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LGT Navigator: Interest rate fears are back – central bank rhetoric in focus

September 29, 2021

A further rise in bond yields, more negative US consumer sentiment and the threat of a US default are causing nervousness on the stock markets. The yield on ten-year U.S. government bonds climbed to its highest level since mid-June, which is having a negative impact on interest-sensitive technology stocks. Against this background, the capital markets are currently focusing on the statements of leading central bankers. Federal Reserve Chairman Jerome Powell reiterated the rhetoric of the last interest rate decision. ECB President Christine Lagarde, meanwhile, stressed that the euro economy is not yet out of the woods and that inflationary pressure is only a temporary phenomenon.

Interest rate fears are back – central bank rhetoric in focus

On the New York Stock Exchange, rising interest rates and a surprisingly sharp drop in consumer sentiment caused losses. The Dow Jones Industrial fell -1.63% to 34'299.99 points and the broad S&P 500 lost -2.04% - closing at 4'352.63 points. The return of interest rate fears was most noticeable on the Nasdaq technology exchange. The Nasdaq 100 slumped -2.86% to 14'770.30 points - the highest daily loss since March this year. The pressure on stocks was already evident in Europe: The Euro Stoxx 50 fell -2.56% to 4'058.82 points on Tuesday. In Asia, the negative trend on the stock markets continued for the most part. In Tokyo, the Nikkei 225 index lost about -2% today. However, the losses in Hong Kong or mainland China are much more moderate. 

Fed Chairman Powell reaffirms his inflation outlook

According to Federal Reserve Chairman Jerome Powell, the recovery of the US economy has continued in recent months and the labor market situation has improved. On his regular accountability report before the Senate Banking Committee, Powell also reiterated his opinion that the currently strongly increased inflationary pressure will continue in the coming months but will then ease again. The central bank chief justified this with stronger-than-anticipated bottlenecks in some sectors of the economy in the wake of the easing of pandemic measures. However, if inflationary pressures remain more persistent than expected, the Fed will respond accordingly.

American consumer sentiment clouds over noticeably

Consumer confidence in the US deteriorated significantly in September. The barometer of sentiment, compiled monthly by the New York-based economic research institute The Conference Board, fell by 5.9 points from the previous month to 109.3, marking the third consecutive decline and the lowest level since February.

US house prices rise strongly

According to the monthly S&P/Case-Shiller index, house prices in the United States continued to rise strongly in the summer. On average, house prices in the 20 largest cities in the US rose by almost +20% over the year. According to Standard & Poor's, house prices have risen nationally for the fourteenth month in a row, driven by low interest rates and the corona crisis.

ECB chief Lagarde strikes cautious (dovish) tone

“The euro area economy has bottomed out, but is not quite out of the woods yet,” said Christine Lagarde, president of the European Central Bank (ECB). However, she said, the widespread lifting of pandemic restrictions was also responsible for the sharp rise in inflation. According to Lagarde, however, this was temporary and due to special factors, or base effects resulting from the corona crisis. On average over the past two years – low inflation as a result of the economic slump in 2020 and rising inflation as a result of the economic recovery this year – the price level in the euro zone has remained at roughly the same level as before the pandemic. Lagarde is therefore convinced that a supportive monetary policy stance by the ECB will continue to be necessary to overcome the corona crisis and bring inflation to two percent on a sustainable basis.

German consumers sentiment improves

According to the latest survey results from the Nuremberg-based consumer research institute GfK, consumer confidence in Germany has improved. The consumer climate barometer calculated for October rose from minus 1.1 points in September to plus 0.3 points, the best value since April 2020. Analysts had on average expected a deterioration to minus 1.9 points. Consumer sentiment was positively influenced by an improved assessment of the income outlook and optimism that the fourth wave of the pandemic will be less pronounced than feared, GfK commented.

 

Economic Indicators September 29

MEZ Country Indicator Last period
08:00 GE Import Prices (August, m/m) +2.2%
09:00 SP Consumer Prices (September, y/y) +3.3%
10:00 SZ ZEW Economic Perspectives (September) -7.8
11:00 EZ Economic Sentiment (September) +117.5
11:00 EZ Business Climate (September) +1.75
16:00 US Pending Home Sales (August, m/m) -1.8%
17:45 EZ ECB President Lagarde Speech
17:45 US Fed Governor Powell Testamony US Congress

 

Earnings Calender September 29

Country Company Period
NL ASML Investor Day
UK Vodafone Investor Day
UK Next H1

 

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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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