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LGT Navigator: Investors remain cautious

July 12, 2022

Investors take cover at the beginning of the new trading week, resulting in a loss-making start to the week for global stock markets. Concerns about energy security in Europe weaken the euro.

Market sentiment

Sentiment on international stock markets was clouded at the start of the week. In Europe, concerns about an energy crisis are fueling uncertainty, while the number of new corona infections in China is rising rapidly, increasing the risk of lockdown measures. This poses the threat of renewed supply bottlenecks. In addition, investors are holding back ahead of the publication of the latest US inflation data, which will be released on Wednesday. 

In New York, technology stocks were once again among the losers: the Nasdaq Composite lost -2.3% on Monday. The S&P 500 declined -1.2% and the Dow Jones fell -0.5%.

On Wall Street, Twitter shares remain in focus. The US short messaging service wants to pursue legal actions to force billionaire Elon Musk to acquire the company for USD 44 billion. This, after Musk announced on Friday that he doesn’t want to buy Twitter after all, because the company has allegedly provided insufficient information on the number of fake accounts. Twitter shares lost -11.3% on Monday.

Asian stock markets are following the weak guidance from the US on Tuesday. In Tokyo, the Nikkei trades -1.9% weaker. In Hong Kong, the Hang Seng Index loses -1.2% and the Shanghai Composite declines -1%.

Euro remains weak

At the start of the week, the euro fell below the twenty-year low it reached at the end of last week. On Monday, the currency fell to USD 1.0053 against the US dollar, after trading at USD 1.0072 on Friday, its lowest level since the end of 2002. The euro also continued to trade well below parity against the Swiss franc and cost less than CHF 0.99. The weakness of the euro is due in part to fears of an energy crisis in the currency area. On Monday, the Nord Stream 1 gas pipeline was shut down to carry out planned maintenance work. This is one of the most important pipelines for transporting natural gas from Russia to Europe. Now there are fears that Russia will not turn on the gas tap after the ten-day routine work is completed. 

German households expect prices to rise rapidly

In Germany, inflation expectations rose again in June. According to the Bundesbank, private households expect prices to rise by +7.5% over the next twelve months. This is the highest value since the start of data collection in 2019. In the previous month, inflation expectations were +7.0%. Private households also expect prices to rise significantly over the next five years. For monetary policy to be successful, it is central that inflation expectations move in-line with the central bank's target for price stability. If expectations become unanchored, there is a risk of a wage-price spiral fueling inflation. The European Central Bank (ECB) is targeting annual inflation of 2% in the medium-term. Most recently, however, inflation in the currency area was +8.6%, reaching a record high. The ECB is therefore likely to follow the example of other central banks and raise key interest rates at its next monetary policy meeting on July 21 in order to combat inflation.

Economic Indicators July 12

MEZ Country Indicator Last period
11:00 DE ZEW economic expectations (July) -28.0
13:00 OPEC Monthly report

 

Earnings Calender July 12

Country Company Period
AUT Telekom Austria Q2
US Pepsico Q2

 

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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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