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LGT Navigator: Unwavering equity investors sustain stock market rally

August 13, 2020

By mid-week, the positive mood on European stock markets had initially weakened, but then gained considerable momentum again in New York and this morning in Asia. Despite the ongoing controversy in Washington over the new corona aid package, investors seem convinced that an agreement will finally be reached and that the funds will allow the economy to recover. Even the currently worryingly rising Covid-19 infection figures, for example in Germany, have not dampened optimism.

Unwavering equity investors sustain stock market rally

On Wall Street, the Dow Jones Industrial market barometer rose by +1.05% yesterday to 27 976.84, maintaining its level around the 28 000 mark. The broad-based S&P 500 also rose by +1.4% to 3 380.35 points, and is thus back on track towards its record high of around 3 393 points reached on February 19. After the profit-taking of the last few days, the technology-heavy Nasdaq 100 again recorded a strong gain of +2.59% and is now trading at 11 157.72 points. Equity investors are thus unperturbed, as the Republicans and Democrats in the US Congress have so far been unable to agree on the economic stimulus package anticipated by the financial markets. According to the President of the House of Representatives, Nancy Pelosi, the negotiations are currently at an impasse. “We are miles apart,“ she said. The positive trend continued on most of the Asian stock exchanges. In Tokio, the Nikkei 225 gained +1.8%

According to Boston Federal Reserve Chairman Eric Rosengren, the slowdown in economic activity in the US is likely to continue due to the corona measures and consumer reluctance to spend. Rosengren warned that insufficient measures to contain Covid-19 are likely to prolong the economic downturn. Addressing the US Congress, the senior Federal Reserve Chairman said that now is the time for strong fiscal measures.

Increased inflationary pressure in the US in the middle of the corona crisis

Consumer prices in the US rose more strongly than expected in July. Over the year as a whole, the inflation rate rose from +0.6% in June to +1.0%. Economists had expected an average inflation rate of +0.7%. On a month-on-month basis, consumer prices rose by +0.6% in July, driven primarily by higher energy prices. But even without taking energy prices or food prices into account, the core inflation rate rose much more strongly than expected last month, by +0.6% compared with the previous month - the strongest monthly increase since 1991! For the year as a whole, the core inflation rate in July was +1.6% after +1.2% in June - the highest level in four months.

Euro industry recovers somewhat in June

Euro area industry recovered from the corona shock in June, with production up 9.5% month-on-month. This means that industrial production grew somewhat more strongly than analysts had expected with +9.1%. As a result of the corona crisis, production fell by -11.8% in April and by -12.3% in May. On an annualized basis, however, industrial production in June was -12.3% lower (consensus -11.4%).

British economy crashes at record pace due to corona pandemic

Gross domestic product in the UK fell by -20.4% in the second quarter compared with the previous quarter due to the economic standstill caused by the corona crisis. This is the largest decline ever reported by an industrialized country. As the British economy had already contracted in the first quarter, economists are already talking about a recession. With more than 46 000 Covid-19 related deaths to date, the pandemic has hit the UK particularly hard. In its forecasts, the Bank of England expects GDP to fall by a total of -9.5% this year before a recovery sets in in 2021.



Economic Indicators August 13

MEZ Country Indicator Last
14:30 US Import Prices (July, m/m) +1.4%
14:30 US Import Prices (July, y/y) -3.8%

Earnings Calendar August 13

Country Corporate Period
SZ Zurich Insurance H1
SZ Swiss Life H1
SZ Swisscom Q2
GE Deutsche Telekom Q2


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Source: LGT Bank (Switzerland) Ltd.

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