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LGT Navigator: Previous week ends on a positive note, but inflation worries are likely to continue

May 17, 2021

The Chinese economy is still on the road to recovery, as the latest macro data show. Stock exchanges in the US and in Europe closed with gains on Friday, partially recovering the losses from the first half of the week. The still acute fears of inflation and the associated expectation of rising interest rates receded somewhat, and weak economic indicators from the US also had no negative effect. On the other hand, the easing of the corona measures in the US and in some European countries had a positive effect on stock market sentiment.

Market Sentiment

The Asian stock exchanges start the new week mixed. In Tokyo, the Nikkei loses more than -1%. In contrast, the Shanghai Composite gains about +1% and the Hang Seng in Hong Kong advances +0.4%. In the spotlight were various economic indicators from China. Thus, Chinese industrial output rose +9.8% year-on-year in April, which was in-line with expectations. Retail sales increased by +17.7% in the same period, but analysts had forecast an increase of +24.9%.

 In the US, stock markets closed firmer for the second day in a row on Friday. The S&P 500 gained +1.5% and the Dow Jones climbed +1.1%. The Nasdaq Composite recorded the biggest gain of +2.3%, benefiting from the recovery of technology stocks. However, Thursday's and Friday's rally failed to offset the losses from the first half of the week, resulting in weekly losses.

Inflation concerns weigh on US consumer sentiment

US consumers' confidence in the future development of the economy weakened in May due to increasing concerns about inflation. According to the latest survey results from the University of Michigan, the consumer confidence barometer fell surprisingly sharply from 88.3 in April to 82.8 points in the current month. Analysts had on average expected an improvement to 90.1 points. In the survey, both the expectations of the private households surveyed and the assessment of the current situation were clearly more negative than a month ago. Consumers' inflation expectations on a twelve-month horizon rose from 3.4% to 4.6% compared with the previous month, thus reaching the highest level in ten years.

US retail sales disappoint in April

US retail sales stagnated in April compared with the previous month, falling well short of the +1% increase forecast by economists. However, retail sales in March were even stronger than initially reported. Given the catch-up effects after the end of many lockdowns and direct government support (corona checks), retail sales increased +10.7% in the prior month, instead of the +9.8% previously calculated, according to revised data.

Strongest rise in US import prices in nearly a decade

US import prices rose +10.6% on an annual basis in April, showing the strongest increase since October 2011. Compared to the previous month, import prices also increased by +0.7%, which was slightly more than expected. Import prices are partially incorporated into consumer prices and represent another piece of the puzzle of current inflation concerns.

US industrial production hampered by supply chain bottlenecks

In the US, industrial production rose by +0.7% in April compared with the previous month. However, this represented a slowdown in the pace of industrial production growth compared with March, when output had increased by a revised +2.4% (first calculation +1.4%). Although the industrial sector has recovered significantly in view of strong demand following the easing of many corona measures and the revival of the economy, bottlenecks in the supply chains are now increasingly weighing on production.

Economic Indicators May 17

MEZ Land Indikator Letzte Periode
10:00 IT Consumer Prices (April, y/y) +0.6%
14:30 US NY Fed Empire State Manufacturing Index (May) +26.3

Earnings Calender May 18

Land Unternehmen Periode
IT Generali Q1
FR Engie Q1
UK Vodafone Q1
US Walmart Q1
US Home Depot Q1

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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