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LGT Navigator: Fed Chair Powell calls for more fiscal policy, while Trump calls off negotiations on the economic stimulus package

October 7, 2020

US Federal Reserve Chairman Powell warned of dramatic consequences if the US did not get the pandemic under control and called for a stronger fiscal policy. At the same time, US President Trump announced that he will break off talks with the Democrats on a new economic stimulus package. Today, the TV duel between Vice President Pence and the Democratic candidate Harris is eagerly awaited. Meanwhile, the current increase in Covid-19 new infections and fears of renewed lockdowns and the difficult negotiations between the EU and the UK are also causing greater reluctance among investors.

Fed Chairman Powell warns against downward spiral and calls for more fiscal policy

Last night US President Donald Trump broke off negotiations with the Democrats on a new economic stimulus package and postponed them until after the elections. Shortly before, US Federal Reserve Chairman Jerome Powell had called for further fiscal policy measures to support the economy in a speech before the National Association for Business Economics. The risk of insufficient support is currently greater than the risk of doing too much, the Fed Chairman warned. If monetary and fiscal policy work together, the economic recovery will be stronger and faster, Powell said, and continued to warn that otherwise the economic recovery could stall again and the US economy could be caught in a downward spiral.

Negative news flow strains nerves on Wall Street - Vice President TV duel in focus

The call by Fed Chairman Powell for more fiscal policy and the contrary, breaking off of negotiations by President Trump on a new economic stimulus package, was not well received on Wall Street. The Dow Jones Industrial closed -1.34% lower at 27 772.76 points and the broad-based S&P 500 also fell by -1.4% to 3 360.95 points. On Asia's stock markets, however, most of the indices held up quite well despite the negative guidance and the news flow from the US, and no uniform trend was apparent. For Europe, the futures signaled a somewhat easier start to trading. Today, the TV debate in Salt Lake City between US Vice President Mike Pence and his Democratic opponent Kamala Harris is now also in the focus of financial markets.

ECB President Lagarde fears slower economic recovery in the eurozone

According to ECB President Christine Lagarde, a second corona pandemic wave could slow down the recovery in the Eurozone. Instead of the hoped-for “V-shaped“ upswing, it is to be feared that the second arm of the “V“ could be a little shakier, Lagarde said. The ECB is hoping for a sustained recovery after the economy in the euro zone collapsed by almost -12% in the second quarter due to the corona crisis. In view of the prospects for further recovery, the central bank had not decided on any further stimulus measures when it made its last monetary policy decision in September. However, Lagarde stated yesterday: “We are prepared to use all available tools to achieve the most effective, efficient and appropriate outcome“. The next Governing Council meeting is scheduled for 29 October.

ECB Chief Economist Philip Lane expressed his concern about the renewed rise in corona infections and the resulting tighter rules in many euro countries. This, he said, represents a new challenge for the economy in the euro zone and for the ECB. In this environment, companies will postpone investments and save private households, warned the ECB chief economist during a speech to the National Association for Business Economists (NABE).

ECB Council member and Spanish central bank president Pablo Hernandez de Cos said in an interview that in view of the Corona crisis, the ECB could well take further measures to support the euro economy. He said that it could not be ruled out that the ECB might increase or extend the large-scale crisis bond purchase program PEPP, depending on the development of the economic situation and the inflation outlook.

US records higher trade deficit

The deficit in the US trade balance widened in August. As the US Department of Commerce reported yesterday, the difference between imports and exports rose more than economists expected, from USD 63.37bn to USD 67.1bn. The consensus was USD 66.2bn. US exports rose +2.2% to USD 171.94bn and imports increased +3.2% to USD 239.04bn.

 

Economic Indicators October 7

MEZ Country Indicator Last
08:00 GE Industrial Production (August, y/y) -10.0%
09:00 SP Industrial Production (August, y/y) -6.4%

Earnings Calendar October 13

Country Corporate Period
US JPMorgan Chase Q3
US Citigroup Q3
US Johnson & Johnson

 

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Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
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