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LGT Navigator: EU deal provides relief, but Corona still creates uncertainty

July 22, 2020

Relief following the agreement on the corona aid package at the EU summit and hopes for a rapid recovery of the global economy, as well as encouraging data on possible Covid-19 vaccines, ensured that the underlying mood on the stock markets remained positive yesterday. While the ongoing development of the coronavirus pandemic remains a major source of uncertainty, investors are now primarily focusing on the quarterly results of large companies, which have been severely impacted by the corona crisis.

 EU deal provides relief, but Corona still creates uncertainty

The aid package put together at the special summit in Brussels to combat the economic consequences of the corona crisis was largely received with relief on the financial markets. The reactions from the EU countries most affected by the pandemic, Italy and Spain, were also positive. Italian Prime Minister Giuseppe Conte expressed his satisfaction with the financial package adopted. Italy is to receive EUR 209bn, of which EUR 81bn will be non-repayable grants, out of the total of EUR 750bn earmarked for crisis management. Spain's Prime Minister Pedro Sanchez also said that the agreement was “a great deal for Europe and Spain“. Spain is to receive EUR 140bn, about half of which will be in grants. Clemens Fuest, head of the Munich-based Ifo Institute, warned that the economic recovery will only work if the countries concerned make considerable reform efforts themselves.

On Wall Street, the Dow Jones Industrial closed with a solid daily gain of +0.6% at 26 840.40 points. In the meantime, the New York leading barometer even recorded a doubled increase. The broader S&P 500 rose somewhat more moderately by +0.17% to 3 257.30 points, but previously recorded its highest level since the beginning of the corona crash in February. By contrast, the technology index Nasdaq 100 closed around -1% lower at 10 833.07 points due to profit-taking. In Europe, the EuroStoxx 50 welcomed the agreement reached in Brussels with relief, closing at 3 405.35 points +0.5% higher yesterday. In Asia, the stock market trend today was rather negative. Sentiment continues to be weighed down by the worrying development of the pandemic, particularly in the United States. US President Donald Trump had to admit that the situation would probably get worse before it got better, and for the first time he called on Americans to wear face masks. In Tokyo, the Nikkei index, which comprises 225 stocks, loses around -0.6%.

Trump's Fed candidates take first hurdle

Judy Shelton, the highly controversial candidate, especially among the Democrats, for a directorate at the US Federal Reserve (Fed), cleared the first hurdle in the ongoing parliamentary proceedings in the Senate Banking Committee yesterday. The economist's nomination was waved through in the committee, which is dominated by a majority of Republicans, by 13 votes to 12. Shelton supported Trump in the election campaign and caused a stir especially with his call for a return to the gold standard. Trump's second candidate, Christopher Waller, also received the green light. The economist is currently the director of research at the Federal Reserve in St. Louis and is considered a close confidant of James Bullard, the head of the St. Louis Fed, who advocates a more relaxed monetary policy. In the event of a successful re-election in November, Trump could later nominate one of “his“ candidates to succeed Jerome Powell, the Fed chief he does not like.  Powell's term of office expires in 2022.

ECB remains capable of action even in the crisis

According to ECB Director Isabel Schnabel, the ECB's reaction to the corona crisis has shown that the central bank has continued to demonstrate its ability to act even after the crisis management that has been going on for years. According to the German central banker, the ECB has a “large and effective monetary policy toolbox“. If necessary, the ECB could continue to adjust the measures or establish new instruments in the future.

Biden wants to score with billion-dollar social program

In the current US presidential election campaign, the Democratic challenger Joe Biden has announced a USD 775bn social program over ten years to cushion the consequences of the corona crisis. In addition to creating jobs in the health and education sectors, Biden's program will also support senior citizens and expand childcare. The Democrats want to finance this by, among other things, withdrawing tax breaks and stricter implementation of existing tax regulations. In current polls, Biden is currently ahead of incumbent Trump.

Economic Indicators July 23

MEZ Country Indicator Last
16:00 US Leading Indicator June (m/m) +2.8%

Earnings Calendar July 22

Country Corporate Period
US Microsoft Q2
US Tesla Q2




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