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LGT Navigator: Geopolitical tensions create additional nervousness

July 24, 2020

Following the closure of the Chinese consulate in Houston, Texas, ordered by the US government, China's leadership has now ordered the closure of the US consulate in Chengdu as a retaliatory measure. This is a further significant deterioration in the relationship, which has already been strained since the trade dispute and the outbreak of the corona pandemic. At the same time, the corona crisis in the US is also worsening and is the dominant issue in the current presidential election campaign. The stock market indices are currently also being burdened by profit-taking, especially in the technology sector.

Diversionary tactics in the US presidential campaign?

With the closure of the American consulate in the city of Chengdu in the southwest of the People's Republic, Beijing is reacting to the recent escalation from Washington and is thus further intensifying the tone in relations between the two  largest economies in the world. Meanwhile, US Secretary of State Mike Pompeo is pushing for more decisive action against China, emphasizing China's unfair trade practices and human rights violations.

On Wall Street, the Dow Jones Industrial fell by -1.31%, closing at 26 652.33 points. The broader S&P 500 fell by -1.23% to 3 235.66 points. In addition to the conflict between the US and China as well as negative data from the US labor market, profit taking in the technology sector was also a focus of attention. Even the better-than-expected quarterly reports from Microsoft and Intel did not help. The Nasdaq 100 lost -2.67% yesterday. Asia's stock markets joined the trend. In Tokyo, the Nikkei 225 Index lost -0.58% this morning.

Diversionary tactics in the US presidential campaign?

It is questionable to what extent the latest tensions have to do with the fact that US President Donald Trump is trying to divert the attention of the media and voters to a different topic because of the worsening pandemic situation in the US and the ongoing election campaign. In the United States, the number of Covid-19 cases rose to four million people, 140 000 of whom lost their lives. According to a recent report by Reuters, it took 98 days to reach the one million infection mark in the USA. Two million were recorded 43 days later and three million 27 days later. The four million mark has now fallen after only 16 more days. According to the latest poll results, US President Trump is clearly behind his challenger Joe Biden in three states known as “swing states“, which are considered decisive for the outcome of the presidential election. A poll by TV station Fox News puts the Democrats in Michigan ahead of Trump by nine percentage points. In Pennsylvania Biden seems to have a lead of around 10 percentage points and in Minnesota Trump is expected to win 38% and Biden 51%.

US labor market continues to send stress signals

The labor market remains under pressure due to the worsening corona situation in the United States. According to the latest data, 1.416 million people applied for unemployment benefits for the first time in the week ending July 18. In the weeks before, the at least moderate decline in applications had been at a high level. The first applications for unemployment assistance are considered an indicator of the current situation on the job market.

Consumer climate in Germany recovers thanks to VAT reduction

The reduction in value-added tax appears to be supporting consumption in Germany in the midst of the corona crisis. According to the latest survey by the Nuremberg-based research institute GfK, the private households surveyed intend to bring forward planned major purchases. Even if the effects are not sustainable, the reduction in VAT represents an important support for domestic demand in the current year, commented GfK. Irrespective of the tax effect, a recovery in the consumer climate is being observed, which, according to GfK, points to a V-shaped recovery in consumption. The consumer climate barometer calculated in the current survey improved from minus 9.4 points to minus 0.3 points for August. The indicator had reached its lowest point in May with minus 23 points as a result of the lockdown. The longer-term mean value is around plus 10 points.

French company more confident again

The mood in the French economy has recovered somewhat thanks to the slow opening of the economy after the corona shock. The business climate index compiled by the national statistics office Insee rose by seven points to 85 points in July. The mood in both the industrial and service sectors brightened. Due to the corona crisis, the authority is currently expecting a slump in gross domestic product of around -9% in the current year.

Economic Indicators July 24

MEZ Country Indicator Last
10:30 UK Retail Sales June (y/y) -13.1%

Earnings Calendar July 24

Country Corporate Period
CH Lonza H1
CH Schindler H1
CH Sulzer H1
UK Tullow Oil H1
US Alphabet Q2
US Verizon Q2
US Nextera Q2
US Schlumberger Q2




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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
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Source: LGT Bank (Switzerland) Ltd.

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