Worse-than-expected US economic data and a sell-off in semiconductor stocks led to losses on Wall Street on Tuesday. Asia-Pacific stock markets followed the negative cues from overseas and posted some heavy losses on Wednesday.
In New York, stocks were lower after an extended Labor Day weekend. In particular, technology stocks, which are sensitive to the economy, plunged following weak sentiment data from the US manufacturing sector and a sell-off in semiconductor stocks. According to the latest survey by the Institute for Supply Management (ISM), the closely watched purchasing managers' index for the industrial sector improved from 46.8 to 47.2 points in August, but fell short of expectations of 47.5 points and remains below the growth threshold of 50 points. This important economic barometer therefore also points to a weakening of the economy as a whole. The Dow Jones Industrial fell by 1.5% to close at 40,936.93. The broad market S&P 500 fell 2.1% to 5528.93. The Nasdaq 100 fell 3.15% to 18,958.74, its biggest loss since July.
Among individual stocks, semiconductors were the biggest losers. Investors' disappointment with Nvidia's outlook last week was clearly still having an effect. Intel shares ended the day down 8.8%. Nvidia lost 9.5% and ON Semiconductor 9.1%.
Led by the Nikkei 225, Asia-Pacific markets fell sharply on the back of poor sentiment on Wall Street. Once again, semiconductor stocks were among the worst performers. Some chipmakers and Nvidia suppliers were among the losers today. In Tokyo, the Nikkei 225 lost 4.7% and the South Korean Kospi lost 3.2%. In Australia, the S&P/ASX 200 was down 2.1%, mainly due to weak oil prices. The country's gross domestic product grew by 1% year-on-year in the second quarter, in line with expectations. Compared with other markets, the Chinese and Hong Kong indices posted smaller losses. The Hang Seng Index lost 1.3% and the Shanghai Composite fell 0.7%. In China, the Caixin Services Purchasing Managers' Index for August showed slower expansion than in the previous month, falling from 52.1 to 51.6.
The Swiss economy is gaining momentum. Switzerland's gross domestic product grew by 0.5% in the second quarter, compared with a growth rate of 0.3% in the previous quarter. The Swiss consumer price index fell to 1.1% last month from 1.3% in July. However, the poor mood on Wall Street also rubbed off on the Swiss stock market. The leading SMI index ended the day down 0.8% at 12,348.19 points. The picture was similar in the eurozone, where the EuroStoxx 50 index fell by 1.2% to 4912.52 points.
Corporate news in focus: There is no important corporate news today.
Economic data in focus: Purchasing managers' surveys in the services sector in the eurozone countries, the UK and the USA. Canada interest rate decision. USA trade balance and Fed Beige Book.
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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