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LGT Navigator: New impetus expected

April 19, 2022

At the beginning of the week, stock market sentiment remained characterized by caution after the Easter weekend in view of the holiday-related absence of many European markets, the continued war in Ukraine and the skid marks in China's economy. The focus also remains on the just started quarterly reporting season of listed companies and the spring meeting of the International Monetary Fund and the World Bank, which started at the beginning of the week and will be addressed on Thursday by Fed Chairman Powell and ECB President Lagarde, among others. The markets are also hoping for new impetus from the Federal Reserve's Beige Book on Wednesday. 

New impetus expected

On Wall Street, stock indices traded more or less sideways on Monday. The Dow Jones Industrial closed -0.11% lower at 34'411.69 points and the S&P 500 gave up -0.02% to 4'391.69 points. Trading volume on the New York Stock Exchange was described by traders as below average. However, the corporate reporting season, which started last week, should provide new impetus in the coming days. The further development of the takeover attempt of Twitter by Tesla CEO Elon Musk also remains in the stock market focus. Investors will also eagerly await the regular economic report of the Federal Reserve, the so-called Beige Book, which will be published on Wednesday evening. On the bond market, the yield on ten-year US government securities is currently quoted at 2.86%. A major topic in the financial markets also remains the war in Ukraine, where Russia has apparently launched the expected new offensive in the east of the country. Meanwhile, the latest round of negotiations between Ukraine and Russia again remained without tangible results.

In Asia, most stock indices are trading in positive territory on Tuesday. In Tokyo, the  Nikkei index is up about +0.7%, while the yen is weaker. In Shanghai, the Composite Index trades with +0.2% moderately in the plus. In Hong Kong, however, the Hang Seng Index loses around -1.8%, driven by declines in tech giants in the wake of recent Chinese regulatory measures in the sector.

Lockdowns noticeably weigh on China's economy

The second-largest economy lost considerable momentum in the first quarter. Beijing's zero-Covid-strategy is proving to be a drag. China is currently experiencing the biggest corona wave since the start of the pandemic more than two years ago. However, according to government data, Chinese GDP still expanded by a solid +4.8% in Q1 compared to the previous quarter. After last year's strong economic recovery, China's economic trend now appears increasingly fragile. In addition to the strict lockdowns, especially in the economic metropolis of Shanghai, higher inflation in key export markets is also causing lower purchasing power and thus lower demand for Chinese goods. Last Friday, the Chinese central bank responded by slightly lowering bank reserve requirements. On the other hand, however, the People's Bank of China left interest rates unchanged. It is now eagerly awaited whether the government in Beijing will support the economy with further stimulus measures.

ECB keeps options open

At its meeting on Thursday, the European Central Bank (ECB) paved the way for an exit from its expansionary monetary policy. Accordingly, it plans to end its bond-buying program (Asset Purchase Program, APP) in the third quarter. The monetary guardians continue to keep open the timing for a first interest rate step. "We will deal with interest rates when we get there", ECB President Christine Lagarde said. The ECB stresses that the increase in interest rates will be gradual and that a rate hike will only become an issue after bond purchases have stopped. That could be a few weeks or even a few months after the end of the APP program, Lagarde said. The financial markets expect a much faster timetable. They expect a first rate hike of 25 basis points as early as September, as well as two more rate hikes this year. The ECB is in a difficult situation: price growth in the currency area reached a record +7.5% in March. At the same time, the risk of an economic slowdown has increased significantly due to the war in Ukraine.

High fuel prices drive US retail sales

US retailers again earned more in March, with revenues up +0.5% from the previous month, the US Commerce Department reported Thursday. This comes after annual inflation climbed to +8.5% in March, the highest level in more than forty years. The bulk of the additional spending is due to rising gasoline prices, which have increased in price by nearly 20% compared to February. Excluding gasoline receipts, retail sales contracted -0.3%. Nevertheless, Americans' willingness to pay for activities that were difficult during the pandemic remains high. This benefits airlines and local tourism, for example.


Economic Indicators April 19

MEZ Country Indicator Last period
06:30 JP Industrial production (February, m/m) +0.1%
14:30 US Building permits (March, m/m) -1.6%
14:30 US Housing starts (March, m/m) +6.8%


Earnings Calender April 19

Country Company Period
US IBM Q1 2022
US Johnson & Johnson Q1 2022
US Netflix Q1 2022


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