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LGT Navigator: Geopolitics moves back into the market’s spotlight

May 16, 2022

After last week's stock market sentiment was dominated by interest rate and inflation fears, geopolitical uncertainties could return to the focus of the capital markets in the coming days. On the one hand, the G7 are meeting to agree on further measures against Russia, if necessary, and on the other hand, the overall geopolitical situation could change significantly if Finland and Sweden join NATO.

Geopolitics moves back into the market’s spotlight

On Wall Street, the stock indices managed to stabilize on Friday after a weak and extremely volatile trading week, respectively, recover from the previous losses. The Dow Jones Industrial ended last week with a daily gain of +1.47% at 32'196.66 points and thus recorded a minus of a good two percent over the week. The S&P 500 closed +2.39% higher at 4'023.89 points and on the Nasdaq, the indices went into the weekend with strong daily gains of around +3.7%. On a weekly basis, however, remained a loss of almost two and a half percent. In the focus of the stock exchanges remains primarily the monetary policy tightening course of the Federal Reserve and the associated fear of an economic downturn. However, geopolitical tensions are now once again coming to the fore. The announcement by Tesla CEO Elon Musk to suspend the takeover plans for the time being caused quite a stir on Friday. This in order to gain clarity about how high the number of "dead" Twitter accounts is, i.e., accounts without effective users. According to Twitter's estimate, this number should be less than five percent. Musk assured, however, that he still stands by his takeover offer and wants to buy the short message service.

In the bond market, the yield of ten-year US government bonds climbed again to around 2.94%. The US dollar continued to hold its ground against the euro, pushing the European single currency at times to 1.0350, its lowest level since 2017.

Today, the EU Commission will present its updated spring forecasts for the euro economy. Then, on Wednesday, the meeting of the official G7 finance ministers and central bank chiefs will begin under the German G7 presidency. The conflict with Russia and the war situation in the Ukraine will be on top of the list.

Lockdowns cloud China's growth outlook and weigh on Asia's stock markets

In Asia, the trend remained mixed at the start of the week. In Tokyo, the 225-stock Nikkei index is trading around +0.6% higher, while in Hong Kong and Shanghai indices are trading moderately in negative territory. The focus remains on the economic impact of the strict restrictions imposed by China's zero-covid strategy. These are increasingly slowing down the second largest economy. For example, industrial production in April fell surprisingly sharply by -2.9% year-on-year. There was also a sharp decline in retail sales, which slumped by around -11% year-on-year in April. The impact of the pandemic lockdowns thus appears to be much broader and deeper than expected.

US consumer sentiment falls to lowest level in more than ten years

The mood of Americans has clouded in May as the latest survey data from the University of Michigan showed. The highly regarded consumer confidence barometer fell by 6.1 points to 59.1, its lowest level since 2011, with both the outlook and the assessment of the current economic situation deteriorating. Nevertheless, inflation expectations remained stable at a high level. The private households surveyed expect an inflation rate of +5.4% for the year.

Economic Indicators May 16

MEZ Country Indicator Last period
11:00 EZ Trade Balance (March) EUR -7.6bn
14:30 US NY Fed Empire State Manufacturing (May) +24.6


Earnings Calender May 17

Country Company Period
GE Daimler Truck Q1 
FR Engie Q1
NL Euronext Q1
UK Vodafone Annual
US Walmart Q1
US Home Depot Q1
US Moderna Science & Technology Tag


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