Inflationary pressures in the United States eased markedly in October. At 3.2%, the inflation rate in October was even lower than expected. Core inflation also fell slightly. This seems to justify the Fed's recent pause on interest rates. This led to relief and rising prices on the stock markets. At the same time, the yield on ten-year US government bonds fell sharply on Tuesday from around 4.6% to 4.44%.
US inflation eased more than expected in October. Consumer prices rose 3.2% year-on-year last month. On average, economists had expected inflation to fall to 3.3% from 3.7% in September. On a month-on-month basis, prices were unchanged, with analysts expecting a rise of 0.1%. Core inflation, which excludes energy and food prices, was 4.0% in October, down from 4.1% the previous month. The Federal Reserve is likely to see this as confirmation that it should hold off on further rate hikes for the time being, but the persistently high core inflation suggests that the euphoria may be misplaced.
As inflationary pressures eased and the likelihood of further Fed rate hikes diminished, the Dow Jones Industrial climbed 1.43% on Tuesday to 34,827.70, its highest level in two months. The S&P 500 rose 1.91% to 4,495.70 and the Nasdaq technology index was up over 2%. While US Treasury yields fell sharply, the US dollar lost ground across the board.
In the Asia-Pacific region, most stock indices were higher. In Hong Kong, the Hang Seng Index rose 3% to its highest level in more than a week, while in mainland China the CSI 300 Index gained 0.6%. The latest economic data from China provided a positive boost. Chinese retail sales rose 7.6% year-on-year last month, beating expectations. Industrial production rose by 4.6% for the year in October (consensus 4.4%). Today, US President Joe Biden and Chinese President Xi Jinping will meet face-to-face in San Francisco for the first time in around a year. In Tokyo, the Nikkei 225 was up 2.6% and the Topix was up 1.3% for the day, its highest level in almost two months. South Korea's Kospi was up 1.9% today and in Australia the S&P/ASX 200 closed up 1.4% at an eight-week high.
Thomas Jordan, Chairman of the Swiss National Bank (SNB), stressed that the SNB would not hesitate to tighten monetary policy further if necessary because price stability is not yet guaranteed. The SNB will assess whether the measures taken so far are sufficient to keep inflation within the price stability range in the long term, Mr Jordan said at a conference yesterday.
Corporate news in focus: Siemens Energy and Infineon with annual figures, Alstom Q3, Renault and Diageo capital market day and Cisco Systems with Q1 figures.
Economic data in focus: France unemployment rate Q3 (07:30), UK consumer prices October (08:00), Germany wholesale prices October (08:00), France consumer prices October (08:45), Italy consumer prices October (10:00), Eurozone industrial production and trade balance September (11:00), USA retail sales and producer prices October and Empire State industrial index November (14:30), Russia GDP Q3 (17:00).
All about global economic and market trends at a glance
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Editor: Alessandro Fezzi
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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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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
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