The US economy grew at a much faster pace than expected in the second quarter of the year, data released on Thursday showed. European stock markets were down across the board and the rotation out of US tech stocks continued. Meanwhile, Asian equity markets were mostly bouncing back on Friday. Gold was set to make a weekly loss, trading around USD 2370 ahead of Friday’s US personal consumption expenditures data and oil was likely to log a third straight weekly loss.
US gross domestic product (GDP) grew at an annualised rate of 2.8% in the second quarter when compared with the same period a year earlier. That was much stronger than economists had forecast and marked an improvement from the 1.4% growth rate in the first quarter. The solid growth comes despite are signs of slowing consumption and concerns in the labour market, with lay-offs increasing and the unemployment rate above 4%. Markets expect the Federal Reserve (Fed) - which had raised interest rates to a 23-year high of 5.25 to 5.5% in response to inflation shocks - to cut rates at least twice by December.
Hot US economic growth wasn’t enough to prop up stocks on the Nasdaq on Thursday as small and mid-cap stocks continue to outpace tech giants in New York trading. The Dow Jones Industrial gained 0.2% and the S&P 500 closed 0.5% lower. The tech heavy Nasdaq-100 dropped 1.1%. After STMicroelectronics cut its guidance on Thursday, other chip-related stocks were among the Nasdaq’s biggest losers, including Arm Holdings, AMD, ON Semiconductor and Qualcomm.
In Tokyo, the Nikkei 225 was trading roughly flat after inflation data showed prices in the capital city increased modeately to 2.2% in July from 2.1% in June. Inflation in Tokyo is considered to be a leading indicator of national inflation. The Japanese yen was stable on Friday, trading around 154 versus the US dollar after strengthening versus the greenback most of the week. In South Korea, the Kospi was up 0.9% and Australia’s S&P/ASX 200 gained 0.8%. Hong Kong's Hang Seng Index was trading 0.2% higher, while the CSI 300 was essentially unchanged from the previous session’s close.
The ifo Business Climate Index for Germany dropped to 87.0 points in July from 88.6 in June, marking a considerable decline in business sentiment across sectors. Both manufacturing and services contributed to the decline as did the climate for trade and construction. Manufacturing capacity utilization has fallen to 77.5%, six percentage points below the long-term mean. Germany’s DAX closed 0.5% lower on Thursday and the Euro Stoxx 50 lost 1.1%.
Corporate news in focus: Quarterly figures from Holcim, BASF, Air Liquide, Mercedes-Benz, Bristol-Myers Squibb, Mastercard and Eni.
Economic data in focus: Bank of Russia interest rate decision, US personal consumption expenditures and University of Michigan Consumer Sentiment Index.
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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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.
Country-specific information
LGT funds: The current full prospectus, the Key Investor Information Document (KIID) and the current annual and semi-annual reports can be obtained free of charge from the fund administrator and from the following addresses: Liechtenstein: LGT Bank Ltd., Herrengasse 12, FL-9490 Vaduz and as an electronic version at www.lafv.li; representative for Switzerland: LGT Capital Partners Ltd., Schützenstrasse 6, CH-8808 Pfäffikon; main distributor and paying agent for Switzerland: LGT Bank (Switzerland) Ltd., Lange Gasse 15, CH-4002 Basel; paying agent in Austria: Erste Bank der österreichischen Sparkassen AG, Am Belvedere 1, A-1010 Vienna.
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