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LGT Navigator: Sentiment on Wall Street remains tense – Asian stock markets with tailwinds

May 20, 2022

Fears of interest rates and recession, as well as concerns that central banks will not be able to get inflation under control despite countermeasures, continue to cause unrest on the capital markets. If interest rates rise too quickly and too sharply, this will jeopardize economic growth, which is already hampered by supply chain problems and geopolitical uncertainties. Against this backdrop, volatility is likely to remain high and stock market sentiment fragile. In Asia, an intervention by the Chinese central bank provided a tailwind for the stock markets, at least in the short term. 

Sentiment on Wall Street remains tense – Asian stock markets with tailwinds

The string of disappointing US economic data continued yesterday, leaving stock market sentiment battered. Faced with the prospect of sharply rising key interest rates, fears of a sharp economic slowdown in the US are increasing, clouding investors' appetite for risk. On Wall Street, the Dow Jones Industrial fell yesterday to the lowest level since March 2021 and closed -0.75% lower at 31,253.13 points. The S&P 500 fell -0.58% to 3,900.79 points and on the Nasdaq technology exchange, the indices went out of trading around -0.45% lower, not far from the low since November 2020 reached last week. The mood was also weighed down by negative corporate news. For example, network equipment maker Cisco lowered its annual revenue targets due to ongoing supply chain problems. Shares then plunged nearly -14% to trade at their lowest level since November 2020.

In Asia, most stock exchanges resisted the once again negative guidance from the US and are mostly quoted in positive territory at the end of the week. The gains are led by the Hong Kong stock exchange, where the Hang Seng could increase today by about +1.8%. In Shanghai, the Composite Index trades around +1% in the plus and in Tokyo, the Nikkei 225 gains around +1.2%. China, meanwhile, announced a cut in a key interest rate on long-term loans to mitigate the current slowdown in the economy. The five-year prime rate, a benchmark for real estate loans, was eased to 4.45% from 4.6%.

In the bond market, the yield on ten-year US government bonds fell at times to 2.78%, its lowest level since the end of April. This after the yield had reached just over a week ago with 3.2% still the highest value since the end of 2018. Currently, the yield on ten-year Treasuries is trading at around 2.85%.

Inflation is also rising in Japan, putting pressure on the Bank of Japan

In Japan, the core consumer price inflation rate, i.e. excluding volatile energy and food prices, rose to +2.1% in April, exceeding the Bank of Japan's fixed target of 2.0% for the first time since March 2015. However, this is not due to stronger domestic demand, but rather to rising import prices. Japan's central bank is thus likely to come under increased pressure to abandon its long-standing ultra-loose monetary policy.

Philly Fed also signals slowdown in US manufacturing

Like the New York Fed's Empire State earlier, the Philadelphia central bank's May business climate barometer also pointed to a marked deterioration in sentiment in the industrial sector. The so-called Philly Fed indicator fell more sharply than expected from 17.6 points to 2.6 points. On average, analysts had only forecast a decline to 15.0. Just above zero, the Philly Fed indicator is still pointing to moderate economic activity in the industrial region around Philadelphia.

Higher interest rates put pressure on US real estate market

In the US, higher house prices and increased mortgage interest rates are causing less activity in the real estate market. Existing home sales, for example, fell -2.4% in April from the previous month, the National Association of Realtors reported. The decline was already the third in a row and somewhat stronger than analysts had expected.

Economic Indicators May 20

MEZ Country Indicator Last period
08:00 UK Retail Sales (April, m/m) -1.4%
08:00 GE Producer Prices (April, y/y) +30.9%
13:45 GE Bundesbank President Nagel speaks
16:00 EZ Consumer Confidence (May) -22.0


Earnings Calender May 20

Country Company Period
SZ Richemont Annual
US Deere &  Co Q1


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