Capital markets are eagerly awaiting this week's inflation data from the US and the eurozone. Today sees the release of producer prices in the US and tomorrow, Wednesday, consumer prices will take centre stage. These could be crucial for the Federal Reserve's next moves. As a result, stock market investors were largely cautious at the start of the week.
On Wall Street, trading was quiet at the start of the week. The Dow Jones Industrial ended the day down 0.2% to close at 39,431.51 points on Monday. The S&P 500 was virtually unchanged at 5221.42 points (-0.02%), while the Nasdaq technology index was up by around 0.2%. Electric car manufacturers such as Tesla (+2%), Rivian (+9%) and Lucid (+6%) had a positive impact. This was due to speculation that the US government may raise import tariffs on Chinese EVs to 100% from the current 25%. Apple shares were also in demand. Bloomberg reported that Apple (+2%) was close to a deal to use OpenAI technology on the iPhone. Intel shares were also up more than 2% after the Wall Street Journal reported that the semiconductor company could receive an investment of around USD 11 billion from financial investor Apollo Global Management to help Intel build a factory in Ireland. A surge in Gamestop shares caused even more excitement. They rose by almost 120% at one point and closed more than 70% higher. This was due to speculation about the return of financial analyst Keith Gill, who was partly responsible for the massive share price gains in 2021.
Meanwhile, in the bond market, the yield on ten-year US Treasuries was unchanged at just under 4.5%. The focus now shifts to new evidence of inflationary trends in the US. Producer price data is due this afternoon, followed by consumer price data on Wednesday. After being more persistent than expected in the first three months of this year, US inflation is likely to have been at least somewhat more moderate in April.
Asia-Pacific markets pared early gains on Tuesday after the Dow Jones Industrial Average in New York snapped its eight-day winning streak. In Tokyo, the Nikkei 225 index was virtually unchanged from the previous day's close. Latest data from the Bank of Japan showed that inflation remained stable year-on-year in April, but import prices rose 6.4% year-on-year last month, likely due to the sharp fall in the yen. South Korea's Kospi fell by 0.1%, while the Kosdaq index rose by 0.9%. In Australia, the S&P/ASX 200 fell 0.4% and in Hong Kong the Hang Seng Index was flat after rising 0.6% in early trading. In mainland China, the CSI 300 index also gave up early gains to end the day around 0.1% lower.
Corporate news in focus: Sony, Tencent, Alcon, Bayer, Porsche Holding, Fraport, Hannover Re, Veolia Environnement, Vodafone, Home Depot.
Economic data in focus: Germany Consumer Prices and Retail Sales, UK Unemployment Claims, Switzerland Producer and Import Prices, Spain Consumer Prices, Germany ZEW Economic Sentiment, US Producer Prices.
Global economic and market trends at a glance
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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).
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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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