Inflation in the US accelerated again in September and consumer spending was strong during the month, data released at the end of last week showed. That prompted investors to look ahead to the US Federal Reserve’s (Fed) next monetary policy announcement on Wednesday despite clear expectations for the Fed to keep rates unchanged. Markets were cautious at the start of the week with most Asian stock markets in the red. One main driver of negative sentiment was the start of the Israeli ground offensive on the weekend.
The Core Personal Consumption Expenditure Index (PCE) for the US increased 0.3% in September when compared to the previous month, which was faster than August’s 0.1% but in line with market expectations. When compared to the same period last year, core PCE was up 3.4%. The core reading ignores volatile food and energy prices and is the Fed's preferred gauge of inflation.
The PCE report form the Commerce Department also contained data showing strong consumer spending with personal spending rising 0.7% in September from the previous month. That contrasts with the consumer survey from the University of Michigan, which was also released Friday and showed consumers becoming more careful about purchasing decisions. Consumer Sentiment in September came in at 63.8 points in October, down from the 67.9 reading in September.
In New York, stocks finished last week mostly lower, but tech stocks were able to stabilize on Friday. The Dow Jones Industrial lost 1.1% and the S&P 500 dropped 0.5%. The Nasdaq-100 gained 0.5%, largely supported by Amazon (+6.8%) and Intel (+9.3%). Both companies reported earnings after the bell on Thursday. Stocks of oil majors ExxonMobil (-1.9%) and Chevron (-6.7%) both slipped on Friday after the companies reported substantially lower earnings than during the same period last year. The difference was mostly due to a lower oil price. West Texas Intermediate crude oil was trading slightly weaker at around USD 84 per barrel to start the week.
In the Asia-Pacific region, stock markets were mixed on Monday. In Tokyo, the Nikkei 225 led losses, down 1% ahead of a Bank of Japan monetary policy decision due on Tuesday. Analysts do not expect the Japanese central bank to change its key short-term interest rate of -0.1% or make changes to its yield-curve control targets. In South Korea, the Kospi gained 0.3%. In Australia, the S&P/ASX 200 closed down 0.8% after retail sales in the nation increased at the fastest pace in 8 months. That led some traders to believe the Reserve Bank of Australia will increase rates again at its next monetary policy decision in November. Hong Kong's Hang Seng Index fell 0.3%, while the Shanghai Composite was up 0.2%.
Corporate news in focus: Quarterly figures from HSBC, Clariant, Erste Group Bank, McDonald’s, and a production report from Glencore.
Economic data in focus: German gross domestic product (08:00 CET), Switzerland’s KOF Economic Barometer (09:00), Austrian gross domestic product (09:00), German Consumer Price Index (14:30).
All about global economic and market trends at a glance
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Editor: Alessandro Fezzi
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We apply a “hybrid approach” (internal fundamental analysis combined with “theScreener”, an external, purely quantitative analysis tool). TheScreener is based on purely quantitative, i.e. computable variables such as (but not exclusively restricted to) profit adjustments of the past few weeks, stock valuation in relation to historical performance and comparison groups, the technical trend, performance in relation to the market etc. The assessment of the equity analysts, which is largely based on a qualitative analysis, does not need to match with the one of theScreener. For the overall judgement the assessment of the equity analysts overrides the one of theScreener. LGT Bank (Switzerland) Ltd. categorizes its analysis recommendations into five ratings: for a “Buy” recommendation we expect a relative outperformance compared with the sector. Only equities subjected to an internal fundamental analysis can be rated “Buy”. The recommendation “Attractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly positive” or “positive”. A moderate relative outperformance versus the index is expected. For equities that we rate as “Hold” we expect a performance largely in line with the one of the sector. This can comprise both equities for which a fundamental analysis has been carried out as well as equities that theScreener ranks as “neutral” versus the index. The recommendation “Unattractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly negative”. A moderate relative underperformance versus the index is expected. By contrast, “Sell” recommendations are based on the expectation of a relative underperformance compared with the sector. This can comprise both equities for which we are recommending “Sell” for fundamental reasons as well as equities that theScreener ranks as “negative” versus the index. Therefore the ratings always reflect a relative consideration versus the sector and/or specified index. The risk assessment is based on the individual judgement of the analyst (e.g. we assume a “high” risk for illiquid shares, highly indebted companies or shares from developing countries).
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We employ both qualitative and quantitative methods to derive our recommendations, which are to be seen as relative to sector/quality peers among comparable maturities. “Buy” and “Sell” recommendations demand a qualitative in-house analyst opinion, in which we incorporate both historical and projected financial results and credit metrics as well as past and anticipated company and sector-specific observations and trends. We recommend “Buy” for a security for which we expect a strong relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Sell” if we expect strong relative underperformance compared to sector/quality peers among comparable maturities. The ratings “Attractive”, “Hold” and “Unattractive” can be based purely on a quantitative approach, which includes the market price of credit risk, valuation of equities and associated instruments, corporate leverage, liability structure, size, and agency rating. We recommend “Attractive” for a security for which we expect a relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Hold” if we expect an average performance compared to sector/quality peers among comparable maturities. We recommend “Unattractive” if we expect a relative underperformance compared to sector/quality peers among comparable maturities.
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Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates
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