A series of weak economic data initially put markets under pressure on early Monday. An index for New York state manufacturing plummeted while the European Union increased its inflation expectations for this year and next. Later in the day, positive comments from the US president about the talks Republican lawmakers on how to resolve differing opinions on national debt supported equity markets.
The Federal Reserve Bank of New York’s Empire State Manufacturing Survey plunged in May, showing a sharp contraction in business activity. The headline general business conditions index fell 43 points to -31.8 points. Values below zero signal contraction. Nearly half of the survey’s respondents said that business conditions had recently worsened. Business orders also plummeted, according to the survey, coming in at -28 points, or 53 points lower than the previous month. A gloomy sign for the months to come.
In New York, stock markets were supported by positive comments from US President Joe Biden, who said he was optimistic that an agreement on the country’s debt level could be reached. The Dow Jones Industrial increased 0.14% to close Monday at 33,348.60 points. The S&P 500 gained 0.30% to finish the day at 4,136.28 points. The tech-heavy Nasdaq-100 jumped 0.55%, ending the session at 13,413.51.
In Europe, the European Commission raised on Tuesday its outlook for inflation in the euro area. It now expects consumer prices to increase by 5.8% in 2023 and 2.8% in 2024. That is 0.2% and 0.3% higher than its previous projections made. The EU’s executive branch also increased its gross domestic product forecasts for the euro area slightly to 1.1% and 1.6% in 2023 and 2024, respectively.
Swiss Producer and Import Price index rose by 0.2% in April when compared to the previous month, or 1% when compared with April of 2022. Producer prices were 1.9% higher than in April last year, while import prices were 0.9% lower. Prices for machinery drove the higher producer prices alongside electrical equipment and measuring and testing equipment. Prices for natural resources decreased, including petroleum products, metals and gas.
In Asia, stock markets were trading mixed following a series of economic data from China that failed to meet expectations. Chinese retail sales increased 18.4% and industrial production gained 5.6%. In mainland China, the Shanghai Composite was trading 0.2% lower, and the Shenzhen Component dropped 0.4%. Hong Kong’s Hang Seng Index gained 0.6%. Japan’s Nikkei gained 0.7% and South Korea’s Kospi gained 0.3%.
Corporate news in focus: Earnings figures from Vodafone, Imperial Brands, Home Depot. Annual general meetings at Deutsche Börse, Capgemini, JP Morgan, Tesla.
Economic data in focus: Germany’s ZEW Indicator of Economic Sentiment (11:00 CET), Eurozone gross domestic product and trade balance (11:00), US retail sales (14:30), ECB President Christine Lagarde speaks at an award ceremony for former German chancellor Angela Merkel (16:00).
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
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If this analysis was made available to any issuers mentioned in the publication prior to its distribution or publication, no changes were made to the price or rating after the issuer’s feedback. Important references for Liechtenstein can be found in articles 3 to 6 FinMV [Financial Analysis Market Abuse Ordinance], for Switzerland in the Swiss Bankers Association Directives on the Independence of Financial Research, and for Austria in section 48 BörseG [Stock Exchange Act], the Austrian analysis principles of the Österreichische Vereinigung für Finanzanalyse und Asset Management [Austrian Association for Financial Analysis and Asset Management, ÖVFA] and the Austrian Society of Investment Professionals (ASIP) and the Standard Compliance Code of the Austrian banking sector. A history of all ratings and recommendations is available at your LGT relationship manager.
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Reference regarding valuation rates
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).
Reference regarding share valuation basis: The analysis compiled by LGT Bank (Switzerland) Ltd. are essentially based on secondary research relating to fundamental and quantitative analysis. Generally accepted valuation methods (valuation multiples, return figures, sector comparisons, comparisons with past valuations etc.) are used for this. The forecasts for the quantitative analysis are prepared with the help of mathematical-statistical procedures (see statements above concerning the analysis tool “theScreener”). Economic indicators such as interest rates, currencies, commodity prices and assumptions relating to the economy are included in the overall assessment. The mood of the market also affects the company valuation. Moreover, many of the approaches are based on estimates and expectations that may change quickly and without warning, depending on developments specific to the industry. Therefore, the recommendations derived from the analysis can also change accordingly. The investment judgements generally refer to a period of 6 to 12 months. However, they are also subject to market conditions and represent a snapshot of the situation. They may be achieved more quickly or more slowly or be revised upwards or downwards.
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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All selected third-party funds are subjected to a thorough quantitative and qualitative analysis process prior to inclusion in the LGT FundGuide. Selected third-party funds are also subject to a continuous monitoring process. Austria: Investment decisions should only be made on the basis of the current KIID and valid prospectus following consultation with an expert.
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