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LGT Navigator: Leading indicators reinforce fears of recession

August 2, 2022

The latest purchasing managers' survey results in the US, the eurozone or the UK reinforce the impression that the economic trend has slowed further, and the risk of a recession has increased. On Wall Street, the indices posted moderate losses at the beginning of the week, while the price of gold climbed to its highest level in about a month.

Leading indicators reinforce fears of recession

On the New York Stock Exchange, stock indexes closed slightly lower in quiet trading on Monday, with no clearly apparent trend. The Dow Jones Industrial declined -0.14% at the close, ending the trading session at 32'798.40 points. The market-wide S&P 500 fell -0.28% to 4'118.63 points, while on the Nasdaq technology exchange, the indices were virtually unchanged from the day's trading. In the balance for July, the Nasdaq indices showed a gain of almost +13% and the Dow gained about +7% in the past month.

In Asia, most stock indices showed losses on Tuesday. In Tokyo, the Nikkei 225 falls by about -1.5%, while the Hong Kong and Shanghai stock exchanges remained closed for the holiday. Australia's Reserve Bank increased its key rate for the fourth consecutive month to curb rising inflation. However, the focus in Asia is on the planned visit to Taiwan by Nancy Pelosi, Speaker of the US House of Representatives, which is regarded as very delicate for US-China relations.

On the bond market, the yield on ten-year US government bonds fell further to 2.55%. At the same time, the gold price at the beginning of the week continued its rise of the previous trading days and climbed to almost USD 1'775 – the highest level in about a month.

ISM Purchasing Managers Index signals further weakening of the US economy

Sentiment in US industry deteriorated further in July, with the representative purchasing managers' index of the industry association ISM (Institute for Supply Management) falling to its lowest level in more than two years. The indicator slipped 0.2 points to 52.8 in July. On average, however, analysts had expected an even steeper decline to 52.0 points. Weaknesses were seen above all in the order intake of the companies surveyed.

Industrial sentiment also clouds over further in the eurozone and the UK

Industrial companies in the eurozone were also more pessimistic in July. The Purchasing Managers' Index for the eurozone countries, for example, fell from 52.1 to 49.8 points and now stands just below the growth threshold of 50 points, signaling a contraction in the economic sector for the first time in just over two years. The downturn in the European industrial sector is becoming steeper and the risk of recession has clearly increased, commented Chris Williamson, chief economist at S&P Global.

The British industrial sector also saw a significant deterioration in sentiment in July. The corresponding Purchasing Managers' Index fell by 0.7 points to 52.1, its lowest level in just over two years. According to S&P Global, the UK's industry had shifted into reverse gear due to ongoing supply problems, rising prices and uncertainties surrounding the Ukraine war.

Eurozone inflation climbs from record high to record high

Consumer price inflation in the euro countries reached another record high in July. Year-on-year, the cost of living rose by +8.9%, compared with +8.6% the month before. On average, economists had expected +8.7%. Inflation continued to be driven primarily by energy prices, which rose by almost +40% year-on-year. Food and beverages cost just under +10% more in July than a year earlier. The core inflation rate climbed from +3.7% in June to +4.0%. Inflationary pressure was strongest in three Baltic states, Estonia, Latvia, and Lithuania, at more than +20%.

Euro economy performed better than expected in the second quarter

The gross domestic product of the currency zone rose by +0.7% in the second quarter compared with the previous quarter, clearly exceeding expectations of an average +0.2%. Surprisingly strong growth was recorded in Italy (+1.0%) or Spain (+1.1%). Meanwhile, Germany disappointed with zero growth in Q2.

German economy stagnates

In Germany, inflation, supply bottlenecks and the negative impact of the Ukraine war, in particular uncertainties regarding energy supplies, weighed on economic development in the second quarter. Gross domestic product stagnated compared with the previous quarter, after Europe's largest economy had expanded by +0.8% at the beginning of the year. 

According to the EU Commission, Germany is likely to achieve only moderate growth of +1.4% this year. The International Monetary Fund (IMF) is forecasting +1.2%. 

Italy and Spain surprise on the upside

Italy and Spain, the third and fourth largest eurozone countries by economic strength, reported stronger than expected growth in Q2. Italian GDP increased by +1.0% quarter-on-quarter (consensus +0.3%, Q1 +0.1%) and Spain's economic output rose by +1.1%.

Gloomy outlook for the Swiss economy

The economic barometer of the Swiss Institute for Business Cycle Research (KOF) at the ETH Zurich declined significantly in July. The indicator fell by 5.1 points to 90.1, thus remaining below the long-term average for the third month in succession. In addition, the previous month's value was revised sharply downward from 96.9 to 95.2 points. Looking ahead to the fall, the economic trend is expected to be “sluggish”.


Economic Indicators August 2

MEZ Country Indicator Last period
09:00 SZ SECO Consumer Climate Indicator Q3 -18
09:00 SZ PMI (July) 59.1


Earnings Calender August 2

Country Company Period
GE Fresenius H1
AUT Raiffeisen International Q2
FR Bouygues H1
IT Generali H1
IT Ferrari Q2
US Starbucks Q2
US Airbnb Q2
US Marriott Q2
US Uber Technologies Q2
US Caterpillar Q2
US PaPal Q2


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