US producer price data released on Friday confirmed a more persistent than expected inflation environment. As a result, the yield on ten-year US Treasuries climbed above 4.3%. While financial markets in the US were closed for the President's Day holiday, stock markets in the Asia-Pacific region had a mixed start to the new week.
In China, stock markets returned to trading today after the Lunar New Year holidays. The CSI 300 was up 0.5%. China's central bank left its benchmark interest rate unchanged as expected. The Chinese central bank announced that it would keep the interest rate on a one-year USD 69.5 billion equivalent medium-term lending facility unchanged at 2.5%. In Hong Kong, however, the Hang Seng Index fell by around 1% and the Hang Seng Tech Index lost 2.7%. In Tokyo, the Nikkei 225 was little changed after trading close to its record high on Friday. The broader Topix was up 0.5%. South Korea's Kospi gained 1.3% and in Australia the S&P/ASX 200 closed 0.1% higher.
In New York, last Friday's stronger-than-expected rise in US producer prices dampened speculation of interest rate cuts and, by extension, equity indices. US producer prices rose 0.3% in the first month of the year compared to the previous month (consensus +0.1%). The annualised inflation rate was 0.9% (consensus +0.6%). Core inflation, i.e. excluding energy and food prices, was even stronger at 0.5% m/m (consensus +0.1%). On a year-on-year basis, the core rate was 2.0% in January, up from 1.7% in December. Analysts had expected 1.8%. Producer prices tend to influence consumer prices, on which US monetary policy is based.
As a result, the Dow Jones Industrial closed 0.4% lower on the day at 38,627.99 and the broader S&P 500 fell 0.5% to 5,005.57. The Nasdaq lost around 0.9% on Friday and was down around 1.5% on the week. Meanwhile, in the bond market, the yield on ten-year US Treasuries stood at 4.3%.
US consumer sentiment continued to improve in February. The University of Michigan reported on Friday that its consumer sentiment barometer improved by 0.6 points to 79.6, the best reading since mid-2021. The fact that sentiment has not deteriorated indicates that consumer confidence remains strong, with the slowdown in inflation and the solid labour market having a positive effect, it said.
Meanwhile, housing starts plunged 14.8% month-on-month in December, after rising 3.3% in the previous month. Building permits, an important indicator of future construction activity, also fell in January. Compared to the previous month, permits were down 1.5% (+1.3%).
This week the focus will be on the FOMC minutes on Wednesday and, at the end of the week, the German PMI and Ifo business climate barometers.
Corporate news in focus: Quarterly figures from BHP Billiton.
Economic data in focus: US markets are closed on Monday for the Presidents’ Day holiday, German Bundesbank’s monthly report.
All about global economic and market trends at a glance
You can also follow us on Facebook or LinkedIn – or visit Insights and discover interesting background articles. If you have questions, a consultant from the bank will be happy to help you.
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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.
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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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