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LGT Navigator: Eased inflation worries, and sought-after tech stocks support equity markets

May 25, 2021

Despite the lack of new impetus from economic or corporate figures and the holiday-related absence of many European trading venues, stock indices on Wall Street started the new week on a positive note on Monday, led by technology stocks. Comments by various Federal Reserve officials that price pressures from the US economic recovery are expected to be temporary rather than permanent bolstered sentiment on the stock markets.

Eased inflation worries, and sought-after tech stocks support equity markets

On the New York Stock Exchange, the indices rose on Monday, mainly thanks to sought-after technology stocks (e.g. Microsoft +2.28%), and in Asia, too, the stock markets followed the positive guidance. The Dow Jones Industrial rose at the beginning of the week by +0.54% to 34'393.98 points and the market-wide S&P 500 was almost +1% higher at 4'197.05 points. The Nasdaq was the strongest performer, with the Nasdaq 100 climbing +1.72% to 13'641.75 points. In Europe, the EuroStoxx 50 achieved a daily gain of +0.24% on Whit Monday in very thin trading volume and closed at 4'035.58 points. Today, the monthly business survey of the Munich-based economic research institute Ifo is eagerly awaited.

Statements by top Fed officials such as James Bullard, Lael Brainard or Raphael Bostic said that although in the short-term increased inflationary pressure due to supply bottlenecks is to be expected in the coming months, but this should only be temporary. The yield on the benchmark ten-year Treasury is trading near a two-week low at 1.60%.

The defused inflation concerns also drove up stock market indices in Asia. In Tokyo, the Nikkei 225 index registers a daily gain of +0.6% and in China, the blue-chip index CSI 300 is up +2.6%. The Shanghai Composite trades +2% higher, reaching its highest level since early March. In Hong Kong, the Hang Seng Index is up +1.4%.

ECB chief Lagarde confirms central bank policy

The European Central Bank (ECB) is likely to stick to its ultra-expansionary monetary policy for the time being. It is far too early and unnecessary to discuss long-term developments, ECB chief Christine Lagarde said when asked whether the central bank was considering reducing bond purchases. At the press conference following the Eurogroup meeting in Lisbon, Lagarde also reiterated that she believes the rise in inflation in the eurozone is temporary. As in the US, consumer prices have been rising in the eurozone, but less sharply. Annual inflation rose by +1.6% in April, after +1.3% in March and +0.9% in February. However, this is still below the central bank's target of just under 2%. Investors can expect more information on the future course of monetary policy on June 10, when the ECB meets for its next interest rate meeting.

Economic outlook for the eurozone brightens up

The easing of corona measures and progress on vaccinations are giving the European economy new impetus. As a result, economic momentum in the Euro area accelerated in May at the fastest pace since February 2018. This can be seen in the purchasing managers' index of the market research institute Markit, which climbed by +3.1 points to 56.9 compared with the previous month. Analysts had only expected an increase to 55.1 points, with a value above 50 signaling growth. The index considers developments in the manufacturing sector as well as in the services sector. A look at the sub-components shows that sentiment has improved in the service sector, which has suffered particularly badly from the consequences of the corona pandemic. By contrast, the situation in manufacturing has deteriorated somewhat. This is due to bottlenecks in the supply chains, which are leading to longer delivery times, explained Chris Williamson, Markit's chief economist. The production backlog relative to demand is currently higher than at any time in the survey's 23-year history; this is leading to rising purchase prices for goods and services, which is exacerbating the imbalance, Williamson elaborated.

EU economy and finance ministers expect strong economic recovery

Thanks to progress in vaccination campaigns and the resulting lifting of many pandemic restrictions, EU economy and finance ministers expect a positive impact on economic development. At the Ecofin ministerial meeting in Lisbon, it was stressed that any recovery must be based on sustained investment based on national recovery plans to ensure a sustainable recovery of the economy.

Economic Indicators May 25

MEZ Country Indicator Last period
10:00 GE Ifo Business Climate Index (May) 96.8
15:00 US S&P/Case Shiller House Price Index (March, y/y) +11.9%
16:00 US Consumer confidence (May) +121.7
16:00 US New home sales (April, m/m) +20.7%


Earnings Calender May 26

Country Company Period
UK Marks & Spencer Q1
US Nvidia Q1


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