Producer and import prices in Switzerland were flat last month, data released at the end of last week showed. Signs were mounting that inflation is easing not only in the Alpine country but also on the other side of the Atlantic in the world’s largest economy. After a strong week, US equity markets took a breather on Friday. Meanwhile, the Chinese economy is losing momentum.
The Swiss Producer and Import Price Index was unchanged in June when compared with the previous month, data released Friday showed. Prices for the whole range of domestic and imported products was down by 0.6% when compared with the same month a year ago. Producer prices are watched as an indicator of the inflationary trend in a country as they tend to lead consumer prices. The inflation rate in Switzerland decelerated to 1.7% year-on-year in June, a much lower rate than in neighbouring European countries, such as Germany, where inflation is currently 6.8%. Nevertheless, the Swiss National Bank (SNB) raised interest rates in June by another quarter of a percentage point in an effort to fight inflation.
Also on Friday, more data was released supporting the narrative that inflation in the US is on its way down. Import prices in the world’s largest economy fell by 0.2% last month. The data came in the same week that data was released showing consumer and producer price increases were decelerating in the world’s largest economy.
Equity celebrated the slow inflation solid gains during the week. On Friday, however, stock markets in New York took a breather. The Dow Jones Industrial climbed by 0.3% and closed at 34'509.03 points. The S&P 500 fell 0.1% and ended the week at 4505.42 points. The Nasdaq Composite lost 0.2% to 14'113.70 points.
In individual stocks, JPMorgan Chase kicked off the second-quarter earnings season with revenue and net interest income coming in well ahead of market expectations. The bank’s shares gained 0.6%.
The Chinese economy is growing more slowly than expected. Gross domestic product rose by 6.3% year-on-year in the second quarter of the year, as the statistics office in Beijing reported on Monday. Growth was thus slightly better than at the beginning of the year, although analysts had expected a stronger increase.
The Chinese stock markets react with losses to the economic data. The Shanghai Composite is down 1.2% in Monday trading and the Shenzhen Component sheds 0.9%. Hong Kong markets will likely be closed all Monday due to a typhoon warning. Japan’s markets are closed for a holiday.
Corporate news in focus: Richemont Q1 revenue (07:30 CET).
Economic data in focus: ECB President Christine Lagarde speaks at an event in Frankfurt on Eastern Europe (10:15 CET), Empire State Manufacturing Survey USA (14:30).
All about global economic and market trends at a glance
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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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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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