Equity markets slid on Tuesday with concerns surrounding the US debt ceiling weighing on sentiment. A meeting between US President Joe Biden and House Speaker Kevin McCarthy failed to produce any results, meaning the world’s largest economy is still moving closer towards a potential default, which could happen in less than a month. Markets are likely to see more swings this week as representatives from Congress will meet with the president each day until Friday in hopes of coming to an agreement on increasing the national debt.
In New York, stock markets fell on Tuesday after remaining roughly stable to start the week. Market participants took positions ahead of the US Consumer Price Index, which is closely watched by the Fed and due later Wednesday. Dow Jones Industrial lost 0.17% to finish the day at 33,561.81 points and the S&P 500 dropped 0.46% to close at 4,119.17 points. The tech-heavy Nasdaq-100 sank 0.68%.
US regional banks sold off heavily to start the day on Tuesday, albeit not as bad as some previous tumbles during the past weeks. Later in the day, however, some stocks managed to return to positive territory with PacWest ending the day up 2.35%. The other regional bank to make the headlines regularly recently, Western Alliance, saw its shares traded fall 1.35% by the end of the day. Regional lenders have been under pressure since Silicon Valley Bank and Signature Bank both collapsed earlier this year.
In the banking sector on the other side of the Atlantic, UBS, which is in the process of acquiring peer Credit Suisse, appointed Credit Suisse Chief Executive Officer Ulrich Koerner to a position on its management board. Koerner will be responsible for Credit Suisse’s operations during their integration into UBS.
In Asia, markets were also anxiously awaiting US inflation figures for a hint as to how the rest of the US Federal Reserve’s hiking cycle could look. In mainland China, the Shanghai Composite dropped about 1% and the Shenzhen Component lost 0.53%. Hong Kong’s Hang Seng Index slipped 0.3%. Japan’s Nikkei and South Korea’s Kospi were both down around 0.4%.
Corporate news in focus: Q1 figures from Lonza, Alstom, Dufry, Ahold Delhaize, Salzgitter. Annual general meetings at Volkswagen, Swatch.
Economic data in focus: German Consumer Price Index (08:00 CET), US Consumer Price Index (14:30), SNB Chairman Thomas Jordan speaks (18:00).
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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