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LGT Navigator: US Democrats secure power as Washington is rocked by turmoil

January 7, 2021

After the two Democratic candidates won the two remaining vacant seats in the state of Georgia in what was once again an extremely close decision, the Democrats, and with them President-elect Biden, secure full political power. The storm of the parliament in Washington ignited by the still incumbent President Trump shows how irreconcilably divided the US is and how difficult it will be for the future President Biden to unify the country. On the stock exchanges, the shocking images from the US capital caused losses, but investors kept a cool head. 

US Democrats secure power in Washington

Even as the official certification of the election results and thus the confirmation of Joe Biden as president-elect was underway at the Capitol, a rally by incumbent President Donald Trump led to a full-scale riot in the American capital and the storming of Parliament that ended with a sad tally of four deaths. Meanwhile, the session of Congress resumed, however, still some Republican senators seem unwilling to recognize that legitimate election results and prolong the procedure with senseless disruptive maneuvers. Earlier, in the runoff election in Georgia, the Democrats won the two remaining Senate seats, creating a stalemate between the two parties in the Senate. The future US Vice President Kamala Harris will have the casting vote, giving President-elect Biden significantly more leeway. 

On the New York Stock Exchange, the Dow Jones Industrial reached a new record high of 31,022.65 points in the meantime and closed with a solid daily gain of +1.44% at 30'829.40 points, despite the unrest in Washington. The S&P 500 was up +0.57% at 3'748.14 points, but the technology-heavy Nasdaq 100 was down -1.4% at 12'623.35 points. Apparently, many investors fear that the Democratic Senate majority looming after the runoff election in Georgia could lead to heavier taxation and regulation, especially of large tech companies.

Positive news from the corona front – Moderna vaccine shortly before EU approval

The European Medicines Agency (EMA) will approve the vaccine of the US company Moderna in the European Union following the recommendation of the Committee for Medicinal Products for Human Use (CHMP). This gives the EU a second approved vaccine alongside the vaccine from Biontech and Pfizer. In the US, the Moderna vaccine was already granted emergency approval before Christmas.

Fed will stay on expansionary course until substantial progress is made

The minutes (FOMC Minutes) of the Federal Reserve's (Fed) latest monetary policy decision on Dec. 16 showed that the Fed's expansionary stance has broad support in the committee. The goal is to support economic growth and inflation during the corona crisis until “substantial further progress“ is made, he said.

ADP report signals weaker US employment growth

Private sector employment in the United States weakened again at the end of last year. For the first time since last April, payrolls fell by 123'000 in December from the previous month. Analysts, on the other hand, had expected an increase of 75'000 jobs. The still highly tense pandemic situation in the United States seems to be taking its toll. Against this background, the official labor market report from Washington is also expected with great excitement on Friday. In contrast to the ADP report, this will then also include government jobs.

Industrial sector supports recovery in the eurozone

The Purchasing Managers' Index summarized for the private sector by the London-based research institute IHS Markit once again highlighted the divergence between the industrial and service sectors in the euro zone. Although the PMI (composite) rose strongly by 3.8 points to 49.1 at the end of last year compared with the previous month, it remained below the initial estimate of 49.8 and still below the 50 growth threshold. In this context, business sentiment in the services sector remains clouded in view of the tightened corona restrictions, while the recovery in industry seems to be continuing. Germany in particular is in a better position than other euro countries thanks to its strong industrial sector. According to IHS Markit chief economist Chris Williamson, gross domestic product in the euro area is likely to fall again in the fourth quarter of 2020, although not nearly as significantly as during the first corona wave in the second quarter.

 

 

Economic Indicators January 7

MEZ Country Indicator Last
08:00 GE Industrial Orders (December, m/m) +2.9%
10:00 EZ ECB Bulletin
11:00 EZ Economic Sentiment (December) 87.6
11:00 EZ Business Climate (December) -0.63
11:00 EZ Consumer Prices (December, y/y) -0.3%
11:00 EZ Core Consumer Prices (December, y/y) +0.2%
11:00 EZ Retail Sales (December, y/y) +4.3%
11:00 IT Consumer Prices (December, y/y) -0.3%
14:30 US Initial Jobless Claims (weekly) +787,000
14:30 US Trade Balance (December) -USD 63.1bn
16:00 US ISM Non-Manufactruring (December) 58.0

Earnings Calendar January 15

Country Corporate Period
US JPMorgan Chase Q4
US Citigroup  Q4
US Goldman Sachs Q4
US Alcoa

 

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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