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LGT Navigator: Economic worries and WTO ruling put stock markets under pressure

October 3, 2019

After the surprisingly negative signal from the ISM Purchasing Managers' Index, the latest data from the US jobs market failed to dispel investors' fears about the economy. Stock markets around the world came under pressure in the middle of the week. In addition, the trade conflict between the US and Europe is now coming into focus again.

The report by ADP (Automatic Data Processing) showed that American companies created 135,000 new jobs in the private sector in September. Although job growth remained relatively solid, it was lower than analysts' average expectations. Moreover, the increase in the number of jobs in the previous month, at a revised 157,000, was significantly lower than initially reported at 195,000. The ADP employment figures are based on a survey of around 400,000 US companies with around 23 million employees and are regarded as an indication of the official labor market report from Washington, which was eagerly awaited on Friday.

The World Trade Organization (WTO) in Geneva granted the US the right to impose USD 7.5bn per year in punitive tariffs on EU imports following years of illegal EU subsidies to aircraft manufacturer Airbus. In an initial reaction, the EU Commission warned that US punitive tariffs were counterproductive and that both sides should try to reach a fair agreement. The US and Europe have been arguing at the WTO for 15 years about the billions in government subsidies for Airbus and Boeing.

After the Dow Jones Industrial Index on Wall Street dropped by nearly 600 points at times, the downward trend on the Asian stock markets continued today. In Tokyo, the Nikkei 225 and the Topix each fell by around 2%, additionally burdened by the strengthening yen. The focus was on export-driven sectors such as electronics manufacturers and carmakers.

German economic research institutes correct their growth forecasts

The leading German economic research institutes are much more pessimistic in their autumn forecasts published yesterday than in spring. In the new autumn report, economists expect GDP growth of +0.5% for 2019, compared with +0.8% in the spring forecast. The institutes also significantly lowered their forecast for 2020 and now only expect growth of +1.1% (previously +1.8%). The background for the more cautious estimate is above all the noticeable weakening or recession in industry as a result of the ongoing trade conflict. Responsible for the weak development are the declining global demand for capital goods, which the German economy specializes in exporting, political uncertainty and structural changes in the automotive industry. However, even though the economic downside risks are currently high, the institutes do not currently expect a broad economic crisis. The German Institute for Economic Research (DIW), which was in charge of the joint forecast, commented that the German economy is currently still expanding at all, primarily due to the continuing buying mood of private households, which is supported by the good wage settlements, tax relief and expansion of state transfers.

KOF autumn forecasts: Swiss economic environment has deteriorated

In view of the more fragile global outlook, the Economic Research Centre (KOF) of ETH Zurich has revised its growth forecasts for the Swiss economy for 2019 and 2020 downwards. For the current year, the KOF still expects gross domestic product (GDP) to grow by +0.9% compared to the previously forecast +1.6%. It has also lowered its growth forecast for 2020 to +1.9% after +2.3% so far. In recent months, the international environment for the Swiss economy has deteriorated further and, in addition to the unresolved trade dispute between the US and China, protectionist measures by the US against the EU are also threatening. The KOF also expects continued appreciation pressure on the Swiss franc. After a further interest rate hike by the ECB, the SNB will cut interest rates even lower into negative territory before the end of the year.

SNB reaffirms its negative interest rate policy

The Swiss National Bank (SNB) sees the need for negative interest rates against the background of continuing geopolitical uncertainties – above all the trade conflict and the Brexit – and the resulting increased danger of an appreciation of the Swiss franc. Negative interest rates are “absolutely necessary and essential” for Switzerland, commented SNB Board Member Andrea Maechler. How long the SNB would have to hold on to the negative interest rates is currently difficult to estimate.

Economic Indicators October 3

MEZ Country Indicator Last
09:15 SP Markit Composite PMI 52.6
09:45 IT Markit Composite PMI 50.3
09:50 FR Markit Composite PMI 51.3
09:55 GE Markit Composite PMI 49.1
10:00 EZ Markit Composite PMI 50.4
10:30 UK Markit Composite PMI 50.2
11:00 EZ Retail Sales (y/y) +2.2%
15:45 US Markit Composite PMI 51.0
16:00 US ISM Non-Manufacturing PMI 56.4
16:00 US Durable Goods Orders (m/m) +0.2%

Earnings Calendar October 8

Country Corporate Period
SZ Aryzta Y



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Source: LGT Bank (Switzerland) Ltd.

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Redaktion: Alessandro Fezzi, +41 44 250 78 59, E-Mail:
Quelle: LGT Bank (Schweiz) AG
Core Personal Consumption Expenditure
MEZCountryIndicatorLast08:00DERetail Sales (y/y)-1.7%08:45FRConsumer Prices EU Harmonized (y/y)1.4%09:00ESGDP (y/y)2.4%09:55DEUnemployment Rate5.0%11:00EUGDP (y/y)1.2%11:00EUCore Consumer Prices (y/y)1.1%11:00EUUnemployment Rate7.5%11:00ITConsumer Prices EU Harmonized (y/y)0.8%12:00ITGDP (q/q)0.12%14:15USADP Employment Report102k20:00USFederal Funds Target Rate2.5%