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LGT Navigator: Hope for easing inflationary pressure gives stock markets a boost

August 15, 2022

Slightly lower inflation in the US has provided a tailwind for stock markets worldwide. However, hopes that inflation will fall quickly and that the Federal Reserve will subsequently take a more moderate approach to raising interest rates appear to be premature. At any rate, recent statements by top representatives of the Federal Reserve do not point to a change of course.

Hope for easing inflationary pressure gives stock markets a boost

On Wall Street, the indices posted solid daily gains on Friday, driven by technology stocks, and a positive weekly balance. The Dow Jones Industrial closed +1.27% higher at 33,761.05 points, resulting in a gain of almost three percent over the week. The S&P 500 gained +1.73% to 4,280.15 points for a weekly gain of +3.3%. The Nasdaq technology exchange rose just over two percent on Friday and about +2.7% for the week. The Nasdaq 100 index recovered more than +20% since the low in June.

In Asia, the stock markets open the new week inconsistent. In Tokyo, the Nikkei 225 trades around +1.2% higher and in Hong Kong, the Hang Seng index trades around -0.3% in the red. Latest economic data from China remained below expectations. For example, retail sales growth slowed -2.7% for the year in July and China's industrial production was lower than economists' forecasts at +3.8% in July. As a result, China's central bank on Monday surprisingly cut the interest rate for one-year refinancing operations with banks by ten basis points to 2.75% for the first time since January.

On the bond market, the yield on ten-year US government bonds is currently quoted at 2.84%. Meanwhile, the US dollar was able to benefit from the better-than-expected data on US consumer confidence and put the euro under pressure. The European single currency fell below 1.03 and is currently trading at around 1.0250.

Japan's economy grew again in the second quarter

The gross domestic product of the third-largest economy increased between April and June by +0.5% compared to the previous quarter or by an annualized +2.2%. Japan's economy was mainly supported by private consumption, which grew by +1.1% in Q2 thanks to relaxed Corona measures.

US consumer sentiment slightly improved, but at historically low levels

“Despite strength in the labor market and some signs of improvement in inflation, US consumer sentiment remains very low by historical standards,” the University of Michigan commented on the latest survey results. In this regard, the consumer confidence barometer improved from 51.5 points in July to 55.1 points in August. After consumer sentiment slumped to a record low of 50.0 points in June, a more moderate improvement to 52.5 points was expected.

US import prices fall further

One more sign reached us from the US on Friday, which could indicate that the inflation trend has peaked for the time being. As reported by the Labor Department in Washington, import price inflation weakened more than expected in July. Import prices still rose by +8.8% for the year compared with a rate of increase of +10.7% in June. Analysts had expected +9.4%. This is the fourth month in a row that the momentum of US import prices has slowed.

Industry in the eurozone more robust than expected

Industry in the euro area increased its production in June much more strongly than economists had forecast. Compared to the previous month, manufacturing increased by +0.7% compared to a consensus of +0.2%. In addition, data for May were revised upward to +2.1% from +0.8% originally. In particular, the production of capital goods increased strongly in June by +2.6% monthly.

Sustained rapid price increases in Spain

The inflation rate in Spain remained at a record high level in July. Year-on-year, Spanish consumer prices rose by +10.7%. In the previous month, the rate had been +10.0%. The strongest driver remained the energy component, but also higher food prices.

UK economy shrinks slightly in second quarter

UK gross domestic product (GDP) contracted -0.1% in Q2 from Q1, slightly better than expected (consensus -0.2%). The decline followed an increase of +0.8% in Q1.


Economic Indicators August 15

MEZ Country Indicator Last period
01:50 JP GDP Q2 (q/q) -0.1%
06:00 FL Holiday
14:30 US NY Fed Empire State Manufacturing Index (August) +11.1
16:00 US NAHB Real Estate Index (August) +55.0


Earnings Calender August 15

Country Company Period
GE Henkel Q2


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