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LGT Navigator: Promising start to the final quarter

October 4, 2022

On Wall Street, the indices started the new stock market week and the fourth quarter with gains after the worst September in around 20 years. The latest purchasing managers' surveys indicated a further weakening in industry in both the US and Europe. This, in turn, supported hopes on the stock markets of a slightly less restrictive stance by the central banks. Some relief was also provided by a backdown by the still young British government. The Reserve Bank of Australia meanwhile liftet its key rate by another 25 basis points. 

Promising start to the final quarter

The Dow Jones Industrial gained at times more than +3% at the beginning of the week and closed at 29,490.89 points with a strong gain of +2.66%. This made up for at least a fraction of the loss in September of almost -9% or the balance for the third quarter of -6.7%. The S&P 500 gained +2.59% to 3,678.43 points on Monday and on the Nasdaq technology exchange, the indices gained around +2.4%. The short-term relief is likely to be primarily a correction from oversold levels. Hopes that the Federal Reserve could slow down its tightening cycle due to weaker economic data, such as the negative results of the purchasing manager surveys in the US industrial sector, do not seem very realistic.

Stock markets in the Asia-Pacific region trended mostly higher on Tuesday, benefiting from positive guidance from Wall Street. In Tokyo, the Nikkei 225 traded around +2.8% higher. The broadest MSCI index for Asia-Pacific shares outside Japan gained +1.6%. In Australia, the S&P/ASX 200 gained +3.6% after Australia's central bank raised its key interest rate by a smaller-than-expected 25 basis points to 2.6%. Stock markets in Hong Kong and mainland China remained closed for a public holiday.

British government backs down

Following severe turbulence on the British bond market, a slump in the pound and massive criticism, Britain's government led by Prime Minister Liz Truss was forced to partially withdraw its recently announced tax cut plans. British Finance Minister Kwasi Kwarteng announced that the top tax rate of 45% for top earners would not be scrapped as planned after all. After the announcement last week of the debt-financed tax cuts, the pound plunged, and the Bank of England had to intervene in the bond market and bought long-dated government securities.

Sentiment in US industry significantly deteriorated

According to survey data from the Institute for Supply Management (ISM), growth in the US industrial sector deteriorated more than expected in September. The widely watched Purchasing Managers' Index (PMI) slipped 1.9 points from the previous month to 50.9 (consensus 52.1), falling to its lowest level since May 2020.

Deepening contraction in the euro industrial sector

Sentiment among industrial companies in the eurozone continued to deteriorate in September. For example, the Purchasing Managers' Index calculated by S&P Global fell from 49.6 to 48.4 points, reaching its lowest level in just over two years. According to S&P's chief economist Chris Williamson, rising inflationary pressures are adding to economic concerns in the euro zone.

British industry also suffering

Although sentiment in the UK's industrial sector brightened moderately in September, S&P Global's Purchasing Managers' Index continued to signal a contraction in the sector with a reading of 48.4 points (previous month 47.3). This continues the downward trend in British manufacturing, S&P Global commented.

Swiss industry shows more resilience

Sentiment in Swiss industry improved slightly in September compared with the previous month, despite a difficult environment. The purchasing managers' index rose by 0.7 points to 57.1. Analysts had expected a decline. In contrast to the figures for the eurozone, the Swiss PMI thus remains well above the growth threshold of 50 points. For example, the supply chain problem had improved. On the other hand, higher energy prices represent a major challenge for industry.

Economic Indicators October 4

MEZ Country Indicator Last period
11:00 EZ Producer Prices (August, y/y) +37.9%
16:00 US Durable Goods Orders (August, m/m) -1.0%
17:00 EZ ECB President Lagarde speaks


Earnings Calender October 4

Country Company Period
SZ Sika Capital Markets Day
US Hasbro Investor Day


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