The Purchasing Managers' Index for the eurozone deteriorated unexpectedly sharply in July. This puts the European Central Bank in a difficult position. In the US, quarterly earnings from heavyweights Microsoft and Alphabet will be in focus today.
Wall Street kicked off a busy week on a positive note. The S&P 500 was up 0.4% at 4554.64. The Dow Jones continued its winning streak for the eleventh day in a row, rising 0.5% to 35’411.24. The Nasdaq Composite recovered some of its recent losses, gaining 0.2% to 14’058.87. Investors will be looking ahead to earnings from US tech giants Microsoft and Alphabet, which are due to release their quarterly reports after closing today. Market participants will also be watching the Federal Reserve's next decision, which is scheduled for Wednesday. The Fed is almost certain to raise interest rates by another 25 basis points.
In Asia, the Hong Kong stock market stood out on Tuesday, with the Hang Seng Index rising more than 3% after Chinese authorities pledged to support the struggling property sector. The Shanghai Composite is up around 1.2%. In Japan, the Nikkei is down 0.3%.
Business climate in the euro area deteriorated more sharply than expected in July. The PMI fell by 1.0 point month-on-month to 48.9 points, financial services provider S&P Global said on Monday. This is a first estimate of the composite indicator, which includes both industry and services. The index fell to its lowest level in eight months, with a reading below 50 signalling that economic activity is contracting. On average, analysts had forecast a slight decline to 49.6 points.
The situation is even worse in the industrial sector. The sub-index fell by 0.7 points to 42.7, its lowest level in more than three years. Weak external demand is weighing on the sector. Sentiment in the services sector has also deteriorated and is now at its lowest level for six months. The gloomy business outlook and weak new orders suggest that the European economy's slide could accelerate in the coming months, S&P Global experts said.
The economic slump puts the European Central Bank in an uncomfortable position. With inflation in the euro area still well above the central bank's target, it is almost certain to raise interest rates again on Thursday. However, rising rates risk choking off the economy even further.
British business managers are also more pessimistic about the future than they were a month ago. The Purchasing Managers' Index for the UK fell 2.1 points from June to 50.7. This is the lowest reading since January. Economists had expected the index to fall to 52.3. The picture is particularly bleak for the British industry: at 45.0 points, the barometer is well below the growth threshold of 50.
Corporate news in focus: Kühne + Nagel, Lindt&Sprüngli, Logitech, LVMH, SIG Combibloc, UniCredit, Alphabet, Biogen, Microsoft, Unilever, Verizon and Visa with Q2 earnings.
Economic data in focus: Ifo Business Climate Index Germany (10:00 CET), S&P/Case-Shiller Home Price Index US (15:00 CET), US Consumer Sentiment (16:00 CET).
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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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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