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LGT Navigator: Worries around Evergrande cloud the start of the week

October 4, 2021

After positive news about a Covid-19 drug supported share prices on Friday and the US Congress was able to prevent a partial shutdown of government business at the last minute until December 3, the mood on the stock exchanges at the start of the week is again characterized by caution and restraint. On the one hand, concerns about the bankruptcy of the Chinese real estate group “Evergrande” have again moved to the fore and on the other hand, the tough wrangling continues in Washington in the prestigious infrastructure package for US President Joe Biden.

Worries around Evergrande cloud the start of the week

In Asia, the highly indebted Chinese real estate group "Evergrande" caused a stir. The background was that the stock was suspended from trading after the company failed to meet a key interest payment on its offshore debt obligations for the second time last week. One analyst warned, that the biggest problem is not Evergrande's inability to pay, but the environment that led to the group's decline. This, he said, increases the risk that the problems of a single company will spread to the entire Chinese real estate sector.

On Friday, however, positive news about a Covid-19 drug and better-than-expected economic data from the US had turned the mood on the stock markets, which had previously been depressed mainly by inflation and interest rate worries, back into positive territory. On the New York Stock Exchange, the Dow Jones Industrial gained +1.43% to 34'326.46 points before the weekend and thus recorded a friendly start to the month. On a weekly basis, the Dow nevertheless lost almost -1.5%. The S&P 500 improved by +1.15% to 4'357.04 points. On the tech exchange Nasdaq, the indices rose less strongly - on average by +0.7%. The focus is also likely to be already on the US labor market report due at the end of the week, which will be decisive for the further direction of monetary policy.

Positive signals from the US economy

According to the latest analysis of the University of Michigan survey, the mood of Americans improved in September. The corresponding consumer confidence barometer climbed to 72.8 points in September from 70.3 points in August (consensus 71.0). Consumers' inflation expectations on a 12-month horizon, which were also surveyed, remained unchanged at 4.6%, but rose from 2.9% to 3.0% on a five-year horizon.

Another positive signal was provided by the purchasing managers' index of the ISM industry association. According to this index, growth in US industry accelerated in September. The PMI rose from 59.9 to 61.1 points, while the market had expected a slowdown to 59.5.

PMIs signal significant cooling in euro industry

Unlike in the US, sentiment in eurozone industrial companies deteriorated noticeably in September. The Purchasing Managers' Index (PMI) compiled by IHS Markit fell by 2.8 points month-on-month to 58.6 points, indicating a significant slowdown in momentum over the past few months. According to Markit chief economist Chris Williamson, one of the main problems is the continuing supply bottlenecks and there are currently no signs of an improvement soon. Sentiment clouded in all larger euro countries, with the most pronounced deterioration in Germany.

Sentiment in British industry also deteriorated significantly last month. The IHS Markit Purchasing Managers' Index fell from 60.3 points in August to 57.1 points – the lowest value since February. According to IHS Markit, the risk that the UK economy will slip into stagflation – a period of high inflation and weak growth - due to supply problems and labor shortages is increasing.

Inflation in the eurozone hits highest level in 13 years

Consumer prices in the euro countries rose by +3.4% in September on an annual basis, more than economists had expected - the highest level since September 2008. In August, the inflation rate in the eurozone was still +3.0%. According to Eurostat, energy prices were +17.4% higher than a year earlier. Food prices rose by an average of +2.1% year-on-year. Excluding these two components, the core inflation rate was +1.9% in September, compared with +1.6% in August.

 

Economic Indicators October 4

MEZ Country Indicator Last period
08:30 SZ Consumer Prices (September, y/y) +0.9%
10:30 EZ Sentix Economic Perspectives +19.6
14:30 US Durable Goods Orders (August, m/m) +0.4%

 

Earnings Calender October 4

Country Company Period
SP Repsol Q3 Sales

 

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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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