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LGT Navigator: Wall Street holds record levels despite fragile inflation expectations

August 13, 2021

After the Dow Jones and the S&P-500 reached new record highs in midweek, the New York indices held at a high level again on Thursday. Inflation fears receded somewhat into the background for the time being, which contributed to a positive stock market sentiment, but the data on producer prices published yesterday make it clear that price pressures in the US are likely to increase further and will significantly influence the direction of the Federal Reserve.

Wall Street holds record levels despite fragile inflation expectations

After the latest consumer prices from the United States were in line with expectations – the inflation rate noted in July at +5.4%, the highest level in 13 years, but did not rise further from the previous month – the fear of investors of an imminent monetary policy response of the Fed moved at least for the time being somewhat into the background. On Wall Street, the Dow Jones Industrial and the S&P 500 held steady at record levels Thursday. The Dow closed just in the plus at 35,499.85 points (+0.04%) and the market-wide S&P went out of the day's business at 4,460.83 points (+0.3%). On the technology exchange Nasdaq, the gains were slightly stronger at around +0.4%.

In Asia, there was no consistent trend at the end of the week. In Tokyo, the Nikkei 225 index remained virtually unchanged at 28,009 points, while in mainland China, the CSI 300 fell by almost 1% and the Shanghai Composite by about -0.5%. In Hong Kong, the Hang Seng lost about -1% on Friday. Traders point to ongoing concerns about possible new regulatory intervention in China and the impact of the spreading delta variant of the new coronavirus in several countries in the region.

US producer prices point to continued inflationary pressures

Producer-level prices in the United States rose noticeably in July. On an annual basis, producer prices rose more strongly than economists had expected by +7.8% (consensus +7.3%) and by +1.0% month-on-month (consensus +0.6%). At the core rate, i.e. excluding food and energy prices, which are volatile in many cases, prices at the producer level also increased by +1.0% month-on-month and by +6.1% year-on-year). The further increase in producer prices was due in part to higher energy and commodity prices, but also to strained supply chains resulting in longer delivery times and higher transportation costs, as well as increased labor and material shortages.

On a positive note, yesterday saw a decline in the weekly Initial Jobless Claims numbers reported in the US. Initial Jobless Claims declined by 12,000 to 375,000 in the week ended Aug. 7, the U.S. Department of Labor reported. As a result, 2.87 million Americans received unemployment benefits in the week ended July 31 – a decrease of 114,000 from the previous week.

Slight decline in industrial production in the eurozone

Industry in the euro area produced -0.3% less in June than in the month before. Analysts had expected a decline of -0.2% on average. In addition, industrial production in May had fallen more sharply than initially calculated, namely by -1.1% (first calculation -1.0%). Compared with the same month of the previous year, which was marked by the corona crisis, production in June recovered by +9.7%.

British economy finds its way back onto the growth track

Compared with the weak start to the year, the UK economy recovered in the second quarter and grew by +4.8% quarter-on-quarter. Europe's second-largest economy certainly benefited from the end of most of the corona restrictions. In particular, household spending contributed to growth with an increase of +7.3% compared with the previous quarter.


Economic Indicators August 13

MEZ Country Indicator Last period
08:45 FR Consumer Prices (June, y/y) +1.6%
09:00 SP Consumer Prices (June, y/y) +2.9%
11:00 EZ Trade Balance (June) +EUR 7.5bn
14:30 US Import Prices (July, m/m) +1.0%
16:00 US Consumer Sentiment University Michigan (August) 79.0

Earnings Calender August 13

Country Company Period
SZ Swiss Life H1
US Home Depot Q2
US Walmart Q2
US Agilent Technologies Q2

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