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LGT Navigator: US jobs report in focus and warning words of the Fed

May 7, 2021

In the run-up to today's US labor market data, the indices on Wall Street showed solid gains. The Dow even reached a new record high. Meanwhile, the Federal Reserve warned in a report on financial stability of increasing risk appetite in a variety of investment markets. As expected, the Bank of England kept interest rates unchanged at a low level, but nevertheless initiated a minimal braking maneuver.

US jobs report in focus and warning words from the Fed

After the initial focus was on pharmaceutical stocks, which had come under heavy pressure as a result of the United States' move to suspend patent protection for Covid-19 vaccine, the mood on the New York Stock Exchange brightened visibly and the Dow Jones Industrial even reached a new record high. The benchmark index closed almost +1% firmer at 34'548.53 points (+0.93%). Also the S&P 500 recorded solid gains and closed +0.82% higher at 4'201.62. The indices on the Nasdaq technology exchange also rose by about +0.8%. In Asia, most stock market indices joined the positive guidance from overseas and trended higher, although with less momentum. 

The half-yearly report of the Federal Reserve on the stability of the US financial system, which was published yesterday, is a cause for concern. Rising risk appetite in a variety of asset markets is stretching valuations and creating vulnerabilities in the US financial system, it said. In this environment, prices could be vulnerable to “significant declines” should risk appetite fall, the Federal Reserve warns

The labor market report from Washington (14:30 CET) is expected with maximum tension. Indicators such as the ADP employment report and the weekly reported initial claims for unemployment insurance signalled a further recovery. Analysts on average expect employment (excluding the agricultural sector) to increase by nearly one million jobs. This in turn could strengthen expectations of a strong economic recovery and thus also inflation concerns, or rather the prospect of rising interest rates. 

Sustained strong recovery expected on the US labor market

The data on initial claims for unemployment insurance benefits, like the earlier ADP report on private sector employment, point to a further recovery in the US labor market. The monthly statistics from Washington are eagerly awaited today. The weekly reported first-time claims for unemployment benefits fell more than expected in the week ended May 1. Compared with the previous week, the number of applications fell by 92'000 to 498'000. However, the previous week's figure was revised sharply upward from 553'000 to 590'000. The more meaningful four-week moving average decreased by 61'000 from the previous week to 560'000 applications. 

Bank of England treads softly on the brakes

Although the British central bank confirmed its expansionary monetary policy, it is treading gently on the brakes with a reduction in its bond purchases. The key interest rate remains at a record low of +0.1%, while the bond purchase program has been adjusted. Accordingly, the weekly purchases will be reduced by one billion to GBP 3.4bn. After the announcement of the Bank of England, the pound strengthened, while British government bonds came under pressure. 

For example, some leading indicators speak for an interest rate turnaround in a not too distant future. According to IHS Markit, the Purchasing Managers' Index for the British service sector improved in April by 4.7 points to 61.0. The PMI thus reached its highest level since October 2013, with companies and consumers having significantly increased their spending in view of relaxed Corona restrictions, IHS Markit commented. 

ECB chief economist does not expect higher inflation to last longer

Philip Lane, chief economist at the European Central Bank (ECB), does not expect a prolonged period of higher inflation. In an interview, the economist said that inflation is not expected to overshoot in the next 18 to 24 months.  

ECB Lagarde calls for “green capital markets union”

ECB President Christine Lagarde is in favor of creating a “green capital markets union.” Europe needs to integrate its capital markets, and the market for green and otherwise sustainable bonds can lead the way, Lagarde said. In addition to bank loans, she said, the capital market is suitable for securing the billions of euros in investment needed by 2030 to meet the EU's climate and energy targets. Today, Europe leads the world in green bond issuance, with around 60% of all senior unsecured green bonds issued globally in 2020, she said. However, Lagarde said a lack of cross-border infrastructure and national restrictions could jeopardize this leadership position, which is why a “green capital markets union” makes sense.

Economic Calender May 7

MEZ Land Indikator Letzte Periode
07:45 SZ Unemployment Rate (April) +3.3%
08:00 GE Exports (March, m/m) +0.9%
08:00 GE Imports (March, m/m) +3.6%
08:00 GE Industrial Production (March, m/m) -1.6%
08:45 FR Industrial Production (March, m/m) -4.7%
10:00 IT Retail Sales (March, y/y) -5.7%
14:30 US Unemployment Rate (April) 6.0%
14:30 US Non-Farm Payrolls (Arpil) +916'000

Unternehmenskalender May 7

Land Unternehmen Periode
GE Siemens Q1
GE Adidas Q1
GE BMW Q1 Umsatz
AUT Raiffeisen International Q1
FR Crédit Agricole Q1

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Source: LGT Bank (Switzerland) Ltd.

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