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LGT Navigator: Fed remains on high alert

July 30, 2020

The Federal Reserve confirmed its expansive monetary policy course in the midst of the still worsening corona crisis in the United States. The Fed also sees first signs that economic momentum is already slowing after a brief recovery phase. Against this backdrop, the central bank has kept its key rate close to zero and is keeping open the option of further expanding its emergency lending.

Fed remains on high alert

Fed Chairman Jerome Powell again issued an urgent warning about the serious consequences of the corona crisis for the US economy and reaffirmed its commitment to support an economic recovery with all available measures. The Fed is thus keeping the door open for further action. As expected, the Fed funds rate remained unchanged at 0.00 to 0.25 percent and the decision was unanimous in the Monetary Policy Council (FOMC). In addition, the Fed will continue to buy USD 80bn and USD 40bn of mortgage securities per month or increase them if necessary. Looking ahead, Fed President Powell said that the further development of the US economy will depend heavily on the course of the pandemic. In the medium term, the crisis would pose considerable risks and the labor market as well as inflation would be heavily burdened in the near future.

Corona pandemic has the US firmly in its grip

The USA now has around 4.4 million Covid-19 infections and 150 000 deaths, more than anywhere else in the world. The rising number of infections and the partially re-established countermeasures are also increasingly weighing on consumer sentiment, jeopardizing the hoped-for economic recovery. In order to lead the economy out of the crisis, Republicans and Democrats in Washington are wrestling in Congress for a new aid package worth at least one trillion US dollars.

On Wall Street, investors reacted positively to the Fed's monetary policy decision and the Dow Jones Industrial rose by +0.61% to 26 539.57 points. The broad market S&P 500 even gained +1.25% and closed at 3 258.44 points, while the Nasdaq 100 closed at 10 662.98 points, up +1.24%. The Tokyo stock exchange initially showed a mixed picture today. The Nikkei Index closed at 22 367.90 points shortly before the end of the day, a moderate minus of -0.13%. The focus today is on the preliminary figures on economic development in the US. Economists forecast an annualized decline of more than -30% in the second quarter compared to the previous quarter.

Eagerly awaited Tech quarterly results

Today, investors are eagerly awaiting the quarterly results of major technology stocks such as Apple and Google (Alphabet), some of them after the close of trading. In particular, the effects of the Corona crisis on the course of business and the outlook for the coming months could also be decisive for the further trend on the international stock markets. 

German economy on the upswing

According to estimates by the Berlin-based economic research institute DIW, the German economy appears to be recovering from the massive slump in the corona crisis and could already show growth of around +3% again in the third quarter thanks to the easing of restrictions. The signs are clearly pointing to recovery, but despite the strong growth that has now returned, it will probably take two years to make up for the historic slump in spring, commented DIW Economic Director Claus Michelsen.

Japan's rating outlook lowered

Against the background of the Corona crisis, the rating agency Fitch has lowered the outlook for Japan from “stable“ to “negative“. However, the credit rating was left unchanged at “A“. According to Fitch, the economy is not expected to recover before the end of 2021 at the earliest.

Economic Indicators July 30

MEZ Country Indicator Last
08:00 GE GDP Q2 (q/q) -2.2%

Earnings Calendar July 30

Country Corporate Period
SZ Credit Suisse H1
SZ Holcim H1
SZ Nestlé H1
SZ Clariant H1
SZ Bucher Industries H1
GE Fresenius Q2
GE Volkswagen Q2
FR Danone H1
FR Air Liquide H1
FR Total H1
FR L'Oréal H1
NL Royal Dutch Shell H1
BE Anheuser-Busch Inbev H1
IT Eni H1
SP Telefonica H1
UK Lloyds Banking H1
UK RSA Insurance H1
US Apple Q3
US Alphabet Q2
US Gilead Sciences Q2
US Procter & Gamble Q4




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Source: LGT Bank (Switzerland) Ltd.

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