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LGT Navigator: The pressure is constantly increasing

November 11, 2021

Inflationary pressures continue to mount at a frightening pace, increasingly raising fears that the phase of rising prices could last longer than expected and that this could also put central banks behind the curve. As the latest data show, the inflation rate in the US recently reached its highest level in 31 years – a development that is not limited to the US alone. The pressure on central banks is likely to increase and to put pressure on stock markets.

The pressure is constantly increasing

The further accelerating inflationary pressure slowed down stock markets in the middle of the week. Particularly on US stock markets, increased profit-taking and greater risk aversion among investors caused prices to fall after the recent rally. The Dow Jones Industrial closed -0.66% lower at 36'079.94 points and the S&P 500 fell -0.82% to 4'646.71 points. Even stronger were the losses on the technology exchange Nasdaq where the indices fell by almost -1.5%. Tech stocks are more vulnerable to rising inflation and a consequently tighter monetary policy. Today is commemorated in the US with a holiday to the veterans. However, stock markets remain open, while bond markets are not trading. 

In Asia, the news that the highly indebted Chinese real estate group Evergrande could settle another interest payment on US dollar bonds provided a better investor sentiment. The Nikkei 225 was +0.6% firmer at 29'277.86 points and the Hang Seng in Hong Kong is up +0.7%. The Shanghai stock exchange closes a good +1% higher.

Inflation in the US rise to highest level in 31 years

At +6.2%, the inflation rate in the United States in October is as high as last in November 1990 - a 31-year high! The speed of the increase is impressive, as the US inflation rate was +5.4% in the previous month. Compared to September, consumer prices also rose strongly by +0.9%. The core rate, i.e. excluding volatile energy and food prices, also increased to +4.6% in October - also the highest level since August 1991 - compared with +4.0% in September. On the one hand, the increasing inflationary pressure is certainly due to base effects from the corona crisis, but the long-lasting ultra-loose monetary policy and trillion-dollar stimulus programs are also felt. So far, many central banks, above all the Fed and the ECB, continue to assume that this is “only” a temporary phenomenon, but skepticism is likely to grow and, inflation expectations will continue to rise.

Inflation rate in Germany climbs to highest level in 28 years

In Germany, rising energy prices and the effect of the temporary reduction in VAT, as well as the CO2 levy due since the beginning of the year, continue to push inflation upwards. In October, the annual rate of consumer price inflation reached +4.5%, the highest level since 1993. On a monthly comparison, the cost of living increased by an average of +0.5%.

German economic experts revise growth forecast

According to the German Council of Economic Experts, the German economy will grow by +2.7% in the current year. This is significantly lower than the +3.1% forecast in the spring forecast in March. Although the recovery continued in the summer, it is being dampened by a variety of supply-side bottlenecks, the economic experts explained. Next year, however, Europe's largest economy is expected to expand more strongly again by +4.6%. The pre-crisis level from the final quarter of 2019 will probably be reached again in Q1 2022. However, the uncertainty remains high, the report emphasizes.

Looking at inflation developments, the economists expect inflation to reach +3.1% this year before falling back to an average of +2.6% in 2022. However, if the bottlenecks as well as higher wage settlements and rising energy prices persist for longer, this would pose a considerable risk to the forecast and could lead to persistently higher inflation rates.

Economic Indicators November 11

MEZ Country Indicator Last period
00:00 US Veterans Day 
08:00 UK GDP Q3 (q/q) +5.5%
08:00 UK Industrial Production (September, y/y) +3.7%

 

Earnings Calender November 11

Country Company Period
SZ Zurich Insurance 9M Sales
GE Merck KGaA Q3 
GE Siemens Year
GE RWE Q3
LUX ArcelorMittal Q3
NL Aegon Q3
IT Generali Q3
IT Pirelli Q3
UK Burberry Q3
UK Aviva Q3

 

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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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