Inflationary pressure in the US weakened further in November. Nevertheless, the Federal Reserve (Fed) is likely to leave key interest rates unchanged this evening (20:00). However, the financial markets are eagerly awaiting signals on the future direction of US monetary policy. On Wall Street, the recent fall in inflation in the run-up to the Fed's interest rate decision was greeted positively. In Asia, Chinese shares recorded losses on Wednesday, while the Bank of Japan's Tankan survey led to slight price gains on the Tokyo Stock Exchange.
In the United States, inflationary pressure is continuing to ease. In November, consumer prices rose by 3.1% compared to the same month last year. In October, the inflation rate was still 3.2%. The inflation rate in the US peaked at 9.0% in mid-2022. The decline was largely expected on the markets and was mainly due to lower energy prices. Year-on-year, energy prices fell by 2.3% (petrol -6% and heating oil -2.7%). The core inflation rate, i.e. excluding energy and food prices, remained unchanged year-on-year at 4.0% in November, but rose by 0.3% compared to the previous month.
Inflation data from the USA barely moved the stock markets on Tuesday, in the run-up to the Fed's interest rate decision. The Dow Jones Industrial rose by 0.48% to 36,577.94 points, marking another high since the beginning of 2022. The broad market S&P 500 rose by 0.46% to 4,643.70 points and the Nasdaq indices also closed at a new high for almost two years. On the bond market, the yield on ten-year Treasuries remained virtually unchanged at 4.21%.
Among the individual stocks, Oracle shares remained under pressure and recorded a slump of over 12%. The software company had previously reported lower-than-expected sales growth in the second quarter. The pace of growth slowed for the second time in a row, particularly in the important cloud business.
In Asia, the Chinese mainland index CSI 300 lost around 1.3% on Wednesday and the Hang Seng Index in Hong Kong fell by 1%. In Seoul, the South Korean Kospi also fell by just under 1%. In Tokyo, however, the Nikkei 225 recorded a daily gain of 0.3%. The Bank of Japan's quarterly business survey, the so-called Tankan report, showed that business confidence among large manufacturers improved more than expected in the fourth quarter, with the index rising from plus 10 to plus 12. At the same time, the index for sentiment among large non-manufacturing companies rose from plus 27 to plus 30, marking the seventh consecutive quarter of improvement.
Corporate news in focus: Inditex 9-month figures, Metro AG, annual report.
Economic data in focus: Germany foreign trade October (detailed results, 08:00), UK GDP, industrial production and trade balance October (08:00), Switzerland KOF and Seco economic forecasts (09:00), Eurozone industrial production October (11:00), USA producer prices November (14:30), FOMC interest rate decision (20:00), Fed press conference and economic forecasts (20.30).
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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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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