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LGT Navigator: US inflation stagnates at a high level

August 12, 2021

Investors reacted with relief on Wednesday after the latest US inflation data showed that prices have not risen further. The prospects of billions in infrastructure spending are also creating a good sentiment on US stock markets and are boosting industrial shares in particular. In Germany, inflation numbers marked the strongest increase in 30 years. 

Inflation

The rally on Wall Street continued on Wednesday. The prospects of billions in infrastructure spending and new economic data provided a good mood. Thus, the latest inflation data showed that inflation in the US is stagnating at a high level. Financial markets viewed the fact that prices did not rise further positively. The S&P 500 climbed +0.2% to 4,447.70 points, setting the 46th record this year. The Dow Jones rose +0.6% to 35,484.97 points and also marked a new high. The Nasdaq Composite posted losses again, losing -0.2% to 14,765.14 points. 

Among the winners were industrial stocks, which according to analysts are likely to be among the beneficiaries of the infrastructure package. Thus, securities of the construction equipment manufacturer Caterpillar climbed +3.5%. The shares of United Rentals, the leading lender of construction equipment in the US, rose +5%. However, it will probably be a while before the money actually flows. While the US Senate has passed the infrastructure program, tough negotiations are now emerging in the House of Representatives.

Asian markets record losses on Thursday. In Tokyo, the Nikkei declined -0.1%, and in Hong Kong, the Hang Seng fell -0.3%. while the Shanghai Composite loses -0.1%.

US inflation remains high

The economic recovery continues to drive strong consumer price increases in the US. In July, inflation rose by +5.4% year-on-year, the same pace as in June, thus reaching the highest level since 2008. Economists had expected a slight decline to +5.3%. On a month-on-month basis, inflation declined somewhat and stood at +0.5% in July, after +0.9% in June. The annualized core inflation rate, which excludes energy and food prices, was +4.3%, down from +4.5% in June.

Strong price increase in Germany

Prices in Germany rose sharply in July, increasing by +3.8% year-on-year, the Federal Statistical Office reported on Wednesday. This is the strongest increase in 30 years: a higher value was last measured in December 1993 (+4.3%). Compared to the previous month, the inflation rate increased by +0.9%. The high inflation rate is due, among other things, to the sharp rise in energy prices, which increased by +11.6% year-on-year. The price of crude oil fell sharply in the wake of the corona crisis, after global demand for energy collapsed. Prices have now recovered. In addition, the regular VAT rate has been in force again in Germany since January 2021, after the government reduced the rate in the second half of 2020 to stimulate the economy. This is another reason why price levels are rising again.

In Italy, consumer prices also increased in July, by +1% year-on-year. However, price growth has slowed somewhat: in June, the inflation rate was still +1.3%. This means that prices in Italy are rising much more slowly than in the currency area. Thus, inflation in the eurozone was +2.2% in July.

 

Economic Indicators August 12

MEZ Country Indicator Last period
06:30 JP Industrial production (m/m, June) +6.2%
08:00 UK Gross domestic product Q2 (y/y) -6.1%
11:00 EZ Industrial production (m/m, June) -1.0%

Earnings Calender August 12

Country Company Period
DE Deutsche Telekom Q2
NL NN Group Q2
CH Straumann Q2
CH Zurich Insurance Q2

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: David Wolf, +41 44 250 83 48, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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