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LGT Navigator: Inflationary pressure in Europe increases noticeably, but Wall Street remains unimpressed

September 16, 2021

The restrained trend on the global stock markets continued in Europe and Asia at midweek, while positive economic data on Wall Street provided optimism. In Europe, however, the latest inflation data from the eurozone and the United Kingdom as well as a recent Ifo study on the inflation trend in Germany were the focus of attention and increased investor caution in view of the uncertainty regarding the inflation outlook. 

Inflationary pressure in Europe increases noticeably, but Wall Street remains unimpressed

On the New York Stock Exchange, investors were more optimistic than on the European and Asian stock markets. After the Dow Jones Industrial had still fallen on Tuesday to the lowest level in almost two months, the index gained +0.68% to 34'814.39 points by the closing bell. The rally was even stronger for the S&P 500, which rose +0.84% to 4'480.70 points. On the technology exchange Nasdaq it went up by about +0.8%. In particular, the New York Fed survey on sentiment in the local industrial sector was positively received. The Empire State index based on it increased more than expected by 16 to plus 34.3 points. Analysts had expected a decline to plus 17.9 points.

The Swiss running shoe manufacturer On Holding enjoyed a great start on the New York Stock Exchange. The shares rose sharply from the issue price of USD 24 and closed at USD 35, reaching a stock market value of more than USD 10 billion, significantly higher than expected.

In Asia, however, familiar risk factors such as supply chain bottlenecks and the spread of the coronavirus delta variant dominated sentiment. Thus, most of the stock indices in the Far East gave back their initial gains this morning and tended to close trading mostly in the red.

Ifo Institute expects strongest inflation in Germany in almost 30 years

In a recent study, the Munich-based Ifo economic research institute predicts that consumer prices in Germany will rise more sharply next year than at any time since 1993. On average, inflation is expected to range between 2% and 2.5% in 2022. In the corona year 2020, the inflation rate was just +0.5% and in the last 30 years the average annual price increase has always been below 3%. The background to this is the base effects of the pandemic and the temporary reduction in VAT, as well as the rising prices for raw materials and intermediate products due to the ongoing material bottlenecks.

Inflationary pressure also increased in France and Italy

In the second-largest economy in the eurozone, consumer price inflation increased significantly in August, reaching +2.4%, the highest level since October 2018. The same picture was seen in Italy, where inflation picked up sharply last month. Year-on-year, the cost of living increased by +2.5%. In July, inflation had still only amounted to +1.0%.

Inflation rate in the UK reaches highest level in almost ten years

In the United Kingdom, too, inflation rose sharply again in August. Year-on-year, consumer prices rose by +3.2% - the highest level since March 2012. In the previous month, the inflation rate had still been +2.0%. The increase of 120 basis points was also the largest since the start of the data series in 1997. On a month-on-month basis, consumer prices also rose strongly by +0.7%, also significantly by 0.7%. According to the ONS, price increases were partly due to a statistical base effect, driven by base effects and higher prices in the leisure and culture sector, as well as for food and beverages.

 

Economic Indicators September 16

MEZ Country Indicator Last period
09:00 SZ SECO Economic Forecasts
11:00 EZ Trade Balance (July) EUR -18.1bn
14:00 EZ ECB President Lagarde Speech
14:30 US Retail Sales (August, m/m) -1.1%
14:30 US Initial Jobless Claims (weekly) 310,000
14:30 US Philly Fed Manufacturing Index (September) +33.7

 

Earnings Calender September 21

Country Company Period
UK Kingfisher H1
US FedEx Q1
US Adobe Q3

 

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Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
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