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LGT Navigator: Fed Chair remains relaxed regarding increased inflation concerns

March 24, 2021

The eagerly awaited statements by Federal Reserve Chairman Powell caused price losses on Wall Street. The Fed Chairman referred, among other things, to the risk that some assets have reached elevated valuations. On the other hand, Powell also appeared relaxed regarding inflation expectations. While stock prices came under pressure, the yield of ten-year US government bonds fell for the second day in a row, also in view of the auctions taking place this week. The price of oil also fell.

Fed Chair remains relaxed regarding increased inflation concerns

After a much-noticed appearance by Fed Chairman Jerome Powell before the Financial Services Committee of the House of Representatives, the indices closed weaker on the New York Stock Exchange. The Dow Jones index fell -0.94% to 32'423.15 points and the S&P-500 fell -0.76% to 3'910.52 points. On the technology exchange Nasdaq, the daily losses amounted to about -1%. Powell sees no immediate danger of rising inflation despite the extensive fiscal aid. The effects for inflation are neither particularly large nor lasting, said the Fed chief. As a result, the yield on ten-year US government bonds fell back to around 1.6%. Meanwhile, the US government is already considering new stimulus spending of up to USD 3 trillion to improve the country's partly ailing infrastructure. The prospect of further fiscal policy packages could quickly push yields up again, putting pressure on equity prices.

In Asia, most stock indices followed weaker Wall Street benchmarks at midweek, and futures for Europe's stock exchanges also signaled a negative start to trading. Worries about the third wave of the pandemic in Europe and geopolitical tensions between the USA/Europe and China/Russia remain negative factors.

Powell wants to support the economy for as long as necessary

Federal Reserve Chairman Jerome Powell was positive about the recovery trend of the US economy. This is faster than expected, he said, but the economic recovery is far from over. Powell said at his hearing before a finance committee of the House of Representatives that it was therefore necessary to support the economy for as long as necessary. This is because some sectors of the economy continue to be hard hit by the corona pandemic, most notably the service sector. While the economic outlook remains heavily weighed down by uncertainties, progress on the vaccination campaign offers hope, according to Powell. However, the main negative reception on Wall Street was the central bank chief's comment that some assets were highly valued in the meantime.

US current account rises to highest level in 12 years in 2020

The chronic deficit in the current account of the United States widened again significantly last year. In 2020 as a whole, the current account deficit widened by around +35%, or by USD 167bn, to USD 647.2bn. Higher trade deficits – despite Trump's trade war – and lower surpluses in the services and income balance were primarily responsible, according to the Commerce Department in Washington.

ECB chief economist Lane: euro economy still under pandemic spell

As the second quarter begins, the corona crisis remains the dominant factor for the euro area economy, according to ECB Chief Economist Philip Lane. On the negative side, he said, were the rebounding Covid-19 infection figures and, on the positive side, vaccinations and short-term efforts to keep the virus under control.

 

Economic Indicators March 24

MEZ Country Indicator Last
08:00 UK Consumer Prices (February, y/y) +0.7%
08:00 UK Core Consumer Prices (February, y/y) +1.4%
09:15 FR IHS Markit PMI Composite (February) 47.0
09:30 GE IHS Markit PMI Composite (February) 51.1
10:00 EZ IHS Markit PMI Composite (February) 48.8
10:30 UK IHS Markit PMI Composite (February) 49.6
13:30 US Durable Goods Orders (February, m/m) +3.4%
14:45 US IHS Markit PMI Composite (February) 59.5

Earnings Calendr March 24

Country Corporate Period
GE E,ON Annual figures

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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