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LGT Navigator: US tech giants cannot stabilize fragile sentiment

October 30, 2020

After the severe slumps this week, the mood on the stock markets remains fragile. In Europe, concerns about the economic consequences of the worsening corona crisis temporarily pushed the EuroStoxx 50 to its lowest level since the end of May. While share prices stabilized in New York, the Asian stock markets continued their downward slide towards the end of the week, after the eagerly awaited quarterly results of major US technology companies such as Apple, Amazon & Co.

US technology giants cannot stabilize fragile stock market sentiment

In Asia, most stock indices recorded losses on Friday. The mood was depressed on the one hand by the not fully convincing results of the US technology giants such as Apple, Alphabet, Amazon, Facebook or Twitter, and on the other hand by the ever faster rising Covid-19 case numbers in Europe and the United States as well as the uncertain outcome of the US election. In Tokyo, the Nikkei index, which comprises 225 stocks, is down by around -2%, and in Hong Kong the Hang Seng index is slipping by the same amount. The day before, Wall Street had still shown signs of stabilization thanks to the strong growth of the US economy in Q3. The Dow Jones Industrial closed +0.52% higher at 26 659.11 points and the S&P 500 recovered by +1.19% to 3 310.11 points. The Nasdaq 100 gained +1.87% to 11 350.74 points in the run-up to the quarterly figures of Apple & Co. However, the two major uncertainty factors of pandemic and elections continue to dominate events. On Thursday, the US registered more new corona infections per day than ever before, with 91 000 new infections.

The futures markets indicate a continuing downward trend for the opening of stock markets in Europe. Among other things, the focus will be on the figures for economic development in the third quarter in the major euro countries. For the euro zone, economists are expecting GDP growth in Q3 of +9.6% compared to the previous quarter, following a slump of -11.8% in Q2.

Recovery of the US economy in Q3 only a deceptive glance in the rearview mirror

Following the economic slump in the spring, the US economy grew strongly again in the third quarter. According to an initial estimate, gross domestic product grew at an annualized rate of +33.1% (from a European perspective by +7.4% compared with the previous quarter). However, the expected recovery of the US economy in the third quarter was only a deceptive glance in the rear-view mirror in view of the negative development of the pandemic. At the same time, it was reported that the number of initial applications for unemployment insurance in the week ending October 24 fell significantly. Compared to the previous week, 40 000 fewer applications were reported, namely 751 000. Analysts had expected the number to fall to 778 000. The four-week moving average fell to 787 750, down 24 500 from the previous week, bringing the total number of Americans receiving unemployment benefits to 7 756 in the week ending October 17, down 709 000 from the previous week.

ECB remains on high alert and prepares further easing

As expected, the European Central Bank (ECB) left its key interest rate unchanged at a record low of zero percent, but remains on high alert in view of the tense pandemic situation in Europe, i.e. the ECB is keeping further emergency measures open. ECB Head Christine Lagarde announced further measures for the monetary policy meeting in December. The central bank was already working on a new orientation of monetary policy. Lagarde said that the ECB's entire range of instruments was being reviewed. Until then, the new economic forecasts will allow a more precise assessment of the economic situation and the outlook. On the capital markets, the corona purchase program PEPP is expected to be expanded by around EUR 500bn and its term to maturity extended from mid-2021 to the end of 2021. Currently, the volume amounts to EUR 1.35 trillion.

Meanwhile, composite indices compiled by the EU Commission to assess economic development indicate that the recovery from the corona shock in the spring has lost significant momentum in view of the second wave of the pandemic. The indicator remained unchanged at 90.0 points in October. While the mood of consumers and service companies is clouding over as a result of the corona measures, the recovery in industry, retail trade and the construction sector is still ongoing.

Japan's central bank sticks to its course

The Bank of Japan also left its extremely loose monetary policy unchanged in order to guide the third-largest economy through the corona crisis. According to the central bank, Japan's economic output in the current fiscal year (to March 2021) will decline somewhat more sharply than previously expected in view of the pandemic. A decline in gross domestic product of -5.5% is predicted, instead of the previously estimated -4.7%.

Brazilian central bank keeps key interest rate at record low

The Banco do Brasil unanimously decided to leave its key interest rate at a record low 2%. The scope for further monetary policy easing in the corona crisis is now extremely limited. Brazil is being hit hard by the pandemic and, after the US and India, has the highest number of Covid-19 infections and deaths worldwide.



Economic Indicators October 30

MEZ Country Indicator Last
07:30 FR GDP Q3 (q/q) -13.8%
08:00 GE GDP Q3 (q/q) -9.7%
08:00 GE GfK Consumer Climate (November) -1.6
08:45 FR Consumer Prices (October, y/y) 0.0%
09:00 SZ KOF Economic Barometer (October) 113.8
09:00 SP GDP Q3 (q/q) -17.8%
11:00 EZ GDP Q3 (q/q) -11.8%
11:00 EZ Consumer Prices (October, y/y) -0.3%
11:00 EZ Core Consumer Prices (October, y/y) +0.2%
11:00 EZ Unemployment rate (September) 8.1%
11:00 IT Consumer Prices (October, y/y) -1.0%
12:00 IT GDP Q3 (q/q) -12.8%
13:30 US Personal Income (September, m/m) -2.7%
13:30 US Consumer Spending (September, m/m) +1.0%
13:30 US Core PCE (Inflation) Index (September, y/y) +1.6%
15:00 US Uni Michigan Consumer Sentiment (October) 81.2

Earnings Calendar October 30

Country Corporate Period
SZ Swiss Re Q3
FR Total Q3
NO Novo Nordisk Q3


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Source: LGT Bank (Switzerland) Ltd.

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