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LGT Navigator: US inflation data decisive for future direction

August 10, 2022

The latest data on the development of consumer prices in the United States are eagerly awaited this afternoon. At over nine percent, the US inflation rate in June reached its highest level in over 40 years. The question will be whether the Fed's previous interest rate moves have already produced a dampening effect or whether inflationary pressures have intensified further due to factors outside the influence of monetary policy. In any case, the inflation data from the US will point the way ahead for the Fed as well as for the capital markets.

US inflation data decisive for future direction

On the stock exchanges, the mood remains pervasive and characterized by caution. In New York, the Dow Jones Industrial closed at 32'774.41 points -0.18% lower and the market-wide S&P 500 went out of the day's business at 4'122.47 points (-0.42%). Growth-oriented technology stocks were the most pressured as they suffer from increased financing costs in the event of further hefty interest rate hikes. The indices on the Nasdaq lost about -1.2%. Also negative was the outlook from chipmaker Micron, which expects weaker sales in the fourth fiscal quarter due to declining demand.

Stocks in the Asia-Pacific region also fell in midweek. Here, too, the inflation trend was in focus, after consumer prices in China rose in July with an annual inflation rate of +2.7%, the highest since July 2020. In Hong Kong, the Hang Seng Index fell by around -2% and the Hang Seng Tech Index even by around -3%. In Tokyo, the Nikkei 225 loses about -0.7% and in Shanghai the Composite Index about -0.5%.

In the bond market, the yield of ten-year US government bond before the publication of the new US inflation data at 2.79%.

Has the inflation rate in the US reached the temporary peak?

The focus today at 14:30 (CET) is the consumer price data from the United States. Analysts assume on average that the inflation rate has weakened from the record value in June of +9.1% to +8.7% in July. Among other things, the decline in gasoline prices in the USA points to a certain easing. According to the AAA automobile association, the price of regular gasoline fell by 67 cents per gallon last month but is still 87 cents higher than a year ago, mind you. At the same time, overall commodity prices have also dropped significantly.

Billions in subsidies for US semiconductor production and research

US President Joe Biden signed a bill for a USD 52.7 billion investment package for the US semiconductor industry. This is intended on the one hand to counter the continuing shortage of chips for the automotive sector, for example, and on the other hand to strengthen the competitiveness of the United States vis-à-vis China, the White House said. The bill also provides for a 25% tax credit for investments in chip factories. In addition, USD 200 billion over ten years is to flow into scientific research in the United States.

OECD leading indicators signal broad growth slowdown

In its latest forecasts, the Organization for Economic Cooperation and Development (OECD) in Paris predicts a weakening of growth in most major economies due to high inflation and the slump in consumer confidence. Weaker economic growth is expected in the USA, the UK, Germany, France, and Italy in particular. For Japan, however, leading indicators point to stable growth close to the long-term trend, while the emerging markets show a mixed picture.

Bank of England likely to have to raise interest rates further

Britain's central bank will likely have to tighten its key interest rate further to combat inflationary pressures, Deputy Central Bank Governor Dave Ramsden said in an interview with Reuters. The Bank of England expects inflation, currently above 9%, to peak at 13% later this year. The central bank had already stepped up its fight against inflation last week with the biggest interest rate hike since 1995. Since December last year, this was already the sixth interest rate step. The central bank is aware that the rate hikes are contributing to an already very difficult environment, but it must act vigorously to ensure that inflation does not take hold, Ramsden said.


Economic Indicators August 10

MEZ Country Indicator Last period
08:00 GE Consumer Prices (July, y/y) +8.2%
10:00 IT Consumer Prices (July, y/y) +8.4%
14:30 US Consumer Prices (July, m/m) +1.3%
14:30 US Consumer Prices (July, y/y) +9.1%
14:30 US Core Consumer Prices (July, y/y) +5.9%


Earnings Calender August 10

Country Company Period
GE Metro Q3
AUT Wienerberger Q2
NL Ahold Delhaize Q2
DK Vestas Q2
UK Aviva H1
UK Prudential H1
US Walt Disney Q3


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Source: LGT Bank (Switzerland) Ltd.


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