Equity markets continued their recovery after the price losses of the last few days, which were driven by turbulence in the banking sector. Investors found support in the assumption that the Federal Reserve will raise interest rates only moderately, if at all, at the monetary policy decision due next week. The reason for this is, on the one hand, the potential danger of a widening crisis in the financial system due to the collapse of Silicon Valley Bank and, on the other hand, the data published yesterday on the inflation trend in the US.
On Wall Street, share prices stabilized on Tuesday. The Dow Jones Industrial closed at 32,155.40 points 1.06% higher than the previous day and the S&P 500 went out up 1.68% at 3,920.56 points. On the Nasdaq technology exchange, the indices rose by about 2.3%. The mood was driven primarily by the recovery in the banking sector. For example, the shares of troubled First Republic Bank rose by about 25%. But also shares of supra-regional banks such as JPMorgan and Goldman Sachs or Bank of America, Citigroup and Wells Fargo increased. Stock market sentiment was also supported by hopes that the Fed would reduce the pace of interest rate hikes due to possible distortions in the financial system.
The further decline in inflation in the US also provided positive impetus for stock markets. In February, consumer prices rose by 6.0% over the year. In January, inflation was still 6.4%. The core inflation rate, i.e. excluding volatile energy and food prices, was 5.5%, compared with 5.6% at the beginning of the year. The Federal Reserve may have now gained some leeway to possibly loosen the reins somewhat, i.e. take a break in the current interest rate cycle and first observe the further development of inflation.
Nevertheless, the benchmark yield on ten-year US government bonds rose again from around 3.5% to 3.68%.
In Asia, equity markets trended upwards midweek, after bank stocks on Wall Street had recovered. Hong Kong's Hang Seng index rose 1.3%, leading gains across the region. The Hang Seng tech index rose 1.9%. In Tokyo, the Nikkei 225 was virtually unchanged after early gains melted away. In mainland China, the Shanghai Composite gained 0.6% and the Shenzhen Component added 0.3%. The People's Bank of China left its medium-term lending rate unchanged at 2.75%.
Corporate news in focus today: K+S, E.ON, BMW, Volkswagen core brand VW Passenger Cars and Prudential with annual figures. Hennes & Mauritz reported Q1 sales and in the US Adobe will release its Q1 numbers.
Economic data in focus today: Ifo economic forecast for Germany (10:30 CET) and from the US retail sales and producer prices for February and the Empire State Index for March (both 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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Explanation of investment recommendations for bonds
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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