Stock markets initially started the new week with gains, recovering somewhat from the losses of the previous week. On Wall Street, however, the indices had to give back most of their initial gains, and in Asia, stock markets trended only slightly higher today. In the US, the benchmark yield on ten-year government bonds moved away from the 4%-mark, while in the German bond market the yield on ten-year Bunds climbed to its highest level since 2011. In shorter maturities, German paper yielded more than 3%, the highest since 2008.
The Dow Jones Industrial closed 0.22% higher at 32’889.09 points and the broad-based S&P 500 added 0.31% to 3’982.24 points on Monday. On the Nasdaq 100, the indices rose by around 0.75% at the beginning of the week. Slightly lower yields on the US bond market provided minimal tailwind. The yield on the ten-year US government bond currently stands at 3.93%, close to its recent high. The latest data on new orders in US industry showed that orders for capital goods, excluding the military and aerospace sectors, rose by 0.8% in January compared to the previous month. This is seen as a positive indication of companies' propensity to invest.
Markets in the Asia-Pacific region were mostly moderately higher on Tuesday. The Nikkei 225 in Tokyo was virtually unchanged. Hong Kong's Hang Seng Index slipped 0.4% and the Hang Seng Tech Index fell about 1.5%. Hong Kong Chief Executive John Lee had announced he would lift the mask mandate from March 1st. In mainland China, the Shenzhen Component rose marginally, while the Shanghai Composite fell 0.2%.
In focus today: Adecco, SIG Group and Bayer with their annual earnings. Looking at economic data, we expect: the KOF economic barometer from Switzerland (09:00 CET) and the results of the consumer confidence survey from the US (16:00 CET).
The European Commission's monthly Economic Sentiment Indicator (ESI) fell by one basis point to 99.7 points in February, marking the first decline in three months. Economists had expected a further improvement to 101.0 points. According to the survey results, sentiment deteriorated in both, the service and manufacturing sectors. Consumers and companies in the retail sector were more confident.
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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
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