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LGT Navigator: Bank of Japan raises its inflation forecast sharply

April 28, 2022

After Tuesday's sharp losses, US equity indices stabilized again midweek. However, investor sentiment remains fragile and further volatility on stock markets must be expected in view of the ongoing concerns regarding interest rates, inflation, and economic development as well as the quarterly reports still to come in the tech sector. Meanwhile, Japan's central bank confirmed its still expansionary course, but now expects inflationary pressure to rise sharply and revised its forecast upward accordingly.

Bank of Japan raises its inflation forecast sharply

The Bank of Japan expects consumer prices to rise significantly. Due to higher energy and raw material costs as well as a weaker yen, an inflation rate of +1.9% is to be expected in the current fiscal year (until the end of March 2023). The previous forecast anticipated an annualized cost-of-living increase of +1.1%. At the same time, weaker growth in the world's third-largest economy is assumed. Unlike the Fed and (at least to some extent) the ECB, the Bank of Japan has not yet been able to initiate a normalization of monetary policy.

The Dow Jones Industrial ended Wednesday trading with a moderate gain of +0.19% at 33'301.93 points. During the day, a gain of about one percent could be observed in the meantime. The S&P 500 increased +0.21% to 4'183.96 points. However, the mood remains tense, especially on the technology exchange Nasdaq, where the indices yesterday could not recover from the previous slump and closed virtually unchanged – on Tuesday, the Nasdaq indices fell to the lowest level in almost a year. No support was provided by the quarterly results of Google parent company Alphabet. The share fell after disappointing figures by almost -4%. Investors continue to be concerned about the anticipated interest rate hikes by the Fed, the war in Ukraine and the harsh pandemic measures in China and their impact on the already severely battered global supply chains.

On the foreign exchange market, the euro fell below 1.06 against the US dollar at times and reached its lowest level since 2017, or a five-year low, by midweek. Against the Swiss franc, the European single currency approached the 1.02 mark. The greenback is receiving tailwind from the prospect of a sharp rise in interest rates in the US. On the other hand, the euro is being weighed down by the Ukraine war and the associated uncertainty regarding energy supplies.

EU says it is well prepared for potential energy cut from Russia

Now that Russia has cut off gas supplies to Poland and Bulgaria, the risk of a comprehensive energy freeze has increased. However, EU Commission President Ursula von der Leyen sought to allay concerns, saying the EU was prepared for such a scenario. “A supply freeze of Russian gas to EU countries would not hit the Union unexpectedly,” von der Leyen said.

Meanwhile, Germany has further reduced its dependence on Russian natural gas, according to Economics Minister Robert Habeck. The share has now fallen to 35% from around 55% in 2021, he said. By the end of the year, Germany aims to further reduce the share of Russian gas supplies to about 30%, and by mid-2024 to just 10%. 

Kremlin threatens with further gas supply stop

After Poland and Bulgaria, Russia will also turn off the gas tap to other “unfriendly states” if they do not settle their payments to the state-owned Gazprom group in Russian rubles. Russia wants to hear constructive proposals from the EU on how to shape future relations using political-diplomatic methods, Kremlin spokesman Dmitry Peskov said.

Fed vice governor confirmed

In the US Senate, Lael Brainard was confirmed for a four-year term as the new vice chairwoman of the Federal Reserve (Fed) by a majority of 52 votes to 43. Brainard, who was born in Hamburg, Germany, is an economist and had been a member of the Federal Reserve Board of Governors since 2014. She previously served as the US Treasury Department's undersecretary for international affairs from 2010 to 2013.

OECD sees too little progress toward achieving sustainability goals

The Organization for Economic Cooperation and Development (OECD) finds that efforts to meet the United Nations' 2030 Sustainable Development Goals (SDGs) are making slow progress in industrialized nations. So far, only about a quarter of the measurable sub-targets have been achieved or are close to being achieved. Stronger political measures are therefore urgently needed.

  

Economic Indicators April 28

MEZ Country Indicator Last period
05:00 JP Bank of Japan monetary policy announcement -0.1%
09:00 ESP Consumer Prices (April, y/y) +9.8%
10:00 EZ ECB Monthly Bulletin
10:00 IT Business Climate (April) 110.3
10:00 IT Consumer Confidence (April) 100.8
11:00 EZ Economic Sentiment (April) 108.5
11:00 EZ Business Climate (April) +1.67
11:00 EZ Consumer Sentiment (April) -16.9
14:00 GE Consumer Prices (April, y/y) +7.6%
14:30 US GDP Q1 (revision, annualized) +6.9%
14:30 US Consumer Spending Q4 (q/q) +2.5%
14:30 US PCE Core rate (Fed inflation indicator, Q1, q/q) +5.0%
14:30 US Initial Jobless Claims (weekly) 184,000

 

Earnings Calender April 28

Country Company Period
KOR Samsung Q1
SZ Straumann Q1 
SZ Swisscom Q1
SZ Bucher Q1 Sales
SZ Clariant Q1 
GE Beiersdorf Q1
FR Sanofi Q1
FR CapGemini Q1 
FR Pernod Ricard Q1
FR Totalenergies Q1 
ESP Repsol Q1
SWE Volvo Car Q1
SWE Telia Q1
SWE Nordea Q1
FIN Nokia Q1
FIN Stora Enso Q1
UK Barclays Q1
UK Sainsbury Q1
UK Unilever Q1
US Apple Q1
US Amazon Q1
US Intel Q1
US Eli Lilly Q1

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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