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LGT Navigator: The coronavirus remains the defining issue

February 10, 2020

Stronger-than-expected employment growth underscored the strength of the US labor market and should keep the Federal Reserve on the sidelines. For US President Donald Trump, too, the strong job numbers are a trump card in the ongoing election campaign. On the stock markets, however, concerns about the spread of the coronavirus continue to predominate. Meanwhile, the US Federal Reserve is also warning of the effects of the epidemic on the global economy. Against this backdrop, the stock markets have already recorded losses in New York and this morning in Asia.

Coronavirus

In view of the continuing rise in the number of infections and deaths caused by the coronavirus, the mood on the capital markets remains cautious. According to the Chinese Health Commission, 97 new deaths have been confirmed nationwide. This means that more than 908 people in China have so far fallen victim to the virus. The number of newly detected cases rose by 3,062 to 40,171. Meanwhile, China's central bank announced further measures to support the economy. In addition to interest rate cuts, the Chinese central bank is trying to support companies in the fight against the virus by instructing banks to grant special loans to companies to ensure production.

Continued strong job growth in the USA – Fed Powell speech in view

The US labor market continues to show strength. For example, 225 000 new jobs were created at the beginning of the year, significantly more than analysts had expected at 165 000 on average. Even a minimal increase in the unemployment rate from 3.5% to 3.6% does not dampen the overall positive picture. The US Federal Reserve should feel confirmed by the latest labor market data to refrain from further easing its monetary policy for the time being and to wait and see how the interest rate cuts already implemented affect the real economy. This week, Federal Reserve Chairman Jerome Powell will also be in the spotlight again when he will present his regular report to the US Congress Finance Committee on Tuesday.

US Treasury Secretary warns of negative effects on economic growth

US Treasury Secretary Steven Mnuchin confirmed that the US government has lowered its expectations for economic growth in the current year. The background to this was, on the one hand, the difficulties at the US aircraft manufacturer Boeing due to the flight ban on the 737 Max model and, on the other, the potential impact of the coronavirus epidemic. The growth of the gross domestic product could possibly be less than 3% this year, Mnuchin warned. With regard to the ongoing trade conflict with China, the finance minister said the government was prepared to reduce tariffs on Chinese imports as part of a “Phase 2” agreement. However, Washington still wants to maintain tariffs to encourage China to move on to the next phase of talks.

Record-high German exports, but with less momentum

Although growth in German exports lost momentum last year due to geopolitical uncertainties, Europe's largest economy still posted a new record high. In 2019 as a whole, exports rose by +0.8% year-on-year to EUR 1.327 trillion.

Weak industrial production in European core countries

In Germany, France and Spain, industrial production weakened significantly in December last year. German industrial output literally collapsed by -3.5% compared with the previous month. France also recorded a monthly decline in production of -2.8% in December, the sharpest fall since the beginning of 2018. In Spain total production at the end of the previous year fell by -1.4% in comparison with the previous month, the sharpest fall in just over a year.

New boss to lead Credit Suisse into the next growth phase

Thomas Gottstein, designated Group Chief Executive Officer of Credit Suisse, intends to initiate the next growth phase following the restructuring course of his predecessor. He believes that the bank is in a better position than ever before to achieve significant balance sheet growth, Gottstein said in an interview with Reuters on Friday. Gottstein sees growth opportunities particularly in Asian emerging markets, but also in other emerging markets and in mature markets such as Switzerland and Western Europe.

 

 

Economic Indicators February 10

MEZ Country Indicator Last
02:30 CN Consumer Prices (y/y) +4.5%
02:30 CN Producer Prices (y/y) -0.5%
08:00 NO Consumer Prices (y/y) +1.4%
08:30 SZ Consumer Prices (y/y) -0.1%
08:30 SZ Core Consumer Prices (y/y) +0.4%
08:30 SZ Unemployment Rate (s.a.) 2.3%
08:30 FR Business Climate index 96.5
10:00 IT Industrial Production (y/y) -3.75
10:30 EZ Sentix Economic Confidence Indicator +7.61

Earnings Calendar February 11

Country Corporate Period
GE Daimler Y19
FR Air Liquide Q1

 

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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US employment growth remains dynamic at the beginning of the year