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LGT Navigator: Market sentiment remains tense ahead of inflation data

July 13, 2022

Ahead of the publication of US inflation data today, investors on Wall Street were cautious and stock markets extended their losses on Tuesday. Uncertainty also dominates market sentiment in Europe. The euro reached parity with the US dollar on Tuesday for the first time since 2002. 


On Wall Street, losses widened on Tuesday. The S&P 500 shed -0.9% by the close of trading and the Dow Jones lost -0.6%. The Nasdaq Composite dropped nearly -1.0%. Investors are eagerly awaiting US inflation data for June, which will be published in the afternoon. If they turn out unexpectedly high, the Federal Reserve is likely to raise key interest rates again significantly. 

Asian stock exchanges, on the other hand, are trending higher on Wednesday. The Nikkei gains in Tokyo +0.4%. The Hang Seng Index advances in Hong Kong +0.6% and the Shanghai Composite is up +0.4%.

Euro remains under pressure

Meanwhile, the downward slide of the euro continues. For the first time in around twenty years, the European single currency cost exactly one US dollar on Monday, thus reaching parity. However, this is not the lowest level in the history of the euro: it was even cheaper against the US currency in October 2000, when the euro cost USD 0.82685. Since the beginning of 2022, the euro has thus depreciated by 13 US cents against the US dollar. There are many reasons for the weakness of the euro. Thus, the effects of the war between Russia and Ukraine are weighing particularly heavily on Europe. The main problem is the high dependence on Russian energy, and a supply stoppage could push the European economy into recession. The hesitant approach of the European Central Bank (ECB) is also weighing on the euro. Despite high inflation in the currency area, the ECB has not yet raised key interest rates. It has indeed signaled that it will tighten monetary policy at the upcoming monetary policy meeting on July 21. However, financial markets expect a relatively modest rate hike of +25 basis points. This means that the ECB is clearly lagging behind other central banks. The Federal Reserve has already raised key interest rates several times this year and most recently decided on an interest rate step of 75 basis points. The Swiss National Bank (SNB) also caused a surprise when it raised interest rates by 50 basis points in June. 

ZEW economic expectations slump

The economic expectations of German financial professionals have clouded over significantly in July. The ZEW Index, which is calculated by the Center for European Economic Research (ZEW), fell by -25.8 points month-on-month to -53.8 points. Analysts had expected a sharp drop, but on average had only anticipated a decline to -40.5 points. The experts also assessed the current economic situation as worse. The corresponding index fell by -18.2 points to -45.8. 

IEA warns of difficult winter in Europe

The International Energy Agency (IEA) warns European countries of a serious challenge in oil and gas supply in the coming months. This winter will be very difficult in Europe, IEA Director Fatih Birol said Tuesday at an energy forum in Sydney. That could have serious implications for the global economy, he added. According to Birol, the world has never experienced such a profound energy crisis. Moreover, he fears that the worst may be yet to come. Concerns about energy supplies have recently been exacerbated by Russia's closure of the key Nord Stream 1 gas pipeline for routine maintenance. The big question now is whether the pipeline will reopen once the work is completed. 

Economic Indicators July 13

MEZ Country Indicator Last period
04:00 China Tradig balance (June)
08:00 GE Consumer prices (June, y/y) +8.2%
08:00 UK Gross domestic product (Q1, y/y) +8.7%
11:00 EZ Industrial production (May, m/m) +0.4%
14:30 US Consumer prices (June, y/y) +8.6%
20:00 US Beige Book


Earnings Calender July 13

Country Company Period
US Delta Air Lines Q2


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