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LGT Navigator: Bond yields keep equity markets in check

January 21, 2022

At the end of the week, stock market sentiment remains depressed. Expectations of a more restrictive monetary policy by the Federal Reserve and rising yields on the bond market are putting increased pressure on share prices. The aggravated tone in the Ukraine conflict is also causing increasing nervousness. Today, US Secretary of State Blinken is meeting with his Russian counterpart Lawrow in Geneva for talks. While the United States and its Western allies are demanding a withdrawal of Russian troops, Moscow is demanding security guarantees and an end to the eastward expansion of the Western military alliance NATO.

Bond yields keep equity markets in check

In New York, stock indices again lost ground and an initial recovery attempt failed. The Dow Jones Industrial and the S&P 500 fell again by around one percent after four days of losses. Against the backdrop of higher bond yields, the losses on the Nasdaq technology exchange were even more pronounced. The indices lost on Thursday around -1.3%. The yield of US government bonds traded along the curve slightly lower, after they had risen sharply at the beginning of the week and the yield of ten-year Treasuries had reached a two-year high of around 1.9%.

In Asia, most stock indices declined at the end of this week, following the trend on Wall Street. For Europe's stock exchanges, the futures markets on Friday also signal a negative opening. The focus now shifts to the first meeting of the Federal Open Market Committee (FOMC) of the Federal Reserve (Fed) next Wednesday. In addition, the corporate reporting season will pick up significantly next week.

Positive sign for US industrial sector

Business sentiment in Greater Philadelphia's industrial sector improved significantly at the start of the year, according to the regular survey conducted by the central bank's branch there. The Philly Fed index rose by a stronger-than-expected 7.8 points to 23.2 (consensus 19.0), with the regional industrial barometer signaling a solid growth trend.

However, the weekly US labor market data turned out to be worse than expected. Thus, initial claims for unemployment compensation increased by 55,000 to 286,000, while analysts had expected a decline to 225,000 jobless claims.

ECB President Lagarde Remains Relaxed on Inflation...

If the European Central Bank (ECB) raises key interest rates too quickly, there is a risk of stalling the economic recovery, central bank chief Christine Lagarde said in an interview. At the same time, Europe's top monetary watchdog reiterated that the ECB still expects inflation to stabilize and gradually decline over the course of this year. For 2021, the ECB forecasts an inflation rate of +3.2%.

...while inflation rate in the euro area reaches a new record high

The annual rate of consumer price inflation in the eurozone rose to +5.0% in December from +4.9% the month before, reaching a new record high and the highest level since the introduction of the euro. The background to the price increase remains mainly energy prices, which have risen by around +25% over the year. Excluding the energy component, the core inflation rate was +2.6%. 

Minutes of the ECB's last interest rate meeting on December 16 confirmed the assessment of ECB President Lagarde and showed that the council members agreed on the base scenario regarding the inflation outlook. Accordingly, the central bank assumes that the sharp rise in inflationary pressure will be of a temporary nature and should weaken in the course of 2022. However, as a more sustained rise in the cost of living in the eurozone cannot be ruled out, the ECB would need to retain the flexibility to ensure that inflation expectations remain anchored in both directions, thereby preserving the ECB's credibility.

German producer prices show strongest increase in 73 years

Prices at producer level in Germany rose by +24% year-on-year at the end of last year (consensus +19%). Month-on-month, producer prices rose strongly by +5.0% (consensus +0.6%). Thus, both on a year-on-year and monthly, the strongest increase since the start of the data series in 1949 was observed. German companies reported that they had to pay just under +70% more for energy in December than a year earlier. Looking at 2021, producer prices in Germany increased by +10.5%.

Economic Indicators January 21

MEZ Country Indicator Last period
07:00 UK Retail Sales (December, m/m) +1.4%
13:30 EZ ECB President Lagarde
16:00 EZ Consumer Sentiment (January) -8.3
16:00 US Leading Indicator (December, m/m) +1.1%


Earnings Calender January 21

Country Company Period
SWE Investor Annual 
US Schlumberger Q4
US Ally Financial Q4


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