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LGT Navigator: Japan’s economy facing challenging outlook

October 3, 2022

The global slowdown is also clouding the outlook for Japan's export-dependent economy, the latest edition of the Bank of Japan's so-called “Tankan” report showed. For the most part, stock markets are looking back on a negative third quarter, and sentiment remains sour given the prospect of further interest rate hikes, stubbornly high inflation and geopolitical risks. Meanwhile, tensions between the West and Russia escalated another notch after Russian President Putin sealed the annexation of the four territories occupied by Russian troops in Ukraine.

Japan’s economy facing challenging outlook

The Japanese central bank's quarterly survey of thousands of large and medium-sized companies in the industrial and service sectors highlighted that business sentiment deteriorated in the three months to September, while corporate inflation expectations hit a record high.

In Tokyo, the stock market initially started the final quarter with gains but could not sustain them, closing around +0.5% higher. The broadest MSCI index for Asia-Pacific shares outside Japan, however, fell by about -0.8%. The Hang Seng Index in Hong Kong fell -1.2% and reached the lowest level since October 2011. The markets in China remain closed for the “Golden Week”. In the oil market, Brent crude futures and West Texas Intermediate futures gained amid reports of a possible supply cut by OPEC+.

On Wall Street, the indices ended the third quarter with significant losses. The Dow Jones Industrial fell in the meantime to the lowest level since November 2020 and closed -1.71% lower at 28'725.51 points. On a weekly basis, the Dow thus recorded a decline of almost -3% and the balance for September matches the autumnal mood with almost -9%. Over the entire third quarter, that translates to a -6.7% decline, which also marks the Dow's third consecutive quarterly loss. The broad S&P 500 fell on Friday by -1.51% to 3'585.62 points and on the Nasdaq, the indices fell by about -1.7%. In particular, the slump in Nike shares, which fell by almost -13% before the weekend after the presentation of financial results and a gloomy outlook, also attracted attention.

Fed inflation indicator continues to rise

Consumer spending in the US rose by +0.4% in August from the previous month, more than expected (consensus +0.2%), and household income increased by +0.3%. At the same time, inflationary pressure increased once again. Thus, the core PCE price index (Personal Consumption Expenditure), which is favored by the Federal Reserve and based on consumer spending, climbed to +4.9% in August from +4.7% in July.

Euro inflation rate hits the ten percent mark

The cost of living in the eurozone countries rose by an average of +10% on an annual basis in September. This was once again the strongest increase since the introduction of the euro in 1999. In August, the inflation rate was still +9.1% and economists had expected an increase to +9.7% in September. The main driver remains energy prices, which rose by a good +40% year-on-year. Consumers also had to spend significantly more on food, which increased by just under +12%. The core inflation rate, i.e. excluding energy and food, climbed from +4.3% to +4.8%.

The rise in the official inflation rate in the euro area is also increasing the pressure on the European Central Bank (ECB) to rapidly raise interest rates further. The next interest rate decision is scheduled for October 27.

Outlook for the Swiss economy remains gloomy

The monthly economic barometer published by the Swiss Institute for Business Cycle Research (KOF) at the Swiss Federal Institute of Technology (ETH) in Zurich remained at 93.8 points in September, almost unchanged from the previous month's value of 93.5, but below the long-term average. According to the KOF, the outlook for the Swiss economy thus remains subdued. 

Economic Indicators October 3

MEZ Country Indicator Last period
00:00 GE Holiday - German Unity Day
08:30 SZ Consumer Prices (September, y/y) +3.5%
09:15 ES PMI Manufacturing (September) 49.9
09:30 SZ PMI Manufacturing (September) 56.4
09:45 IT PMI Manufacturing (September) 48.0
09:50 FR PMI Manufacturing (September) 47.8
09:55 GE PMI Manufacturing (September) 48.3
10:00 EZ PMI Manufacturing (September) 48.5
10:30 UK PMI Manufacturing (September) 48.5
12:00 EZ Eurogroup Meeting
15:45 US PMI Manufacturing (September) 51.8
16:00 US ISM PMI Manufacturing (September) 52.8


Earnings Calender October 4

Country Company Period
SZ Sika Capital Markets Day
US Hasbro Investor Day


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