Slightly weakening yields on the bond market and positive guidance from Europe as well as solid economic data from China ensured price gains on Wall Street ahead of the weekend. The somewhat weaker US ISM purchasing managers index for the service sector did not influence the mood on markets. This week is likely to focus primarily on Fed Chairman Jerome Powell’s speech before the Finance Committee on Capitol Hill on Tuesday and Wednesday as well as the US labour market report and interest rate decision of the Bank of Japan on Friday.
The Dow Jones Industrial rose 1.17% to 33,390.97 points on Friday, posting a positive balance of 1.7% for the week after rising interest rates previously kept stock markets in check. On Friday, however, the benchmark yield on ten-year US government bonds eased and is now trading just below the four percent mark again at 3.95%. The S&P 500 rose 1.61% to 4,045.64 points and on the Nasdaq the indices rose by about two percent, driven by price gains in tech heavyweights Apple and Amazon. On a weekly basis, the Nasdaq indices thus recorded a solid gain of 2.7%. The decline in the ISM services purchasing managers index in February by 0.1 to 55.1 points had no impact on trading activity in New York. Analysts had expected a sharper decline to 54.5 points.
The start of the week on Asia's stock exchanges was mixed. In Tokyo, the Nikkei 225 rose by 1.2% and in South Korea, the Kospi rose by 0.4%. In contrast, the Hang Seng Index in Hong Kong fell by 0.4% and in mainland China, the Shanghai Composite fell by 0.2% and the Shenzhen Component fell by 0.3%. The focus here was on the annual session of China's National People's Congress, which runs until March 13. At this meeting, state and party leader Xi Jinping will be confirmed for an unprecedented third term as president.
Corporate news today in focus: SNB with annual figures and in the U.S. the industrial supplier Fastenal with its Q2 sales.
Economic data today in focus: Swiss inflation rate February (08:30 CET), Sentix investor confidence March (10:30), Eurozone retail sales January (11:00) and from the U.S. industrial new orders January (16:00).
All about global economic and market trends at a glance
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Editor: Alessandro Fezzi,
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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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