Equity markets ended Thursday’s session marginally up after a modest increase in US consumer prices. Investors interpreted the inflation data to mean the US Federal Reserve (Fed) could have room to pause its hiking cycle again to allow time for prices to come down.
The US Consumer Price Index (CPI) rose 3.2% in July when compared to the same month a year earlier, or 0.2% when compared with the previous month. Increases to rent prices accounted for 90% of July’s prices gains, according to the US Bureau of Labor Statistics. Core CPI, which strips out volatile food and energy prices and is the Fed’s preferred gauge for inflation, was up 4.7% on the year. Both the headline and core figures are still much higher than the Fed’s target of 2% inflation but much lower than a year ago when headline CPI was over 8% with core CPI nearly 6% and still rising.
Also supporting a Fed pause on Thursday was fresh labour market data. US weekly initial jobless claims increased during the week ending August 5 by 21,000 to 248,000.
In New York, the major stock indices ended the day with small gains. The positive inflation data drove prices up significantly at first, before the momentum slowed noticeably again later in the session. The Dow Jones Industrial finished the day up 0.15% to 35,176.15 points and the S&P 500 gained 0.03%, ending at 4,468.83 points. The Nasdaq-100 gained 0.18% to close at 15,128.84 points.
In a contentious vote on Thursday, regulators in California decided to relax most rules for operating and charging for rides, opening the market for more self-driving taxi services. The move solidifies San Francisco as the capital of self-driving cars and could be a boost to a potentially massive industry yet to see widespread adoption.
In individual stocks, Siemens shares were down 4.79% after the German industrial giant cut the guidance at its key Digital Industries segment. Order intake at the unit was weak when presenting its third-quarter results on Thursday.
Chinese tech company Alibaba said revenue was up 14% on the year in the quarter ending June 30. Notably, revenue from international retail jumped by 60% year-on-year, pushing the firm’s US-listed shares up by 3.65% on Thursday.
In Asia, stock markets were mostly down on Friday. The exception was Japan, where the Nikkei 225 was trading up 0.8%. Hong Kong's Hang Seng Index lost 0.5%, while the Shanghai Composite was down 1.2% in early trading. In South Korea, the Kospi was a bit lower, at -0.2%, and Australia’s S&P/ASX 200 was trading down 0.4%.
Corporate news in focus: Half-year figures from Salzgitter.
Economic data in focus: French unemployment (07:30 CET), UK industrial production, gross domestic product, and trade balance (08:00), US Producer Price Index (14:30) and University of Michigan Consumer Sentiment Index (16:00).
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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