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LGT Navigator: Interest rate fears keep markets firmly in their grip

August 30, 2022

Investor sentiment has once again been clearly dominated by interest rate worries, at the latest since Fed Chairman Powell's assessment of the current situation at the Jackson Hole meeting. Market expectations, which were still very much alive until last Friday and according to which the Fed could discontinue its tightening course next year and start cutting interest rates, were significantly dampened by Powell's speech. Now the pressure on the ECB to send a clear signal soon with another interest rate step is also increasing.

Interest rate fears keep markets firmly in their grip

On the New York Stock Exchange, the indices were able to stabilize again at the beginning of the week after the recent slump at the end of last week. Nevertheless, the mood on the stock market floor remains characterized by the prospect of a further restrictive monetary policy, respectively further rising interest rates in the US and in Europe. The Dow Jones Industrial went with a new, but relatively moderate daily loss of -0.57% at 32,098.99 points from trading. The S&P 500 fell back on Monday to 4,030.61 points (-0.67%) and on the Nasdaq, the indices fell by almost one percent. In the bond market, the yield on ten-year US Treasury bonds fell to 3.07% from about 3.11%.

Stocks in the Asia-Pacific region once again trended inconsistently on Tuesday. In Tokyo, the Nikkei 225 trades around +1.1% higher before the close, while in Hong Kong, the Hang Seng Index is down around -1% – the Hang Seng Tech Index fell at times by more than -2%. The Shanghai Composite trades around +0.7% higher and the broadest MSCI index for Asia-Pacific stocks outside Japan loses around -0.5% today.

Calls for strong ECB monetary policy signal are getting louder

ECB Executive Board member Isabel Schnabel, like her colleagues Robert Holzmann central bank chief of Austria, and Dutch central bank chairman Klaas Knot before her, called for the European Central Bank (ECB) to take decisive and swift action against inflation. Currently, inflation in the euro zone is +8.9% and the pressure on the ECB with a strong interest rate step of possibly 75 basis points - analogous to the Federal Reserve – is likely to increase until the interest rate decision on September 8.

As a result, the euro gained somewhat against the US dollar and is now trading just below parity at 0.9995.

Ongoing geopolitical tensions around Taiwan

As expected, the passage of two US warships through the Taiwan Strait caused resentment in Beijing. China called the act a provocation and accused Washington of “deliberately sabotaging regional peace and stability.” The US must respect the sovereignty and territorial integrity of other countries, a Chinese Foreign Ministry spokesman demanded.

Economic Indicators August 30

MEZ Country Indicator Last period
08:00 GE Import Prices (July, y/y) +29.9%
09:00 SZ KOF Economic Indicator (August) +90.1
09:00 ESP Consumer Prices (August) +10.7%
11:00 EZ Economic Sentiment (August) +99.0
11:00 EZ Consumer Confidence (August) -24.9
14:00 GE Consumer Prices (August, y/y) +8.5%
15:00 US S&P/CaseShiller House Prices 20 biggest cities (June, y/y) +20.5%
16:00 US Consumer Confidence (August) +95.7

 

Earnings Calender August 30

Country Company Period
SZ Givaudan H1
GE DZ Bank H1
US Best Buy Q2
US Hewlett-Packard Q3

 

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Imprint
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

 

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