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Weak economic data ease rate hike worries

Poor economic data out of both the US and Europe eased investors’ worries that recent surprise hikes by the Bank of Canada and the Reserve Bank of Australia could be a sign of what is to come next week from the world’s two largest central banks. The US Federal Reserve (Fed) and European Central Bank (ECB) are both scheduled to announce interest rate decisions next week. Equity markets rallied on the bad economic news, with the S&P 500 reaching a new 2023 high.

Shane Strowmatt, LGT
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The eurozone slipped into a recession after its first-quarter gross domestic product (GDP) was revised downward on Thursday into contractionary territory. The economic bloc’s economy shrunk by 0.1%, according to revised estimates, after the initial reading pointed to 0.1% growth to start the year. In the last quarter of 2022, the GDP of euro area also contracted by 0.1%. Negative growth in two consecutive quarters is the technical definition of a recession, even if the figures are only marginally contractionary. The main reason for the downward revision were cuts to growth figures in the bloc’s largest economy Germany.

On the other side of the Atlantic, the world’s largest economy likewise showed weakness on Thursday. The number of new claims for unemployment benefits in the US jumped to the highest number in more than 1.5 years at 261,000 last week. The unemployment rate in the US of 3.7% in May is higher than the 3.4% figure in April, but still remains at historically low levels.

After surprise interest rate increases in Canada and Australia this week, the weak economic data out of Europe and the US was welcomed by traders who were worried that the Fed could likewise come out with a hawkish move next week. The weak economic data was seen as making that less likely. In New York, stock markets rallied Thursday with the S&P 500 closing up 0.62% at 4,293.93 points, a new high for 2023. The Dow Jones Industrial gained 0.5%, finishing the session at 33,833.61 points. The Nasdaq-100 jumped 1.27% to end at 14,484.54 points as traders moved into tech stocks, which generally benefit from lower interest rates. Shares of meme stock GameStop fell by about 18% after firing CEO Matt Furlong. Sales at the video game retailer have plunged as the company has struggled to adopt to online gaming models.

In the Asia-Pacific region, stock markets continued with New York’s positive sentiment on Friday. Investors were busy interpreting Chinese inflation data with its Consumer Price Index rising mildly by 0.2% in May on the year and producer prices plunging 4.6%, also when compared to the same month a year earlier. The Shanghai Composite was trading just slightly in positive territory and the Shenzhen Component marginally in the red after the release of the data. Hong Kong's Hang Seng Index was up 0.3%. In Japan, the Nikkei 225 shot up 1.8% and South Korea’s Kospi was up more than 1%.

Corporate news in focus: No major corporate news scheduled today.

Economic data in focus: Austrian industrial production (09:00 CET), US Commodity Futures Trading Commission speculative net positions (22:30).

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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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