US and European equity markets finished the first session of the week slightly lower as traders shifted their attention to macroeconomic data later in the week. They hope to gain insight from the data into when the world’s largest central banks will begin cutting interest rates. Personal Consumption Expenditures (PCE) - the Federal Reserve’s (Fed) preferred gauge of inflation - are due out of the US on Thursday. European countries will also release inflation data later in the week. Japan’s inflation released early Tuesday came in slightly higher than expected.
Stock indices in New York backed down from last week’s artificial intelligence-drive race to new highs. The Dow Jones Industrial lost 0.2% and the S&P 500 fell 0.4%. The Nasdaq-100 finished Monday’s session marginally lower. In Europe, major markets mostly traded lower with the Europe Stoxx 50 losing 0.2% on Monday.
The mild losses on markets reflect traders’ concerns about the upcoming Personal Consumption Expenditures data, due on Thursday. Markets have already essentially ruled out the possibility of an interest rate cut at the Fed’s next meeting in March and even a cut in May is considered unlikely, according to the CME FedWatch Tool. A strong PCE reading on Thursday could push back expectations for a first Fed rate cut even further.
Japan kicked off the week of inflation data by releasing its Consumer Price Index (CPI) in the early morning hours Tuesday. Core CPI - which excludes food and energy prices - increased 2% in January when compared with the same month a year earlier. That figure is down from the previous month’s 2.3% but just above a market expectation of 1.9%. Headline CPI was up 2.2% on the year in January, falling from 2.6% in December. The Nikkei 225 closed up 0.2%
Elsewhere in the Asia-Pacific region, stock markets were mixed on Tuesday. In South Korea, the Kospi dropped 0.9% and Australia’s S&P/ASX 200 gained 0.1%. Hong Kong's Hang Seng Index lost 0.1%, while the Shanghai Composite jumped 0.8%.
In energy markets there were sizable moves in oil prices to start the week as traders were concerned about possible shipping disruptions. At the weekend, Yemen’s Houthi rebels nearly hit a US tanker in the Red Sea while they managed to strike another ship just last week, which had to be abandoned. West Texas Intermediate was trading under USD 78 and Brent just below USD 82 per barrel.
Corporate news in focus: Quarterly figures from Alcon, Munich Re, PSP Swiss Property, Puma, SIG, Straumann Group.
Economic data in focus: GfK Consumer Climate Germany, US durable goods orders, Conference Board Consumer Confidence Index.
All about global economic and market trends at a glance
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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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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).
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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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