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LGT Navigator: Inflation and interest rate outlook continue to weigh on stock market sentiment

July 16, 2021

Concerns about the inflation outlook have once again taken hold on the capital markets. After the inflation rate in the US reached its highest level in 13 years in June and Federal Reserve Chairman Powell reiterated that a turnaround in monetary policy, while not imminent, has become more significant. Looking ahead to the corporate reporting season, US banks have been largely convincing so far, keeping Wall Street indices near their recent record highs. Next week, European blue chips will also join the earnings season.

Inflation and interest rate outlook continue to weigh on stock market sentiment

Stock investors were more cautious in view of renewed inflation fears, doubts about the further economic recovery and concerns about the further course of the pandemic. Against this backdrop, the yield on ten-year US Treasuries fell back to 1.3%, approaching the five-month low of 1.25% recorded last week. Meanwhile, the indices on the New York Stock Exchange were unable to add to the recent records yesterday. After a weak start, the Dow Jones Industrial closed minimally higher at 34,987.02 points (+0.15%) and the S&P 500 lost -0.33% to 4,360.03 points. On the Nasdaq, the pressure was even slightly stronger. The Nasdaq 100 selection index fell -0.71% and ended the trading session at 14,794.69 points. The technology sector was weighed down by the quarterly report of US-listed chipmaker Taiwan Semiconductor Manufacturing (TSMC), which warned of current supply problems in its outlook. On the other hand, the quarterly results of Wall Street banks JPMorgan, Citigroup, and Goldman Sachs and yesterday also Morgan Stanley showed stronger than expected results, providing some support to the generell sentiment. In Asia, most stock indices followed the negative lead and trended weaker on Friday.

US manufacturing indicators provide mixed picture

In the economic region around New York, industrial growth strengthened surprisingly significantly in July. The so-called Empire State index of the New York Fed climbed from plus 17.4 to plus 43.0 points and thus reached a record high. Analysts had expected an unchanged value. A value above zero points signals an expansion, a level below signals a contraction. In contrast, business confidence in the Philadelphia region deteriorated more than expected in July. The Philly Fed index fell from 30.7 to 21.9 points, while economists had expected only a slight decline to 28.0 points.

Weekly US labor market data fall to lowest level since March 2020

Initial jobless claims unexpectedly fell sharply by 26,000 to 360,000 in the week ended July 10, dropping to the lowest level since mid-March 2020, leaving 3.24 million Americans collecting unemployment benefits in the week ended July 3, down 126,000 from the previous week.

China's economic pace loses some momentum

Chinese economic growth slowed somewhat in the second quarter after a strong start to the year. The world's second largest GDP expanded by +7.9% year-on-year in the April to June period. The latest growth figures were in line with expectations but show a slowdown in the recovery trend. In the first quarter, China's economy grew by a record +18.3% y-o-y thanks to the corona base effect. According to its official growth target, the Chinese government expects the economy to grow by “more than 6%” in the current year.

Economic Indicators July 16

MEZ Country Indicator Last period
11:00 EZ Consumer Prices (June, m/m) +.03%
11:00 EZ Consumer Prices (June, y/y) +1.9%
11:00 EZ Core Consumer Prices (June, y/y) +0.9%
14:30 US Retail Sales (June, m/m) -1.3%
16:00 US Consumer Sentiment University Michigan 83.5


Earnings Calender July 16

Country Company Period
SZ Richemont Q1
SZ Ems Chemie H1
SWE Ericsson Q2
UK Burberry Q1
UK Rio Tinto Q2
US State Street Q2


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