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LGT Navigator: Volatility increases noticeably

January 28, 2022

At the end of the week, the adjustment to a more restrictive monetary policy on the part of the US Federal Reserve remains the dominant topic on capital markets. After the hawkish statements of Fed Chairman Powell indicated a possibly forced normalization of monetary policy – an end to bond purchases, multiple interest rate hikes and a reduction of the central bank balance sheet – one of the main drivers on the stock markets thus faded. As a result, volatility on the stock markets has increased noticeably.

Volatility increases noticeably

In New York, the stock indices fluctuated sharply on Thursday and the Dow recorded at times a daily gain of +1.8%, but then closed slightly in the red. Support was provided by US economic data, which showed surprisingly strong growth in the US economy in the final quarter of 2021. The S&P 500 lost a good half percent compared to the previous day's close and on the Nasdaq technology exchange, the interest rate-sensitive tech stocks again felt the pressure of a more restrictive stance of the Federal Reserve. The Nasdaq indices fell by around -1.2%. Investors were particularly disappointed with the outlook delivered by Tesla. CEO Elon Musk stressed that global supply chain issues will continue to weigh on the e-car maker.

On Europe's stock exchanges, losses were limited following the Fed's interest rate decision. One reason is that on this side of the Atlantic, the European Central Bank (ECB) continues to pursue an expansionary course and, against the backdrop of the ECB's inflation outlook, there is also no foreseeable turnaround in interest rates in the near future.

Apple posts record results

Apple benefited from strong demand for iPhones, Macs and wearables in the first quarter of the current fiscal year. Despite the global chip shortage and disrupted supply chains, Apple's sales of USD 123.95 billion were the highest ever and +11% higher than the same period last year. Net income also reached record levels at USD 34.63 billion compared to USD 28.76 billion a year earlier. Per share it was USD 2.10 (previous year USD 1.68). Apple CEO Tim Cook was confident in the outlook and assumes that the bottlenecks in components will soon ease. The stock was up about three percent in after-hours trading.

US economy shows no weakness at year-end 2021

Economic growth in the United States was much stronger than expected in the final quarter of last year. Gross domestic product (GDP) grew at an annualized rate of +6.9% in the fourth quarter, compared to consensus expectations of +5.5% and annualized growth of +2.3% in the third quarter. Private consumption was particularly strong in Q4. For the full year 2021, the world's largest economy thus expanded by +5.7%, driven by consumer spending, fixed investment, exports, and investment in inventories. In the corona year 2020, the US economy had still slumped by -3.5%. In view of the more restrictive stance of the US Federal Reserve, the pace of growth is likely to slow again over this year.

Ukraine conflict remains a hot potato for financial markets

Now that the US and NATO have presented the Kremlin with “new” proposals for resolving the Ukraine conflict, they are eagerly awaiting a response from Moscow. In response to Russia's demand for commitments to end NATO's eastward expansion, NATO and the US showed no willingness to negotiate and again warned Russia of “massive consequences” in the event of an invasion of neighboring Ukraine. Meanwhile, representatives of Russia, Ukraine, France, and Germany met in Paris for talks, so far without concrete results. For the capital markets, this means a continuing factor of uncertainty that is likely to cause increasing volatility in some places.

German consumers slightly more optimistic

According to the latest survey results from the Nuremberg-based consumer research institute GfK, the mood of German consumers brightened somewhat at the beginning of the year despite rising Covid-19 incidences and high inflation. The consumer climate indicator calculated for February improved slightly by 0.2 to minus 6.7 points, while analysts had expected a further decline to minus 8.0 points. In addition to economic and income expectations, the propensity to buy also improved. According to GfK, the propensity to consume in Germany remains subdued despite the current increase.

Economic Indicators January 28

MEZ Country Indicator Last period
07:30 FR GDP Q4 (q/q) +3.0%
08:00 GE Import prices (December, y/y) +24.7%
09:00 SZ KOF Economic Indicator (January) 107.0
09:00 ESP GDP Q4 (q/q) +2.6%
09:00 AUT GDP Q4 (q/q) +3.8%
10:00 GE GDP Q4 (q/q) +1.7%
10:00 IT Business Climate (January) 115.2
10:00 IT Consumer Sentiment (January) 117.7
11:00 EZ Economic Sentiment (January) 115.3
11:00 EZ Business Climate (January) +1.84
11:00 EZ Consumer Confidence (January) -8.5
14:30 US Consumer Spending (December, m/m) +0.6%
14:30 US Personal Income (December, m/m) +0.4%
14:30 US PCE Core Price Index (December, m/m) +0.5%
16:00 US Consumer Confidence (Janaury) 68.8

 

Earnings Calender January 28

Country Company Period
SZ Givaudan Annual
IT UniCredit Annual
NL Signify Annual
SWE Volvo Annual
SWE Electrolux Annual
FIN Stora Enso Annual
US Chevron Q4 
US Caterpillar Q4
US Colgate-Palmolive Q4

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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