After strong gains to end last week, Monday’s session was clearly weaker for stock markets as the euphoria surrounding the US debt ceiling deal faded and investors looked ahead at the potential for another interest rate hike in the US, possibly even as early as next week. Australia’s central bank became the next central bank to surprise with continued hikes on Tuesday, increasing rates again and catching many traders off guard.
In New York, the broader stock market indices were down on Monday. The Dow Jones Industrial lost 0.59% to finish the day at 33,562.86 points and the S&P 500 fell 0.2%, closing at 4'273.79 points. The tech-heavy Nasdaq 100 ended marginally higher. Apple’s stock price fell by 0.76% after the company announced the release of its new virtual reality goggles at its developer conference in California. The heavy price tag at 3,500 US dollars may be one reason traders were sceptical.
Australia’s central bank set the tone for further interest rate hikes by the world’s major central banks when it surprised many traders by increasing its benchmark interest rate by 25 basis points to 4.1%. Market participants had largely expected the RBA to keep rates unchanged. As a result, the Australian stock index S&P/ASX 200 fell by around 1%, while the Australian dollar strengthened versus the US dollar.
Other stock markets in the Asia-Pacific region were more mixed Tuesday. In mainland China, the Shanghai Composite was trading in slightly negative territory and the Shenzhen Component slipped about 0.5%. Hong Kong's Hang Seng Index managed to gain about 0.7%. In Tokyo, the Nikkei 225 continued to forge ahead after breaking a multi-decade high a day earlier. The index was up around 0.7% on Tuesday. South Korea’s Kospi was also trading up about 0.5%.
In Switzerland, the inflation rate fell for the third month in a row after spiking again at the start of the year and is now approaching the 2%-level targeted by the Swiss National Bank (SNB). Switzerland’s Consumer Price Index (CPI) increased by 0.3% in May when compared with the previous month. Prices were up 2.2% when compared with prices the same month a year ago. That puts inflation at a much lower level that in neighbouring European Union countries and close to the SNB's target. The main drivers for price increases were rent, vacation and food prices. Switzerland’s SMI stock index finished the day down 0.25%.
Corporate news in focus: British American Tobacco Q2 revenue (08:00 CET).
Economic data in focus: German industrial orders (08:00 CET), eurozone retail sales (11:00), weekly US API oil report (22:30).
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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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
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