A stronger-than-expected rise in US producer prices has heightened tension ahead of today's release of US consumer prices. If inflationary pressures continue to build in the world's largest economy, it is likely to further delay the Federal Reserve's initial easing of interest rates.
In the US, producer prices rose more than expected in April. On a yearly basis, producer prices rose by 2.2%, compared with 1.8% in the previous month (revised down from 2.1%). Compared with the previous month, producer prices rose by 0.5% (consensus: +0.3%). Excluding energy and food prices, the core rate was 2.4% y/y and 0.5% m/m in April. A rise in producer prices usually has a lagged effect on consumer prices. If these come in higher than expected this afternoon at 14:30 CET, hopes of an imminent easing of monetary policy in the US are likely to fade.
In New York, stock indexes continued to rise slightly in quiet trading on Tuesday. The Dow Jones Industrial closed up 0.3% at 39,558.11 and the S&P 500 closed up just under 0.5% at 5,246.68. Indices on the Nasdaq technology exchange were up around 0.7%. The Nasdaq Composite Index even reached a new record high. Shares of electric car manufacturers continued to be in focus, benefiting from the US government's announcement of special tariffs of 100% on electric cars from China. Shares in Oracle, the US software and server provider, also rose strongly, gaining almost 4%. According to media reports, Oracle is in talks with Elon Musk's AI company xAI to lease computing power.
The US government's announcement that it will impose special tariffs of 100% on electric cars from China is causing a stir. Washington has also announced new or significantly higher tariffs on solar cells, semiconductors and medical products. The Beijing government has accused the Biden administration of campaigning at China's expense. China will take resolute measures to defend its own rights and interests, it said. The European Union is also investigating the extent to which China is distorting the market for electric cars and whether it should respond with punitive tariffs.
Asia-Pacific markets were mostly higher on Wednesday, tracking gains on Wall Street. Meanwhile, China's central bank left its one-year medium-term lending rate unchanged at 2.5%, as expected. Mainland China's CSI-300 index fell around 0.5%, while markets in South Korea and Hong Kong were closed today for a public holiday. In Australia, the S&P/ASX 200 was up almost 0.5% and in Tokyo the Nikkei 225 was up around 0.7%. Yesterday, Japanese electronics and entertainment group Sony reported a drop in operating profit due to weaker business with the PS5 games console and disappointed with its profit targets for the current year.
Corporate news in focus: ABN Amro, Allianz, Merck KGaA, Commerzbank, ThyssenKrupp, Burberry, Cisco.
Economic data in focus: Swedish consumer prices, French consumer prices, Dutch GDP, Eurozone GDP and industrial production, US consumer prices and retail sales and the New York Fed's Empire State manufacturing indicator.
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).
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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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