The weak September so far is continuing to live up to its reputation as a bad month for equity markets. Investors are torn between concerns about the economy and hopes of an imminent interest rate cut, and yesterday's economic data failed to provide any guidance. At the end of the week, the much-anticipated US employment data for August will be released today, which should provide more guidance, particularly regarding the Fed's monetary policy stance.
Yesterday's economic data from the US provided little guidance for investors. Sentiment in the services sector unexpectedly improved and initial jobless claims fell sharply. In contrast, fewer jobs were created in August than at any time since the beginning of 2021 and the ADP employment growth survey was much weaker than expected. This makes today's US labor market report for August (14:30 CET) all the more important for the assessment of the economic situation and US monetary policy.
New York indices reacted indecisively to the data, with the benchmark Dow Jones index closing 0.5% lower at 40,755.75. The broad market S&P 500 lost 0.3% to close at 5503.41. The Nasdaq 100 technology index gained 0.1% to 18,930.33 after changing direction several times. If today's jobs data does indeed confirm a slowdown in the US economy, the Fed could answer with a significant interest rate cut on 18 September. This would be particularly good news for technology stocks, with investors buying Alphabet, Apple, Meta, Nvidia, Amazon and Tesla in yesterday's trading session.
In the Asia-Pacific region, stock markets fell on Friday on the back of weak Japanese household spending data and ahead of today's key US employment report. Japanese household spending rose 0.1% in real terms year-on-year in July, well below expectations for a 1.2% increase. This was a reversal from the 1.4% decline in June. The weak spending report may limit the Bank of Japan's ability to raise interest rates, although yesterday's strong wage growth figures may offset this.
Japan's Nikkei 225 was down 0.4% and in South Korea the Kospi traded 0.9% lower, while in Australia the S&P/ASX 200 was up 0.4%. The Shanghai Composite was down 0.2%. In Hong Kong, markets remain closed today after the Hong Kong Observatory issued a typhoon warning for Super Typhoon Yagi.
In Europe, the gloomy market sentiment continued. The EuroStoxx 50 lost 0.7% and fell below the 200-day average, which indicates the long-term trend, to 4815.15 points. In Switzerland, too, the seasonal negative trend continued. The Swiss Market Index (SMI) closed 1.2% lower at 12,031.34 points, its low for the day and the third consecutive day in the red.
Corporate news in focus: There is no important corporate news today.
Economic data in focus: Trade balance and industrial production Germany, industrial production France, GDP Eurozone, and US labor market report.
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).
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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