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LGT Navigator: Restrained start to the week expected

August 17, 2020

The ongoing dispute between Democrats and Republicans in Washington over another multi-billion-dollar corona aid package, uncertainties in the US-Chinese trade conflict and mixed economic news from China, Europe and, most recently, the US and Japan are likely to initiate a cautious start to the week. Capital market sentiment continues to be weighed down by the coronavirus pandemic, which seems out of control in the US and South America, and by the rising number of new Covid-19 infections in Europe.

Restrained start to the week expected

The (election) battle between Republicans and Democrats for a further economic stimulus package to cushion the corona crisis is still raging in Washington. In addition, US President Donald Trump is using the conflict in Parliament for his election campaign and is threatening to use his veto if the corona aid package contains funds for the US postal service, for example. This could make it much more difficult to achieve a high level of postal voting in the US presidential elections, which is in Trump's sense. In the meantime, the US and China have postponed the review of the Phase-1 trade agreement agreed at the beginning of the year, which was scheduled for the weekend.

On Wall Street, the indices closed hardly changed on Friday and investor sentiment was marked by a variety of uncertainties. In addition, the US economic data published on Friday brought hardly any new impulses. The Dow Jones Industrial ended the week with a moderate daily gain of +0.12% at 27 931.02 points. This represented a gain of +1.8% over the course of the week. The S&P 500 declined slightly by -0.04% to 3 372.85 points. No uniform trend was observed in Asia this morning. While in Tokyo the Nikkei Index, which comprises 225 stocks, fell by -0.6% to 23 148.68 points, the stock exchanges in Hong Kong and mainland China gained in some cases strongly. Share prices in China were supported by a further injection of funds from the central bank. The injection of the equivalent of around USD 100bn in one-year loans nurtured hopes of a further easing of monetary policy.

Japan's economy shrinks for the third quarter in a row

The Japanese economy collapsed in the second quarter against the backdrop of the corona crisis, recording the sharpest downturn since the data series began in 1980, with GDP falling by -27.8% over the reporting period, projected for the year as a whole, roughly as analysts had expected. This means that the world's third largest economy has shrunk for the third consecutive quarter. Compared to the previous quarter, there was a decline of -7.8%. In addition to the corona pandemic and the associated economic restrictions, the trade conflict between the US and China and the VAT increase in the previous year also had a negative impact.

US retail sales up for third month in a row, but losing momentum

Given the ongoing tense pandemic situation in the United States, the recovery of private consumption also appears to be slowing down again. In July, sales by American retailers were still up +1.2% on the previous month. Analysts had expected a stronger increase of +1.9%. This means that the recovery has slowed considerably, as sales rose much more strongly in May (+18.2) and June (+8.4%) after the massive slump caused by the lockdown.

US consumer confidence stabilizes

The mood of American consumers seems to be stabilizing after the corona shock. According to the preliminary survey results released by the University of Michigan, the consumer confidence barometer climbed to 72.8 points in August from 72.5 the previous month. Analysts had predicted a decrease to 71.0 points. The surveyed private households gave slightly better assessments of their economic expectations in particular, whereas the assessment of the current situation deteriorated slightly. The university explained that the political stalemate in Washington in particular had increased uncertainty for consumers.

The second quarter was a severe blow to the euro economy

The economy in the euro zone literally crashed in the second quarter due to the lockdown in the corona pandemic. According to the second estimate of the statistical office Eurostat, gross domestic product in the period from April to June collapsed by -12.1% compared to the previous quarter. A corona-induced economic slump was observed in all euro countries in the second quarter. While GDP in Spain fell by -18.5% compared to the previous quarter, France's economic output declined by -13.8%. In Italy, GDP fell by -12.4% in Q2. Germany got off relatively lightly with a decline of -10.1%.



Economic Indicators August 17

MEZ Country Indicator Last
14:30 US NY Fed Empire State Manufacturing Index (August) +17.2
16:00 US NAHB-Housing Market Index (August) +72.0

Earnings Calendar August 18

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


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Source: LGT Bank (Switzerland) Ltd.

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