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LGT Navigator: Markets and investors in a demanding field of tension

August 14, 2020

The prospect of further massive economic stimulus packages, a continued expansionary monetary policy by the major central banks and hopes of a rapid recovery of the global economy from the corona shock remain the main drivers for the stock markets and ensured that some indices were able to recover their corona-related losses. Concerns, on the other hand, are the rising numbers of Covid-19 infections in European countries and the still tense pandemic situation in the United States and South America. As is often the case, equity markets and investors have to operate in a challenging environment.

Markets and investors in a demanding field of tension

US stock indices mostly fell after the recent gains yesterday. The Dow Jones Industrial lost -0.29% to close at 27 896.72 and the broad S&P 500 dropped -0.17% to 3 373.43. The Nasdaq 100 ended the day after its recent record high with a gain of +0.19% at 11 178.37 points. Among the individual stocks yesterday, network equipment provider Cisco stood out, which disappointed market expectations with its forecast for the current quarter. As a result, the shares dropped by around -11%. Overall, stock market sentiment in New York was weighed down by the continuing lack of progress in the ongoing but extremely tough negotiations on a further US corona aid package.

US government bonds yesterday had their worst week in months after the attempt to sell a record amount of 30-year Treasuries was met by weak investor demand.

In Asia, the latest economic data from China dampened investor sentiment, and many indices showed no clear direction. For example, retail sales in China surprisingly declined in July. Compared to the same period last year, retail sales fell by -1.1%. Analysts had expected a moderate increase. At the same time, China's industrial output rose by +4.8% for the year as a whole in July, although it fell slightly short of economists' expectations of +5.1%.

US government takes positive interim stock of the US trade conflict

Larry Kudlow, Senior Economic Advisor to US President Donald Trump, struck a conciliatory note with regard to relations with China. The US government is likely to take a positive interim view of the trade agreement signed with China in January and is satisfied with the way China is increasingly meeting its obligations to purchase US imports, Kudlow said. On Saturday, trade delegation leaders will hold a videoconference to review the implementation of the Phase 1 agreement for the first time on a six-monthly basis. In recent months, relations between the two countries had again deteriorated dramatically.

US labor market on the road to recovery

The number of weekly registered initial applications for unemployment insurance fell below the one million mark for the first time since the outbreak of the pandemic in March. According to data released by the US Department of Labor in Washington, the number of applications on a seasonally adjusted basis fell by 228 000 to 963 000 in the week ending August 8 from the previous week, significantly less than analysts had expected at 1.1 million. In total, 15.486 million people received unemployment benefits on August 1st, 604 000 fewer than the week before.

VAT cut pushes German inflation into negative territory

Consumer prices in Germany fell by -0.1% year-on-year in July for the first time in just over four years. The last time annual inflation was negative was in April 2016. On a monthly basis, the cost of living in Europe's largest economy fell by -0.5% last month. In order to boost consumption during the corona crisis, the German government cut VAT from 19% to 16% and from 7% to 5%, respectively, for six months from July 1.



Economic Indicators August 14

MEZ Country Indicator Last
11:00 EZ Trade Balance (July) +EUR 8.02bn
14:30 US Retail Sales (July, m/m) +7.5%
14:30 US Non-Farm-Productivity (July, q/q) -0.9%
15:15 US Industrial Production (July, m/m) +5.4%

Earnings Calendar August 18

Country Corporate Period
SZ Geberit Q2
US Home Depot Q2
US Walmart Q2


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