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LGT Navigator: Coronavirus halts stock market rally

February 13, 2020

After stocks in Europe and on Wall Street rose sharply due to hopes of an early end to the coronavirus crisis in China, this morning's stock market rally in the Asian trading centers has already slowed down again. Fears of a further spread of the coronavirus – the so-called “COVID-19” virus – and its negative consequences for the global economy have faded into the background, but now fears of a further spread are once again predominant. The Fed is also concerned about this. Today, US inflation data and a number of important corporate results, such as Credit Suisse and Nestlé, will be the highlights.

Coronavirus halts stock market rally

An additional detection method for the coronavirus using computer tomography led to a sharp upward revision of infection figures in China. The number of newly detected coronavirus deaths in China in Hubei province, which is particularly badly affected, has more than doubled compared to the previous day. The number of newly detected infections there has even almost increased tenfold. As a result, the stock exchanges in Asia were unable to follow up on the positive developments from overseas.

Fed expects negative effects from virus epidemic

US Federal Reserve Chairman Jerome Powell stressed yesterday during the second part of his semi-annual hearing before the US Parliament that negative effects of the coronavirus crisis on China's economy will be considerable and may also leave their mark on the US economy. In particular, the interruption of supply chains is likely to play a significant role, but also that US exports to the People's Republic will be affected. According to Powell, however, it is too early to judge whether this will lead to a fundamental reassessment of the economic outlook.

Today at 14:30 (CET), stock exchange traders will be eagerly awaiting the latest data on US consumer prices in January. In December the inflation rate in the USA was +2.3% year-on-year. Economists had expected a slightly higher inflation rate of +2.4% at the beginning of the year.

Credit Suisse unable to meet profit expectations despite strong quarter

Although Credit Suisse more than tripled its net profit in the final quarter of 2019 to CHF 852m, it still fell short of market expectations (consensus CHF 968m). Investment banking in particular was weak on the one hand, and high costs on the other hand put pressure on the result. Revenues rose more strongly than expected by +29% to CHF 6.19bn. Credit Suisse intends to increase the dividend for 2019 to CHF 0.28 per share, in line with the plan to increase the distribution by at least 5% annually. The bank remained cautiously optimistic about the outlook for the current year.

A look in the rear-view mirror shows weak industrial production in the euro zone

Industrial production in the euro zone weakened again at the end of 2019. According to data released by Eurostat yesterday, the statistical office, production declined by -2.1% month-on-month, the sharpest decline since February 2016. In particular the production of capital goods, which is considered an important barometer of the economic situation, declined by -4%. In 2019 as a whole, industrial firms in the euro area produced -1.7% fewer goods than in 2018, partly due to the uncertainties surrounding the trade conflict and Brexit.

China remains Germany's most important trading partner

Exports and imports combined, China remains Germany's most important trading partner. Together, the two countries exchanged goods with a volume of EUR 206bn in 2019, as reported by the news agency Reuters. Imports from China rose by +3.4% to EUR 110bn, making the People's Republic responsible for the largest share of imports into Germany. The USA remained the German economy's largest export customer. Exports rose by +4.7% last year to just under EUR 119bn. The second most important customer for German exports is France, where exports rose by +1.4% to EUR 107bn. Exports to China rose by +3.2% in 2019 and amounted to EUR 96bn. The biggest imbalance in Germany's trade balance is with the USA. Exports exceeded imports by more than EUR 47bn, with German exports to the USA growing much faster than imports from the USA. Although the surplus was thus around EUR 1.5bn lower than in 2017, this imbalance is likely to be a thorn in the White House's side. As soon as the US and China reach an agreement on the trade dispute, US President Trump is likely to turn his attention more towards Europe again in the area of trade.

Sweden's central bank without need for action

The Riksbank unanimously decided to leave its key interest rate unchanged at zero percent and reaffirmed a stable monetary policy course over the longer term. This was after the central bank became the first major central bank to end its negative interest rate policy at the end of 2019, raising the key interest rate by a quarter of a percentage point. Both the Swedish economy and the global economy had developed in line with its own forecasts, the central bank commented.

New Zealand's central bank also leaves key interest rate unchanged

The Central Bank of New Zealand currently sees no need to adjust its monetary policy. The key interest rate thus remains at a record low of +1.0%. As long as the coronavirus does not have an unexpectedly strong impact on the development of its own economy, a rate cut is not necessary. As a result of the central bank decision, the New Zealand dollar (NZD) appreciated against all major currencies.



Economic Indicators February 13

MEZ Country Indicator Last
08:00 GE Consumer Prices (y/y) +1.6%
14:30 US Consumer Prices (m/m) +0.2%
14:30 US Consumer Prices (y/y) +2.3%
14:30 US Core Consumer Prices (y/y) +2.3%

Earnings Calendar February 13

Country Corporate Period
SZ Credit Suisse Y19
SZ Clariant Y19
SZ Zurich Insurance Y19
SZ Syngenta Y19
UK Barclays Y19
US Duke Energy Q4



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