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LGT Navigator: Dow Jones regains pre-corona crash levels

August 11, 2020

At the beginning of the week, the Dow Jones Industrial climbed to its highest level in just over five months, despite ongoing uncertainties regarding the pandemic and the often troubled relationship between the US and China. The leading US index thus regained the level it had before the corona crash. Investors appear to be pinning their hopes on an agreement on a further corona bailout package in Washington after US President has put Congress under pressure.

Dow Jones regains pre-corona crash levels

On Wall Street, the Dow Jones Industrial climbed +1.3% to 27 791.44 points, its highest level since February 25, when the corona crisis sent international stock markets diving. The market-wide S&P 500 rose by +0.27% to 3 360.47 points, while the technology-heavy Nasdaq 100, on the other hand, was up by just under -0.5% – following a recent record high. Above all, share prices seem to be supported by the prospect of further billions in aid. After the negotiations in the US Congress, i.e. the House of Representatives and the Senate, on a further economic stimulus package to contain the corona crisis had failed, US President Donald Trump had over the weekend levered out Capitol Hill with a presidential decree, thereby initiating quickly needed aid for millions of unemployed people, but also causing a political escalation in Washington. Meanwhile, US President Trump is also expected to discuss a reduction in capital gains tax. 

US-China trade agreement under scrutiny

Less attention, however, was paid to the continuing disgruntlement between the US and China. A first semi-annual assessment of the agreed trade agreement is due at the end of this week. In January, even before Covid-19 spread around the globe, the US and China reached an agreement, thus settling (at least for the time being) the long-running trade dispute. In the wake of the corona crisis, however, China then imported less than a quarter of the US goods agreed for 2020 in the first half of the year. Now the sanctions imposed by the US on the Chinese operators of the video platform TikTok and the messenger WeChat are also depressing the mood. Meanwhile, frustration is growing in Beijing that Washington will keep up the political pressure for electoral reasons. US President Trump seems willing to tighten the screw again during the election campaign.

The positive trend continued on most of the Asian stock exchanges. In Tokyo, the Nikkei index, which comprises 225 stocks, rose by +1.59% to 22 686 points after a long weekend due to the public holidays. In Hong Kong, the Hang Seng Index is +2.46% higher. Solid economic signals from China supported confidence. In China, for example, car sales rose in July at the highest rate since April 2018.

This afternoon, the focus will be on the inflation trend in the US when the figures on producer prices are published. While inflation expectations have already risen significantly since the lows in March, inflation data is unlikely to show any sign of increased price pressures.

Investors bet on recovery of the euro economy

The Sentix business barometer for the euro zone rose in August for the fourth month in a row. Despite the fact that Covid-19 infection figures in many European countries are on the rise again, the sentiment indicator of the German financial analysis firm Sentix improved by 4.8 points month-on-month to minus 13.4 points. Investor confidence strengthened, not least due to the agreement reached in Brussels on a reconstruction fund, which is intended to put the euro economy on a recovery course after the corona shock. According to Sentix, the survey results signaled that the roughly 1000 financial experts and institutional investors surveyed are not afraid of a second wave of corona infection. On the other hand, however, the process of economic recovery is proceeding slowly.

Today we are expecting the latest survey results from the Mannheim-based economic research institute ZEW. A further improvement is also expected.



Economic Indicators August 11

MEZ Country Indicator Last
10:30 UK Unemployment ILO rate (July) 3.9%
11:00 GE ZEW Expectations (August) 59.3
11:00 GE ZEW Current Situation (August) -80.9
11:00 EZ ZEW Expectations (August) 59.6
14:30 US Producer prices (July, m/m) -0.2%
14:30 US Producer Prices (July, y/y) -0.8%
14:30 US Core Producer Prices (July, y/y) +0.1%

Earnings Calendar August 12

Country Corporate Period
US Cisco Systems Q4


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