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LGT Navigator: Wall Street takes a breather

October 18, 2022

Solid quarterly earnings boost sentiment on Wall Street. China postpones the publication of important economic data and in the UK, Prime Minister Liz Truss apologizes for mistakes in economic policy.

International Monetary Fund

US stock exchanges rebounded sharply at the start of the week. The S&P 500 climbed +2.9% and the Dow Jones gained +2.1%. The technology index Nasdaq Composite surged +3.4% and posted its best performance since July 27. Solid corporate earnings boosted sentiment as shares of Bank of America gained more than +6% after the bank reported better-than-expected third-quarter results. 

Weak economic data could not spoil the mood: manufacturing sentiment in New York State deteriorated unexpectedly sharply in October. The Empire State index fell by -7.6 points to -9.1 points compared with the previous month, the Federal Reserve Bank of New York announced on Monday. Analysts had expected a decline to -4.3 points. A negative reading signals a decline in industrial activity. The mood has already deteriorated in recent months triggered by the war in Ukraine, rising energy prices and problems in world trade. 

Asian stock exchanges follow the guidance from the US and trade firmer on Tuesday. In Tokyo, the Nikkei gains +1.4% and the Hang Seng advances +1.3% in Hong Kong. The Shanghai Composite is up +0.3%.

British government withdraws plans to cut taxes

On Monday night, British Prime Minister Liz Truss apologized for the first time for the market turmoil caused by her economic policies. “I want to take responsibility and apologize for the mistakes that have been made,” Truss said in an interview with the BBC. Earlier in the day, Britain's new Chancellor of the Exchequer Jeremy Hunt withdrew most of the recently planned tax cuts. He also shortened the duration of the government's energy price cap for households and businesses: instead of two years, the scheme will initially apply for six months. With these measures, he hopes to regain the confidence of financial markets. “The most important objective for our country right now is stability,” Hunt said. According to the latest calculations by the Office for Budget Responsibility, the government's planned tax package – also known as mini-budget – would increase the hole in the budget to GBP 70bn. These plans had caused severe turbulence on British financial markets and caused borrowing costs to surge. Prime Minister Liz Truss was therefore forced to withdraw part of the tax relief already last week. She also fired her finance minister, Kwasi Kwarteng.

Financial markets reacted positively to the U-turn on Monday. Thirty-year British government bond yields eased slightly to trade at 4.36%. The British pound strengthened against the US dollar and traded +2% firmer at over USD 1.14. Whether Truss can save her job remains an open question though. 

China delays economic data

The Chinese government on Monday surprisingly postponed the publication of current economic data. An update on the economic development in the third quarter should have been published today, Tuesday. When the data will follow, is not known. In addition, the government gave no reason for the postponement. Earlier, customs authorities had already delayed the publication of import and export data. The government is aiming for a growth target of 5.5% for the year. But according to calculations by the World Bank, Beijing is likely to miss the target by a wide margin: the bank expects growth of 2.8%. The zero-covid policy in particular is weighing on economic development. However, President Xi Jinping has made it clear at the current Communist Party Congress that he intends to stick to the strategy.

 

Economic Indicators October 18

MEZ Country Indicator Last period
04:00 China Gross domestic product (Q3, y/y) +0.4%
11:00 DE ZEW economic sentiment (October) -61.9
11:00 EZ ZEW economic sentiment (October) -60.7
15:15 US Industrial production (September, y/y) +3.68%

 

Earnings Calender October 18

Country Company Period
CH Roche Sales (9 months)
US Goldman Sachs Q3
US Johnson & Johnson Q3
US Netflix Q3
US United Airlines Q3

 

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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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