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LGT Navigator: Economic optimism increases renewed stock rotation

May 28, 2021

Financial markets continue to fluctuate between optimism about an expected dynamic economic recovery following the corona pandemic and concerns about a sustained increase in inflationary pressure and a corresponding reaction by the central banks. Recent statements by the Fed and also by Bundesbank head Weidmann seem to indicate that central bank heads are also concerned about the inflation outlook and that a reduction in monetary stimulus is at least open to debate. Positive economic data published yesterday contribute to this assumption and caused a renewed rotation in the equity universe.

Economic optimism increases renewed stock rotation

In New York, the Dow Jones Industrial improved on Thursday by +0.41% to 34'464.64 points and the S&P 500 gained +0.12% to 4'200.88 points. Cyclical stocks were more sought after than technology stocks, which led to daily losses on the Nasdaq. The Nasdaq 100 subsequently declined by -0.33% to 13'657.85 points. At the same time, the yield of ten-year US government bonds stabilized at 1.61%. The cyclicals in the Dow and the S&P 500 were supported by optimism, strengthened by positive US economic data, regarding a further recovery of the world's largest economy. The confident attitude is also supported by the expected budget of President Joe Biden. This is expected to amount to around USD 6 trillion and focus on investments in infrastructure, education, and healthcare.

The positive underlying tone also continued in Asia today. In Tokyo, the 225-value Nikkei index quotes a solid plus of around +2%. In Hong Kong, the Hang Seng is up about +0.75%, while the Shanghai Composite index is showing a somewhat modest gain of about +0.3%. The view of the futures markets suggests a positive start on Europe's stock exchanges.

US economy gains momentum at the beginning of the year

The US gross domestic product expanded at an annualized rate of +6.4% in the first quarter of the current year, confirming an initial estimate by the Commerce Department in Washington and roughly meeting economists' expectations. Economic growth in the US thus accelerated compared with the final quarter of 2020. In Q4, an annualized growth rate of +4.3% was reported.

Recovery on the US labor market continues

The weekly reported initial jobless claims numbers declined by 38'000 to 406'000 claims in the week ended May 22. This marked the fourth consecutive decline in claims and the lowest level since the start of the corona crisis.

ECB must adjust its monetary policy to inflation outlook

According to Bundesbank chief and ECB Governing Council member Jens Weidmann, the European Central Bank must adjust its monetary policy to the inflation outlook if the price outlook dictates to do so. In doing so, he said, the ECB must not take the financing needs of countries into account. The Bundesbank head also warned against questioning the EU's budget rules in the wake of the pandemic. The corona crisis should not be used as an excuse to throw the fiscal rules overboard for good, he said. However, in view of the continuing uncertainty about the course of the pandemic and its economic impact, too rapid a tightening of monetary policy was not advisable, Weidmann said.

Consumer climate in Germany recovers

According to a recent survey by the Nuremberg-based GfK Institute, German consumers' economic and income expectations have brightened. The indicator projected for June improved from -8.6 to -7.0 points. According to GfK, the more relaxed pandemic situation and the progress of the vaccination campaign created an “upbeat economic mood” and should result in a stronger consumer climate in the second half of the year.

Improved mood among Italian companies and consumers

Indicators of business and consumer sentiment compiled monthly by Rome's statistical office Istat improved significantly in May. The business climate barometer climbed from 97.9 to 106.7 points and even reached its highest level in around three years. The consumer confidence barometer also brightened noticeably, rising from 102.3 to 110.6 points, bringing this indicator back to its pre-pandemic level.

Economic Indicators May 28

MEZ Country Indicator Last period
08:00 GE Import Prices (May, y/y) +6.9%
08:45 FR GDP Q1 (q/q) +0.4%
08:45 FR Consumer Prices (May, y/y) +1.6%
09:00 SZ KOF Economic Indicator (May) 134.0
11:00 EZ Economic Sentiment (May) 110.3
11:00 EZ Business Climate (May) 1.13
11:00 EZ Consumer Confidence (May) -5.1
14:30 US Consumer Spending (April, m/m) +4.2%
14:30 US Personal Income (April, m/m) +21.1%
15:45 US Chicago PMI (May) 72.1
16:00 US Consumer Sentiment University Michigan (May) 82.8


Earnings Calender June 1

Country Company Period
US Dell Q1
US Zoom Video Q1


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