The minutes of the last interest rate meeting of the US Federal Reserve (Fed) signalled that the Fed could well consider raising interest rates again, as there were still considerable upside risks to inflation. On Wall Street, an attempt at stabilization failed after the previous day's losses. The view on China continues to cause uncertainty, especially since the rating agency Fitch announced that it is considering a reassessment of the creditworthiness of Chinese government bonds.
The Federal Reserve is leaving the door open for further interest rate hikes. This can be read from the minutes of the last interest rate decision on July 26, published yesterday evening. A further tightening of monetary policy may be necessary to a majority of council members to keep inflation under control. Future steps, however, will depend on the totality of incoming information, the Fed stressed. After the last rate hike, the federal reserve rate is currently standing at 5.25% to 5.50%, its highest level in 22 years.
On the New York Stock Exchange, the Dow Jones Industrial declined 0.52% to 34'765.74 points and the broad S&P 500 fell 0.76% to 4'404.33 points. Intel's stock was the laggard in the Dow, falling 3.6%. The semiconductor company had to cancel the planned billion-dollar acquisition of the Israeli company Tower Semiconductor due to a lack of approvals. On the Nasdaq technology exchange, the Nasdaq 100 index fell 1.07% to 14'876.47 points, its lowest level since late June. Meanwhile, the yield on ten-year US government bonds continues to rise to 4.27%.
Looking at the US economy, the construction sector saw a strong increase in new housing starts in July, up nearly 4% from the previous month. Economists had expected an increase of just 1.1%. On the other hand, housing starts in June had slumped by a 11.7% according to revised data. Building permits presented a weak picture, with a weaker-than-expected decline of 0.1% in July (consensus +1.5%). US industry increased production in July after two consecutive setbacks. On a monthly basis, industrial output in the world's largest economy increased by 1.0% (consensus +0.3%).
In Asia, stock markets extended losses on Thursday after the US central bank's minutes for July showed that inflation concerns persist, which could lead to further rate hikes. Hong Kong's Hang Seng index fell 0.7% and in Tokyo, Japan's Nikkei 225 fell 0.91%. South Korea's Kospi fell 1.38%.
Corporate news in focus: Geberit and Meyer Burger Technology with half-year figures and from the United States Walmart with Q2 figures.
Economic data in focus: Interest rate decision of the Norwegian Central Bank (10:00 CET), Eurozone trade balance June (11:00). From the US initial jobless claims and Philly Fed industrial indicator (14:30) and the leading indicator of the Conference Board July (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
Source: LGT Bank (Switzerland) Ltd.
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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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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
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