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LGT Navigator: Fed: Supply chain problems weigh on economic momentum and increase price pressure in the US

October 21, 2021

The Federal Reserve estimates that economic growth in the US has weakened, due to supply chain disruptions, labor shortages and uncertainty surrounding the Delta variation of the corona virus. At the same time, however, price pressures have increased. Meanwhile, various data from the euro area also highlighted inflation concerns as well as risks from global supply chain issues and rising energy prices.

Fed: Supply chain problems weigh on economic momentum and increase price pressure in the US

The Federal Reserve painted a somewhat bleaker picture of the current state of the US economy in its regular economic report, the so-called "Beige Book," released yesterday evening. In several regions, the pace of growth has cooled, while price pressures remain high, and employment has recently increased only moderately.

On Wall Street, investors were unimpressed by the Fed's economic report and the Dow Industrial Index even reached a mid-week high. At the close of trading, the Dow stood at 35'609.34 points (+0.43%). Positive again strong corporate news, for example, from the telecom giant Verizon or Tesla. The S&P 500 rose +0.37% to 4'536.19 points, while the technology exchange Nasdaq posted slight losses.

In Asia, stock indices trended mixed on Thursday, weighed down by concerns about "Evergrande" and the Chinese real estate sector. Thus, a sale of assets of the ailing Chinese real estate group Evergrande had failed on Wednesday. In Tokyo, the Nikkei 225 loses almost -2% and in Hong Kong, the Hang Seng trades almost -1% lower.

Inflation in the euro area confirmed at 13-year high

The European statistics office Eurostat has confirmed the inflation rate at +3.4% after a second estimate, which means that inflation in the eurozone is the highest since September 2008. In August, consumer prices had risen by +3.0% over the year and in July by “only” +2.2%. Prices continue to be driven by energy prices, which rose by +17.6% year-on-year. Excluding the energy component, the core inflation rate climbed from +1.6% in August to +1.9% in September.

Energy costs drive producer prices in Germany to highest level since 1974

With a jump of +14.2%, German producer prices recorded their strongest increase in almost 50 years in September! The background is, less surprisingly, rising energy costs (especially natural gas +59%) and bottlenecks in global supply chains. Producer price inflation was thus also much stronger than economists had expected at around +12.8%.

Inflation in the UK eases slightly in September

On the British Isles, inflationary pressure eased minimally in September. Accordingly, the inflation rate fell from +3.2% – the highest rate since records began in 1997 – to +3.1%, according to the ONS statistics office in London. This means that the inflation rate is still clearly above the central bank's target of two percent, and the financial markets are already expecting the Bank of England to make its first interest rate move soon.

The ECB Governing Council loses a weighty voice

Bundesbank President Jens Weidmann yesterday surprisingly announced his early resignation at the end of the year. The German central bank chief is currently the longest-serving member of the ECB's monetary policy council. ECB President Christine Lagarde regretted the decision, stressing his experience and willingness to find compromises. However, Weidmann was also known for his critical stance toward the ECB's ultra-expansive monetary policy.

Paris climate targets a long way off

According to a recent study by the United Nations Environment Programme (UNEP) and leading research institutes, planned fossil fuel production will still be twice as high as agreed in the Paris Climate Agreement by 2030, and this gap could even widen by 2040. According to the calculations, countries will produce about 110% more fossil fuels, 240% more coal, 57% more oil and 71% more gas in 2030 than would be compatible with the agreed temperature target. The UN and the institutes therefore demand that global coal, oil and gas production must be immediately and significantly reduced in order to limit long-term warming to the targeted +1.5%.

 

Economic Indicators October 21

MEZ Country Indicator Last period
08:00 GE GfK Consumer Climate (November) +0.3
08:45 FR Economic Confidence Survey (October) 106.0
14:30 US Philly Fed Manufacturing Index (October) +20.0
14:30 US Initial Jobless Claims (weekly) 293,000
16:00 EZ Consumer Sentiment (October) -4.0
16:00 US Leading Indicator (September, m/m) +0.9
16:00 US Existing Home Sales (September, y/y) -2.0%

 

Earnings Calender October 21

Country Company Period
SZ Schindler Q3 
SZ ABB Q3 
SZ Zur Rose Q3 
GE SAP Q3
FR L'Oréal Q3
FR Vivendi Q3
FR Pernod Ricard Q3
FR Hermes Q3
NL Unilever Q3
SWE Nordea Q3
SWE Telia Q3
SWE Volvo Q3
UK Barclays Q3
UK Anglo American Q3
US Intel Q3
US Verizon Communications Q3
US AT&T Q3
US Dow Q3

 

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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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