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LGT Navigator: Unsettling perspectives on economic dynamics and energy stability

October 19, 2021

Economic fears and concerns about energy supplies are causing uncertainty on the capital markets. Following disappointing economic data from China at the beginning of the week, new figures on industrial production in the US also pointed to a slowdown. At the same time, worries about energy stability are increasing with political power games between the EU and Russia on gas supplies. However, a stronger-than-expected slowdown in the global economy could prompt the major central banks to extend their expansionary course, which would support the stock markets and technology stocks.

Unsettling perspectives on economic dynamics and energy stability
Nord Stream 2

Faced with a gloomier economic outlook, the Dow Jones Industrial didn't move yesterday and closed -0.1% lower at 35'258.61 points. The broad S&P 500 fared better, gaining +0.34% to 4'486.46 points. However, at the beginning of the week, technology stocks were in demand. As a result, the indices on the Nasdaq recorded gains of about one percent. In the current reporting season, so far 41 corporations included in the S&P 500 have presented their quarterly results. Of these, 80% have exceeded earnings per share expectations, according to data service provider FactSet.

In Asia, most equity indices trended slightly higher today, driven by a recovery in Chinese stock markets and positive guidance from tech stocks in the US. MSCI's broadest index of Asia-Pacific shares outside Japan was up nearly one percent, gaining about 5% from a 12-month low on October 5. In Tokyo, the 225-stock Nikkei index is trading about half a percent higher.

Russia does not expand gas supply

Gas prices in Europe and the UK have risen sharply again. At an auction on Monday, traders had hoped Gazprom would expand pipeline capacity after the Russian government gave corresponding signals. However, these hopes were dashed and the gas price for continental Europe increased by +17.7% to EUR 104.00 per megawatt hour (reference contract for delivery in November). The price for the corresponding British reference contract climbed more than +15% to GBP 2.71 per therm. Continental Europe purchases more than a third of its gas supplies from Gazprom. However, following last year's long winter, inventory in Russia and the EU have shrunk. In addition, there are accusations that Russia is politically exploiting Europe's dependence to force the approval of the new “Nord Stream 2” pipeline.

US production shrinks

American industrial companies surprisingly cut production in September. Compared to the previous month, the manufacturing sector has produced -1.3% less, as the Fed announced on Monday in Washington. Analysts had expected an increase of +0.1%. Supply bottlenecks are once again responsible for the decline and slowed the production of car engines.

ECB allays inflation fears

The European Central Bank (ECB) reiterated on Monday that it considers the sharp rise in inflation to be temporary. There are “certainly price pressures,” Italian Council member Ignazio Visco told Bloomberg TV. However, he said that there are currently no relevant second-round effects, such as a spillover from higher wages to price developments. Visco argued that the central bank should continue to act flexibly in its monetary policy. Last week, French Council member Francois Villeroy de Galhau had already come out in favor of maintaining parts of the PEPP pandemic emergency purchase program in the future. The statements of the ECB indicate that no quick end to the ultra-expansive monetary policy is to be expected. By contrast, the central banks in the US and UK have signaled that they will initiate a change in monetary policy before the end of 2021.

 

Economic Indicators October 19

MEZ Country Indicator Last period
14:30 US Building Permits (September, m/m) +5.6%
14:30 US Housing Starts (September, m/m) +3.9%

 

Earnings Calender October 19

Country Company Period
GE Deutsche Boerse Q3
FR Kering Q3 Sales
FR Danone Q3 Sales
FR Vinci Q3 Sales
AUT Telekom Austria Q3
SWE Ericsson Q3
USA Johnson & Johnson Q3
USA Netflix Q3
USA Procter & Gamble Q3
USA Travelers Q3
USA Philip Morris Q3

 

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

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