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LGT Navigator: The Federal Reserve in the finding phase

July 15, 2021

Federal Reserve Chairman Powell reiterated that the Fed has begun discussing an exit from ultra-loose monetary policy, but said it is too early to target specific steps. Meanwhile, the corporate reporting season continues to pick up steam. So far, Wall Street banks have been able to convince, providing a positive tone.

The Federal Reserve in the finding phase

Fed President Jerome Powell expressed confidence in a further economic recovery during his semi-annual report to the Congressional Finance Committee. Nevertheless, patience is still required and it is still premature to effectively reduce monetary policy support. However, the strong increase in inflationary pressure in the US – in June, the inflation rate reached its highest level in 13 years at +5.4% – is likely to put the Fed under increasing pressure to act. However, the Fed still assumes that this is a temporary phenomenon.

Powell's more positive economic assessment was confirmed by the Beige Book published yesterday evening. The economic report speaks of a moderate to robust pace of growth. Things are looking better above all in sectors that are benefiting from the easing of the corona restrictions. However, bottlenecks in materials and labor in industry had a negative impact. Against this background, inflationary pressure has increased, according to the Fed. In addition, many companies expect a further increase in production costs and selling prices in the coming months.

On the New York Stock Exchange, Powell's statements and further good quarterly results from major US banks created a fundamentally positive mood. The Dow Jones Industrial traded at times above 35,000 points and closed with a moderate gain of +0.13% at 34,933.23 points. The S&P 500 gained +0.12% to 4,374.30 points. The Nasdaq 100 ended Wednesday's trading at 14,900.44 points (+0.17%).

New Zealand's central bank announces end of its quantitative monetary policy

The Reserve Bank of New Zealand will end its bond purchases later this month. The RBNZ pointed out that downside risks to the domestic economy as a whole have receded. The announcement caused a surprise on the financial markets and it is now expected that the Reserve Bank of New Zealand (RBNZ) will decide to raise interest rates for the first time this year. Currently, the key interest rate is +0.25%.

Strong and steady rise in inflation rate in the UK

In the United Kingdom, the cost of living rose more sharply than expected in June. The annual rate of consumer price inflation reached +2.5%, the highest level since August 2018. In May, the inflation rate had been +2.1%, in April +1.5% and in March even only +0.7%. Economists had assumed an inflation rate of +2.2% for June. Compared with the previous month, consumer prices rose by +0.5% (consensus +0.2%).

Inflationary pressure in Spain also continues to increase

In Spain, consumer prices rose by +2.5% year-on-year in June (previous month +2.4%), reaching their highest level since 2017. Consumers had to pay more for food and housing in particular.

Brussels presents legislative proposals for achieving climate protection targets by 2030

EU Commission President Ursula von der Leyen yesterday presented legislative proposals to ensure that the EU's climate protection targets are met by 2030. The EU aims to reduce greenhouse gas emissions by at least 55% below the 1990 level by 2030, and to stop emitting any harmful gases into the atmosphere by 2050. Among other things, the EU wants to drive forward the production of emission-free cars. In order to have planning security, the EU Commission will set a time frame by which all cars must be emission-free, said von der Leyen.

Economic Indicators July 15

MEZ Country Indicator Last period
08:00 UK Unemployment Rate (May) 4.7%
10:00 IT Consumer Prices (June, y/y) +1.3%
14:30 US Philly Fed Manufacturing Index (June) +69.2
14:30 US Initial Jobless Claims (weekly) 373,000
15:15 US Industrial Production (June, m/m) +0.8%
15:30 US Fed President Powell Testamony US Congress


Earnings Calender July 15

Country Company Period
SZ Barry Callebaut Q3
SZ Rieter H1
SWE Skandinaviska Enskilda Banken Q2
SWE Investor Q2
US Morgan Stanley Q2
US US Bancorp Q2
US Alcoa Q2
US United Health Q2


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
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Source: LGT Bank (Switzerland) Ltd.

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