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LGT Navigator: Positive US economic data drive recovery rally – Bank of England in focus

August 4, 2022

Predominantly positively received quarterly reports of numerous companies and better than expected US economic data caused a recovery rally on Wall Street after the recent setback. In addition to further corporate results out of Europe, the focus today is also on the monetary policy decision of the Bank of England, which will probably intensify the fight against inflation with a further interest rate hike.

Positive US economic data drive recovery rally – Bank of England in focus
The Bank of England

The Dow Jones Industrial closed +1.29% higher at 32'812.50 points. The S&P 500 gained +1.56% to 4'155.17 points, the highest level since early June. In particular, the survey of the purchasing managers association ISM in the US service sector, which was better than expected, provided a tailwind. Even more significant were the daily gains on the Nasdaq, where the indices were up by about +2.75% and showed the highest values since early May. The recovery was also driven primarily by strong quarterly results, for example from Moderna. The share was the biggest gainer with +15%. The biotech company continued to benefit from its Covid-19 vaccine in the past quarter and announced a share buyback program.

In the Asia-Pacific region, most stock indices are trading higher today. On the one hand, they benefited from the rally on Wall Street and the hope that the tensions surrounding the visit of the Speaker of the US House of Representatives, Nancy Pelosi, to Taiwan will ease after the departure.

In the bond market, the yield on ten-year US government bonds fell to around 2.7%.

The focus today is on further corporate results, for example, from Bayer, Merck KGaA, Lufthansa, Credit Agricole or Glencore, as well as the interest rate decision of the Bank of England at 13:00 (CET). A new interest rate step of up to 50 basis points is expected.

Sentiment in the US service sector brightens surprisingly

In July, service companies in the US surveyed by the ISM (Institutes for Supply Management) industry association were unexpectedly confident. The purchasing managers' index improved from 55.3 to 56.7 points, while analysts on average had expected a decline to 53.5 points. As the survey results indicate, the situation regarding supply bottlenecks appears to have eased somewhat.

Positive data was also delivered by US industry. Thus, orders in June increased by +2% compared to the previous month, as reported by the US Department of Commerce in Washington. Analysts had expected +1.2%.

Euro purchasing managers' index falls below 50 growth threshold

Business sentiment in the euro area continued to deteriorate in July, with S&P Global's Purchasing Managers' Index (PMI) now signaling a contraction in the private sector for the first time since February 2021 at 49.9 points, down from 52.0 the previous month. According to Chris Williamson, chief economist at S&P Global, the economic outlook has visibly darkened at the beginning of the third quarter.

In the UK, the Purchasing Managers' Index for the private sector also weakened further over the summer. The PMI fell by 1.6 points to 52.1, its lowest level since February 2021, and sentiment in the UK service sector had deteriorated more than expected. The sector had posted its worst month since the national lockdown in February 2021. The backdrop was high inflation, which had led to lower consumer spending, S&P Global commented.

Eurozone retail sales lower

Retail sales in eurozone countries unexpectedly fell sharply in June. Compared with the previous month, sales fell by -1.2%. Analysts had expected stagnation on average. On an annual basis, sales slipped by -3.7%. According to Eurostat, sales in all major subgroups had declined compared with the previous month.

Inflation in Switzerland remains at elevated level

The rate of consumer price inflation in Switzerland did not rise further in July. At +3.4%, the inflation rate remained stable at the previous month's high level. More had to be paid above all for imported goods, which rose by +8.4% over the year. For domestic goods, annual inflation was significantly lower at +1.8%. By international standards, inflation in Switzerland remains relatively moderate. In the euro zone, the inflation rate is currently +8.9%, and in the USA it is even +9.1%.

OPEC+ slightly increases oil production

The oil producing countries of OPEC+ yesterday decided to slightly increase their production volumes in September. After the larger increases of the past months, the joint production target will be expanded by another 100'000 barrels per day.

 

Economic Indicators August 4

MEZ Country Indicator Last period
08:00 GE Industry Orders (June, m/m) +0.1%
10:00 EZ ECB Monthly Bulletin
13:00 UK Bank of England monetary policy announcement +1.25%
13:30 UK Bank of England Governor Bailey speaks
14:30 US Trade Balance (June) USD -85.6bn
14:30 US Initail Jobless Claims (weekly) 256,000

 

Earnings Calender August 4

Country Company Period
JP Toyota Motor Q1
SZ Swiccom Q2
SZ Glencore H1
GE Merck KGaA Q2
GE Bayer Q2
GE Adidas Q2
GE Lufthansa Q2
GE Lanxess Q2
GE Beiersdorf H1
GE Hannover Re Q2
FR Credit Agricole H1
AUT Voestalpine Q1
DNK Novo Nordisk Q2
UK Next Q2
UK Rolls-Royce H1
US Eli Lilly Q2
US Amgen Q2
US Kellogg Q2
US Conoco Phillips Q2
US Cigna Q2
US Expedia Q2

 

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Imprint
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

 

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