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LGT Navigator: Cocktail of worries keeps market sentiment fragile

May 23, 2022

Ongoing concerns about the further development of inflation and the risks to the global economic outlook resulting from the countermeasures taken by the major central banks continued to weigh on the capital markets. Added to this are geopolitical tensions and uncertainties regarding future energy supplies. Trading on the stock exchanges is likely to remain volatile and investor sentiment fragile in view of the cocktail of concerns.

Cocktail of worries keeps market sentiment fragile

On the New York stock market, the indices turned just into positive territory last Friday after initially suffering further heavy losses. The Dow Jones Industrial and the broad S&P 500 closed virtually unchanged from the previous day at 31,261.90 points (+0.03%), respectively 3,901.36 points (+0.01%). On a weekly basis, the Dow as well as the S&P 500 had to give up just under -3%. The S&P 500 thus recorded the seventh consecutive week of losses and the longest losing streak since 2001. In addition to technology stocks, the shares of American retail companies, such as Walmart or Target were in particular focus in recent days. The industry is suffering from lower profit margins due to rising transportation and labor costs. Also attracted attention were the shares of Tesla, which fell by a good -6% on Friday. The background is mainly supply chain problems in Asia and the general pressure on highly valued growth stocks.

On the Asian stock markets, no consistent trend was observed at the beginning of the week. In Tokyo, the Nikkei 225 traded around +0.6% higher, while in Hong Kong (-1.8%) and in Shanghai (-0.3%) the indices were clearly trading in negative territory. Here, too, the focus remains on inflation and rising interest rates, as well as the outlook for global economic development.

Bundesbank President calls for decisive action by ECB

Joachim Nagel, President of the German Bundesbank, noted on the sidelines of the meeting of G7 finance ministers and central bank heads that inflation dynamics have changed profoundly in a short period of time. Central banks would therefore have to counter inflation decisively and prevent the strong upward pressure on prices from becoming entrenched. On this occasion, the Bundesbank chief again raised the possibility of a first ECB interest rate hike in July.

Other members of the ECB's Governing Council, such as France's central bank chief Francois Villeroy de Galhau and Italian central bank president Ignazio Visco, also appear to be preparing the financial markets for an ECB interest rate move in July. 

German producer prices continue to drive inflation

In Germany, prices at the producer level continued to rise strongly in April. On an annual basis, prices increased by +33.5% (consensus +31%) - the strongest price increase since the start of the data series in 1949. Energy costs remain the strongest price driver. In April, energy prices rose by around +87% year-on-year, with natural gas even up by almost +155%. German manufacturers also had to pay more for metals, fertilizers, and animal feed, as well as for paper and cardboard or wooden packaging. The rise in producer prices is being passed on to consumer prices in part and with a time lag.

Inflation depresses British consumer sentiment

According to the latest survey results from the GfK Institute, consumer sentiment in the UK fell in May to its lowest level since the survey began in 1974. Against the backdrop of a sharp rise in the cost of living and higher interest rates, consumers are currently more pessimistic about their situation than they were during the Corona pandemic or the financial crisis, GfK commented. In the UK, the inflation rate reached 9% in April, the highest level in 40 years. The Bank of England has already tightened its key interest rate twice and held out the prospect of further interest rate hikes, but the central bank cannot do much to counter the development of energy and commodity prices.

Economic Indicators May 23

MEZ Country Indicator Last period
10:00 GE Ifo Business Climate Index (April) 91.8
14:30 US Chicago Fed National Activity Index (April) +0.44


Earnings Calender May 23

Country Company Period
UK Kingfisher Q1 Sales
US Zoom Video Communications Q1
US JP Morgan Chase Investor Day


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