Investors remain cautious. There was little movement on Wall Street yesterday as US stock markets stabilised somewhat. Markets in Europe and Asia remained under pressure. The ISM services purchasing managers index is expected to provide further clues today before all eyes turn to Friday's employment report.
In New York, after a difficult start to the month, the stock indices have calmed down somewhat. There was little movement and the benchmark Dow Jones Industrial Average ended Wednesday's trading session up 0.1% at 40,974.97. The S&P 500 lost 0.2% to 5520.07 and the Nasdaq 100 technology index fell 0.2% to 18,921.40. Investors remained sceptical even after the number of job openings in July fell to its lowest level since January 2021. Tuesday's ISM manufacturing index left investors cautious about an economic slowdown in the US. Today's services sector index is likely to provide further clues before all eyes turn to Friday's employment report.
In the Asia-Pacific region, markets were mixed after yesterday's sell-off, with Japan's Nikkei 225 and South Korea's Kospi among the biggest losers. The Nikkei fell 1.1% after Japanese pay data, which could give the Bank of Japan more room to raise interest rates. In South Korea, the Kospi lost 0.5%. In Australia, the S&P/ASX 200 was slightly higher at 0.2%. The Hang Seng Index traded 0.6% lower and the Shanghai Composite was down 0.1%.
Yesterday, the Bank of Canada cut its benchmark interest rate for the third time in a row since June, by 25 basis points to 4.25%. The cut was widely expected and was justified by the continued easing of overall inflationary pressures.
In Europe, yesterday's purchasing managers' surveys provided an indication of the state of the service sector and, in the eurozone, the manufacturing sector. In the euro area, the purchasing managers' index for the manufacturing and services sectors rose to 51 points in August. The increase from 50.2 points in July was therefore rather small. In the United Kingdom, at 53.7 points, the services purchasing managers' index was above 50 for the tenth consecutive month in August. Readings above 50 signal expansion. Improving economic conditions and domestic political stability have allowed the performance of the UK services sector to recover. The value signals a solid upturn in the services sector but is slightly below the survey's long-term average (54.4). European stock markets remained under pressure. The EuroStoxx 50 lost 1.3% to close at 4848.18 points. In Switzerland, stock markets also fell sharply on concerns about the US economy. The leading SMI index closed 1.4% lower at 12,176.17 points.
Corporate news in focus: There is no important corporate news today.
Economic data in focus: Retail sales Europe, ADP employment change USA, initial jobless claims USA, S&P Global PMI overall index, ISM non-manufacturing USA.
Global economic and market trends at a glance
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Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.
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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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