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Interest rate outlook weighs on stock markets at the start of the week - Jackson Hole moves into focus

At the end of last week, the slide on Europe's stock exchanges continued and on Wall Street, the indices were unable to break away from the previous losses. Market participants fear the US Federal Reserve could make another interest rate step in September, after only a brief pause. Capital markets are also still concerned about the fragile economic development in China, in particular the problems in the real estate sector. As a result, China's central bank lowered its key interest rate today.

Alessandro Fezzi, LGT
Reading time
5 minutes

On the Asia-Pacific stock exchanges, the start of the week was mixed after the key interest rate cut by the Chinese central bank. The People's Bank of China eased the key interest rate for one-year loans by 10 basis points to 3.45% but left the interest rate for five-year loans unchanged at 4.2%. In Hong Kong, the Hang Seng index slipped 0.9%, while mainland Chinese markets were also down - the CSI 300 lost 0.3%. In Tokyo, however, the Nikkei 225 was 0.3% higher and in Seoul the Kospi gained 0.6% and the Kosdaq 1.9%.

On the New York Stock Exchange on Friday, stock indices could not break away from the negative sentiment after a weak week. The Dow Jones Industrial was able to recover initial losses but closed only slightly above the previous day's close at 34,500.66 points (+0.07%). The S&P 500 also remained virtually unchanged at 4,369.71 points (-0.01%) and on the Nasdaq, the technology stocks also did not budge. Overall, all indices posted weekly losses of just over two percent. On the bond market, the yield of ten-year U.S. government bonds fell slightly at the same time to 4.25%, after the benchmark had previously been quoted at around 4.30% near the highest value since 2007. 

The focus now turns to the central bank symposium in Jackson Hole in the US state of Wyoming (August 24-26), which begins on Thursday. The focus will be on statements by Fed Chairman Jerome Powell. The meeting of international central bank leaders, which is receiving a great deal of media attention, is being held under the motto "Structural Shifts in the Global Economy".

Over this week, the focus will also be on the latest purchasing managers' survey results from S&P Global on the condition and development of the private sector in Europe and the US. In addition, we look to the US, where the Republican presidential candidates have to prove themselves in a first televised debate. We conclude with the monthly business survey for August by the Munich-based Ifo economic research institute. 

According to a survey by the Mannheim-based ZEW economic research institute, inflation expectations in the euro zone have fallen. However, inflation rates in the euro zone are likely to remain well above the ECB's two percent target until at least 2025. According to the results, financial market experts expect an average annual inflation rate of 5.5% in the current year, before falling to 3.3% and 2.5% in 2024 and 2025, respectively. At the time of the last survey in May, the experts had assumed 5.8% this year and 3.7% next year. The ECB itself forecasts an inflation rate of 5.4% for this year. The question of whether the ECB will pause on interest rates in September remains uncertain. 

Corporate news in focus: Zoom Video Communications Q2 figures.

Economic data in focus: Germany Producer Prices July (08:00 CET).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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