Market view and Insights
On Wall Street, interest rate concerns receded somewhat into the background and lured investors out of hiding. On Asia's stock exchanges, a much stronger-than-expected purchasing managers' index for China's service sector provided a tailwind. In Europe, the focus was on the latest inflation data. Although the overall inflation rate declined again, the core inflation rate rose to a record high in February. The ECB is likely to have taken note of this development with a view to further interest rate hikes.
Asia-Pacific stock markets mostly gained on Friday, following the gains on the New York Stock Exchange. Positive momentum was provided by the Caixin/S&P Global purchasing managers' index for the Chinese service sector. The PMI recorded a jump from 52.9 to 55.0 points in February, signalling quite solid growth in this sector of the economy. In Tokyo, the Nikkei 225 climbed 1.5%, leading gains in the region. In Hong Kong, the Hang Seng Index gained 0.7% and the Hang Seng Tech Index rose about 1.6%. In mainland China, however, the Shanghai Composite and Shenzhen Component slipped slightly by 0.2% before the weekend.
The Dow Jones Industrial closed on Thursday at 33’003.57 points, representing a daily gain of 1.05%. This, even though the benchmark yield of ten-year US government securities held above the 4%-mark. A positive impulse was provided by the shares of the US software manufacturer Salesforce, which rose by up to 16% after strong quarterly figures and an optimistic view. The broad S&P 500 improved 0.76% to 3’981.35 points, holding the 200-day line. On the Nasdaq technology exchange, the indices rose by about 0.9%.
The European benchmark stock market index EuroStoxx 50 gained 0.6% yesterday. The focus here was primarily on the inflation trend in the eurozone. Consumer price inflation continued to decline in February. Accordingly, the inflation rate for the year was 8.5%. compared with 8.6% at the beginning of the year. Economists had expected an even steeper decline to 8.3%. On a month-on-month basis, however, the cost of living in the eurozone increased by 0.8% (consensus 0.5%). In addition, a warning signal, especially for the European Central Bank (ECB), is likely to come from the rise in the core annual inflation rate, which picked up from 5.3% to a record of 5.6% in February.
Corporate news today in focus: Lufthansa with annual figures and Allianz with its annual report.
Economic data today in focus: Purchasing managers' indices for the service sector in Italy, France, Germany and the eurozone as well as the UK. In the US, the ISM purchasing managers survey among service companies.
All about global economic and market trends at a glance
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Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.
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Reference regarding analysis history
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Essential sources of information
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Reference regarding valuation rates
Unless otherwise stated or specified, the rates used in the analysis are normally the share prices provided by the news agencies Reuters and/or Bloomberg at the close of the stock exchange of the domestic market of the analyzed security or the relevant principal market of this security on the respective local stock exchange on the eve of the day of compilation.
Explanation of investment recommendations for stocks
We apply a “hybrid approach” (internal fundamental analysis combined with “theScreener”, an external, purely quantitative analysis tool). TheScreener is based on purely quantitative, i.e. computable variables such as (but not exclusively restricted to) profit adjustments of the past few weeks, stock valuation in relation to historical performance and comparison groups, the technical trend, performance in relation to the market etc. The assessment of the equity analysts, which is largely based on a qualitative analysis, does not need to match with the one of theScreener. For the overall judgement the assessment of the equity analysts overrides the one of theScreener. LGT Bank (Switzerland) Ltd. categorizes its analysis recommendations into five ratings: for a “Buy” recommendation we expect a relative outperformance compared with the sector. Only equities subjected to an internal fundamental analysis can be rated “Buy”. The recommendation “Attractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly positive” or “positive”. A moderate relative outperformance versus the index is expected. For equities that we rate as “Hold” we expect a performance largely in line with the one of the sector. This can comprise both equities for which a fundamental analysis has been carried out as well as equities that theScreener ranks as “neutral” versus the index. The recommendation “Unattractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly negative”. A moderate relative underperformance versus the index is expected. By contrast, “Sell” recommendations are based on the expectation of a relative underperformance compared with the sector. This can comprise both equities for which we are recommending “Sell” for fundamental reasons as well as equities that theScreener ranks as “negative” versus the index. Therefore the ratings always reflect a relative consideration versus the sector and/or specified index. The risk assessment is based on the individual judgement of the analyst (e.g. we assume a “high” risk for illiquid shares, highly indebted companies or shares from developing countries).
Reference regarding share valuation basis: The analysis compiled by LGT Bank (Switzerland) Ltd. are essentially based on secondary research relating to fundamental and quantitative analysis. Generally accepted valuation methods (valuation multiples, return figures, sector comparisons, comparisons with past valuations etc.) are used for this. The forecasts for the quantitative analysis are prepared with the help of mathematical-statistical procedures (see statements above concerning the analysis tool “theScreener”). Economic indicators such as interest rates, currencies, commodity prices and assumptions relating to the economy are included in the overall assessment. The mood of the market also affects the company valuation. Moreover, many of the approaches are based on estimates and expectations that may change quickly and without warning, depending on developments specific to the industry. Therefore, the recommendations derived from the analysis can also change accordingly. The investment judgements generally refer to a period of 6 to 12 months. However, they are also subject to market conditions and represent a snapshot of the situation. They may be achieved more quickly or more slowly or be revised upwards or downwards.
Explanation of investment recommendations for bonds
We employ both qualitative and quantitative methods to derive our recommendations, which are to be seen as relative to sector/quality peers among comparable maturities. “Buy” and “Sell” recommendations demand a qualitative in-house analyst opinion, in which we incorporate both historical and projected financial results and credit metrics as well as past and anticipated company and sector-specific observations and trends. We recommend “Buy” for a security for which we expect a strong relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Sell” if we expect strong relative underperformance compared to sector/quality peers among comparable maturities. The ratings “Attractive”, “Hold” and “Unattractive” can be based purely on a quantitative approach, which includes the market price of credit risk, valuation of equities and associated instruments, corporate leverage, liability structure, size, and agency rating. We recommend “Attractive” for a security for which we expect a relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Hold” if we expect an average performance compared to sector/quality peers among comparable maturities. We recommend “Unattractive” if we expect a relative underperformance compared to sector/quality peers among comparable maturities.
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Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates
For more information on our methodology for bonds, please contact your LGT relationship manager or your local LGT Group company.
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