows signs of weakness

August 18, 2022

High inflation is impacting private consumption in the US and retail sales stagnated in July. There are thus growing signs that consumer spending and economic development in the world's largest economy are becoming increasingly gloomy. However, this is unlikely to prevent the Federal Reserve from raising key interest rates further, as was confirmed by the latest FOMC minutes. Inflation fears were also stoked by the latest data from the UK, where the inflation rate cracked the 10% mark. In the bond markets, renewed concerns about the economy put pressure on US government bond prices, with the yield on ten-year Treasuries climbing to 2.86%.

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Retail sales in the US remained unchanged in July at the level of the previous month, while analysts on average had expected a moderate increase of +0.1%. In addition, the previous month's figure was revised from +1.0% to +0.8%.

On the New York Stock Exchange, the Dow Jones Industrial closed -0.5% lower than the previous day at 33,980.32 points and the S&P 500 declined -0.72% to 4,274.04 points. On the Nasdaq, the daily losses were even more substantial with about -1.2%. The background was, the weakening consumption in the US and the prospect of further rising interest rates, confirmed by the FOMC minutes, published yesterday evening.

In Asia, stock markets tended to be in negative territory on Thursday. In Tokyo, the Nikkei 225 trades around -0.9% lower and in Hong Kong, the Hang Seng loses around -0.5%.

Fed will slow its pace over time, but remains on a more restrictive course for now

As indicated by the minutes (Minutes) of the last interest rate decision on July 27 of the Federal Open Market Committee (FOMC) of the Federal Reserve, the Fed will maintain its tightening course for the time being, but at some point, will slow the pace of rate hikes. In this respect, the impact of the previous rate hikes on economic development in the US would have to be reassessed in each case. Regarding the inflation trend, there are currently no significant signs of a slowdown, the minutes noted. However, the still high inflation continues to force the Fed to pursue a more restrictive monetary policy and thus further interest rate steps must be expected in the foreseeable future. Following the publication of the minutes, the US dollar weakened against the euro. In turn, the yield on ten-year US government bonds rose to just under 2.9%.

British inflation rate cracks the ten percent mark - Bank of England remains under pressure to act

In the UK, the rise in the cost of living accelerated further in July. On an annual basis, the inflation rate climbed from +9.4% in June to +10.1% – the highest inflation rate since 1982. Moreover, the increase in consumer prices was significantly stronger than analysts had anticipated at +9.8%. Compared with the previous month, British consumer prices rose by +0.8% in July, twice as strongly as expected. Consumer prices were mainly driven by higher food and transport costs. The unchecked inflation poses a major challenge not only for the Bank of England, but certainly also for the new British prime minister, who has yet to be appointed. 

Economic growth in the eurozone accelerated in spring, but less than expected

The gross domestic product of the 19-euro countries grew by +0.6% in the second quarter compared with the previous quarter, but somewhat more slowly than the initial estimate of +0.7%. Nevertheless, economic growth accelerated compared with the first quarter, when an expansion rate of +0.5% was recorded. The strongest growth of the major euro economies was recorded in Spain with +1.1%, followed by Italy with +1.0% and France with +0.5%. In Germany, economic development stagnated in the second quarter.

Economic Indicators August 18

MEZ Country Indicator Last period
11:00 EZ Consumer Prices (June, y/y) +8.9%
11:00 EZ Core Consumer Prices (June, y/y) +4.0%
14:30 US Philly Fed Manufacturing Indicator (August) -18.6
14:30 US Initial Jobless Claims (weekly) 262,000
16:00 US Leading Indicator (July) -0.8%
16:00 US Existing Home Sales (July, m/m) -5.4%

 

Earnings Calender August 18

Country Company Period
SZ Geberit Q2
SZ Zur Rose H1
US Applied Materials Q3

 

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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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