On Wall Street, investors were surprisingly relaxed despite the stronger than expected rise in US inflation. On the one hand, the increased inflation expectations are likely to have already been factored in, and on the other hand, investors seem to believe the central banks that the rise in inflation will only be of a temporary nature. The Dow Jones Industrial held roughly at the previous day's level and closed at 34'466.24 points (+0.06%), while the S&P 500 gained +0.47% to 4'239.18 points. Stronger was the appetite of equity investors on the Nasdaq technology exchange, where the indices rose by up to +1%. In Asia, a friendly stock market mood prevailed in the majority at the end of the week and the futures point to a positive start to trading in Europe.
At the same time benchmark government bond yields have tumbled this week. The ten-year US Treasury yield fell the most since June 2020, and touched a three-month low of 1.43% today.
The cost of living in the United States rose even more sharply in May than economists had expected. This continues the price trend that has been observed for some time, putting the Federal Reserve under increasing pressure to abandon its expansionary monetary policy stance. According to the latest data, consumer prices rose by +5% year-on-year in May - the highest rate in almost 13 years. In April, inflation had been +4.2% and analysts had expected it to rise to +4.7%. On a monthly basis, consumer prices rose by +0.6%. The core rate, i.e. excluding energy prices, climbed from +3.0% in April to +3.8% in May (consensus +3.5%).
As expected, the European Central Bank (ECB) left its key interest rates unchanged at record low levels. Although signs of a further, albeit possibly bumpy, economic recovery in the euro area seem to be progressing thanks to ongoing vaccination campaigns and openings, the ECB remains in crisis mode. In addition to key interest rates, forward guidance and the EUR 1.85 trillion Pandemic Emergency Purchase Programme (PEPP) to combat the economic consequences of the pandemic remain unchanged. At the same time, ECB President Christine Lagarde was relaxed about the recent rise in inflation. This was mainly due to temporary factors, Lagarde said at the press conference. Overall, inflation remains far from the ECB's target (close to 2%). However, the ECB is keeping a close eye on developments, the central bank chief stressed.
In its revised forecasts, the ECB assumes somewhat stronger economic growth, but also higher inflation in the euro area. In the current year, the gross domestic product of the euro countries is expected to increase by +4.6%. In April, the central bank had still forecast a growth rate of +4.0%. GDP is also expected to grow more strongly in 2022, namely by +4.7% (previous forecast +4.1%). At the same time, however, the ECB is also holding out the prospect of higher inflation. Consumer prices are expected to rise by +1.9% this year (previously +1.5%) and by +1.5% in 2022 (+1.2%).
|08:45||FR||Consumer Prices (May, y/y)||+1.4%|
|09:00||SP||Consumer Prices (May, y/y)||+2.4%|
|16:00||US||Consumer Confidence University Michigan (June)||82.4|
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: email@example.com
Source: LGT Bank (Switzerland) Ltd.
Risk Disclosure (Disclaimer)
This publication is an advertising material / marketing communication. This publication is for your information only and is not intended as an offer, solicitation of an offer, or public advertisement to buy or sell any investment or other specific product. Its content has been prepared by our staff and is based on sources of information we consider to be reliable. However, we cannot provide any confirmation or guarantee as to its being correct, complete and up to date. The circumstances and principles to which the information contained in this publication relates may change at any time. Information that has been published should therefore not be understood as implying that no change has taken place since its publication or that it is still up to date. The information in this publication does not constitute an aid for decision-making in relation to financial, legal, tax-related or other consulting matters, nor should any investment decisions or other decisions be made on the basis of this information alone. It is recommended that advice be obtained from a qualified expert. Investors should be aware that the value of investments can fall as well as rise. Positive performance in the past is therefore no guarantee of positive performance in the future. Investments in foreign currencies are also subject to fluctuations in exchange rates. We disclaim all liability for any loss or damage of any kind, whether direct, indirect or consequential, which may be incurred through the use of this publication. This publication is not intended for persons subject to legislation that prohibits its distribution or makes its distribution contingent upon an approval. Any person coming into possession of this publication shall therefore be obliged to find out about any restrictions that may apply and to comply with them. In line with internal guidelines, persons responsible for compiling this report are free to buy hold and sell the securities referred to in this report.