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LGT Navigator: Interest rate worries and higher yields keep stock markets under pressure

September 28, 2022

Surprisingly good economic data from the US and hawkish statements from Federal Reserve officials again fueled speculation regarding further rapid interest rate hikes. The interest rate worries drove yields on the bond markets up further and depressed share prices on Wall Street. Stock market jitters remain palpable amid a mix of alternating economic optimism and pessimism, inflation and interest rate worries.

Interest rate worries and higher yields keep stock markets under pressure

The Dow Jones Industrial continued its losing streak in a nervous trading session on Tuesday, exiting -0.43% lower than the previous day at 29'134.99 points. This marked the sixth consecutive day of losses for the Dow. The S&P 500 fell by -0.21% to 3'647.29 points and was at times at the lowest level since November 2020. On the technology exchange Nasdaq, however, the indices kept their heads above water at the end and went about +0.15% higher from the day's trading. Among other things, statements by the President of the Federal Reserve of St. Louis, James Bullard, who argued for further interest rate increases to combat high inflation, had a negative impact. As a result, there is also growing concern in the financial markets that the aggressive tightening of financing conditions will plunge the economy into recession. In the bond market, the yield on the benchmark ten-year US government bonds held near the 4% mark – currently 3.98%.

Most indices in the Asia-Pacific region fell in midweek, in some cases significantly. The Japanese Nikkei 225 fell by around -2% and in Hong Kong, the Hang Seng index was around -2.3% lower. On the Chinese mainland, the Shanghai Composite declined by -0.75% and the Shenzhen Component by -1.5%. Meanwhile, the Chinese offshore and onshore yuan hit its weakest level since 2008, while MSCI's broadest index of Asia-Pacific equities outside Japan fell -1.9%.

US consumers slightly more confident again

Consumer sentiment in the United States unexpectedly improved significantly in September. The consumer confidence barometer of the Conference Board climbed by 4.4 points to 108.0 in September, the best reading since April of this year. Analysts had expected an average of 104.6 points. The key factors were the renewed drop in gasoline prices and a still solid labor market.

Propensity to invest among companies in the US appears intact

The latest data on orders for durable goods indicated that business investment in the US was solid in August. Orders for capital goods, excluding military and aircraft, increased by a much stronger-than-expected +1.3% month-on-month. Overall, orders increased +0.2%. Durable goods are industrially manufactured goods that are used for longer periods of time and are not intended for consumption.

ECB chief economist warns of wage-price spiral

Philip Lane, the European Central Bank's top economist, stressed in an interview that high wage settlements in response to increased inflation will drive up corporate costs significantly and lead to second-round effects. To curb inflation, Lane said, it is necessary to recognize that corporate profitability will decline for a while and that wages will also not quite keep pace with inflation for a while. The ECB currently expects inflation to moderate in 2023 and 2024, the chief economist reiterated.

World Bank lowers growth forecast for East Asia and Pacific region

The Washington-based World Bank projects significantly lower growth in the East Asia and Pacific region. Average GDP growth is forecast at +3.2% compared to the previously expected +5.0%. In 2021, this region achieved average economic growth of +7.2%. This is mainly due to a slowdown in growth in China (World Bank forecast for 2022 +2.8%).

Economic Indicators September 28

MEZ Country Indicator Last period
08:00 GE GfK Consumer Climate (October) -36.5
08:45 FR Consumer Confidence (September) 82.0
10:00 SZ ZEW Economic Indicator (September) -56.3
10:00 IT Business Climate (September)  104.3
10:00 IT Consumer Confidence (September) 98.3
15:00 SZ SNB Quarterly Report
16:00 US Pending Home Sales (August, m/m) -1.0%
16:15 US Fed Chairman Powell speaks


Earnings Calender September 28

Country Company Period
FR Totalenergies Investor Day
DK Carlsberg Capital Markets Day
UK Vodafone Investor Briefing
US Amazon New Products Event


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