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LGT Navigator: Stock markets defy recession fears – earning reports provide tailwinds

July 29, 2022

Financial markets seem to have digested the Fed's latest interest rate move well, and on Wall Street, several weighty corporate results, for example Apple or Amazon, provided a tailwind. Stock markets also received support from the bond markets, where capital market interest rates declined following the weak US economic data. The yield on ten-year US government bonds fell in the meantime to its lowest level in more than three months.

Stock markets defy recession fears – earning reports provide tailwinds

Negative economic news dragged the Dow Jones Industrial down at the beginning of the trading session, however, the mood turned during the day and the Dow closed +1.03% higher at 32'529.63 points, the highest level in seven weeks. The S&P 500 gained +1.21% to 4'072.43 points and on the Nasdaq technology exchange, the indices, after the strong gains the previous day, also posted a gain of almost one percent.

The focus continued to be on the quarterly results of weighty blue chips. For example, the world's largest online retailer Amazon was able to significantly increase its sales in Q2 despite inflation and recession concerns and exceed expectations. The outlook for stronger than previously anticipated sales growth in the current quarter was also viewed positively. The share temporarily rose by more than +12% after trading hours. Apple posted record revenues and beat analysts' profit and sales estimates. Facebook's Meta, on the other hand, suffered the first revenue decline since its IPO in 2012 and remained cautious in its outlook. The share fell by around -5%. Pharmaceutical giant Pfizer fared better, raising profit targets for the full year after strong business in the second quarter. Competitor Merck & Co was also somewhat more confident about its sales performance in the current year. However, both pharmaceutical stocks suffered from profit-taking yesterday. Good results were also delivered, among others, from Mastercard, Ford or the French Italian-American car company Stellantis.

In Asia, the stock indices tend to close the week mostly in negative territory. In Tokyo, the 225-strong Nikkei index loses about -0.2%, while in Hong Kong, the Hang Seng is down about -2%.

US economy already in recession, at least by definition

According to an initial estimate by the Commerce Department in Washington, the US economy shrank in the second quarter at an annualized rate of -0.9% from the previous quarter. With the second consecutive decline in economic output – in Q1, US GDP had fallen by an annualized -1.6% – the world's largest economy is by definition in recession.

Just a day before, Federal Reserve Chairman Jerome Powell expressed his conviction that the US economy is still not in recession, as many sectors of the economy – above all the labor market – continue to show robust development.

US Treasury Secretary Janet Yellen also sought to dampen recession fears. There was no significant increase in corporate insolvencies and the labor market also remained exceptionally solid, the former Federal Reserve chairwoman stressed.

Sentiment in the eurozone remains gloomy

The Economic Sentiment Indicator (ESI) published monthly by the EU Commission in Brussels signaled a further deterioration in general economic sentiment in the eurozone. The indicator fell by 4.5 points in July compared with the previous month to 99.0 points, more than expected, and is thus below the long-term average and at its lowest level since February 2021. Economists had expected a smaller decline to 102.0 points. The biggest negative factors are high energy prices and ongoing supply chain problems.

Ifo sees inflation trend peaking in Germany

Although consumer prices are likely to continue rising, the pace should slow, and inflation is expected to have peaked. During the second half of the year, inflationary pressure is expected to gradually weaken, according to Ifo. The Munich-based economic research institute's assessment is based on a business survey focusing on companies' price expectations. However, there is still no end in sight to the upward price trend, particularly in the food retail sector.

As the Federal Statistical Office reported yesterday, consumer prices in Germany still rose by +7.5% in July, which means that a certain easing is already visible. In May, annual inflation was still +7.9%.


Economic Indicators July 29

MEZ Country Indicator Last period
07:30 FR GDP Q2 (q/q) -0.2%
08:45 FR Consumer Prices (July, y/y) +6.5%
09:00 SZ KOF Economic Indicator (July) 96.9
09:00 ES Consumer Prices (July, y/y) +10.2%
09:00 ES GDP Q2 (q/q) +0.2%
09:00 AUT GDP Q2 (q/q) +1.5%
09:00 AUT Consumer Prices (July, y/y) +8.7%
09:55 GE Unemployment Rate (July) 6.2%
10:00 GE GDP Q2 (q/q) +0.2%
10:00 IT GDP Q2 (q/q) +0.1%
11:00 EZ Consumer Prices (July, m/m) +0.8%
11:00 EZ Consumer Prices (July, y/y) +8.6%
11:00 EZ Core Consumer Prices (July, y/y) +4.6%
14:00 GE Consumer Prices (July, y/y) +8.2%
14:30 US PCE Core Rate (June, y/y) +4.7%
14:30 US Consumer Spending (June, m/m) -0.4%
14:30 US Personal Income (June, m/m) +0.5%
15:45 US Chicago PMI (July) 56.0
16:00 US Consumer Sentiment (Juliy) 51.1


Earnings Calender July 29

Country Company Period
JP Sony Q1
SZ Swiss Re H1
SZ Sulzer H1
SZ Glencore H1
FR Renault H1
FR Vinci H1
FR Air France-KLM Q2
IT Eni H1
IT Intesa Sanpaolo  H1
NL Signify Q2
GB AstraZeneca H1
US ExxonMobil Q2
US Chevron Q2
US Procter & Gamble Q4
US Colgate-Palmolive Q2


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