Consumer inflation expectations in the eurozone have fallen sharply, which may provide some relief for the European Central Bank (ECB) as it looks to end its rate hiking cycle this summer. That news and a slightly better growth outlook for the global economy by the World Bank helped stock market indices to squeeze out slight gains on Tuesday.
Inflation expectations in the eurozone fell rapidly in April, according to a survey conducted by the ECB. In April, consumers in the economic bloc expected prices to rise by 4.1% over the coming 12 months, a steep fall from the 5% expected just one month earlier. Over the next 3 years, consumers expect a 2.5% increase in prices. That figure is not far from the ECB’s 2% medium-term target and confirms the view held by many market participants that the ECB will likely end its rate hiking cycle in the coming months. The EuroStoxx 50 finished Tuesday up 0.05%.
In New York, markets just managed to squeeze out mild gains on Tuesday. The Dow Jones Industrial ended the day marginally higher at 33,573.28 points and the S&P 500 gained 0.24%, closing at 4,283.85 points. The tech-heavy Nasdaq-100 also just managed to finish in positive territory, up 0.01% at 14,558.09 points. Coinbase shares fell by 12.09% after the US Securities and Exchange commission (SEC) sued the cryptocurrency platform for allowing customers to trade unregistered securities on its exchange. A day earlier, the SEC sued the world’s largest crypto trading platform, Binance, on a broad set of allegations.
The world bank raised its growth forecast for the global economy slightly on Tuesday to 2.1% this year, up from its previous forecast made in January of 1.7%. The low growth figure is largely due to central banks’ rate hiking cycles, stubborn inflation in many countries and instability in the financial sector.
Stock markets in the Asia-Pacific region were mostly trading higher on Wednesday, despite disappointing Chinese trade data. Exports from the world’s second-largest economy dropped 7.5% in May, when compared with the same month a year earlier and imports fell 4.5%. Stock indices in mainland China were nevertheless trading slightly in positive territory with the Shanghai Composite 0.3% higher and the Shenzhen Component up 0.1%. Hong Kong's Hang Seng Index rose 1.36%. In Tokyo, the Nikkei 225 fell 1.24%, reversing the strong trend of the previous days. South Korea’s Kospi was trading up 0.3%. In Australia, the S&P/ASX200 was up slightly, despite the country announcing its weakest growth figure in 1.5 years for the first quarter at 2.3% growth.
Corporate news in focus: Annual figures from Voestalpine (07:30 CET), annual general meeting at Air France-KLM (14:30).
Economic data in focus: Swiss unemployment (07:45 CET), German industrial output (08:00), US trade balance (14:30), Bank of Canada interest rate decision (16:00).
All about global economic and market trends at a glance
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Editor: Alessandro Fezzi
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Explanation of investment recommendations for stocks
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).
Reference regarding share valuation basis: The analysis compiled by LGT Bank (Switzerland) Ltd. are essentially based on secondary research relating to fundamental and quantitative analysis. Generally accepted valuation methods (valuation multiples, return figures, sector comparisons, comparisons with past valuations etc.) are used for this. The forecasts for the quantitative analysis are prepared with the help of mathematical-statistical procedures (see statements above concerning the analysis tool “theScreener”). Economic indicators such as interest rates, currencies, commodity prices and assumptions relating to the economy are included in the overall assessment. The mood of the market also affects the company valuation. Moreover, many of the approaches are based on estimates and expectations that may change quickly and without warning, depending on developments specific to the industry. Therefore, the recommendations derived from the analysis can also change accordingly. The investment judgements generally refer to a period of 6 to 12 months. However, they are also subject to market conditions and represent a snapshot of the situation. They may be achieved more quickly or more slowly or be revised upwards or downwards.
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
For more information on our methodology for bonds, please contact your LGT relationship manager or your local LGT Group company.
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All selected third-party funds are subjected to a thorough quantitative and qualitative analysis process prior to inclusion in the LGT FundGuide. Selected third-party funds are also subject to a continuous monitoring process. Austria: Investment decisions should only be made on the basis of the current KIID and valid prospectus following consultation with an expert.
Country-specific information
LGT funds: The current full prospectus, the Key Investor Information Document (KIID) and the current annual and semi-annual reports can be obtained free of charge from the fund administrator and from the following addresses: Liechtenstein: LGT Bank Ltd., Herrengasse 12, FL-9490 Vaduz and as an electronic version at www.lafv.li; representative for Switzerland: LGT Capital Partners Ltd., Schützenstrasse 6, CH-8808 Pfäffikon; main distributor and paying agent for Switzerland: LGT Bank (Switzerland) Ltd., Lange Gasse 15, CH-4002 Basel; paying agent in Austria: Erste Bank der österreichischen Sparkassen AG, Am Belvedere 1, A-1010 Vienna.
This recommendation was prepared by LGT and not by an independent financial analysis department. Therefore this recommendation does not meet all the statutory requirements for guaranteeing the impartiality of financial research. The Swiss Bankers Association Directives on the Independence of Financial Research do not apply to this recommendation. Investments in structured products entail a wide range of risks. Investment decisions should therefore only be made on the basis of the valid prospectus or complete documentation following consultation with an expert. This does not constitute financial analysis within the meaning of the Liechtenstein Ordinance on the Preparation of Financial Analysis according to the Law against Market Abuse in the Trading of Financial Instruments.
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