In Washington, the compromise proposal in the dispute over the debt ceiling was approved by the Senate with 63 to 36 votes and can now be signed by US President Joe Biden. The averted US default will bring relief to the capital markets. The focus this afternoon will be on the latest labour market data in the US. Employment growth is expected to slow, which could give the Federal Reserve more room to pause interest rates.
On the New York Stock Exchange, stock indices rose on Thursday. The Nasdaq 100 exited the month's opening trading 1.31% higher at 14'441.51 points. The Dow Jones Industrial rose 0.47% to 33'061.57 points and the market-wide S&P 500 closed at 4'221.02 points (+0.99%). Following the settlement of the debt dispute in Washington, the focus today is now on the latest labour market data from the US. These will be crucial for the direction of the Fed's monetary policy. Analysts are forecasting an average of 180'000 new jobs created in May, a significant slowdown from the 253'000 non-farm payrolls reported in April. Meanwhile, the ten-year Treasury yield eased further to 3.6%.
In the US industry, business sentiment dimmed in May. The much-watched Institute for Supply Management (ISM) Purchasing Managers' Index fell slightly more than expected to 46.9 from 47.1, signaling a contraction in US manufacturing for the seventh month in a row.
Stock markets in the Asia-Pacific region were mostly higher before the end of the week. Hong Kong's Hang Seng Index rose 3.66%, leading gains across the region. In Tokyo, the Nikkei 225 gained about 0.6%. The Kospi in South Korea gained 1% after inflation fell to a 19-month low in May. The Shanghai Composite in mainland China gained 0.75% and the Shenzhen Component rose 1.5%.
Europe's main stock markets recovered some of their weekly losses so far on Thursday. The EuroStoxx 50 gained 0.94% to start the month. Meanwhile, inflationary pressures in the eurozone eased more than expected in May. Accordingly, the rate of consumer price inflation fell to 6.1% (consensus 6.3%) from 7.0% in April. On a monthly basis, consumer prices stagnated. Excluding energy and food prices, the core rate was 5.3%, down from 5.6% a month earlier. Despite the continued decline, inflationary pressures, especially in the core rate, are still likely to be too strong for the European Central Bank (ECB). Another rate hike is therefore expected on 15 June.
In the meantime, however, sentiment among industrial companies in the eurozone surveyed by S&P Global has deteriorated again. The purchasing managers' index fell for the fourth month in a row, from 45.8 to 44.8 points in May, and is now at its lowest level in three years.
Corporate news in focus: Richemont with annual figures and Alphabet's annual general meeting.
Economic data in focus: France industrial production April (08:45 CET) and from the US the monthly labour market report for May (14:30).
All about global economic and market trends at a glance
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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
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Unless otherwise stated or specified, the rates used in the analysis are normally the share prices provided by the news agencies Reuters and/or Bloomberg at the close of the stock exchange of the domestic market of the analyzed security or the relevant principal market of this security on the respective local stock exchange on the eve of the day of compilation.
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).
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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
For more information on our methodology for bonds, please contact your LGT relationship manager or your local LGT Group company.
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