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LGT Navigator: Positive impetus from a “familiar problem”

May 24, 2022

An unexpected potential easing of the trade dispute between the United States and China provided a short-term recovery in New York at the start of the week. A de-escalation of the trade war would certainly be a positive and welcome signal for the global economy. Positive signals from the US banking sector as well as a renewed buying interest of stock investors and M&A speculation in the technology sector also ensured a good mood on Wall Street.

Positive impetus from a “familiar problem”

The Dow Jones Industrial closed on Monday just under +2% higher at 31'880.24 points, making up for most of the losses in the previous week. The S&P 500 gained +1.86% to 3'973.75 points and on the Nasdaq technology exchange, the indices posted a daily gain of about +1.7%. Reason for optimism was provided by the news that the US against the backdrop of high inflation, rising interest rates and a looming recession is seeking a de-escalation of the trade war with China. Accordingly, the US government wants to remove some punitive tariffs on imports from China introduced under President Donald Trump.

JPMorgan Chase was optimistic and holds out the prospect of strong interest income in view of rising interest rates. The stock rose by a good +6%. Subsequently, other financial stocks could also benefit. Thus, the shares of Citigroup or Goldman Sachs also recorded gains of around +6%, respectively, a good +3%. In the tech sector, takeover speculation around Broadcom attracted attention. According to Bloomberg, the US chip company is said to be interested in buying VMware, a software provider for cloud computing and virtualization of data centers.

If most stock markets had already trended friendly at the start of the week, most of the Asian indices fell broadly today. In Tokyo, the 225 comprehensive Nikkei index trades around -0.8% lower than on Monday and in Hong Kong, the Hang Seng loses around -1.6%. In Shanghai, the Composite Index trades about -1.2% lower than at the start of the week.

Tonight, Federal Reserve Governor Jerome Powell will take center stage. Meanwhile, in the bond market, the yield of ten-year US government bonds climbed again to 2.87%.

ECB President Lagarde continues to pave the way for first interest rate hike

According to recent statements by European Central Bank President Christine Lagarde, the European Central Bank (ECB) is heading for a first interest rate hike. The end of net securities purchases “very early in the third quarter” will allow for a first rate hike in July, Lagarde said. With inflation in the euro area recently rising to a record high of +7.4%, pressure has increased on the ECB to start turning rates around, following the lead of the US and British central banks. However, the pace and extent of monetary policy adjustments could not be determined in advance, the ECB chief commented.

The euro gained on Lagard's statements and climbed to 1.0670 against the US dollar.

German companies becoming more optimistic again, according to Ifo

According to the latest survey results of the Munich-based economic research institute Ifo, the mood among the approximately 9,000 companies surveyed improved once again in May. The highly regarded Ifo business climate barometer climbed from 91.9 points in April to 93.0 points. The consensus of analysts had predicted a deterioration to 91.4 points. According to Ifo President Clemens Fuest, there are currently no signs of a recession in the German economy. In the outlook for the next six months, however, the mood had hardly changed, and most companies remained skeptical.

US sets counterpoint in the Pacific region

On his visit to Tokyo, US President Joe Biden announced a new initiative for economic cooperation in the Indo-Pacific region. With the “Indo-Pacific Economic Framework” (IPEF), the United States, together with Japan, Australia, Brunei, India, Indonesia, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam, want to try to ensure sustainable growth, peace and prosperity and, above all, to create a counter pole to China's increasing influence in the region. However, no free trade agreement or reduction of tariffs is envisaged. US President Biden is thus also trying to correct the policy of his predecessor Donald Trump. Trump had withdrawn from the Trans-Pacific Partnership (TPP) free trade agreement during his term in office, and China is making efforts to join this agreement.

Economic Indicators May 24

MEZ Country Indicator Last period
08:45 FR Economic Survey (May) 108.0
09:15 FR PMI Composite (May) 57.6
09:30 GE PMI Composite (May) 54.3
10:00 EZ PMI Composite (May) 55.8
10:30 UK PMI Composite (May) 58.2
14:30 US Chicago Fed National Activity Index (April) 0.44
15:45 US PMI Composite (May) 56.0
16:00 US New Home Sales (April, m/m) -8.6%
18:20 US Fed Governor Powell speaks
20:00 EZ ECB President Lagarde speaks


Earnings Calender May 24

Country Company Period
GE Siemens Energy Capital Markets Day
US Best Buy Q1


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Source: LGT Bank (Switzerland) Ltd.

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