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LGT Navigator: Trump's corona infection increases uncertainty

October 5, 2020

Although US President Trump is expected to get better and may be able to return to the White House today, Trump's positive Covid-19 test result about four weeks before the presidential election on November 3 is causing even greater uncertainty and unrest. As it is unclear how this may affect the election process or even the voting behavior of Americans, the outcome of the elections is likely to become even more unpredictable and volatility in the capital markets is likely to increase in the near future. The last labor market report before the elections also confirmed that the recovery is continuing, albeit at a much slower pace.

Trumps Corona infection increases uncertainty

On financial markets, the news that US President Donald Trump tested positive for Covid-19 in the middle of the election campaign caused uncertainty and nervousness. Due to the quarantine, Trump will now miss not only the next TV duels against his challenger Joe Biden, but also important election campaign events in three contested US states, especially in the swing state Florida. On the New York Stock Exchange, the indices posted losses again after two consecutive winning days. The US leading index Dow Jones Industrial closed just -0.5% lower at 27 682.81 points. On a weekly basis, however, this resulted in a plus of +1.87%. The broad market S&P 500 closed Friday with a daily loss of -0.93% at 3 348.42 points. The Nasdaq 100 fell even more sharply. Profit taking pushed the technology index down by -2.83% at the end of last week.

In Asia, most stock exchanges opened the new trading week with profits. The news that US President Donald Trump could possibly be released from hospital today was received positively. In Tokyo, the Nikkei Index, which comprises 225 stocks, is about +1.2% higher and in Hong Kong the Hang Seng Index is up by about +1.7%. For the European stock exchange indices, the futures signal a friendly start.

Recovery in the US labor market continues, but with a weakening dynamic

Weaker than expected latest labor market data before the elections in early November show a continued recovery, but at a much slower pace. Thus, 661 000 new jobs were created in September; while analysts had expected an average of 875 000 jobs to be created. Nevertheless, job growth in the two previous months was revised upwards by a total of 145 000. At the same time, the unemployment rate determined in a separate survey fell from 8.4% to 7.9% in September. Although the unemployment rate has thus clearly moved away from the record high of 14.7% at the peak of the corona crisis in April, it remains extraordinarily high in an election year and is therefore not an ace up Trump's sleeve

Americans are becoming more confident

Consumer confidence in the US improved in September, according to the University of Michigan survey results, despite the still difficult pandemic situation. The consumer sentiment barometer rose from 74.1 points in August to 80.4 points, a stronger increase than expected (consensus 79.0). The private households surveyed gave a better assessment of their expectations and their current situation.

Inflation in the eurozone remains negative and puts pressure on the ECB

In the euro area, the rate of consumer price inflation in September was even more negative for the year as a whole. Compared to the same period in the previous year, consumer prices fell by -0.3%. In August, the annual inflation rate was already -0.2%. This was due to the subdued economic situation against the backdrop of the corona crisis, and correspondingly lower energy prices. According to ECB Vice-President Luis de Guindos, the central bank expects inflation to remain negative until the end of the year. This could certainly give the ECB some leeway, or put pressure on the central bank to further expand its already expansive monetary policy.


Economic Indicators October 5

MEZ Country Indicator Last
09:15 SP IHS Markit PMI Composite (September) 48.4
09:45 IT IHS Markit PMI Composite (September) 49.5
10:30 EZ Sentix Investors Economic Outlook (October) -8.0
11:00 EZ Retail Sales (August, y/y) +0.4%
16:00 US ISM Non-Manufacturing PMI (September) 56.5

Earnings Calendar October 6

Country Corporate Period
SZ Aryzta Y


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Source: LGT Bank (Switzerland) Ltd.

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US employment growth remains dynamic at the beginning of the year