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LGT Navigator: Fed's Beige Book confirms stagflationary trends

June 2, 2022

According to the latest edition of the Fed's regular economic report, growth in the world's largest economy has weakened, while strong price increases have been observed in many places. Meanwhile, the business climate in the US industry remains better than in Europe, according to recent purchasing managers' surveys. On the stock markets, the mood remains highly fragile, and on Wall Street the indices suffered renewed losses in midweek.

Fed's Beige Book confirms stagflationary trends

The Dow Jones Industrial slipped after an initially positive start into the red and ended Wednesday trading -0.54% lower at 32'813.23 points. The S&P 500 fell by -0.75% to 4'101.23 points and the Nasdaq indices recorded losses of the same magnitude. While the survey results of the ISM on the mood in American industry had provided some tailwind, the Fed’s Beige Book strengthened the inflation and recession fears of investors. The focus now shifts to the American labor market. Today, the data from ADP on the employment situation in the US private sector is pending, followes by  the official labor market statistics from Washington on Friday.

On Asia's stock exchanges, too, most stock indices trended in negative territory, weighed down by inflation and recession fears. In Tokyo, the 225-value Nikkei index trades slightly lower by about -0.25%, while the Hang Seng index of the Hong Kong stock exchange declines about -1.8%. Meanwhile, the CSI-300 index with the 300 most important companies in mainland China remained virtually unchanged.

In the bond market, the yield of ten-year US government bonds climbed again to 2.91%. Oil prices are currently lower again after Saudi Arabia is said to be ready to increase oil production to compensate for the sanctions-related shortfall of Russia.

Beige Book – economic slowdown with rising prices    

In the United States, economic growth has weakened recently in all twelve districts of the Federal Reserve System, according to the Beige Book economic report released last night. Currently, only “slight or modest growth” can be observed. At the same time, price pressures have continued to increase, weakening consumption in particular.

US manufacturing proves resilient

Sentiment in the US industrial sector brightened unexpectedly in May, according to the latest survey results from the ISM (Institute for Supply Management) industry association. The purchasing managers' index, which receives much attention due to its strong correlation with US economic growth, improved from 55.4 points in April to 56.1. Analysts had on average expected a decline to 54.5 points. According to the ISM, US manufacturing continues to be driven by solid demand, but is also burdened by ongoing supply bottlenecks.

Supply chain problems and inflationary pressure weigh heavily on Europe's industry

In the euro countries, sentiment in the industrial sector deteriorated again in May. The purchasing managers' index for the eurozone weakened from 55.5 to 54.6 points, falling to its lowest level in a year and a half. According to S&P Global chief economist Chris Williamson, companies are being weighed down primarily by problems in global supply chains, rising inflation, but also weaker demand and a cloudy economic outlook.

In the UK, the latest purchasing managers' index also points to a further deterioration in business confidence in the industrial sector. The PMI fell by 1.2 points to 54.6 and is now at its lowest level since the beginning of 2021.

Canada's central bank raises key interest rate again

The Bank of Canada raised its key interest rate for the second time in a row by half a percentage point to +1.5%. The new rate hike was expected on the financial markets. The central bank also signaled a further tightening of monetary policy to vigorously combat inflation (currently +6.8%).

Economic Indicators June 2

MEZ Country Indicator Last period
06:00 UK Bank Holiday
08:30 SZ Consumer Prices (May, y/y) +2.5%
11:00 EZ Producer Prices (April, y/y) +36.8%
12:00 OPEC Press Conference
14:15 US ADP Private Payrolls (May) +247,000
14:30 US Initial Jobless Claims (weekly) 210,000
14:30 US Productivity Q1 (non-farm) -7.5%
16:00 US Durable Goods Orders (April, m/m) +1.8%


Earnings Calender June 2

Country Company Period
FR Remy Cointreau Annual
US Broadcom Q2
US Ciena Q2


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