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LGT Navigator: Fed's Beige Book sees US economy on recovery course with high uncertainty factor

September 3, 2020

The Federal Reserve's Beige Book confirmed investors' hopes for a further recovery of the US economy. At the same time, the latest labor market data from the United States also point to a sustained recovery from the corona crisis, however, the recovery seems to have lost some momentum. Meanwhile, no solution is yet in sight in the fight for the corona rescue package.

The Fed sees US economy on the road to recovery

In its regular economic report, the so-called Beige Book, the US Federal Reserve (Fed) sees progress in the recovery process. The US economy has continued to recover from the sharp downturn in the corona crisis and economic activity has increased in most Federal Reserve districts. However, the pandemic is still causing great uncertainty, which has a negative impact on private consumption and corporate investment. The Fed also sees a further recovery trend in the labor market. Slow growth in employment is being observed in the service sector in particular. The Fed's Open Market Committee (FOMC) uses the Beige Book as a basis for its decisions on monetary policy. The Fed's next interest rate decision – and the last before the elections – is scheduled for September 16.

Tech party on Wall Street continues

On the New York Stock Exchange yesterday, investors' hunt for technology stocks was once again the focus of attention. In the middle of the week, the technology-heavy Nasdaq 100 reached another record high with a daily gain of around +1% – the eleventh record day in the last 13 trading days – and the market-wide S&P 500 also reached a new high with a gain of +1.53%. The Dow Jones Industrial recorded a daily gain of +1.59% and closed at 29 100.50 points. The European stock indices had also benefited from the positive overseas data yesterday, and the German Dax reached its highest level in six weeks on Wednesday. In Asia, the trend continued for the most part, also supported by positive economic data from China. China's service sector, for example, showed growth for the fourth consecutive month, according to the latest Caixin purchasing manager surveys.

Dynamic in US labor market seems to lose momentum

The latest data from US labor market service provider ADP showed that the recovery on the American labor market lost momentum in August. Unlike the official statistics, which are expected tomorrow Friday afternoon, the ADP report only covers the private sector. As a result, although 428 000 jobs were created in the private sector last month, more than in the previous month (+212 000), this was significantly less than the average of one million expected by analysts. The official labor market statistics are expected at the end of the week. The consensus is that 1.39 million jobs were created in August, compared to 1.763 million the month before. Despite the impressive recovery following the broad lifting of the lockdown, around 13 million jobs were nevertheless lost in the US during the corona crisis.

Tough struggle for US corona aid package

In the midst of the corona pandemic and the presidential election campaign, Republicans and Democrats continue to fight over the long-awaited further state aid to combat the corona crisis. According to Nancy Pelosi, speaker of the US House of Representatives, however, major differences remain, particularly over the design of unemployment benefits to cushion the massive job losses during the corona crisis.

Fed still has room for maneuver

Influential economist and member of the Federal Reserve Board of Governors, Lael Brainard, hinted that the Fed might announce further stimulus packages in the coming months in order to lead the US economy out of the corona crisis. Brainard said that the Fed would have to switch stabilization to a more economically stimulating course. The new strategy presented last week by Federal Reserve Chairman Jerome Powell at the Jackson Hole Central Banking Symposium gives the Fed more leeway to support a full and swift economic recovery. The Fed's next monetary policy decision is due on September 16, but the Fed is unlikely to announce any further measures before the elections. Immediately after the election date (November 3), however, the next interest rate decision is due on November 5.



Economic Indicators September 3

MEZ Country Indicator Last
08:30 SZ Consumer Prices (August, y/y) -1.2%
09:15 SP IHS Markit PMI Composite (August)  52.8
09:45 IT IHS Markit PMI Composite (August)  52.5
09:50 FR IHS Markit PMI Composite (August)  51.7
09:55 GE IHS Markit PMI Composite (August)  53.7
10:00 EZ IHS Markit PMI Composite (August)  51.6
10:30 UK IHS Markit PMI Composite (August)  60.3
11:00 EZ Retail Sales (July, y/y) +1.3%
14:30 US Trade Balance (July) -USD 50.7bn
14:30 US Productivity Q2 (ex agrar, q/q) +7.3%
15:45 US IHS Markit PMI Composite (August)  54.7
16:00 US ISM Non-Manufacturing PMI 58.1

Earnings Calendar September 3

Country Corporate Period
SZ Kaba Holding Full Year


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Source: LGT Bank (Switzerland) Ltd.

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US employment growth remains dynamic at the beginning of the year