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LGT Navigator: Fed Chairman Powell reaffirmes monetary policy

April 12, 2021

Federal Reserve Chairman Jerome Powell has reaffirmed the loose monetary policy and once again appeared relaxed with regard to the inflation trend. Concerns about an increase in inflation had initially caused a subdued mood on US stock markets at the end of the week. Finally, the indices closed at new record levels. This week, investors will focus on the first quarter earnings season.

Inflation concerns keep stock markets in check

Federal Reserve Chairman Jerome Powell reiterated in an interview that the central bank will stick to its expansionary monetary policy. It is highly unlikely that the Fed will raise key interest rates this year, Powell said in an interview with "60 Minutes" that aired on Sunday. He again expressed composure with regard to inflation trends, saying that monetary officials would welcome a rise in inflation to slightly above 2%. Currently, inflation is well below that. Powell also expects the US economy to be at a turning point in the corona crisis. "Our sense is that we are at a place where the economy is facing much faster growth and job creation is accelerating," he said. 

US stock markets closed at record highs once again on Friday. After investors were initially cautious, sentiment turned around in late trading. The S&P 500 gained +0.8% to 4'128.80 points, marking the twentieth time this year at a new high. The Dow Jones gained +0.9% to 33'800.60 points and the Nasdaq Composite advanced +0.5% to 13'900.19. Worries about a rise in inflation had initially kept the stock markets in check. Thus, the most recently published data on price trends at the producer level fueled expectations of at least short-term higher inflationary pressure. 

In Asia, however, the stock markets started the new week in deep red. In Tokyo, the Nikkei loses -0.6% and the Hang Seng Index in Hong Kong loses -0.8%. The Shanghai Composite also gives -0.8%.

The focus of the markets this week moves to the first quarter earnings season, which is gaining momentum this week in the US. Thus, the major American banks JP Morgan Chase and Goldman Sachs will present their figures.

Stronger than expected rise in US producer prices

In the US, prices at the producer level rose more strongly than economists had anticipated in March. Compared with the previous month, producer prices rose by +1.0%. Analysts had expected an increase of only half as much. On an annual basis, producer prices increased by +4.2% (consensus +3.8%, after +2.8% in February) - the highest rate of increase since September 2011. Normally, producer prices provide an early indication of the development of inflation. 

In China, too, the rise in producer prices continued in March. At an annual rate of +4.4% (consensus +3.6%, after +1.7% in February), producer prices in the People's Republic rose at the fastest pace in almost three years. 

ECB warns of significant systemic risks

ECB Director Isabel Schnabel sees the collapse of U.S. hedge fund Archegos and the resulting multi-billion losses for some major banks involved as a warning signal of "significant systemic risks." The Archegos case shows that there are significant regulatory gaps in hedge funds, she said. 

German exports almost back to pre-crisis levels

German exporters increased exports in February by +0.9% month-on-month to EUR 107.8 billion, still -1.2% below the level of a year ago, before the Corona crisis hit Europe. The massive decline in trade with the UK is striking. Against the backdrop of the Brexit, German exports to the UK fell by -12.2% to EUR 5.4 billion in February. Imports from the UK even slumped by almost -27% to EUR 2.7 billion. 

 

Economic Indicators Arpil 12

MEZ Country Indicator Last
11:00 EZ Retail Sales (Februar, y/y) -6.4%

Earnings Calender April 13

Country Corporate Period
SZ Givaudan Q1 sales
FR LVMH Q1 sales

 

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Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
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