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LGT Navigator: Federal Reserve likely to maintain monetary policy course

December 6, 2021

In the US, the situation on the job market improved in November, although the high expectations were not met. In the European and US service sectors, sentiment has recently brightened, but now the virus variant Omicron is again fueling uncertainty. The Asian stock exchanges start the new trading week mixed. 

US-Arbeitsmarkt erholt sich.

Although the latest US labor market data was not as strong as expected, this is unlikely to sway the Federal Reserve from its tapering path. The turnaround in monetary policy as well as the question of how sustainable the rise in inflation will be and how the Omicron virus variant will affect the course of the pandemic are likely to be the determining factors on capital markets at the end of the year.

After a friendly start on Friday on Wall Street, stock indices turned after the publication of the labor market report and the Dow Jones Industrial closed with a slight daily loss of -0.17% at 34’580.08 points. On a weekly basis, the Dow lost almost -1% and now trades more than -5% below the record levels reached in November. The S&P 500 declined -0.84% to 4’538.43. The selling pressure on the technology exchange Nasdaq was even stronger and the indices fell by about -1.7% and lost almost -2% over the week. 

In Asia, stock exchanges start the new week unevenly. In Tokyo, the Nikkei loses -0.3% and in Hong Kong, the Hang Seng loses -1.3%, with technology stocks particularly under pressure. The Shanghai Composite gains +0.1%.

US labor market recovery continues, albeit at a slower pace than hoped for

The American economy created more than 210’000 new jobs in November, which was well below analysts’ high expectations (consensus +550,000). In contrast, the unemployment rate fell surprisingly sharply from 4.6% to 4.2% and thus approached the pre-crisis level of 3.5% in February 2020. The Fed is unlikely to be irritated by the labor market data and is also not expected to accelerate the exit from the ultra-expansive monetary policy. 

US service providers in buoyant mood

After the slowdown in growth in the third quarter caused by the delta variant, the service sector in the US has recovered significantly in November. The Purchasing Managers’ Index published for the sector by the Institute for Supply Management (ISM) even reached a record high of 69.1 points, or the highest level since the survey began in 1997. 

The London-based market research institute IHS Markit is also convinced that the momentum of the US economy has accelerated so far in the fourth quarter. Growth is being led by service providers, while the manufacturing sector is suffering from supply bottlenecks and, in some cases, labor shortages, commented IHS Markit chief economist Chris Williamson. 

The corresponding Purchasing Managers’ Index for the private sector in the euro area (PMI Composite) improved in November for the first time since July, rising by 1.2 points to 55.4. This was due to improved sentiment in the service sector. However, IHS Markit chief economist Chris Williamson pointed out that the survey was conducted before the new coronavirus variant Omicron became known. Thus, the current developments could again lead to greater skepticism, especially in the service sector.

Inflation in Turkey rises above 20%

In Turkey, consumer prices rose by 21.3% over the year in November. The last time the inflation rate was above 20% was at the beginning of 2019. Inflation is mainly driven by food prices, which have increased by +27% year-on-year. Despite the rapidly rising inflation, the Turkish central bank has cut the key interest rate to 15% under political pressure, which has exacerbated the depreciation of the Turkish lira and made imports more expensive.

Economic Indicators December 6

MEZ Country Indicator Last period
08:00 GE Industrial Orders (October, m/m) +1.3%
10:00 IT Retail Sales (October, m/m) +0.8%
10:30 EZ Sentix Economic Outlook +18.3


Earnings Calender December 7

Country Company Period
SZ ABB Capital Markets Day


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