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LGT Navigator: Fed Chairman Powell shifts focus to inflation concerns

December 1, 2021

According to Fed Chairman Powell, the US central bank does appear to be more concerned about rising inflationary pressures. The Fed could therefore accelerate the tapering process. A scenario that is causing nervousness on the US stock markets. At the same time, the inflation rate in the eurozone climbed to its highest level since the currency area was established. In addition to inflation concerns, the new coronavirus variant Omicron continues to weigh on stock market sentiment. The statement of Moderna CEO Stephane Bancel, who admitted that the existing vaccines are likely to have their problems with the Omicron variant and that it could take longer until adapted vaccines could be produced in sufficient quantities, attracted particular attention.

Fed Chairman Powell shifts focus to inflation concerns

Statements by Federal Reserve Chairman Jerome Powell indicate that the Fed could push to curb its securities purchases (tapering) if inflation does prove more sustainable than previously thought. According to Powell, the Fed will discuss this at its next meeting on December 15.

Prospect of faster tapering weighs on stock market sentiment

Together with the increased concerns regarding the dangerousness of the new coronavirus variant Omicron, Powell's statement weighed heavily on the stock market sentiment on Tuesday. The Dow Jones Industrial fell again sharply by -1.86% to 34'483.72 points and the broad S&P 500 fell by -1.9% to 4'567.00 points. On the Nasdaq, the technology indices lost about -1.6%. In the bond market, US government bond yields rose and supported the US dollar.

In Asia, equity indices were able to recover somewhat in some cases, but uncertainty about the potential impact of the Omicron variant and inflation, which is now also increasingly causing concern among central banks, remain the major factors of uncertainty. In China, the Purchasing Managers' Index (PMI) of the Chinese business magazine “Caixin” also signaled weaker activity in the industrial sector. The PMI fell from 50.6 to 49.9 points in November.

Omicron also preoccupies the Fed

Fed Chairman Jerome Powell sees risks to the economic recovery and increased uncertainty about inflation trends from the coronavirus variant Omicron. The financial markets are already speculating whether the Fed could now reconsider the already announced throttling of bond purchases, the so-called tapering. Powell will testify before the US Senate Banking Committee today.

Inflation rate in eurozone reaches record high

In the 19-euro countries, the inflation rate of consumer prices in November rose on average to +4.9%. This was stronger than expected and the highest level since the beginning of the currency area. In October, the inflation rate had still been +4.1% and the consensus forecast for November was +4.5%. The strongest driver remains energy prices, which increased by +27.4% over the year according to Eurostat. The core rate, which is considered by economists to be a more reliable inflation measure, also climbed much more strongly than anticipated from +2.0% in October to +2.6% last month. The consensus was +2.3%.

The cost of living also rose noticeably in France and Italy. In France, inflationary pressure has intensified further. In November, consumer prices rose more strongly than expected by +3.4% compared with the same period a year earlier (consensus +3.2%). With the fourth consecutive increase, France's inflation rate reached its highest level since 2008. In Italy, inflation jumped to +4% (consensus +3.3%) – also the highest rate since 2008.

Solid consumption gave France's and Italy's economies a good summer

France's gross domestic product (GDP) grew strongly by +3% quarter-on-quarter in July-September. In Q2, the second largest economy in the eurozone managed a growth rate of +1.3%. Italy's GDP also expanded by a solid +2.6% in the summer months, albeit at a slightly slower pace than in Q2.

Economic Indicators December 1

MEZ Country Indicator Last period
08:00 GE Retail Sales (October, m/m) -2.5%
08:30 SZ Consumer Prices (November, y/y) +1.2%
09:15 ESP IHS Markit PMI Manufacturing (November)  57.4
09:30 SZ PMI Manufacturing (November)  65.4
09:45 IT IHS Markit PMI Manufacturing (November)  61.1
09:50 FR IHS Markit PMI Manufacturing (November)  54.6
09:55 GE IHS Markit PMI Manufacturing (November)  57.6
10:00 EZ IHS Markit PMI Manufacturing (November)  58.6
10:30 UK IHS Markit PMI Manufacturing (November)  58.2
14:15 US ADP Employment Growth (November) 571,000
15:00 UK BoE Governor Bailey Speech
15:45 US IHS Markit PMI Manufacturing (November) 59.1
16:00 US ISM PMI Manufacturing (November) 60.8
16:00 US US Treasury Secretary Yellen Speech
20:00 US Fed Beige Book


Earnings Calender December 1

Country Company Period
FR Sanofi  Vaccine Day


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