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LGT Navigator: Stock markets take a tense look at the interest rate markets

February 22, 2021

The sentiment on equity markets at the start of the week remains dominated by caution and restraint. The background is the continuing rise in bond yields in the face of increasing inflation concerns. Meanwhile, a further rise in commodity prices also attracted attention. Investors will also be watching the appearance of US Federal Reserve Chairman Powell with great interest this week.

Stock markets take a tense look at the interest rate markets

On Wall Street, the mood remained characterized by nervousness last Friday. On the one hand, the globally advancing Covid-19 vaccination campaigns are providing confidence that the corona crisis can be overcome in the foreseeable future; on the other hand, the continuing rise in yields on the bond market against the backdrop of noticeable inflation concerns is causing uncertainty on stock markets. The Dow Jones Industrial initially reached another record high of 31'648 points at the end of last week, but then fell back to 31'494.32 points by the end. On a weekly basis, the Dow thus remained virtually unchanged. The S&P 500 showed a moderate daily loss of -0.19% and ended Friday's trading at 3'906.71 points. The technology-heavy Nasdaq 100 fell by -0.42% to 13'580.78 points and recorded the fourth consecutive day of losses.

In Asia, there was no consistent picture at the beginning of the week. In Tokyo, the Nikkei 225 index gained about +0.5% to 30'156.03 points, while the stock exchanges in China were clearly in the red. For the stock market opening in Europe, the futures signal a negative start to the week. The focus today is the monthly Ifo business survey and Fed Chairman Jerome Powell, who will deliver the first part of his regular accountability report before the Economic Committee of the US Congress on Tuesday on the economic outlook and monetary policy.

US economy on solid recovery trend according to purchasing managers survey

In the United States, purchasing managers surveyed by London-based research institute IHS Markit remained upbeat in February, reporting the strongest monthly expansion in output in nearly six years. Spurred by an acceleration in the services sector and continued robust growth in manufacturing. The Purchasing Managers' Index (PMI Composite) for the two sectors combined edged up to 58.8 points from 58.7 the previous month, the highest level since March 2015, and Markit's chief economist said the survey data strengthened signs that the US economy is enjoying a strong opening quarter for 2021 thanks to fiscal stimulus and easing of pandemic-related restrictions.

Lockdowns weigh on euro area services sector and slow recovery

In the eurozone, sentiment among companies surveyed by IHS Markit also brightened slightly in February. The Purchasing Managers' Index for the service and industrial sectors improved by 0.3 points to 48.1, but remains below the growth threshold of 50 points. While the PMI for industry reached its highest level in three years and signaled growth, sentiment among service providers clouded over in light of the corona measures. The ongoing lockdowns in many places are weighing heavily on the service sector, increasing the likelihood that overall economic output will also decline in the first quarter, commented Markit chief economist Chris Williamson.

ECB chief Lagarde in favor of cautious scaling back of corona aid

Christine Lagarde, president of the European Central Bank (ECB), warned in an interview against hastily scaling back stately stimulus aid. These programs would have to be scaled back gradually and with care. At the same time, the ECB will support the economy in the longer term with its extremely loose monetary policy, Lagarde assured. The central bank chief expects the euro economy to reach its pre-crisis level around mid-2022. But the forecast would depend heavily on the development of the Covid-19 vaccination campaigns, she said.

Inflation picks up in France and Italy

Inflationary pressures increased significantly in France and Italy at the start of the year. French consumer prices rose by +0.8% compared to the same month last year, as reported by the in Paris. According to the statistics office Insee, the price increase is also due to a statistical effect, as the prices of processed goods have increased significantly compared to the same month last year as a result of the winter sales suspended due to corona. In Italy, the inflation rate also increased significantly at the beginning of the year. Over the year as a whole, inflation was +0.7%, following a year-on-year decline of -0.3% in consumer prices in December.


Economic Indicators February 22

MEZ Country Indicator Last
10:00 GE Ifo Business Climate Index (February) 90.1
14:30 US Fed Chicago National Activity Index (January) 0.52
16:00 US Leading Indicator (January, m/m) +0.3%

Earnings Calendar February 22

Country Corporate Period
US Berkshire Hathaway Q4


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